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Where Is Our Responsibility? Unions and Economic Change in the New England Textile Industry, 1870-1960

Author(s):Hartford, William F.
Reviewer(s):Mullin, Debbie

William F. Hartford, Where Is Our Responsibility? Unions and Economic Change in the New England Textile Industry, 1870-1960. Amherst: University of Massachusetts Press, 1996. x + 256 pp. $35.00 (cloth). ISBN: 1-55849-022-1.

Reviewed for EH.NET by Debbie Mullin, Research Associate in Economics, Oberlin College .

Like the textile workers whose history he writes, William Hartford practices the weaver’s art in Where is Our Responsibility? Themes of culture, technology, and enterprise braid together in this descriptive account of organized labor’s role in New England’s textile industry. Hartford’s scholarship as an historian is evident in the way he assembles evidence from Congressional testimony and reports, union documents, statistical studies, and other archival resources to write an engaging, informative narrative chronology. He captures the important historical landmarks of the textile unionists’ experience and introduces us to labor leaders, industrialists, and social activists who played a role.

Hartford documents many of labor’s troubles and triumphs during these years, but three struggles dominate. The first of these is the series of conflicts within the union, sometimes simply personality differences, at other times harsh conflicts over strategy. In the nineteenth century, textile unions were organized on a craft basis under the United Textile Workers, with boundaries drawn so that all operatives within one union had the same job skills. This gave way to the industrial unionism of the Textile Workers Union of America (TWUA), in which the bargaining unit encompassed an entire mill. But as Hartford makes clear, there were always some craft-oriented pockets of resistance to industrial unionism. Interestingly, some employers preferred the industrial orientation of the TWUA, because they felt that craft-based unions would be more resistant to the implementation of labor-saving technologies.

A second of these persistent struggles was the problem of the interregional wage differential. Lower wages in the South were an initial attraction for the relocation of some textile manufacturing, and Hartford describes how inertia developed for even more of a concentration of the industry in southern states during the 1950’s. At its lowest, the north-south wage gap in cottons was twelve percent, and New England union leaders were vigilant with regard to this figure, as they realized there could be no long-term equilibrium with two different geographic centers of the same industry paying different scales. Although the anti-union stance of large southern firms prevented nationwide unionization, TWUA leaders pursued alternative strategies. Agitation campaigns that threatened to organize nonunion firms led managers at these southern enterprises to boost compensation levels. Some New England mill owners who hoped to maintain their operations in New England cheered for the union in its efforts to bring southern and northern wage standards into convergence.

And thirdly, labor never escaped its struggle against labor-saving machinery. Naturally, union leaders wanted to deliver generous wages but also to preserve, if not expand, employment levels. The only way to sustain high compensation levels is to ensure that workers are productive, which is best achieved with a capital-intensive production process. The inherent conflict between wage-related productivity boosts and employment levels remained unresolved throughout the history of textiles. In the 1940’s, detailed job descriptions were instituted along with restrictions on how tasks within classifications could be modified. Workloads and machine assignments were an issue of labor-management negotiation. The result was, in effect, that firms had to acquire permission from workers before implementing new technologies.

The early chapters provide richly detailed descriptions of the lives of the nineteenth-century textile workers and the communities in which they lived. The text in these sections is vivid- one can almost feel the hum of fibers and machinery at work in reading about the tasks performed by spinners, weavers, and loom fixers. These descriptions are valuable to economic historians in that they explain why each craft faced a different set of economic incentives.

Like any book with an interrogative title, Where is Our Responsibility? promises to address the question it poses. In this regard, Hartford disappoints. One problem is that the question itself is not well defined until it is found among the social concerns dominating the last chapter. From this context, I gather that the question asks what unions should do to protect their members when the industry in which they work is declining. Even after getting this far, the reader is no more equipped to answer this question than before starting the book. The preceding chapters discuss none of the broad principles, either philosophical or economic, that would help one grapple with such a broad issue. What those chapters do, however, is provide the reader with the history of organized labor in one industry. Consequently, one is prepared to deal with a question considered as a cousin to the one posed in the title: Where is the blame to be placed for the decline of this industry? Hartford informs us of the interdependence of the many players in this story, so we can judge contributions and faults of each. For example, with regard to technology, it is true that firm owners were slow to modernize, but the cumbersome job description system put in place by unions increased the costs of introducing new machinery. Yet, much of the story lies beyond either greedy workers or complacent management. Plastics and paper had intruded on the turf of the textile industry by the 1960’s, and other factors ensured that what remained of the textile industry would likely be in the Carolinas and Georgia.

In interpreting the events he chronicles, Hartford talks a lot about the responsibility of capital. Given the frequency with which this theme arises, it is unfortunate that he doesn’t define the term capital as he intends the reader to use it. In some instances, it appears that he views capital simply as shares of financial ownership, and in other cases as the actual managers of the firm. Most readers will likely resort to doing as I did, trying to interpret the meaning in each case from its context. But even so, one will be puzzled by Hartford’s sense as to what capital is responsible for, especially because he expects more from capital than from labor. He is critical of firm owners who closed New England operations to pursue more profitable opportunities elsewhere, yet he does not criticize textile workers who migrated to better-paying jobs after World War II.

In addition to enslaving itself to one location, what else would Hartford have “responsible capital” do? We get some idea of an answer by seeing the high esteem in which he holds Seabury Stanton, head of Hathaway Manufacturing (later Berkshire-Hathaway) in New Bedford, Massachusetts. Stanton outdid other mill owners in his determination to keep the mill running in its original location. In fact, co-workers observed that Stanton ignored financial statistics, such as profit and return on investment, that indicated the health of the company. But he considered the firm successful as long as it sustained operations in New England. Hartford speaks of Stanton in glowing terms, and suggests that workers would benefit if all managers were like he (p. 199).

But this means that there is an interesting unwritten chapter of the book, the one that would follow the 1960 end point of Hartford’s volume. By 1962, Berkshire-Hathaway was in financial distress, having suffered a $2 million loss. With regard to management of society’s scarce resources, Stanton was irresponsible. Under his leadership, the firm’s stock price fell to less than half of its per-share working capital. This situation left Berkshire-Hathaway vulnerable to takeover, and it was Warren Buffett who made the acquisition in 1965 and who sustained the textile operations for another two decades. His cost-conscious management team rescued the firm from the disastrous course to which Stanton had committed it. Though Buffett did shut down the looms of Berkshire-Hathaway in 1985, it seems likely that bankruptcy would have forced a closing earlier had Stanton continued in charge.

The events related in Where is Our Responsibility? illustrate the notion that workers’ lives are broadly affected by the fate of the industry in which they choose to work. But it is easier to agree with Hartford’s interpretation of these events if one feels that the purpose of industry is to provide jobs, rather than to produce goods. Consequently, most economists will shake their heads in disagreement with the economic commentary in the volume. I was touched by the sentiment Hartford expresses for the men and women who spent their lives in the cotton and woolen mills of New England. Yet, ultimately I was left wondering whether he realized how technology and the profit motive might be considered allies of the worker. It is an ironic footnote to the history of the textile industry that the name Berkshire-Hathaway now at the end of the twentieth century is associated not with the mills that Seabury Stanton sought to keep in perpetual motion, but rather with the Buffett financial empire built on the principle of mobile capital.

Debbie Mullin Department of Economics Oberlin College

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Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Smith and Nephew in the Health Care Industry

Author(s):Foreman-Peck, James
Reviewer(s):Fischbaum, Marvin

James Foreman-Peck, Smith and Nephew in the Health Care Industry. Aldershott, England: Edward Elgar, 1995. xiii + 269 pp. Illustrations, bibliography, index. $71.95 (cloth). ISBN: 1-85898-085-2.

Reviewed for EH.Net by Marvin Fischbaum, Department of Economics, Indiana State University.

