Gabriel Lambert British 6- Entrepreneurship

Was there a failure of entrepreneurship in Britain in the later 19th century?

Any question about entrepreneurialism in 19th century Britain overlaps with some of
the most intense historical debates about many aspects of the health of the economy.
The extent to which one argues that there was serious economic decline, with the
associated argument that there was a ‘climacteric’ around the 1900s, defines the
parameters of any discussion of entrepreneurial failure – if one rejects the premise of
a ‘climacteric’ then one would not expect a serious degree of collapse in any factor in
the economy. Without engaging fully with the debate, it seems that the level of total
factor productivity growth (one of the clearest general indicators of the application of
technology and the benefits or hindrances of institutions) between 1899 and 1907 of
1.4% only appears low in comparison to the great success of the 1890s of 2.2%.1
There were certainly falling growth rates of GDP per person that need to be explored
– in the period 1870 to 1913 the UK’s annual GDP growth was at 1.0%, almost the
lowest in Europe save the Netherlands and Portugal.2 Therefore, while there is clearly
a relative economic decline to explain, in particular its failure to achieve trend
acceleration3 (with reference to Germany and the USA in particular) one should not
exaggerate its extent and expect to find evidence of great structural failures in Britain
– it remained one of the world’s largest economies, even if its partial hegemony had
been challenged.

With this cautionary note in mind, one can examine the type of entrepreneurial
failures that may have adversely impacted upon the relative growth of the British
economy. These might include but were not exclusively: a failure to adopt the best
available techniques of production such as ring-spinning and automatic weaving in
cotton or the electrification of mines in coal; an underestimation of the import of
science and technical training for personnel which might both increase productivity
and lead to new innovations within the workplace; and an excessive reliance on ‘old’
staple industries such as cotton and iron and resistance to new ventures such as
chemicals, machine tools and electrical engineering.4 But several methodological
traps must also be avoided. Firstly, to draw concrete conclusions, quantitative data on
the whole of the economy must be evaluated – qualitative examples of entrepreneurial
success or failure in specific industries is insufficient as it would lead to an endless
series of anecdotal and unrepresentative case studies and counter-studies.5 But even if
one could quantitatively demonstrate that new technologies were ignored more
regularly by British entrepreneurs than their German or American counterparts it does
not necessarily establish a causal link with British economic decline. The simple order
of establishment is not necessarily a sign of entrepreneurial weakness – the by-
product coke oven was first adopted in Germany, then in Britain and last in the USA
yet few would claim entrepreneurial vigour was therefore inferior in Britain.6 Indeed,
it may be found that by not adopting more ‘advanced’ methods, British industrialists
were actually acting entirely rationally.7 This picture is complicated by the fact that
1
Crafts, N, “Long-run growth” in Cambridge Economic History of Modern Britain, Volume Two p13
2
Ibid p3
3
Nicholas, T “Enterprise and management” in Cambridge Economic History of Modern Britain,
Volume Two p229
4
McCloskey and Sandberg “From Damnation to Redemption: Judgments on the late Victorian
Entrepreneur’ p92
5
ibid pp96-7
6
ibid pp100-1
7
ibid p102
Gabriel Lambert British 6- Entrepreneurship

what might have been individually rational for the specific business might not have
been the same as what would have been collectively rational, which takes one into
arguments about the potential weaknesses of smaller scale companies and fragmented
industries in which the different components were owned by different groups. Thus
the only measuring rod for entrepreneurial failure must be expressed as the money
amount of profit foregone for various action or inaction taken with a mind to both
short term profit maximization, and longer term innovations that would lead, albeit
indirectly, to greater returns.8

In light of the difficulty of compiling a rigorous quantitative account of

entrepreneurialism this essay has a more moderate aim – to take the various charges
of entrepreneurial failure and tackle them as comprehensibly as possible to determine
whether the ‘damnation’ should be leveled at the entrepreneurs themselves, or they
should be ‘redeemed’ or even praised as having done the best within the constraints of
the economy.9 One of the most important accusations rests on the charge that new
innovations and techniques were not adopted by British manufactures rapidly, giving
their competitors a lead in productivity. For instance, the unwillingness of the
Lancashire cotton entrepreneurs to switch to ring spinning over the outdated mule
spindles (only 19% of all spindles were ring spindles on the eve of the First World
War in Britain to the USA’s 87%) and of most railway companies to abandon smaller
and less efficient coal cars are both identified as indications of a wider resistance to
technological change.10 Yet, in both of these cases it is possible to demonstrate that
the entrepreneurs concerned were acting rationally. Various causes have been given
for the reliance on mule spindles – the comparatively inferior stability of demand in
the British market, the industry’s emphasis on finer grades of cloth and the relative
abundance of skilled labour in the dense co-locations of spinning and weaving in
Lancashire towns were made supply-side technical change less appealing.11 In the
case of the coal cars the problem was more to do with interrelatedness – to replace the
small cars would also have necessitated a replacement of the sidings, loading
equipment and tracks that had been designed to accommodate the smaller cars, a
massive investment that was not even centered on a single economic unit. The
collieries owned the cars while the railways owned the sidings.12 It was in neither the
collier’s nor the railway’s interest in terms of their aim to maximize profits to replace
such a large quantity of physical capital.

