Field on Broadberry, _Market Services and the Productivity Race, 1850-2000: British Performance in International Perspective_

[eh.net-review at eh.net]

Published by EH.NET (June 2007)

Stephen Broadberry, _Market Services and the Productivity Race, 
1850-2000: British Performance in International Perspective_. 
Cambridge: Cambridge University Press, 2006. xvii + 409 pp. $95 
(cloth), ISBN: 0-521-86718-5.

Reviewed for EH.NET by Alex Field, Department of Economics, Santa 
Clara University.


As I was preparing this review of Stephen Broadberry's latest book, 
my daughter leaned over to see what I was currently reading. She 
glanced quickly at the cover, shook her head and said, in a voice 
tinged with pity, "Dad, that just looks incredibly boring." Then, 
catching sight of the word 'productivity' in the title, and knowing 
something of my own recent work, she added, apologetically, "Oh, did 
you write this?"

Such are the occupational hazards facing those of us who study 
productivity history, hardy but sensitive souls whose pulse can 
quicken in the presence of minute differences in rates of TFP 
increase. For a general audience, this book will indeed be slow 
going. But for those interested in the motors of economic growth and 
development, considered particularly from a comparative perspective, 
this work is a notable achievement. In it, Broadberry brings together 
research on the comparative productivity performance since the 1870s 
of Britain, the United States, and Germany. The emphasis is on 
Britain, and Broadberry's main theme is the necessity of focusing on 
the service sector, not just or even principally manufacturing, in 
understanding Britain's relative decline. Differential trends in 
service sector productivity, not industry, he argues, explain most of 
the movement in the comparative productivity performance of Britain's 
aggregate economy.

How can this be? The basic story is that U.S. productivity in 
manufacturing in 1870 was already about fifty percent higher than it 
was in Britain, and the same was true 120 years later. Britain was 
ahead of the U.S. and Germany in 1870 not because of its lead in 
industry but because of its lead in services. By 1890, however, the 
U.S. had caught up and subsequently forged ahead in services, 
widening its lead in the sector up through the Second World War. Thus 
it was differential productivity trends in services, not any 
fundamental alterations in trends in manufacturing, that account for 
most of the overtaking and surpassing of Britain by the United States 
in aggregate labor productivity.

Critical to the story is the Chandlerian theme of the transition from 
low volume, high margin to high volume low margin operations, 
particularly in transportation, communication, and distribution 
(Chandler, 1977). The models for such transition originated in the 
United States, and it was the more rapid diffusion of such 
organizational methods in the U.S. that enabled it to overtake 
Britain in services and in the overall economy by 1890. But not all 
service sectors were equally amenable to this transition, explaining 
why Britain's relative decline was not more severe. With respect to 
Germany, Britain's continuing lead in services relative to Germany 
accounted for its ability to maintain an overall productivity 
advantage with respect to that country through about 1960.

Modern business enterprise originated in the U.S. in the railroad and 
telegraph sectors, spreading to wholesale and retail distribution, 
before being adopted in some sectors of manufacturing. Britain's 
relative productivity decline was most notable in transport and 
communication and distribution, whereas the country retained a strong 
position in finance, a sector which offered unfavorable terrain (at 
least until recently) for the adoption of high volume low margin 
operations. Broadberry attributes the slower service sector 
productivity growth in Britain to labor resistance to work 
intensification combined with the fact that many services, unlike 
manufactures, weren't tradeable, and therefore didn't face the same 
competitive pressures. For industrial products, poor productivity 
performance eventually meant they were replaced by imports and the 
sector shrank. For nontradeable services, and those protected by 
non-tariff regulatory barriers, poor productivity performance could 
persist, dragging down comparative productivity performance for the 
entire economy. Still, Broadberry is at pains to present a variegated 
view of the British service sector, emphasizing areas where its 
comparative advantages in organizing through networks rather than 
internal firm hierarchies continued to serve it well. Germany's 
success in overtaking Britain after 1960 is explicable in terms of a 
different structure of labor relations and patterns of human capital 
formation after the Second World War.