Though essentially an authorized company history, and one where the company holds the copyright, this book written by an economic historian of some distinction, rises above its genre. Foreman-Peck places the development of Smith & Nephew and its antecedent firms firmly within the context of time and place. Both through details and through pace, Foreman-Peck succeeds in demonstrating business evolution from “personal capitalism” in Victorian England, where being in Hull as opposed to Birmingham as opposed to Lancashire really mattered, to late twentieth century professionalized management of a multi-national enterprise. As chronology advances, the pace quickens, and emphasis shifts from personal connections, social standing, and leisure interests, to research endeavors, management techniques, efficiency, markets, …and lawsuits.

The company studied, Smith and Nephew, plc., is something of an odd duck; it resembles a smaller, British, version of Johnson and Johnson. For much of its history the firm depended on five major product groups: 1.) bandages for surgical use, 2.) plaster of paris and coverings for casts, 3.) bandages for home use, 4.) sanitary napkins and tampons, and 5.) face cream. Smith and Nephew became the market leader in these product groups at home, and enjoyed some success elsewhere in the Commonwealth, particularly in ex-colonies of settlement. None of these products required a major research effort, and any requisite technology was acquired for the most part through merger and licensure. Starting in the 1980’s the firm purchased several technologically complex health related businesses in the U.S, expanded research capability in Britain, exited non-medical textile production, and made itself over into a multinational, rapidly evolving, high growth enterprise.

Foreman-Peck carefully chronicles Smith and Nephew, and antecedent British firms, especially Southalls. T.J. Smith differentiated his pharmacy from dozens of others in Hull, and entered the national market, when he discovered, aided possibly by his city’s standing as the principal port for trade with Scandinavia, that Norwegian cod liver oil tasted less obnoxious, and was less expensive than that brought in from Newfoundland. When the nephew, H.N. Smith entered the business in 1896, staff numbered three. Employees rose to 54 by 1914, and 1500 by 1918. The nephew, having worked in Lancashire, shifted the business to surgical dressings, and World War I proved a bonanza. Southalls in Birmingham evolved in a similar fashion. Southalls was founded somewhat earlier; 1820, as opposed to 1856. Situated in a larger city, Southalls became a substantial enterprise. It followed Smith and Nephew into Norwegian cod liver oil, but gained advantage through backward integration, employing a factory in Norway. Southalls, too, switched emphasis to health related textile products. Its breakthrough product was the first commercial version of sanitary napkins. In the interwar period, and through the acquisition of Southalls in 1958, the increasingly professional management at Smith and Nephew, is contrasted to the persistence of family control at Southalls.

The author attempts much more, however, than a simple corporate chronology. Critical decisions are identified and evaluated. Management techniques are compared and contrasted with prevalent practice and with best contemporary practice in Britain and globally.

Some bits provide brilliant insight. With simple but plausible back of the envelope calculations, Foreman-Peck demonstrates a huge social saving from a not very glamorous innovation that utilized few resources. Varicose ulcers, a fairly common condition, had been treated with hospital bed rest- -typically requiring a stay of one year. A Smith and Nephew innovation, the application of an elasticized bandage lined with plaster, enabled patients to be on their feet and back at work in two weeks. Peck-Foreman calculates the social saving to be 1.67% of 1931 British national income! The health economics literature is replete with examples of “flat of the curve” treatment–cases where expensive, technologically sophisticated procedures yield little or no measurable benefit. This counter-example may be suggestive of new directions for research.

Other forays from the central theme do not come off as well. Two chapters are devoted to the evolution of health care and health care markets from 1850. While Foreman-Peck demonstrates a fine command of the literature, he necessarily must limit the narration to a highly abbreviated, almost shorthand, summary. Moreover, the summary does not tie in well to the central narrative, as Smith and Nephew operated on and beyond the periphery of core health care endeavors.

In the years following World War II, Smith and Nephew invested heavily in the Lancashire textile industry. Investment to assure quality for specialty cloths with medical applications might have been justified, but the firm expanded capacity to produce cloth used for sanitary napkins, and even to produce denim. Foreman-Peck presents a detailed but somewhat strained justification of that decision. He notes that modernization investments quickly brought productivity levels up to those of best practice as found in the United States and Japan. He fails to note that in textiles productivity differences are swamped by pay rate differences, and that the American industry, even with its best practice, was in trouble. The author notes that returns from textile operations were lower than other branches in the company, but adds that intracompany pricing made those returns somewhat arbitrary. If prices were set low, profits were understated. Intrafirm prices could have just as easily been set too high to consciously or sub-consciously cover a mistake.

Smith and Nephew has achieved considerable success since World War II, and especially since 1980. This book explains the roots of success very well, and provides some insight into occasional failures.

Marvin Fischbaum Department of Economics Indiana State University

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Subject(s):Business History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

The Dynamic Society: Exploring the Sources of Global Change

Author(s):Snooks, Graeme Donald
Reviewer(s):Clark, Gregory

Graeme Donald Snooks, The Dynamic Society: Exploring the Sources of Global Change. New York and London: Routledge, 1996. xvii + 491 pp. $84.95 (cloth), ISBN: 0415137306. $24.95 (paper), ISBN: 0415137314.

Reviewed for EH.Net by Gregory Clark, Department of Economics, University of California- Davis .

For most of the time in any discipline the mundane dominates, and the subject seems to advance at a glacial pace. Old disputes are chewed over, small concessions gained and conceded. There are no sweeping visions, no sustained programs of discovery. The subject is maintained almost as much by institutional inertia as by intellectual passion. Economic history in the eyes of many is firmly stuck on just such hard and unyielding terrain. No one has published a paper yet entitled “The Heights of Norwegians Inferred from a Sample of 23 File Clerks, 1906-1908: A Quantile Bend Estimate,” but given enough time they will.

There is thus always an incipient demand for bolder conjectures, for the big idea that can inject excitement and remake the subject. But pursuing the big idea, seductive as it is, has its dangers. The big idea is inevitably at the beginning ill-formed, and weakly supported. Thus those who venture the big idea need strong egos and selective blindness – they have to withstand the carping of the Lilliputians, and the rejection of the journal referees. But at the same time the ego cannot be too strong, the vision too selective. Therein lies a kind of madness. The innovator has to be able to respond to criticism, but not be overwhelmed by it, to connect with the audience yet not become its servant. The pursuer of the big idea has to walk the thin line between hearing too well and being deaf to reason.

It was thus with some trepidation that I read early in Graeme Snooks’ new book “we need a simple but robust model that can explain the emergence and development of life over the last 4 billion years” (p. 7). It was with even more fear that I noted at the end of the book on page 431 a ten page glossary of “Snookspeak,” including “great linear waves of economic change,” “existential models,” “funnel of transformation,” “strategic- crisis hypothesis” – the new language we need to express the “simple but robust” theory. There was going to be no middle ground for the reviewer of this book – no “a solid contribution to the literature on developments in animal husbandry, which perhaps focuses a little too much on sheep.” Snooks has reached for the big prize. He is either an innovative visionary, or he has crossed over the line into self delusion. For what Snooks attempts in this book, aided only by pen, paper and frequent trips to the glossary, is to produce a theory of life that encompasses and surpasses all of economics, biology, history, psychology, and sociology. To raise the stakes even further this improbable concoction is emblazoned with warm commendations from no less than Douglass North, Nobel Laureate, Baron Herman van der Wee, and Stanley Engerman.

What is Snooks’ new post-Darwinian theory of life and everything? There is at maximum one person who knows, and if he does know, he is unable to communicate it. This is not a case where I can outline the theory, and then ask how well it corresponds to what we know. What the theory is is the central mystery. For example, the theory, Snooks states, employs existential as opposed to deductive models.

“Existential models are empirical models of reality – or models of existence – and can be contrasted with the logical or deductive models of physics and economics, which are merely constructs of the mind….As existential models are based upon dynamic timescapes, they can liberate us from the limitations of deductive thought. They set free the imagination to range over the actual patterns of existence. And in these patterns we can see the dynamic processes of reality” (pp. 433-4).

In California we have many examples of people liberated from the limitations of deductive thought, and often they too have important ideas they need to tell us. So it turns out that Snooks not only wants to rewrite the history of the last 4 billion years, he also, en passant, is introducing entirely new modes of thought, which should, maybe after some refinement, be able to effect a substantial reformation of the physical sciences.