Several general ideas can be extracted from these examples. The British industrial
sector was, for the most part competitive. Except with the notable failure of soda ash
producers to stop using the Solvay process when the superior Leblanc soda process
was developed on the continent (there was an organized cartel of British producers)
entrepreneurs that did not make their production as competitive as possible would go
out of business.13 Thus, when entrepreneurs did not adopt a certain new technological
8
ibid p103
9
McCloskey and Sandberg “From Damnation to Redemption: Judgments on the late Victorian
Entrepreneur’
10
Nicholas, T “Enterprise and management” in Cambridge Economic History of Modern Britain,
Volume Twop233
11
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two p89
12
McCloskey and Sandberg “From Damnation to Redemption: Judgments on the late Victorian
Entrepreneur’pp93-4
13
ibid p104
Gabriel Lambert British 6- Entrepreneurship

development, as in the cases above, the reasons were probably more to do with
general economic conditions than irrationality on their part – it is to these conditions
that we will now turn.

The railway example illustrates two general points – that being the first to
industrialize had led to heavy investment in physical capital was expensive to update
and secondly, ownership of various aspects of the railways was fragmented and, as in
many other industries, raising capital to cover such costs would have been almost
impossible for such small economic units. Failure to invest in large steel plants was
one of the reasons German and American industries achieved comparatively superior
productivity. The cotton case reveals that the UK labour market was very different
from the USA – labour was cheaper than capital, promoting capital-saving rather than
the labour-saving innovations that were being made in the USA due to their higher
cost of labour. This was part of the reason behind the reliance on mule spindles and
generally led entrepreneurs to limit physical capital investment in the form of new
machinery.14 British demand was also more fragmented and customized than that in
the USA, meaning a flexible, informally-trained labour force that was well-suited to
older labour-intensive industries such as textiles, iron and steel emerged. But this
meant that spending on research and development in these industries was seen as less
important and a preference for traditional flexible production methods prevented the
use of large scale mass-production and a corresponding lack of productivity.15

But UK workers tended to be better organized and more aggressive in their resistance
of new techniques (especially when their skills were threatened) – in 1892 13% of
British workers were paid members of a union while in the USA in 1897 the figure
was only 4.3%.16 Shop floor management was typically left to UK workers, including
the hiring and training or employees, the setting of work rates and manning ratios
giving their organizations great power. Instead of simply rejecting change, workers
would tend to renegotiate wages and working conditions if the factory environment
was significantly altered, making wholesale adoption of new techniques potentially
even more expensive than the simple costs of the physical capital.17 Thus in shoe-
making Northampton no sewing machines were permitted after there were three
strikes protesting against their use in the 1850s. It is hard to quantify the exact
inhibitive impact of the tensions between management and unions or other forms of
organized labour – much of the impact would have been to prevent the workers from
being inclined to help their boss by improving their machinery. Unlike their American
counterparts who offered free technical education and bonuses for innovation, British
entrepreneurs were poor at incentivising shop floor innovation.18

If the nature of the UK labour force acted as a brake on technological uptake through
its comparatively easy availability and the strength of workers’ organizations, it has
been suggested that the pursuit of profit was eroded more pervasively by ‘a cultural
cordon sanitaire of aristocratic attitudes and aspirations’ that encircled British
14
Nicholas, T “Enterprise and management” in Cambridge Economic History of Modern Britain,
Volume Two p230
15
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two p95
16
ibid p93
17
Mokyr, J The Lever of Riches p265
18
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two p94
Gabriel Lambert British 6- Entrepreneurship

society.19 In other words, where aristocrats did not take up new innovations and
vigorously apply them, it is possible this failure was a result of non-economic factors.
According to this argument the bourgeoisie in Britain were ‘gentrified’ in that their
aspirations lay in earning enough to purchase an estate, marry into the aristocracy and
essentially retire from business into a life of leisure.20 Another aspect of this argument
suggests that such an ideal was difficult to achieve for industrial entrepreneurs but not
bankers – the aristocracy remained ‘closed caste’ to the former (even if there were
examples of aristocrats holding business interests) the latter could become wealthy
while leading a gentlemanly life in the city.21