The book has three sections. The first is concerned principally with 
laying out the argument and presenting the data. The second focuses 
on broad explanations for the comparative productivity trends (I did 
not find that the theoretical model in chapter 5, based on the work 
of Broadberry and Ghosal, added much). The third section presents a 
series of detailed historical/empirical chapters dissecting the 
performance of different parts of the British service sector in 
different time periods, carrying the story forward through the 1990s. 
Taken together this material provides a compelling case that it is 
both possible and necessary to focus on the service sector in 
understanding productivity history at the national level and in 
comparative perspective. The data for services may not always be 
quite as good as they are for industry, but there is much more here 
than one might imagine, and it is unworkable and unjustifiable to 
restrict our attention to manufacturing simply because "the light is 
better there."

One of the difficulties with the book and the way the data are 
presented, however, is the melding of a narrative structure focusing 
on the one hand on the history of British productivity growth and on 
the other hand on its comparative productivity performance with 
respect to the U.S. and Germany in different time periods. From an 
historical perspective, one is principally interested in what drove 
aggregate productivity forward, both in individual countries and in 
the world as a whole. There are of course also reasons for measuring 
comparative productivity performance at different times, but 
excessive focus on these numbers risks obscuring important aspects of 
the process of economic growth. For example, compare two time periods 
in which there is apparently no change in comparative performance. It 
makes a big historical difference whether this is because there was 
no change in levels in either country or because levels in both 
countries increased at the same rate. To his credit, Broadberry 
provides detailed time series data on the evolution of levels for the 
individual countries. Still, because the narrative is principally 
couched in terms of the explanation of relative decline, Broadberry 
finds himself repeatedly compelled to emphasize that even in periods 
in which the country may have performed poorly in comparison with 
other countries, the absolute growth rate of labor productivity in 
Britain was high by world historical standards.

The point I am making is separate from but in a sense related to the 
important methodological issues which have motivated the exchanges 
between Broadberry on the one hand and Ward and Devereux on the 
other. To calculate comparative productivity ratios one chooses a 
benchmark year, calculates value added per worker or per hour in the 
domestic currencies of each country, and then converts the value 
added in the two countries to a common metric using a PPP adjusted 
exchange rate. Using domestic rates of economic growth, one then 
projects forward and backwards. Because of index number and other 
problems, however, growth rates from one PPP based comparative 
productivity benchmark will not always or necessarily produce a later 
or earlier comparative productivity measure consistent with a later 
or earlier PPP based benchmark. Broadberry has tried to address this 
problem by choosing 1937 as a benchmark (unlike Maddison, who used 
1990), and by using other benchmarks as a check on the projections 
forward and backwards using domestic growth rates. He is persuaded 
the methodology is defensible, and the remaining discrepancies 
tolerable, but he will probably not satisfy all of his critics. Those 
seeking more detailed discussion of these problems, which also 
bedevil work on contemporary economies, should consult, for example, 
Ward and Devereux (2003).

There are some aspects of Broadberry's treatment of U.S. productivity 
history with which I differ. For example, he endorses Abramovitz and 
David on the importance of capital accumulation rather than TFP in 
explaining trends in U.S. labor productivity growth in the last third 
of the nineteenth century (p. 109). But TFP growth in the U.S. 
private domestic economy was over 1 percent per year from the early 
1870s through 1906, lower of course than rates experienced in the 
second quarter of the twentieth century but certainly respectable and 
indeed substantially higher than during a comparable period of the 
twentieth century (Field 2008, forthcoming).