The above example is the book at maximum wackiness. There are many parts, even whole pages, where the exposition is clear: the discussions of crustal formation (yes, the crust of the earth), Hitler’s aims (irrational), the oxygen content of the atmosphere, aggression in men and women (as evidenced by auto accidents), the walls of Jericho, blue-green algae, Henry Thomas Buckle (1821-1862), sea level changes, the Holy Roman Empire, post Keynesians, the ice age, linear time, volcanic eruptions, the nuclear family, Frederick Nietzsche, Joel Mokyr, dinosaurs, dolphins, and the Domesday Book, to name a few examples. The only problem is what the connection of the episode at issue is to the big idea. I know the theory is dynamic, which is why the front cover has charging horses on it, whereas Darwin was static. Dynamism is everywhere – more than one page of the index alone is devoted to dynamism in all its varieties, including “dynamics of the earth: formation of crust.” Change we learn occurs because of dynamism. I also learned that the theory is “economic,” and that it involves “paradigm shifts,” but the theory itself remains hidden from the view of a reviewer trapped in the prison of deductive logic.

To take a specific example, Snooks argues, with some persuasion to someone whose knowledge of the subject is limited to the New York Times, that the attempt by many scientists to explain the extinction of dinosaurs by natural catastrophes is unconvincing. But what is Snooks’ alternative explanation? Dinosaurs were doomed, he assures us, by “having exhausted their dynamic strategies” and further dinosaurs “suffered from over-expansion owing to the exhaustion of their dynamic opportunities” (pp. 77-78). And that’s it. With those trenchant observations, Snooks having dispatched the dinosaur issue between pages 76 and 78 as rapidly as an asteroid impact, marches quickly on to tackle the bigger problems. The survival of some organisms, largely unchanged, from long before the era of the dinosaurs is, I presume, because they did not exhaust their dynamic opportunities to not change. Aristotle, who claimed that objects fell towards the earth because it was in their nature to fall, looks like a model of positivist science compared to Snooks.

Another example, closer to the workaday concerns of economic historians, is “technology as a dominant dynamic strategy.”

“The technological paradigm shift is a widespread human response – occurring in both the Old and New Worlds – to critical episodes in the relationship between population and natural resources owing to the exhaustion of the prevailing technological paradigm. A paradigm shift involves a technological transformation that provides, in a relatively short space of time – when looking forwards rather than backwards – a quantum leap in access to the resources of a niggardly natural world” (pp. 239-240).

Leaving aside the interesting metaphysical claims about time, what is the content of this view? Snooks claims there have been only three technological paradigm shifts: the shift from scavenging to hunting in the Paleolithic, the shift from hunting to agriculture in the Neolithic, and the shift from agriculture to industry in eighteenth century England. He argues that each shift is created by changes in relative factor prices. Now of course, for the first two shifts we know nothing of factor prices. Indeed, again based only on the authority of the New York Times, it has just been discovered that the shift from scavenging to hunting occurred about 100,000 years ago, much earlier than previously thought. Does this matter to Snook’s theory? Not as far as I can tell. When the shift occurred it was undoubtedly the result of population pressure and a stagnant scavenging technological paradigm.

So the only paradigm shift for which we have any evidence on relative scarcities is the Industrial Revolution, the cause of which was “with the growing pressure of population on natural resources, as the old technological paradigm was progressively exhausted, came a rise in prices: of natural resources relative to labour; of labour relative to capital; and of organic relative to inorganic natural resource” (p. 265). This claim is at least clear, but is both theoretically and empirically implausible. Why should population pressure raise the price of labor relative to capital? Why didn’t population pressure in the high middle ages spark an Industrial Revolution? Why wasn’t the Industrial Revolution in China? And empirically the substitution of inorganic for organic resources in Britain before 1850 was a trivial element of the Industrial Revolution, as the work of von Tunzelman, McCloskey, and Crafts clearly shows. But as with the demise of the dinosaurs, Snooks can only allocate about three pages of the book to his discoveries about the Industrial Revolution paradigm shift before he has to rush on to bigger things.

I could go on, but this is enough to convey the point. As we go about the mundane tasks of economic history, trying to prise the occasional nugget of knowledge from hard and stony ground, I am sure we will hear periodically from Graeme Snooks. He will come zooming past, gesticulating wildly and shouting excitedly about new marvelous discoveries made from the comfort of his armchair: discoveries that only he, and possibly Doug North, Herman van der Wee and Stan Engerman, can see and share.

Gregory Clark Department of Economics University of California- Davis

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Subject(s):History of Technology, including Technological Change
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Monitoring the World Economy: 1820-1992

Author(s):Maddison, Angus
Reviewer(s):Hanson II, John R.

Angus Maddison, Monitoring the World Economy, 1820-1992. Washington, DC: Organization for Economic Cooperation and Development, 1995. 255 pp. $30.00 (paper). ISBN 9264145494. (http://www.oecdwash.org)

Reviewed for EH.Net by John R. Hanson II, Department of Economics, Texas A&M University, ;

The heightened interest in economic globalism in recent times makes this a timely book. At the behest of the OECD Angus Maddison, arguably the dean of scholars on the history of the world economy, summarizes the available data and research on trends in the global economy during most of the modern era, defined as the period since the Industrial Revolution. The OECD’s offer also affords Maddison an opportunity to synthesize and summarize his views on world economic integration after a long career studying the subject. This volume, therefore, will be widely welcomed and perhaps accepted in some quarters as a definitive treatment, especially since a standard of’ “Maddison reliability” for historical international economic data seems to have replaced the former “Kuznets standard” among academics. Currently only Alan Heston and Robert Summers, leaders of the International Comparison Project, have similar stature. Yet their work, which Maddison utilizes extensively, lacks Maddison’s breadth.

The book’s main contribution consists of consistent estimates of GDP, population, and GDP per capita for the period 1820 to 1992 for 56 countries accounting in 1992 for over 90 per cent of world product. Other, less complete series are presented for related magnitudes, including employment, exports, capital stocks, and several measures of productivity. Maddison relies on a wide range of sources, corrects for discontinuities in series, and makes adjustments in data provided in the various sources to achieve comparability and continuity. The appendices contain most of this information and are the heart and soul of the volume. The data are accompanied by a concise, general analysis of the major forces accounting for the long-run economic growth and development of countries within the framework of a growing world economy. The analysis is non-Marxist.

Maddison’s prestige as an economist and the OECD’s imprimatur make the new data set a seductive one. It should be labor-saving, thereby raising scholarly productivity in both teaching and research. It will stimulate research in world economic history, which, though growing, remains peripheral to the larger academic agenda. It is informative about the thoughts, conjectures, and conclusions of a distinguished senior scholar in the later stages of a remarkable career, Still, several words of caution are in order.

The book’s title, first of all, is misleading. There is little useful content for the years before roughly 1870, especially with respect to the non-Western world. Some income estimates and other economic data going as far back as 1820 are offered, but Maddison’s tone in presenting these is insufficiently tentative. Early per capita income estimates sometimes are preferred only for it to be revealed in other tables that important concomitant or supporting data are not available, raising many obvious questions. Maddison’s determined and persistent efforts to push income estimates for poor countries back in time are laudable, but the results still must be taken with many grains of salt.

Maddison’s presuppositions in this area, incidentally, were formed during the mid-twentieth century, when Western scholars habitually underestimated Third World incomes, Until recently Maddison has been a critic of the Heston-Summers upward revisions, although this volume suggests that he has finally joined the mainstream. Nonetheless, it is well to remember that Maddison long has lowballed historical income estimates for the less developed world. One of his students, Pierre Van der Eng, recently raised Maddison’s historical estimates for Indonesia. Although Maddison himself deserves great credit for his adaptability and intellectual integrity, many of his historical estimates for poor countries must be regarded as provisional and his judgments tentative even when, as is common, he omits caveats.

