Industrial Location and Path Dependency during the British Industrial Revolution

The Location of the UK Cotton Textiles Industry in 1838: a Quantitative Analysis

by

Nicholas CRAFTS (n.crafts@warwick.ac.uk)  University of Warwick

Nikolaus WOLF (nikolaus.wolf@wiwi.hu-berlin.de) Humboldt University

ABSTRACT

We examine the geography of cotton textiles in Britain in 1838 to test claims about why the industry came to be so heavily concentrated in Lancashire. Our analysis considers both first and second nature aspects of geography including the availability of water power, humidity, coal prices, market access and sunk costs. We show that some of these characteristics have substantial explanatory power. Moreover, we exploit the change from water to steam power to show that the persistent effect of first nature characteristics on industry location can be explained by a combination of sunk costs and agglomeration effects.

URL:  http://econpapers.repec.org/paper/heswpaper/0045.htm

Review by Anna Missiaia

This paper was distributed by NEP-HIS on 2013-09-13. Nick Crafts and Nikolaus Wolf, who have both provided significant contributions to the literature on industrial location, engage here in the analysis of the UK cotton textile industry. In particular cotton production during the Industrial Revolution was heavily concentrated in Lancashire, the region just north of Manchester. Moreover, this concentration persisted over the 19^th century. The two authors are therefore interested in explaining both the original concentration and its persistence throughout time.

The paper presents a solid statistical work. The dataset comprises 1823 cotton mills and covers 148 locations in all of the UK. To explain the employment in textiles across these locations, the authors use information on coal prices, geography, climate and access to markets. All these measures are specific to each location and region fixed effects are included to avoid the omitted variable bias. Firms are assumed to be profit maximizers in their location decisions. The factors that influence the location decisions are considered into two broad groups: the “first nature” characteristics, which are considered exogenous to earlier location choices (i.e. climate) and the “second nature” characteristics which are endogenous (i.e. access to markets). Crafts and Wolf separate these two elements because they are interested in identifying the case of location choices that eventually modify the characteristic of the location itself (in particular market access).

They reckon that access to market can be so important that the cotton industry remained in a location in spite of higher variable costs because these were outweighed by better access to markets. Another way in which past choices can affect current choices is through sunk costs: once an investment in energy production was made in one location, it could hardly be moved to another location. However, it could often be adapted to new technology. The example provided is the switch from water to steam power, during which waterwheels were adapted to steam. This allowed some location that at that point did not have a fist nature advantage, to maintain their industries through path dependence.

Hibert, Platt & Son’s cotton machines.  Illustrated London News, 23 August 1851. 

On the empirical side, the paper uses a Poisson model to estimate the expected number of cotton mills and employed persons for each location as a function of the characteristics of the locations. The main findings are that water power production and number of patents registered increase the likelihood of location; coal prices had a surprisingly weak effect; agglomeration forces had a positive effect on the number of persons employed but a negative effect of the average size of the mills, suggesting that cotton industry was organized in a network of small specialized mills. This is confirmed by anecdotal evidence on Lancashire’s cotton industry. The authors also provide several robustness checks on their data to support their claims.

The paper then moves on to discussing why Lancashire achieved such a high concentration of cotton industries. The two authors explain that the high concentration was the result of a combination of first and second nature geography. To prove this statistically, Crafts and Wolf perform a counterfactual analysis in which they replace each characteristic with the average value of the UK and then impose a 10% change in the variables to compare their effect individually. Doing so, they come up with a “conversion table” that tells us what variation of the x variable is needed to offset a 10% variation of the y variable. The main results are that the location choices were driven both by first nature characteristics such as water power and second nature characteristics such as market access. The persistence of the location is liked to sunk costs and agglomeration economies, which allow some regions to maintain their industries in spite of the original advantage being vanished.

An image of the Lewis Textile Museum in Blackburn, Lancashire.

To conclude, the contributions of this paper are several. First, it makes for the first time use of statistical techniques to explain the location of cotton industries, which were crucial during the British Industrial revolution. Doing so, it contributes to the wider debate about the determinants of the location of industries in general, proposing a methodology based on counterfactuals which allows to compare the relative strenghts of the different factors. Finally, the paper adresses the always ‘hot issue’ of path dependency in location choices, which is faced by any researcher in this particular field. The next step in the research, to which we look forward,  will be to estimate the model as a panel in order to cast more light on the persistence of location through time.

