Firms, Networks and Business Values: The British and American Cotton Industries since 1750

Published by EH.NET (May 2001)

Mary B. Rose, Firms, Networks and Business Values: The British and American

Cotton Industries since 1750. Cambridge: Cambridge University Press,

2000. Pp xii + 352). ISBN 0-521-78255-4. ?40.

Reviewed for EH.NET by Dr. David Higgins, University of Sheffield.

The aim of this book is to provide an analysis of the long-term forces shaping

the British and American cotton industries from the eighteenth century through

to 1980. Central to this analysis is the conviction that a multi-disciplinary

approach is required. Although the book covers some of the ‘traditional’

issues which have dominated debates on this industry for example, issues of

technology, industrial organisation and international competitiveness, these

are set against a much broader background which emphasises business culture,

political and legal frameworks, the importance of local and regional

communities and economies, family businesses, interlocking directorships and

the pattern and growth of domestic and foreign markets.

The importance of this wider background is established from a very early stage

in the book. It is probable that the biggest question of all which has

dominated debates on the comparative performance of these two industries is

whether the performance of the British cotton industry would have been

enhanced by adoption of ‘American’ technology and patterns of industrial

organisation. There has been a strong assumption, championed by Chandler and

Lazonick in particular, that ‘American’ means ‘best’. However, argues Rose,

if it can be shown that cotton textile firms in America also experienced

difficulties, despite the presumed advantages of their technology and

organisational form, then it will be hard to sustain the idea that British

cotton textile firms could have avoided their twentieth century difficulties

merely by using American methods (p.2).

The ensuing discussion is rightly critical of any attempt to apply American

methodologies to industries outside the U.S. Much more importantly, though,

is the fact that an alternative line of enquiry is suggested. Comparative

advantage can be determined by scale, technology and industrial organisation

but, equally, it can also be determined by the quality of information flows,

the accuracy of business expectations and the speed and effectiveness with

which businessmen are able to co-ordinate themselves in order to protect

their common interests by, for example, lobbying government. It was in these

crucial areas that Dr. Rose is able to explain the divergent paths taken by

the British and American cotton textile industries.

Broadly speaking, the book is arranged chronologically. Following an

introduction in which the importance of business culture and networks is

spelled out, the book divides into two parts. Part I, which comprises

chapters 2-5, discusses the ways in which the British and American cotton

industries developed during the period 1750-1860. Institutional developments,

especially the emergence and growth of family firm networks, are shown to have

been of much importance in determining the values and attitudes of cotton

businessmen in the two countries. Part II, which comprises chapters 6-8,

analyses the strategic responses made by these businessmen between 1860 and

1980.

Throughout the book the importance of business networks and their consequences

for the very different paths taken by the two industries is carefully

established. In the early stages of the industrialisation process, both

countries shared a common technology. However, Lancashire had the benefit of

proto-industrialisation which ensured that there existed very well-developed

commercial and financial networks, particularly with London finance houses,

together with a large pool of skilled workers. The American industry, by

contrast, was considerably less fortunate. Not only did it lack a comparable

network of commercial and financial institutions and a pool of skilled workers

but also, as a British colony until the War of Independence (1763-1783), it

incurred the unfavourable effects of the Navigation Acts. While the different

nature of resource constraints provides some clues to the divergent nature of

the growth of the American cotton textile industry so too did the wider

political and legal framework, especially intervention by state governments to

foster local industry.

These initial differences between the two industries were quickly accentuated.

For both industries the family firm was a predictable response to

uncertainty. However, whereas most family firms remained small-scale

partnerships throughout much of the nineteenth century in Lancashire, in

America, the corporation became a more widely used form for family businesses.

This divergence in corporate form, together with differences in the degree of

vertical specialisation can both be explained by differences in the complexity

of the supporting infrastructure – itself a product of earlier development.

Whereas Lancashire was to cater increasingly for diverse foreign markets which

required high levels of commercial expertise – and therefore even greater

levels of specialisation, the major textile cities, first in the Northern

states and then in the Southern states of America, had a much greater

dependency on the domestic market. The consequence of this was that the

supporting infrastructure of commercial and financial networks in the two

industries differed. In turn, these differences fostered even greater path

dependency.

Differences between the two industries in their business organisation were

mirrored by differences in labour relations. The crucial role of

sub-contracting in mule spinning was to decline much quicker in America than

in Lancashire. This had obvious implications for the whole issue of

management-worker relations, and labour productivity. Greater reliance on

inter-locking directorships as exemplified by the Boston Associates, meant

that American cotton firms were better able to act collectively in labour

disputes compared to their Lancashire counterparts.

The clear message which comes through from Part I of the book is that the

differing profiles of the British and American cotton industries by 1914 had

little, if anything, to do with institutional rigidities and everything to do

with very different competitive processes. These processes, in turn, were

generated by a much more complex interplay of forces than has previously been

given credence.

Part II of the book extends the analysis from 1860 to 1980. It was within

this period, especially the post-1914 period, that the differences between the

two industries became especially pronounced. In her introduction Rose states

that two issues were to be of continuing importance for the different paths

taken by these two industries: the effectiveness of collusive agreements, and

the strength of the respective networks in lobbying government (p.11). On the

first point, it is the similarities and not the differences between the two

industries which is most apparent. During the interwar years in particular,

both industries suffered from excess-capacity and over-production. Both

industries adopted defensive measures and, in both cases, fragmentation and

disunity were the outcome. In Lancashire, a common policy on short-time

working and price maintenance was continuously undermined by the refusal of

firms in prosperous sections of the industry to sacrifice profits in order to

aid those firms in the most depressed sections. Similar splits appeared in the

American industry, with firms in the North experiencing very serious problems

while those in the South appear to have done comparatively well.

However, it is on the second point, especially in the post-1945 period, that

the differences between the industries could not have been more marked: the

Lancashire industry practically vanishes whereas the American industry,

although experiencing decline in the face of growing import penetration, does

comparatively well. A key reason for this difference was the greater

effectiveness of American firms gaining government support to limit imports

compared to Lancashire firms.

Overall, this is a substantial piece of critical writing which succeeds in

highlighting the very complex range of forces determining the different paths

taken by the two industries. Although some readers may baulk at the price of

?40 for a book which admits it relies heavily on secondary literature, this

should not detract from the fact that the book is both a successful piece of

comparative business history in its widest sense and a successful synthesis of

the literature.

Dr. David Higgins is a Senior Lecturer in Economics, based in the Management

School. He has written extensively on the British textile industries, as well

as on British business generally. His most recent work includes two articles

(with Sue Bowden and Steve Toms, respectively) on the Yorkshire woollen

industry and Lancashire cotton industry published in the Journal of Industrial

History. He is also working on a detailed analysis of British corporate

performance, 1945-90.