Finally, users of this volume should be aware that during his long career Maddison has been fortunate in escaping the minute scrutiny and evaluation to which Heston and Summers and other scholars in this general area have been subjected. Maddison’s enviable reputation is well deserved, yet as Van der Eng and some of my own work has shown the natural tendency to accept Maddison uncritically must be resisted. His historical income estimates for LDCs, for example, are less consistent with general trends in the world economy than some I derived from the work of other scholars. These are arcane matters, to be sure, but users of this volume should understand that much more work will be required before historical income estimates for most of the world can be confidently accepted. With respect to developed countries, however, historical estimates, especially after 1900, are more reliable. On these, Maddison stands on firmer ground.

John R. Hanson II Department of Economics Texas A and M University

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Against the Tide

Author(s):Irwin, Douglas
Reviewer(s):De Long, J. Bradford

Douglas Irwin, Against the Tide: An Intellectual History of Free Trade. Princeton, NJ: Princeton University Press, 1996. 274 pp. Bibliography and index. $29.95 (cloth). ISBN 0691011389

Reviewed for EH.Net by Brad De Long, Department of Economics, University of California- Berkeley

Douglas Irwin has written the history of “free trade”–as an idea and as an economic policy–for our generation. His dominant organizing principle is that the move toward freer trade in economic policy has been “against the tide”- that there have been lots of reasons over the ages why free trade should not have triumphed as economic policy, and that its triumph to date is somewhat miraculous: akin to a river running uphill.

Mercantilism and Free Trade

Free trade as an idea was born in the shadow of mercantilism in early modern Britain. It is not the case that before Adam Smith’s Wealth of Nations thinkers rejected the idea of trade: the notion that countries, like individuals, stand to gain from specialization (producing what they make best and most efficiently) and exchange is powerful, fundamental, and obviously true. But before Adam Smith thinkers overwhelmingly believed that imposing delicately-calculated restrictions on international commerce could boost an economy’s resources and achieve important non-economic goals as well. For example, even Adam Smith wrote that “defense is more important than opulence.”

It is hard from our current perspective to make much sense of the mercantilist writers. They were aggressively pro-export–sharply critical of restrictions that limited export. Irwin sees their doctrines as having four components:

A moral argument that foreign-produced luxuries were not worth consuming, and that the state should (for the good of those who would buy French fripperies if unrestrained) restrict imports of foreign-produced luxuries.

An unemployment-equilibrium argument that allowing imports to increase would throw people out of work.

A belief that manufacturing should be promoted to enhance economic development–perhaps with some recognition that this argument required that the benefits to society from expanding manufacturing be greater than the profits to the manufacturer.

Non-economic goals: “defense more important than opulence.”

Against mercantilism, Adam Smith established a strong presumption in favor of the economic benefits of free trade. David Ricardo nailed the case down with his exposition of “comparative advantage.” Ever since trying to construct a coherent intellectual case for trade protection has been like trying to roll Sisyphus’s stone up the hill.

This is not to say that people have not tried. The case for free trade is not absolute. It is limited by:

Worries about the distributional effects of trade–in which case free trade can boost real national product but erode social welfare if it shifts the distribution of income and wealth in an unfavorable direction.

Worries about the effect of free trade on the terms-of-trade–in which case finely-tuned protectionist measures that erode the total surplus from trade can nevertheless garner a larger surplus for the home country (under the assumption that foreign governments do not retaliate).

Worries about the effect of free trade on high-externality industries–in which case policies that restrict trade might boost external benefits by more than enough to offset the lost gains from trade.

But as Irwin eloquently argues, all these limitations of the case for free trade are fragile. In many cases trade protection is a poor second-best policy, to be avoided because there are other more direct and less costly alternative policies that will produce higher economic welfare. In other cases, close scrutiny reveals that the reasons for rejecting free trade “have foundered under the weight of the manifold qualifications that narrow the range of circumstances under which the argument is valid…. [For example] the strategic use of trade policy to shift rents between countries… hinges critically upon numerous assumptions about competitive behavior and market structure.”

Irwin thus concludes–I believe correctly–that arguments for protection are fragile and frail compared with the presumption that free trade is a good thing. To do better than free trade requires an enormous amount of knowledge and policy-making skill on the part of the government, skill that can only make things a little bit better if protectionist policies are properly applied–but could make things a lot worse if misapplied.

The Rent-Seeking Society

However strong the intellectual case for free trade, the victory of free trade as an economic policy is still quite surprising. We can run through–Irwin runs through–the standard rent-seeking society arguments:

Beneficiaries from protection know who they are.

Each beneficiary from protection gains a lot more than each consumer loses.

Beneficiaries from protection can organize easily.

The logic of politics is not the logic of market exchange–but the logic of power exercised, and identifiable favors done for those who can someday return them.

For all these reasons, governments seeking to assemble coalitions of politically powerful elites should be powerfully attracted by individual protectionist proposals. There is a principle that the set of economists is dense in the space of possible policies: for every small number epsilon, for every policy theta, there is someone who can wear a tie, speak with authority on television, and make semi-coherent arguments that some policy that is within epsilon of theta is in fact optimal. When the stakes are large the returns to being a tame politician or a tame intellectual for protectionist interests are large too, and the labor market works well enough that demand calls forth supply–and we have Pat Choate claiming with an apparently straight face that five million American manufacturing jobs are “at risk” if the United States lowers its tariffs on Mexican imports from an average level of 3% to zero.

And it was here that I found myself wishing that Douglas Irwin had written a slightly different book. For I do not believe that the production and reproduction of intellectual arguments proceeds independently of the rest of social life, and I think the links between the strength of protectionist ideas and the potential benefits to those with the wherewithal to fund the creation and distribution of protectionist ideas are very strong and very interesting. But Irwin remains at the level of the intellect. He does not descend to the sociology of ideology at all–and I think that what is a very good book is less than the Platonic Ideal of a history of free trade because of its limited scope.

In addition, there is powerful feedback from the political economy back to the case for free trade. The very strength of the political-economic pressures toward protection generated in a rent-seeking society serves to powerfully reinforce the case for free trade. Douglas Irwin quotes Paul Krugman that the most powerful case for free trade today “‘is not the old argument that free trade is optimal because markets are efficient’ but rather ‘it is a sadder-but-wiser argument for free trade as a rule-of-thumb in a world whose politics are as imperfect as its markets…. to abandon the free-trade principle in pursuit of the gains from sophisticated intervention could therefore open the door to adverse political consequences that would outweigh the potential gains.'”

The Future

Irwin concludes his book with a resounding triumphalist sentence: “Yet if the historical experiences described here continue, free trade will remain one of the most durable and robust propositions that economic analysis has to offer for the conduct of economic policy.”

I find myself much more pessimistic–not that I think that free trade does not deserve to flourish, but that I doubt that it will flourish. There are two reasons to be skeptical of the future of free trade:

The first reason is that the East Asian economies that have grown so impressively in the past two generations have not been committed to free trade. There are arguments that they have been committed to free trade in what matters most for production (if not for consumer welfare): “a free-trade regime for exports and for imports for exporting industries” is the phrase often used. There are arguments that they have been lucky not to have been badly hurt by their deviations from free trade. There are arguments that they have managed to find a set of trade restrictions that actually does promote high-externality activities and rapid growth.

Which is true is unclear.

What is clear is that for the next generation opponents of free trade will say: “Japan, Korea, Taiwan, etc. did not adopt free trade–and look how fast they grew.” And at the level of economic policymaking and public ideology, this statement has the potential to erode a lot of support for free trade.

The second reason is that arguments for protection today hinge much more on the duties that first world consumers owe third world workers than on the links between protection and first world prosperity. Does the restriction of imports that violate fair labor standards give employers in developing countries the right incentives to improve working conditions and boost social welfare? Or does it just destroy jobs in developing countries–making the life chances of the poor even worse? It is not clear. But consumers in the first world do have moral obligations toward workers in developing countries, and the economic theory of free trade sheds little light on what policies are best in light of these moral obligations.