Managing the Greater East Asia Co-Prosperity Sphere

Strategies and Organizations for Managing “Greater East Asia Co-Prosperity Sphere”

Tetsuji Okazaki (The University of Tokyo)

Abstract: During the World War II, Japan occupied a large part of East and South East Asia, called “Greater East Asia Co-Prosperity Sphere” (Daitoa Kyoei Ken). This paper overviews what the Japanese military authorities and the government did to develop the occupied areas in the 1930s and the early 1940s. It is remarkable that different development policies and organizations were applied across occupied areas. In Manchuria, which Japan occupied earlier, after trial and error, a system of planning and control was introduced. By this system, more or less systematic development of industries was undertaken. Meanwhile, in China Proper, the Japanese military authorities and the government prepared the statutory holding companies as channels for investment from Japan, but industrial development was basically entrusted to those holding companies and individual companies affiliated to them. Finally in South East Asia, development was almost totally entrusted to existing Japanese firms.

URL: http://econpapers.repec.org/paper/tkyfseres/2013cf900.htm

Review by Masayoshi Noguchi

This paper by the leading authority on the history of Japanese wartime economy was distributed by NEP-HIS on September 13th, 2013. It provides a very interesting general overview and understanding of the process behind the formation of the Greater East Asia Co-prosperity Sphere. Thanks to a very thorough and detailed literature review, the paper provides a comprehensive overview of “what the Japanese military authorities and the government did to develop the occupied areas [called Greater East Asia Co-Prosperity Sphere] in the 1930s and the early 1940s” (p. 1); while also summarising and contrasting different approaches taken by the Japanese authorities to the development of Japanese interests in Manchuria, mainland China and South East Asia. Comments are also offered as to the consequences of these different approaches.

Between 1915 and 1945, the Manchurian region was one of the major locations of China’s steel industry. The development of steel industry in that region was closely related to the Japanese invasion of China. Following the establishment of the (puppet) State of Manchuria in 1932, the Japanese government encouraged the formation of iron-steel factories with national capital to help transform Manchuria’s steel industry into a typical export-oriented industry. The main features of the development policy for Manchuria were the establishment of “special corporations” and so called “one industry, one corporation policy”. The five-year industrial plan for the State of Manchuria recognised the need for a business entity to administrate the overall development. It thus encourage the Nissan zaibatsu to form the Manchuria Heavy Industry and Development (MHID) Corporation, which was established in December of 1936. Nissan also took over the management of the Showa Steel Factory and invested in the Benxihu Coal and Iron Company, thereby gaining control over the steel industry in Northeast China. However, the initial plan for the MHID was soon subjected to a major revision as the outbreak of the Second Sino-Japanese War in July of 1938 significantly increased the demand to supply the Japanese military. At the same time, control of the MHID transformed and it became subject of direct control by the state. Later, when the export of steel products to Japan turned out to be less than originally expected, the steel industry ceased to be operated as an export-oriented industry.

The promotion of the economic development of mainland China was based on “the Outline of Measures to deal with the Incident” (p. 4). In order to support this development and attract capital investments from Japan to China, in November 1938 the Japanese government established two entities, namely the North China Development Corporation and the Middle China Promotion Corporation. These two corporations made significant investments to their affiliated companies in the fields of transportation, telecommunication, electricity, and coal mining.

Immediately after the outbreak of the Pacific War in December 1941, “the Outline of Economic Policies in the South East Asia” was promulgated, but in South East Asia, unlike the other two cases, “a policy to develop the local economies in a systematic way was not taken” (p. 7) and the “development was almost totally entrusted to existing Japanese firms” (p. 8).

In summary, Okazaki’s study shows how the formation of Greater East Asia Co-prosperity Sphere was not unique or consistently applied across geographies as it was conditioned with several restrictions. These included geographical terms and conditions of each area to which the Japanese army advanced, the success or failure of the military strategies, the interaction of the military, the state and economic interests as well as the economic terms and conditions of Japan itself. Although it is not easy to agree with a part of description presented by Okazaki (for instance that the advance of the Army into Manchuria was primarily motivated by its own economic concerns (p. 7)), the paper is required reading in order to understand this very important phase of the Japanese wartime economy.

”

Do business historians need a theory of the archive?

