Published by EH.NET (February 1999)

Gary Bryan Magee, Productivity and Performance in the Paper Industry:

Labour, Capital, and Technology in Britain and America, 1860-1914,

Cambridge Studies in Modern Economic History 4, Cambridge and New York:

Cambridge University Press, 1997. xvi + 293 pp. $59.95 (hardback), ISBN 0 521

58197 4.

Reviewed for EH.Net by Andrew Godley, Department of Economics, University of

Reading, UK.

Gary Bryan Magee (recently returned from his native Australia to a lectureship

in History at Queen Mary and Westfield College, London) has performed something

of a rescue operation. The long debate on British entrepreneurial failure has

recently faltered.

Like some endangered animal in an arid wasteland, the reputation of the late

Victorian entrepreneur has been threatened with partial redemption from

explanations emphasising relative factor endowments and productivity

differentials. In the best heroic tradition, Gary Magee uses these very

techniques and arguments to demonstrate that, at least in papermaking, the late

Victorian British entrepreneur really, genuinely and truly deserves to

castigated once again;

that, at least from the 1890s onwards, there was “an incipient conservatism

developing in the heart of British papermaking…. [coming] from the complacent

and conservative business culture that earlier success had bred…” (p.268).

Well, is this just Pommie-bashing in disguise, or do we have a genuinely new

contribution to this long debate?

First, the story. In 1860 British papermakers were among the most advanced in

the world. Demand rocketed in the second half of the nineteenth century and the

most significant problem facing suppliers was a declining supply of rag – the

key raw material. Paper making involved processing rag to produce a semi-liquid

raw paper (called “stuff”), which was then laid out, shaken dry and rolled-up

(or cut and packaged) ready for use. It was, therefore,

at least on the

face of it, a fairly simple process. Nevertheless, by the 1890s the size and

speed of machinery increased substantially. More importantly supplies of rag

had more or less given out and British entrepreneurs had invested much time and

energy in using espar to grass as the best alternative. However, new chemical

treatments of wood enabled the necessary cellulose to be extracted economically

from the relatively abundant forests of Scandinavia, Central Europe and North

America. The combination of new raw materials and American-developed new

technology saw British firms placed at an undoubted disadvantage, but rather

than pursuing high margin niches or developing process technology, British

papermaking entrepreneurs put their heads in the sand. It is for this they

stand accused.

If the book contained this crudely summarized

narrative alone we would be less

welcoming. Its real contribution is not so much the admittedly neglected case

of papermaking, but the attempt to integrate the perceived entrepreneurial

failure into a credible economic analysis. Thus, an information cost approach


used to model entrepreneurial decision-making and so evaluate outcomes. The

broad economic context is framed from industry-wide data which are used to

estimate revealed comparative advantage, comparative productivity and their

proximate sources. While Habakkuk-type factor-returns help to explain some

differences in practices,

Magee concludes that from the 1890s British entrepreneurs simply made poor

decisions given the information available.

The key information for British papermakers concerned supply-side innovations

in raw materials and technology. The British papermakers quickly shifted from

esparto to wood when the latter’s advantages were plain – this is cited as good

entrepreneurship – but they proved woefully deficient in developing the

papermaking technology. The interesting fact here is that the core papermaking

technology was the same in both Britain and the US. However, what varied was

the adaptations made to the machines by the papermakers. In the US,

papermakers were able to extract vital improvements in speed and paper-width

from essentially the same machines used as the British. This was the bad

entrepreneurship. Magee cites various contributory institutional factors but

his is a more refined (and hence more credible) version of the Lazonick thesis

of entrepreneurial failure.

Of course, questions remain. American adaptation of the papermaking machine was

crucial to success. This must have been an incremental process and so

technological advantages and disadvantages were perhaps cumulative and so

possibly locked-in to a greater or lesser degree. If so, the evaluation of the

British papermakers’ performance presented here therefore depends upon Magee’s

interpretation of the extent of potential lock-in. He suggests that British

papermakers were exposed to the latest advances and techniques through the

trade press, visitors’ reports, and other conduits, and that they could not but

have been aware of the adaptations

made by American producers. Magee no doubt now knows more about late-nineteenth

century paper making than practically anyone alive, but the implication that

lock-in effects were relatively minor and that the diffusion of new adaptation

of machinery was rapid may need to be considered in more detail.

Magee, given his expertise, has to be given the benefit of the doubt here.

Indeed, I hope he is right. After all, we Brits are far too modest to want

anyone thinking that we might have ever been successful at


(Andrew Godley is the author of Enterprise and Culture: Jewish Immigrant

Entrepreneurship in New York and London, 1880-1914 (forthcoming).)