Brad De Long Department of Economics University of California- Berkeley

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Printers and Men of Capital: Philadelphia Book Publishers in the New Republic

Author(s):Remer, Rosalind
Reviewer(s):Scranton, Philip

Rosalind Remer, Printers and Men of Capital: Philadelphia Book Publishers in the New Republic. Philadelphia: University of Pennsylvania Press, 1996. xiv + 210 pp. Illustrations, map, bibliography. $34.95 (cloth), ISBN 0812233379.

Reviewed for EH.Net by Philip Scranton, Rutgers University .

This slender monograph, which originated as a UCLA dissertation, works toward filling a temporal and analytical gap in the history of American printing and publishing. Rosalind Remer rightly notes that previous, often antiquarian, research has focused on colonial printer/publishers, often heroizing them as masters of a complex and increasingly-politicized trade. More recent studies, particularly John Tebbel’s many volumes, examined book publishers from the mid-19th century through the 1960s – an age of national marketing initiated by railway networks and confirmed through extensive advertising to consumers, book retailers, department stores, et al. Remer asks, appropriately: how did the American book trade accomplish the double transition from local to national distribution and from printing/publishing generalists to a division of labor between publishing specialists and printers, with whom they contracted for book production? Philadelphia, which with Boston and New York constituted the early republic’s centers for book making, draws her close attention.

At its opening, this study reprises colonial printers’ multi-faceted activities as job work operators, newspaper editors, importers and publishers of books and pamphlets, and retailers of same. After 1783, Philadelphia printers moved aggressively into the new republic’s early political battles, creating a series of mostly-ephemeral newspapers supporting one or another of the emerging factions (while drawing revenues from patrons to sustain their vigorous prose). The shifting tides of political advantage boosted or destroyed these printers’ ambitions, for, in business terms, “the most practical patronage came directly from government printing jobs,” available only to those backing winners (34). Though newspaper controversies raged throughout the 1790s, once the federal seat (and its revenue stream) shifted from Philadelphia to Washington in 1800, area printer/publishers paid appreciably more attention to state and local government custom and to the commercial possibilities of books. For the latter, federal influence remained relevant. Under the nation’s first copyright regulations, works published by American authors or any foreign books revised by Americans for domestic use could be defended at law against infringers. As indiscriminate reproduction of English texts had long been both part of the printer/publisher’s repertory and a competitive problem, this provision shifted the terrain. Those making books hastened to adapt, rather than duplicate, “foreign” works of history and geography, school texts, dictionaries, etc. for American audiences, thereby securing copyright protection.

Yet multiple problems remained. Printing books meant little unless they could be distributed and sold, bringing in funds to cover costs and, with luck, generating profits. Moreover, there was clearly a learning curve in mastering book production and marketing. In the two decades after 1800, a cluster of Philadelphia printing masters gradually dropped job work and newspaper ambitions to specialize in creating and vending books, in time abandoning the mechanics of printing to become contracting publishers. By 1820, this core group negotiated with authors, commissioned printing and binding, ran city book shops (some with branches) and developed national networks for distribution, thereby defining publishing as an independent vocation. Key to this process of differentiation were a series of trade organizations and gradually-refined trade practices. Although a few journeymen tried to strike out on their own as publishing entrepreneurs and others formed a short-lived labor association (the Philadelphia Typographical Society), veteran master printers had far better chances for success. Following up on a mid-1790s effort, a group of nascent publishers created the Philadelphia Company of Booksellers in 1802, which encouraged cooperation among producers to limit duplication of reprinted titles, sponsored collective promotional literature, and sought “to bring growth to the trade by encouraging… risk-sharing” (61). Thus Company members co-published a series of schoolbooks, each contributing to the expenses and subscribing for a portion of print runs. Though, like the journeymen’s Society, the Company lasted only a few years, it did bring members of this emerging network into close and fraternal contact, both with one another and with more distant printer/publishers, the latter through a series of book fairs held alternately in New York and Philadelphia. At these twice-yearly sessions, booksellers arranged “exchanges” (trading at list price copies of their imprints for those of colleagues, thus broadening their stores’ stocks), debated distribution dilemmas, and solidified wider credit relationships. The fairs, too, foundered in a few years, but the business links and trade consciousness they fostered would endure, widening the gap between publishers and ” mere” printers.

As Philadelphia’s most prominent bookman, Matthew Carey addressed the distribution obstacle by dramatically expanding an older trade practice. To get books on store shelves beyond the coastal cities, publishers had at times used commission sales, acting as quasi-wholesalers who selected and shipped parcels of books to shops in interior towns, though retaining ownership. Frequent correspondence with hundreds of vendors enabled Carey to develop an information base about what moved and what didn’t, thus identifying local and regional reading tastes. Early on, Carey also employed “a full-time book peddler” to travel the back country, in this case the celebrated Parson Weems, who sold religious tracts and took orders throughout Maryland and Virginia (130). The city’s Woodward house ultimately engaged 47 such minister-salesmen, whereas McCarty and Davis hired “professional” travelers “who derived their whole living from selling books” (136). Carey and others also collaborated on extensive co-publishing ventures with up to a dozen colleagues along the Atlantic coast, in order to finance multi-volume sets (e.g., Shakespeare, the Waverly novels), often soliciting advance subscriptions and again sharing risks and rewards.

Collectively, these marketing tactics swelled the circulation of books throughout the early republic. However, the trade’s expansion depended upon “an extraordinarily delicate business structure,” centered on credit relationships (116). Publishers rarely had cash in hand to fund printing costs, hence printers often took payment in books or discountable notes, rather than wait for publishers to amass income from sales. At the other end of the pipeline, rural shops and peddlers were notorious slow-pays and, laterally, publishers usually had elaborate interfirm credits and debts, carried on their accounts. In this regard, Remer elegantly explicates publishers’ accounting practices and demonstrates that their complex credit networks reinforced a workable sense of community. Publishers routinely endorsed notes for printers and one another, and just as routinely, extended them, for protesting a default, much less instituting a lawsuit over a debt, could set off widening ripples of credit collapse. Indeed, when Carey refused to extend an endorsement for C. and A. Conrad, forcing their bankruptcy, the outcome haunted him for years, not least because his fellow creditors stripped the firm’s principal assets while Carey was out of town, leaving “not… a single dollar’s worth for me” (119). He lost $22,000 in the affair. Though Remer does not press the point, I’d consider this sequence a trade community’s exemplary revenge on a member who had broken unwritten compacts and threatened its fragile foundations of trust and credit.

Overall, Remer’s study provides a corrective to earlier scholars who dated the divorce of publishing and printing to the mid-nineteenth century and regarded publishers’ marketing efforts before the railroad age as minimal. Equally valuable is her reconstruction of the extensive interactions among publishers, of their business practices and networked credit relations, and of their growing self-awareness as a community promoting both entrepreneurship and “a national society and culture” (152). Though the writing is at times wooden (passive voice abounds), this work should be welcomed as a substantive contribution to understanding a crucial economic sector’s transformation in the early decades of the republic.

Philip Scranton Department of History Rutgers University at Camden

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Subject(s):Business History
Geographic Area(s):North America
Time Period(s):19th Century

Economics and the Historian

Author(s):Rawski, Thomas G.
Reviewer(s):Kiesling, Lynne

Thomas G. Rawski, ed., Economics and the Historian. Berkeley: University of California Press, 1996. xiv + 297 pp. Bibliography and index. $45.00 (cloth), ISBN 0-520-07268-5; $17.00 (paper), ISBN 0-520-07269-3.

Reviewed for EH.Net by Lynne Kiesling, College of William and Mary

Economic historians fill a peculiar, and sometimes uncomfortable, intellectual gap in the social sciences. In an ever-fracturing and increasingly compartmentalized scholarly environment, the economic historian may not find a welcoming, collegial home with either historians or economists; the notion of a truly interdisciplinary analysis is more rhetoric than reality for many scholars.

This volume of essays seeks to bridge the gap in the direction of historians. Arguing that economic analysis contributes a useful set of tools to historical scholarship, the eight economic historians writing these essays attempt to negate the stereotype of economic analysis as false quantification and so much mathematical esoterica. These chapters are well written, tightly argued, and should be of value both to the historian looking to learn more about the economic approach to history and to the economist looking for a clear presentation of the general methodological foundations of “historical economics.”