Why business historians need a constructive theory of the archive

by Stefan Schwarzkopf (Copenhagen Business School)(ssc.mpp@cbs.dk)

URL: http://EconPapers.repec.org/RePEc:pra:mprapa:46650

Abstract: Archival records are a constitutive element of business historical research, and such research, in turn, is fundamental for a holistic understanding of the role of enterprise in modern capitalist societies. Despite an increasing debate within business history circles about the need to theorize the historian as author and creator of narratives, a fuller reflection on the uses and limitations of the archive in business historical research has not yet taken place. This article takes its lead from theories of organisational epistemology, and asks to what extent business historians are trapped by an outdated, realist methodology and epistemology which is in danger of ignoring the multiple roles that archives play in their knowledge production.

Review by Stephanie Decker

Stefan Schwarzkopf’s paper on business archives (circulated by NEP-HIS on 2013-05-11) is a welcome addition to an increasingly lively debate about the future of business history. Originally published in the Business Archives Journal, it is now also available as an MPRA working paper. Even more refreshingly, it is a theoretical and more qualitatively focused discussion, which have remained rare on lists such as NEP-HIS, which are, as the name (New Economic Papers) suggests, dominated by debates based on the methodological apparatus of economics. In business and economic history, whether historians are quantitatively or qualitatively oriented, archives are central to their research. While business historians, the majority of whom work qualitatively, usually fail to discuss their methods at all, economic historians, mostly quantitatively oriented, provide detailed accounts of their numerical data and analytical procedures. Yet many also employ analysis based on historical sources in order to construct their models or to interpret their results; this aspect of gaining historical insight is however not discussed in methodological terms. The very familiarity of historians with their main research setting – the archive – apparently breeds contempt. Or disinterest at the very least.
This is precisely what Schwarzkopf highlights in his contribution: the need for a “fuller reflection of the uses and limitations of the archive in business historical research”. For this he blames the predominantly realist epistemology of many business historians even though other historians apparently have moved away from this in a variety of turns. Business history has certainly been somewhat divorced from the major trends and theoretical developments in mainstream history, even though this is perhaps less true in some continental European countries, where business historians remain integrated in history departments. More often than not they may be located in a variety of different departments, such as departments of social science or economics, as well as business schools. If business history ought to engage more with theoretical turns, the question today has become – which one? And from which discipline?
Schwarzkopf is certainly right to argue that a theory of the archive is necessary and important for business historians. It is in fact by now a much wider debate already (Ferguson, 2008; Stoler, 2009), and again one to which business historians have not contributed. But in this epistemological debate, even he seems to take too much for granted at times, first and foremost the very object of the debate. What do we think is an archive? “[A]rchives are organisations, they require institutional support.” Are archives really a ‘thing’, something tangible, an organisation, a location? To Michel Foucault archives were first and foremost structures that shaped the material, an approach that Schwarzkopf suggests greater engagement with at the end of the paper. And whatever empiricist historians may think about abstract Foucaultian constructs, in this digital, virtual age this definition is if anything gaining in relevance and reality. Are the two physical and conceptual notions of ‘archive’ mutually exclusive? Arjun Appadurai (2003) reminds us in “Archive and Aspiration” that they might be. He is interested in a very different type of archive, which is a personal locus of memory, identity and belonging for migrant communities. Postcolonial research is faced precisely with this absence of effective organisations that span past and present, thus the kind of archive that Schwarzkopf and many other business historians take for granted.