Secondly, Broadberry correctly identifies very strong labor 
productivity and TFP growth in transportation and communication in 
the 1930s as part of what underlay the continuing advance of U.S. 
service sector productivity and the consequent widening of the US/UK 
productivity gap during the Depression years. But this was not 
necessarily a period of increasing "industrialization" of transport 
services as Broadberry suggests (p. 12). The introduction of modern 
business enterprise in railroads occurred in the last third of the 
nineteenth century. The growth sector within transportation in the 
1930s was trucking, a sector comprised of small, non-hierarchically 
organized companies. What is striking about the 1930s in the U.S. is 
not only the extraordinarily high TFP growth in trucking (a rapidly 
growing sector), but the relatively strong advance in the railroad 
sector, which, in contrast with the 1920s, was experiencing capital 
shallowing. Since railroads were still such a large part of the 
economy, this mattered (see Field, 2006). As Broadberry's narrative 
indicates (pp. 230-235), nothing comparable happened in railroads in 
Britain. Greater emphasis on the importance for the United States of 
the Depression build out of the surface road network, and the role of 
street and highway spending in the U.S. in generating spillovers in 
transportation would have made the narrative historically richer 
(Field, 2003).

There is also some tendency to be too dismissive of trends in 
industry in explaining the huge gap opened up between the U.S. and 
Britain by the 1950s. The driver of aggregate trends in comparative 
productivity, Broadberry asserts, are trends within the respective 
service sectors. But his own data show that the widening of the US/UK 
productivity differential between 1870 and 1960 was more marked in 
industry (250.4/153.6) than it was in services (137.7/85.9) (Table 
2.1). Table 2.1 includes data for industry -- construction and mining 
as well as manufacturing -- and it is true that the increase in 
manufacturing alone, although substantial, was not as dramatic as in 
the service sector as a whole. My point is that whereas the surge in 
U.S. service sector productivity certainly played a very important 
part in widening the productivity lead opened up by the U.S. at 
mid-century, trends in industry and in manufacturing also contributed 
substantially. Broadberry's larger thesis is sustained, however, 
because whereas by 1990 faster productivity growth in British 
industry and manufacturing had restored the US/UK advantage to 
roughly where it had been in 1870, the same cannot be said for 
services.

Finally somewhat more emphasis, particularly in the US/UK 
comparisons, on changing sectoral shares in explaining aggregate 
productivity growth would have been useful. For example (p. 28) "over 
the long run, Britain was overtaken at the aggregate level because of 
a loss of labour productivity leadership in services." It would be 
fairer to say that Britain was overtaken because of a loss in 
productivity leadership in services combined with the very sharp 
growth in the share of services, particularly in the United States. 
(The UK-German analysis does place considerable emphasis on the 
retention of a large agricultural sector in German and its 
implications in terms of a smaller service sector.)

These are small bones to pick. Broadberry has written an impressive 
book that will interest economic historians and students of economic 
growth, particularly those focusing on Britain.


References:

Chandler, Alfred D. 1977. _The Visible Hand: The Managerial 
Revolution in American Business_. Cambridge: Harvard University Press.

Field, Alexander J. 1987. "Modern Business Enterprise as a 
Capital-Saving Innovation," _Journal of Economic History_ 47 (June 
1987): 473-85.

Field, Alexander J. 2003. "The Most Technologically Progressive 
Decade of the Century," _American Economic Review_ 93 (September): 
1399-1414.

Field, Alexander J. 2006. "Technological Change and U.S. Economic 
Growth in the Interwar Years," _Journal of Economic History¬¬_ 66 
(March 2006): 203-36.

Field, Alexander J. 2008. "U.S. Economic Growth in the Gilded Age," 
_Journal of Macroeconomics_ 29 (prepared for submission to a special 
issue).

Ward, Marianne and John Devereux. 2003. "Measuring British Decline: 
Direct vs. Long Span Income Measures," _Journal of Economic History_ 
63: 826-51.


Alex Field is the Michel and Mary Orradre Professor of Economics at 
Santa Clara University. His current research interests include U.S. 
productivity history and the implications of evolutionary theory for 
the behavioral sciences.

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