What is the main evidence for such assertions? One of the only tangible things one
can point to is extent of the purchase of land by businessmen. It is apparent that, as
long as smaller estates (less than 2,000 acres) are included in one’s analysis then the
purchase of land was quite high. For the wealthiest, the millionaires, 90% bought land
and 80% founded landed families.22 There is a great risk here of assuming that land
purchase was inevitably bound in with the take up of an aristocratic ethos. Indeed, the
Gregs family invested money into land in an attempt to offset the trade cycle in the
cotton industry, as it was seen as a safe investment for capital and spreading risk.23
Secondly, the ‘cordon sanitaire’ argument gives the industrialists little credit in their
ability to construct their own culture and even to influence aristocratic values. For
instance, in the towns of Lancashire, it was the cotton masters who emerged as a
hereditary and ‘cohesive self-sustained elite’ based on the belief that cotton would
continue to develop towns and with it the middle class – the working class would then
be made civil by education, free press and religious toleration.24 They were patrons of
culture and philanthropy who constructed a new ideal of urban and industrial society
to replace the aristocratic model of a desirable life. Moreover, the growing economic
power of the middle class helped extend its influence – if the aristocracy dominated in
the army, the church and Oxbridge, the middle class won local government, the press
and the universities in London and the provinces. Perhaps this influence did reach the
aristocracy and was partly responsible for the shift from the 18th and early 19th
century emphasis on virtue through sociability to character through ‘striving, self-
reliance and the mastering of circumstance.’ 25 Attitudes towards wealth changed –
instead of being potentially corrupting its generation could benefit the country as a
whole. But pinning down the precise extent of this cultural belief is difficult. The only
conclusion that one can successfully draw is that to simply state that aristocratic
culture dominated the ideals of the industrial middle class leading to a lack of focus
on profit is a gross over simplification of the complex definition and redefinition of
middle class and aristocratic identity.

If entrepreneurs were, as has been suggested, generally rational in their maximization

of profits and any ‘failure’ was more due to Britain’s labour structure, are there any
further charges that can be leveled at them? If some economic conditions were
‘against’ entrepreneurs adopting technology it is necessary to ask why they did not
19
Nicholas, T “Enterprise and management” in Cambridge Economic History of Modern Britain,
Volume Two p239
20
Daunton, M. J, “’Gentlemanly Capitalism’ and British Industry 1820-1914” pp120-1
21
ibid p125
22
ibid p130
23
ibid p131
24
ibid p152
25
ibid p132
Gabriel Lambert British 6- Entrepreneurship

attempt to innovate around those constraints. Here we come to the difference between
actions that are economically rational on a micro level but have long term negative
products on the macro level. Thus it would probably have been advantageous to the
British economy as a whole if research and development spending had been higher in
firms (or even by government). Even though by the first decade of the 20th century
around £0.5 million was being spend on R&D by British firms every year, most of
this was restricted to naval shipping and a few large firms manufacturing chemicals
and none compared with the massive research laboratories operated by General
Electric, Eastman Kodak and Ball Telephones in America or Bayer in Germany.26 The
manifestation of this difference was clearest when Germany seized the international
market in dyestuffs through the qualitative and quantitative superiority of its chemists.

The reasons for not investing in R&D were symptomatic of what some view as the
‘amateurish’ approach to technological innovation and technical training in general.27
A comparison of British, German and American schools, universities and technical
colleges is usually used to illustrate the former’s apparent lack of interest in formal
education for industry. Indeed there is some evidence for this – in 1970 only
seventeen students graduated with degrees in science, mathematics or technology in
England and neither Oxford nor Cambridge offered degrees in those courses that year.
By 1908 there were still fewer than 300 students enrolled in applied science course in
the country which German universities were producing over 400 graduate degrees in
chemistry every year.28 Between 1900 and 1910 the German Technishe Hochschulen
produced an average 1,000 graduate engineers every year while Britain lagged at
around 400. Looking at an index of major inventions by country of origin between
1776 and 1926 the impact of this underinvestment in potential innovators appears
stark – between 1776 an 1825 Britain was responsible for 43.6% while the USA only
produced 11.7% but this revered to 14.0% and 43.7% respectively between 1876 and
1926.29 Thus Britain had been successful when new inventions relied on no great
scientific or technical knowledge but foundered as the complexity of machinery
increased. What this suggests is a failure either on the part of entrepreneurs or of
government to take an interest in the type of education that would produce future
innovators.