In his introductory chapter Thomas Rawski starts by observing how pervasive economic factors are, and were, in everyday situations, and that economists and historians ignoring each other is a two-way street:

“Even if man does not live by bread alone, economics lurks beneath the surface of any historical inquiry. The economist who hesitates to peek outside the confines of his models can overlook cultural influences on markets. Likewise the historian of labor, of agriculture, of trade policy, of elite politics, of the church, of international conflict, of the arts, of migration, ideas, industrialization, universities, technology, demography, or crime ignores the economic approach at the risk of losing important lines of explanation” (p. 1).

After noting the apparent enthusiasm of economists for the benefits of history, Rawski goes on to discuss briefly the ideas underlying basic economic models; by doing so he lays a foundation of understanding in the reader for the more sophisticated analyses presented in the subsequent chapters.

Rawski also wrote the second chapter, in which he discusses the analysis of economic trends. Historical analysis is especially suited to studying long-term changes in factors such as “economic welfare, distribution of income and wealth, degree of commercialization, patterns of cropping, organization of economic activity, [and] significance and functioning of various economic institutions” (p. 15). Getting to the heart of a common misperception that historians often hold concerning economic modeling, Rawski clearly points out that examining long-term changes in such factors is meaningless without putting the trend in its relevant economic context. Rawski then refers to the most common way to explore aggregate trends across time and across countries, national income accounts, and briefly explores the three areas of economic activity that national income accounts miss: household production, underground activity, and unrecorded costs. However, when we look at broad trends we are looking for general tendencies across time, and national income accounts give us an imperfect, but rather consistent, indication of these tendencies or trends. After a useful explanation of how national income accounts are derived, on both the expenditure and the output sides, Rawski also examines economic cycles and trends within them.

Jon Cohen then provides an interesting discussion of the role of institutions in economic analysis, a currently fruitful area of research in some fields of economics. Cohen defines institutions as “efficient ways of organizing human activity where markets alone will not suffice” (p. 60), such as the firm or the family. In the most basic, most restricted economic model of human behavior, all resources in the economy find their highest value use through the market, without any need for relationships beyond those stemming from market activity. Clearly, this simplistic model abstracts too far from the real relationships of life, all of which do have some economic component (even friendship does–when we spend time with friends and do things for and with them, we forego opportunities to do other things that might also be of value to us). Cohen focuses on the family, the farm, and the firm as institutions that work in conjunction with the market, in a more realistic model of human behavior. In the course of discussing why such institutions exist and what benefits they provide, Cohen highlights the property rights literature building on Coase’s work analyzing the existence of the firm.

Exploring labor economics and labor history, Susan Carter and Stephen Cullenberg creatively construct a dialogue between “Clio” and “Hades,” two professors of history and economics, respectively, on the relative merits of their methodologies. They first discuss social norms and market forces as determinants of female labor-force participation, subsequently covering the individual choice between work and leisure as the basis for most economic models of labor. Carter and Cullenberg reinforce what I perceive as the essential elements of this book: economic models are tools, nothing more, but they are useful tools because they may highlight relationships that might otherwise not have been obvious; these tools, as well as the tools of historical analysis, need to be used in context.

The fourth chapter, written by Donald McCloskey, focuses on the basic model of neoclassical economics and its emphasis on choice. Because economists emphasize resource scarcity, they look at human behavior in the context of individuals making choices facing a set of alternatives. McCloskey argues that (neoclassical, but I would argue all) economists “would urge the historian not to jump hastily to a diagnosis that peasants follow their plows by custom alone or that traders trust each other on grounds of solidarity alone…. Neoclassical economics, in other words, completes sociology and anthropology, because it studies a motivation unattractive to those fields: choice under constraint” (p. 123). Choice transcends markets and permeates nonmarket institutions, as Cohen’s chapter suggested. McCloskey’s articulation of the choice basis of economics also enables him to address a common misperception of economics–economics is not about money alone. Choices made and profits garnered need not be pecuniary. This focus on choice complements other historical approaches emphasizing, for example, culture.

Richard Sutch’s chapter provides a concise survey of macroeconomics, peppered with historical examples that highlight some benefits of aggregate economic analysis. He concludes that thinking in terms of a macroeconomic approach could be useful to the historian, even if he or she is not using aggregate economic data. Sutch clears up another problem area for non-economists–what exactly are inflation and unemployment, and how can we tell if they are present in our historical situation? Sutch also addresses the potential pitfalls of aggregation, fruitfully discussing the benefits of, for example, micro studies of real wages in 1830s Britain by region and by occupation, but reminding the reader not to commit the fallacy of composition. Just because handloom weavers in Lancashire suffered large declines in their incomes does not mean that all British workers fared poorly during the 1830s. Sutch also uses the tools of macroeconomic analysis to understand wartime destruction and postwar economic activity after the Civil War and World War II.

Next Hugh Rockoff tackles the thorny topic of money, banking and inflation. He structures his discussion as the tale of the development of money in a hypothetical economy, using examples from history to illustrate issues that arise as an economy becomes more commercial. He starts in medieval times with a gold-based money, moving on to explain how new discoveries of gold caused inflation. His subsequent explanation of the quantity theory of money and Hume’s price-specie flow mechanism is valuable to non-monetary economists as well as to historians interested in monetary history. Rockoff then discusses the rise of banking, usually starting with individuals “depositing” gold coins with their local goldsmith for safekeeping. As goldsmiths discovered that not everyone wanted all of their money back at the same time, they found that they could make money by lending out some of the deposits they held: thus the birth of fractional reserve banking. This development also meant that the goldsmith had an incentive to pay the depositor interest on his deposit, thereby creating a dimension on which goldsmiths compete for business. Rockoff also explores banking panics, fiat money and central banking, which require more sophisticated economic models and some attention to institutional detail.

The final chapter, by Peter Lindert, highlights the role of international economics in understanding the evolution of trade relationships through history. In the context of discussing international relations, Lindert emphasizes one of the basic tenets of economics–trade creates value, and both parties benefit. But that value is not distributed equally among the trading partners, and Lindert addresses the implications of that fact in terms of the development of trade restrictions (tariffs and quotas) and the evolution of trading relationships. In the final section of his chapter Lindert provides a discussion of the determination of exchange rates that I found extremely valuable, and much clearer than any other I’ve seen on the subject.

Every chapter in this collection provides valuable insights on the use of economic logic and modeling in explaining historical phenomena. I sensed no condescension from the authors toward the methodology of the historians among their readers; I sensed only respect and appreciation for good economic methodology, and an interest in sharing that enthusiasm with historian colleagues.

Lynne Kiesling Department of Economics College of William and Mary

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Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Evolution of International Business: An Introduction

Author(s):Jones, Geoffrey
Reviewer(s):Taylor, Graham D.

H-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (July 1996)

Geoffrey Jones, The Evolution of International Business: An Introduction . London and New York: Routledge, 1996. xii + 360 pp. Bibliographical references and index. Cloth, ISBN 0-415-10775-X; paper, ISBN 0-415-09371-6.

Reviewed for H-Business by Graham D. Taylor, Professor of History/Dean of Arts and Social Sciences, Dalhousie University, Halifax, Nova Scotia

During the 1960s multinational enterprises emerged as a focus of interest (and much controversy) both for economists and for the general public. Much of the literature of that era (leaving aside the important pioneering works of Raymond Vernon, Charles Kindleberger, and John Dunning) provided a very time-bound perspective on this phenomenon. Economists tended to treat multinationals as byproducts of post-World War II international financial integration and improvements in communications and transport technologies. To the broader public, in the United States and elsewhere, they were associated with U.S. economic expansion and indeed were perceived as reflecting a particularly “American” form of business organization.

