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
is
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
anything!
(Andrew Godley is the author of Enterprise and Culture: Jewish Immigrant
Entrepreneurship in New York and London, 1880-1914 (forthcoming).)