Two counters may be offered to this argument – the first argues that Britain was not
so inferior in terms of its education system while the second argues that the
competitive advantage Germany and the USA gained from their apparently superior
systems was not necessarily as great as has been assumed. Firstly, the growth in
technical colleges that then became civic universities in industrial cities was
pronounced. It started with Owens College in Manchester in 1873 and then more
emerged – the Yorkshire College of Science in Leeds then other colleges in
Southampton, Exeter, Newcastle, Bristol, Nottingham and Reading.30 All were funded
largely or exclusively by industry and their curricula were based on industrial need.
The Technical Instruction Act in 1889 marked a turning point as there were 160 of
them by 1898. By 1911 708,000 people were attending evening classes in such
26
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two pp92-3
27
Mokyr, J The Lever of Riches p263
28
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two p91
29
ibid p89
30
Sanderson, S “Education and Economic Decline 1870-1914” p161
Gabriel Lambert British 6- Entrepreneurship

colleges.31 Indeed education in general was not significantly behind the Germanys –
Prussian literacy rates were no better by the later 19th century than Britain’s.32 It is
true that such measures were largely responses to actions in other countries – the 1867
and 1889 Paris Exhibitions were particularly shocking for British attendees who
lobbied for the introduction of German and French-style education so as to not lose
Britain’s competitive advantage.33 But, our of the key twenty lobbyists only six were
businessmen suggesting that much of the drive for reform came from academics
rather than manufacturers. In many cases Britain demonstrated that formal training
was unnecessary – the key innovations in ship-building, where British manufacturing
accounted for 50-60% of world tonnage, were the compound engine and turbines and
both had been developed in Britain. Yet only one fifth of apprentices had any formal
training throughout the period. Similarly, in the Institute of Mechanical Engineers out
of the 126 that dies in 1890, 1900, 1910 and 1920 while 94.4% had served
apprenticeships, only 19% had any form of higher education. Even in the dyestuffs
industry Germans praised Sheffield’s form of education (again, a great deal informal)
indicating that perhaps its relative failure was more due to inhibitions placed on the
industry by domestic demand. Thus Britain’s education system, while certainly
inferior to America’s and Germany’s in the 1870s had done a great deal to catch up
by the turn of the century and continued to demonstrate that apprenticeships and
informal workplace education could compete in terms of worker productivity (in
some industries at least) with the more formal education offered in other countries.

Much has been omitted from this analysis – there has been no comprehensive
qualitative analysis and it has relied excessively on examples rather than data to make
general points. Moreover the role of the City of London has not been considered – did
its hesitancy in lending large amounts of capital to new ventures inhibit
entrepreneurial growth or did the stability of the money markets increase overall
confidence in the British economy? Did the lack of transparency and information
about companies demanded by government shy away potential risk-adverse investors?
Were foreign investments made to the detriment on entrepreneurial endeavor or
would excessive domestic capital have led to diminishing returns? Did the prevalence
of family businesses lead to less risk-taking with capital in favour of financial
security? Even if these questions have not all been addressed, entrepreneurs
themselves have been partly exonerated of failure – the nature of the labour market,
the small size of companies were probably more important in causing Britain’s
relative economic decline. Competition prevented any seriously inefficient processes
from remained and entrepreneurs did generally behave rationally, at least as
individuals. More research spending and more enthusiasm about new industries would
probably helped to have eased the relative decline but Britain’s informal education
was not as ineffective as has been assumed. Indeed, it is only a failure to reach trend
acceleration (ie: increasing productivity growth year on year) that needs explaining
and entrepreneurial shortcomings were only a small part in that process.

Bibliography:
McCloskey and Sandberg “From Damnation to Redemption: Judgments on the late Victorian
Entrepreneur’ in Explorations in Economic History
Crafts, N, “Long-run growth” in Cambridge Economic History of Modern Britain, Volume Two
Daunton, M. J, “’Gentlemanly Capitalism’ and British Industry 1820-1914” in Past and Present 122
31
ibid p163
32
ibid p169
33
ibid p 165
Gabriel Lambert British 6- Entrepreneurship

Nicholas, T “Enterprise and management” in Cambridge Economic History of Modern Britain, Volume
Two
Magee, G. B, “Manufacturing and technological change” in Cambridge Economic History of Modern
Britain, Volume Two
Sanderson, S “Education and Economic Decline 1870-1914” in British Industrial Decline
Mokyr, J The Lever of Riches