Since that era, the international economy has changed dramatically: multinational enterprises became truly “multinational” as East Asian and European firms expanded (or, perhaps more properly in many instances, reappeared) in global markets and new cross-national “strategic partnerships” of firms emerged. During the same period, the historiography of multinational enterprise was vastly enriched by scholars such as Mira Wilkins, D. K. Fieldhouse, Peter Hertner, Shin’ichiYonekawa, and many others, who not only probed well into the pre-twentieth-century origins of multinational activities, but also linked their work with broader reinterpretations of the dynamics of business evolution and organization.

Geoffrey Jones has been very much a part of that international community of scholarship on multinationals, and in this book he has undertaken to synthesize that literature. Jones far too modestly designates the study as a “text book” or “introductory survey.” It is in fact a substantial contribution to our understanding of the historical significance of multinational business, broadly defined to encompass more than the conventional category of “foreign direct investment” (FDI). His book provides a needed overview of the global dimensions of this phenomenon and a coherent framework for analysis of major historical trends and central issues emerging from the literature.

Jones’s study opens with a review of the major interpretive approaches to analyzing multinationals, including concepts of ownership advantage, internalization/transaction cost, and Dunning’s “eclectic model,” all of which are well integrated into the historical chapters that follow. He also links the study of multinational evolution to the themes of organizational development associated with Alfred Chandler and the literature on the firm and national competitiveness.

This section is followed by a general overview of the major trends in multinational operations since the mid-nineteenth century, highlighting the distinctiveness of different periods in that evolution (1880-1914; the interwar period; the 1940s to 1960s; and the period since 1971). This periodization indicates both the continuities of growth of international business and the volatility of that history, reflecting shifts in external factors (“the business environment,” encompassing the impact of wars, shifts in global trade and monetary arrangements, nationalizations and other governmental regulatory measures) and consequent changes in the strategies of firms.

The next chapters review the role of multinationals in specific industrial sectors: natural resources, manufacturing and services. There is a certain degree of repetition in these sections, as Jones works through each period for the different sectors. But it is also clear that very different patterns can be discerned in the forms and motivations underlying international direct investment in each sector, as well as in the internal dynamics of firm organization, relations among firms, and between multinationals and governments.

The final chapters focus on particular issues that have emerged in the literature. These include: the variations among nations and cultures in the propensity of their business enterprises to engage in foreign investment; the relationship between foreign direct investment and economic development, in terms of both home economies (of the multinationals) and host economies; and the relationships of multinationals and governments.

Despite its relative brevity, this is a dense book that covers a wide range of topics relating to the history and theory of multinational business, each in a balanced but succinct manner. Consequently, it would be an oversimplification to suggest that it embraces a particular set of themes or line of argument. But there are certain general characteristics of the history that emerge from the study.

From the late nineteenth to well into the twentieth century, most foreign direct investment was focused on the development of natural resources, with some spinoff growth of ancillary services. Latin America and Asia were particularly notable recipients of this investment. FDI in manufacturing expanded slowly through the early twentieth century and more dramatically in the period after World War II, and the geographic center for such investment shifted to Western Europe. This trend in turn was overtaken by developments in the service sector (particularly in finance) in the past two decades, with East Asia and Western Europe, along with the United States, as major areas of investment activity.

Although there have been periods of single-country dominance in outward investment (the United Kingdom between the 1880s and 1914, and the United States in the 1950s and 1960s), perhaps more significant has been the consistent growth of multinational operations over the past century. As noted earlier, Jones’s approach embraces a range of international business activities. During the pre-World War I era, investment flows were tied to some extent to the “imperial” territories of various European nations (with regions such as Latin America becoming a battleground for European and American investors), and occurred through a peculiar (and primarily British) form called “free-standing companies” (local enterprises owned by foreign syndicates) as well as the more familiar home-and-branch operations.

In the interwar period, as national governments imposed a variety of constraints on international trade and capital flows, international cartels flourished, in part as a means of circumventing them. In the period since the 1970s, a new form of “strategic partnership” among firms of different nationalities has emerged, reflecting both the diverse origins of enterprises in global markets and the effects of financial integration coupled with the growth of regional trade blocs. In each era multinational businesses have altered their forms of operation to suit contemporary conditions, while sustaining a general trend toward growth and integration.

The strength of the book lies in its coherence, its ability to provide a clear framework for a complex process of development over a fairly long time-span. Some of this coherence might have been lost had Jones extended his analysis even further back in time, but it might have been a useful exercise to provide a broader historical perspective on the evolution of international business (as opposed to the evolution of multinational enterprise). Jones does devote a section of his chapter on “Multinationals and Services” to a discussion of the large international trading companies of the seventeenth and eighteenth centuries; but generally he focuses on the period after 1880, with an emphasis on improvements in technology (enhancing the internal management of firms in international markets) and financial integration, accompanied by nationalistic trade policies, in shaping a business environment congenial to multinationals.

But, as studies by Larry Neal (on international capital markets), James Tracy and Jonathan Israel (on the Dutch and British “merchant empires”), and Ann Carlos and Steve Nicholas (on the internal organization of trade companies) indicate, by the eighteenth century the international economy had developed strong financial and logistical links, and businesses such as the Hudson’s Bay Company and the East India companies were developing mechanisms for internal communication and management.

Jones’s chapter on multinationals and natural resources understandably gives pride of place to the “nonrenewable” resource sector (mining and petroleum) and does not ignore the “renewable” area. But a review of multinationals in the forest products industry could reinforce some of the points he makes in other contexts. As a capital-intensive industry, forest products (especially pulp and paper) has been a field with a number of multinational actors, such as the British firm Bowater, the Swedish Stora, the U.S. Weyerhaeuser, and Canada’s MacMillian-Bloedel. The intricate links between publishing companies and paper manufacturers in international markets provide another interesting feature of this industry, ranging from direct-investment ventures (such as the Chicago Tribune‘s Canadian pulpmills) to Bowater’s “strategic partnerships” in the 1920s-1940s (not without endless friction) with the British newspaper barons, Rothermere and Beaverbrook, to exploit the forestry resources of North America.

These are minor caveats, however, and do not detract from the general quality and significance of Jones’s study. As noted earlier, the book represents a well-organized synthesis of the state of the historiography of international business today, which at the same time can provide a basis for future research in the field, by identifying major lines of argument and the areas of uncertainty and controversy that still must be addressed.

Graham D. Taylor Dalhousie University

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Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Baldwin Locomotive Works, 1831-1915

Author(s):Brown, John
Reviewer(s):Churella, Albert J.

John K. Brown. _The Baldwin Locomotive Works, 1831-1915. Baltimore, Md.: The Johns Hopkins University Press, 1995. xxxii + 328 pp. Illustrations, tables, appendices, notes, bibliography, and index. $35.95 (cloth). ISBN 0-8018-5047-9.

Reviewed by Albert Churella, Department of History, The Ohio State University, for H-Business (April 1996)

Any company that did not implement the standardization and bureaucratic centralization characteristic of American System manufacturing would appear doomed to failure in the highly competitive Gilded Age business environment, yet the Baldwin Locomotive Works thrived by deliberately avoiding standardized mass-production techniques. In advancing this argument, John Brown asserts that Baldwin’s customized building techniques forced the company to develop systematic managerial controls earlier than companies that were able to standardize production. The author organizes his work topically, exploring such issues as innovation, management, labor relations, and production methods.

As a leading producer in the nineteenth-century capital goods industry, Baldwin experienced periodic peaks and troughs in locomotive orders. By the 1850s, furthermore, railroad motive power officials were demanding significant control over the development of locomotive technology. The egotism of many railroad master mechanics, combined with varied railroad operating conditions, resulted in demands for a plethora of locomotive designs. The size, complexity, and, above all, this multiplicity of designs rendered standardized mass production impossible in the steam locomotive industry.

Baldwin not only survived on this diet of customized small-batch production; it positively thrived. Much of this success resulted from the entrepreneurial abilities of the company’s founder, Matthias Baldwin, as well as from its lack of a centralized bureaucratic management–for Baldwin, despite its size, remained a partnership until 1909. The Baldwin partners understood that locomotive building was a risky business, and they diluted this risk by relying on outside suppliers for capital, by forming financial allegiances with banking houses and with the railroads themselves, by making extensive use of the inside contracting system, and by relying on collusion and price-fixing.