For business history, this is in fact also a more common issue than one would expect, at least for those who research the history of consumption or small firms in less concentrated industries. There are more theoretical options even for those cases, as the discussion by Newton and Carnevali (2010) shows. Because business historians are frequently dependent on private collection that are not institutionalised like their public counterparts, they have perhaps more in common with postcolonial approaches to a privatised past than they realise, because they are similarly weaving a patchwork that needs to contend with many gaps in the records (Decker, 2013). These issues cannot be neatly packaged into global North and South. What about the CEOs who offer their private papers to researchers? Archives come in increasingly different shapes and sizes. Can we have a theory that does justice to this variety? Or do we need many different theories?
Some of the most recent challenges to a stable notion of ‘archive’, such as digitisation, highlight the complexity of the issues. How does digitisation affect how archives are used, and vice versa? Will it determine what the collection stands for, more so than the entire body of files? Perhaps not a new problem for libraries that contain individual high value items that eclipse the totality of their collection, but certainly a phenomenon that will spread with digitisation. Just consider decisions to digitise parts of archival collections that are of greater public interest, such as World Bank’s digitisation of the Robert McNamara’s files. Faced with the impossibility of digitising an archive as vast as theirs, files of greater relevance to present-day audiences are prioritised, negating the need for people to physically enter 1818 H Street, NW, and engage with the overall collection. Is this a manipulation by the archivists, or is this it the pressure of demand shaping organisational responses?
Clearly neither history nor memory is simply determined by what was kept in the past. Memory is much more powerfully influenced by what the present is looking for in the past. Schwarzkopf highlights the important issue of ‘falsification’ in the example of Elsevier expunging undesirable products from the collection. The artificial boundaries between our knowledge of the past and present that have been taken for granted are called into question by new approaches such as memory studies. Here, history and archives are equated with “storage memory […] an ‘amorphous mass’ of unused and unincorporated memories that surround the functional memory like a halo (Tamm, 2013: 462 citing ; Assmann, 2011: 125).” The area of social remembering ought to be far more prominent in discussions of corporate history, while the theoretical implications of ‘mnemohistory’ still await critical engagement.
So what kind of archive are we talking about? The ground is shifting beneath us as we speak, as the meaning of the word “archive” is changing inexorably. Ask your undergraduate students, who might tell you the Financial Times database is an archive. And why not? “Digital humanities” are gaining ground, and debates about how this will change methodology and theory have just begun. And with technological advances, a postcolonial loss of organisational control is never far. Recent complaints in the UK newspaper the Guardian about the variable cost of archival research do not quite address the long-term impact of historical research via digital camera – that it allows all of us to build personal digital archives, removed from the oversight of institutionalised archivists. Business historians are by no means the only ones affected by these trends. If we ask whether we need a theory of the archive, surely nowadays we must first of all talk about how we define an archive, and whether business historians may actually be dead.

Schwarzkopf is right to criticise the widespread bias towards those easier-to-research, large corporate archives. Funnily enough, so has the more theoretically self-conscious Management and Organizational History (Mills and Helms Mills, 2011). But sometimes he overstates his case, for example when he writes: “If there is no archive that for example allows us to study the involvement of a specific company in arming Nazi Germany, or in exploiting slave labour in the Caribbean, then it has no space in academic discourse.” While clearly intended to be ironic, it is difficult to ignore the massive boom in German business history of the 1990s and 2000s in uncovering the Nazi past of German firms in the aftermath of the scandal surrounding Swiss bank accounts. The history of slavery and Atlantic history more generally has certainly been more significant outside business history (see for example Childs, 2002), but there are business historians engaging with these debates all the same (Haggerty, 2010). Painting the kettle too black detracts from the valid point that we need a greater epistemological engagement with our primary locus of research, the archive.
Not only has this debate been missing, as Schwarzkopf rightly points out, but there are also new approaches to theorizing the archive that go beyond the limitations of a short piece. This paper is one of the first to raise some of these fascinating questions for the practice of business history, and will hopefully spark a debate about the status of archival work in the field.

References

Appadurai, A. (2003) Archive and Aspiration. In: Brouwer J (ed) Information is Alive. Rotterdam: V2 Publishing.
Assmann, J. (2011) Cultural Memory and Early Civilization: Writing, Remembrance, and Political Imagination, Cambridge: Cambridge University Press.
Childs MD. (2002) Master-slave rituals of power at a gold mine in nineteenth-century Brazil. History Workshop Journal 53: 43-72.
Decker, S. (2013) The Silence of the Archives: Postcolonialism and Business History. Management and Organisational History 8: 155-173.
Ferguson, K.E. (2008) Theorizing Shiny Things: Archival Labors. Theory & Event 11.
Haggerty S. (2010) Risk and risk management in the Liverpool slave trade. Business History 51: 817-834.
Mills, A.J. and Helms Mills, J. (2011) Digging Archaeology: Postpositivist Theory and Archival Research in Case Study Development. In: Piekkari R and Welch C (eds) Rethinking the Case Study in International Business and Management Research. London: Edward Elgar, 342-360.
Newton, L. and Carnevali, F. (2010) Researching Consumer Durables in the Nineteenth Century: The Case of the Piano. Business Archives: Sources and History 101: 17-29.
Stoler, A.L. (2009) Along the Archival Grain: Epistemic Anxieties and Colonial Common Sense, Princeton: Princeton University Press.
Tamm, M. (2013) Beyond History and Memory: New Perspectives in Memory Studies. History Compass 11: 458-473.