Baldwin exploited economies of scope, far more than scale economies. Particularly during slack periods, the company solicited foreign business and orders for non-traditional railroad products, ranging from mine locomotives to elevated railway equipment–all of which contributed to its non-standard production. More important, Baldwin sought to use as many common parts as possible on its custom-built locomotives. As a result, despite offering hundreds of locomotive designs, Baldwin drew from a vast reservoir of established designs. By the 1860s, Baldwin employed a system of jigs, fixtures, and gauges to ensure standardized production–methods commonly referred to as Armory Practice, although Brown indicates that Baldwin “seems to have developed its own variant of these techniques without any direct transmission from the Armories or other American System manufactures” (p. 174). Baldwin also improved production efficiency by implementing piecework, which, Brown states, caused little dissent within the ranks of skilled workers. By standardizing and systematizing the production of locomotive components, Baldwin’s partners “created new organizational controls ten to thirty years before their American System consumer product cousins took up such concerns” (p. 93).

The “labor question” troubled Baldwin’s managers, as it did their counterparts elsewhere in industrial America. Baldwin exhibited a particularly strong sensitivity to this issue, because varying business cycles called for hiring binges followed by massive layoffs; yet the technical complexity of steam locomotives required the company to maintain a cadre of skilled and loyal workers. Baldwin succeeded in maintaining peace in an age of industrial violence through cooperative relations, Brown argues, and not by coercive threats or regimented Taylorism. The company paid consistently high wages and instilled worker loyalty through a system of apprenticeships. Of the highly skilled long-time employees, a select few would become partners, since Baldwin rarely recruited outside managerial talent. Since most of the primary source material that Brown uses in his discussion of labor issues consists of company statistical data and managerial correspondence, it is of course difficult to determine the true degree of worker loyalty; and it is equally difficult to test the assertion that management saw piece rates as a path to cooperative, rather than coercive, efficiency.

Baldwin’s skills in responding to varied customer demands ultimately caused great hardship for the company. Locomotive orders peaked in 1906 and, after this date, Baldwin’s producer culture was ill-equipped to respond to a combination of a hostile regulatory climate and an increasing pace of technological innovation. Still, as Brown forcefully argues, for more than half a century Baldwin’s production and managerial innovations enabled the company to respond effectively to a market that would not accept mass production.

This book leaves several tantalizing questions unanswered. It is largely beyond the scope of Brown’s work, but an exploration of technological diffusion in relation to the locomotive industry seems to offer an important topic for future research. In a footnote (p. 252), Brown notes that several employees in the locomotive industry later assumed leadership roles in the development of other manufacturing industries. Aside from this reference, and the thorough discussion of links between railroad master mechanics and technological innovation at Baldwin, there is little material relating to the impact of emerging manufacturing technologies on the company and, in turn, the relationship of Baldwin’s technological innovations to other firms and industries. Such linkages merit additional consideration, since Baldwin seems to illustrate a bridge between the emergence of Armory Practice in the early nineteenth century and the development of bureaucratized managerial controls over manufacturing and distribution in high-volume industries during the 1880s and 1890s. Also, given the limited managerial structure at Baldwin, it would be helpful to have more information regarding the disparate backgrounds and entrepreneurial outlooks of individual Baldwin partners.

These minor omissions in no way detract from the excellence of Brown’s work, which adds to the growing number of valuable correctives to well-known studies of bureaucratically managed mass-production and -distribution firms. This study provides a thorough and well-balanced analysis of the contributions of an important, although largely neglected, firm and industry to the development of nineteenth-century technological and managerial systems.

Reviewed by Albert Churella Department of History The Ohio State University

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Subject(s):Business History
Geographic Area(s):North America
Time Period(s):19th Century

Who’s In Charge? Workers and Managers in the United States

Author(s):Liebhold, Peter
Rubenstein, Harry
Reviewer(s):Lichtenstein, Nelson

An Exhibit Review

WHO’S IN CHARGE?: WORKERS AND MANAGERS IN THE UNITED STATES February 10, 1996 – April 7, 1996 An Exhibit at the National Museum of American History Washington, D.C.

Reviewed by Nelson Lichtenstein for H-BUSINESS, March 1996 University of Virginia nnl3w@darwin.clas.virginia.edu

Smithsonian curators Harry Rubenstein and Peter Liebhold have braved the chilly ideological winds blowing across the Mall to mount this timely and provocative traveling exhibition in the National Museum of American History. The space devoted to the exhibition is relatively small, but the subject is huge: nothing less than a class analysis of the labor process from the nineteenth century industrial era to the contemporary world of computer consoles and just-in-time production techniques.

Rubenstein and Liebhold have assembled some striking artifacts: an ominous set of nineteenth-century iron gates from the Bobson Textile Mills of Philadelphia, which guards the exhibit entrance; a set of the wooden tobacco molds that did so much to deskill turn-of-the-century cigar workers; an early set of time and motion sheets, with stopwatch, used by Frank and Lillian Gilbreth; and a contemporary keyboard from a McDonalds cash register, upon which the dollars and cents numbers have been replaced by “words” like FUDG SUND.

This traveling exhibit, on display at the NMAH through April 7, is well grounded in the spirit of Harry Braverman, perhaps far too much so. Indeed, its first third is an unrelenting exposition of the ideology and praxis of nineteenth-century industrial management, whose quest for industrial hegemony through workplace regimentation and deskilling is starkly explicated. Given the calculated ignorance of the rest of the museum world on this subject, the creators of “Who’s In Charge?” deserve our considerable gratitude, but there is a heavy-handed didacticism here that is most off-putting. No panel invokes the resources upon which the working class itself mobilized a turn-of-the-century resistance: there’s no hint of the communal, republican world first celebrated by Herbert Gutman, or even of the craftsman’s fierce pride and autonomy so well evoked by David Montgomery and the generation of labor historians who followed his lead. No artifacts from either the Knights of Labor or the Industrial Workers of the World are shown.

Historians of technology will find this early section of the exhibit flat-footed as well: a quotation from Karl Marx–who is identified only as an “economist”–encapsulates both the admirable political boldness and the reductionism of the exhibit: “It would be possible to write a history of inventions … made for the sole purpose of supplying capital with weapons against the revolts of the working class.” Driving home the point is an epigram from Frederick Taylor: “In the past workers have been first. In the future the system must be first.”

A short section on the New Deal and the classic era of mid-century collective bargaining stands at the exhibit’s midpoint. Here the focus shifts rather abruptly to discussions of trade unionism, strikes, and the new labor legislation. All this is important, of course, but the resolute focus on the relationship between workers and their immediate bosses, which was the signal virtue of the exhibit’s first section, is missing. A union contract book, a shop steward’s badge, or an actual seniority list posted on a factory bulletin board might well have exemplified the shift in shop-floor power relations so notable in the New Deal era.

The exhibit’s dramatic final section is dominated by an Andon Board taken right out of the jointly operated Toyota-General Motors assembly plant in Fremont, California. With its blinking red, yellow, and green lights revealing the status of each work station, the Andon Board is the physical embodiment of Japanese just-in-time production techniques. Workers have the formal right to stop the line by pulling a cord–in which case their green light turns first to yellow and then, after a pause, to red–but management has quickly learned to process this worker-generated information on labor intensity to “stress” the line in order to achieve relentlessly higher levels of individual productivity.

This exhibition room also displays a series of wonderful posters and advertisements, touting everything from foreman training and employer-employee unity to the virtues of cheap labor in Haiti and the rest of the Caribbean. Although the advocates of the new “team production” schemes are given their due, this final exhibit space is undoubtedly one of the most forthright critiques of contemporary capitalism to appear at taxpayer expense. The glowing set of tributes to the exhibition that appear in the comment notebooks at the exit demonstrate that, whatever the project’s limitations, Liebhold and Rubenstein have tapped an exposed nerve in the way Americans feel about the contemporary world of work.

Nelson Lichtenstein nnl3w@darwin.clas.virginia.edu

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Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):General or Comparative