A Failure Of British Entrepreneurship Between 1870 And 1914 - Case Study Example

A Failure Of British Entrepreneurship Between 1870 And 1914 0.1 Introduction Largely, it sounds conjectural to trace the exact causation of economic decline of Britain in the late 19th century. However, a serious consideration of the available data and historical texts, not only enable one to identify the exact timing and a tentative extent of the economic decline in the late Victorian Britain, but also allow the concerned individuals to trace the origins of this decline to a gross failure of British entrepreneurship. An analysis of the staple industries in the Victorian Britain, be it the cotton industry, iron and steel sector, electrical manufacturing or a dissection of the capital markets and financial trends of the times, lead one to some specific traits of the British entrepreneurs, which aggravated if not initiated the economic decline of Britain in the late 19th century. These traits include a dismal failure to adapt to new technologies, a gross misunderstanding as to the relevance of science in industrial efficiency, an obstinacy to stick to low-yielding established industrial sectors, a dearth of relevant managerial and organizational skills, an inability to delegate responsibility to subordinates and to take advantage of talented people having complementary proficiencies and a general lack of trust and faith in the British entrepreneurial potential (Aldcroft 1981) . 0.2 The Decline of British Economy At some time during the late 19th century, Great Britain fell victim to an economic decline. Various Historians tend to facilitate diverse reasons as to this economic demise of the Victorian Britain. Some historians attribute this economic decline to the rampant alterations in the world economy, emanating from the proliferation of the Industrial Revolution in the 19th century. There is one other school of historians, who link the economic fall of Victorian Britain to the lacunas existing within the British economy. Many historians blatantly profess that this so-called economic decline of Britain in the late 19th century could be understood and analyzed only in a relative perspective. As per these historians, the economic meltdown in the late 19th century Britain stands to be plausible only when one compares the performance of the British economy to other major industrial economies like the US and Germany. According to Alford, “British enterprise, it will be argued, did not decline during this period: it remained remarkably constant and inflexible (1996).” On the contrary, the available statistical data also to some extent indicates that in fact the British GDP was on the rise in the period 1870-1890, irrespective of a sluggish annual rate of growth. Crouzet (1982) argues that the growth rate of Britain, which rested at 3.1 percent in the period 1811-1877, came down to 1.6 percent between 1877 and 1913. Historians also tend to differ, as far as the onset of this economic decline is concerned decline. A majority of the historians identify the year 1873 as the time when Britain slipped into a prolonged era of economic slowdown. Others argue that the UK experienced a remarkable economic growth in the period 1820-1830. Thus, Victoria’s accession tends to be the chronological coordinate that ushered in an era of economic decline (Crouzet 1982). Realistically speaking, in consonance with the available statistical data, 1870 could be considered the point of genesis of Britain’s economic decline. It was only in the period between 1870 and 1913, when Britain’s share of the global industrial output, which rested at 31.8 percent, nosedived to a pathetic and alarming 14 percent (Crouzet 1982). There is no denying the fact that a majority of the historians hold that the late Victorians happened to be grave failures, as far as the realm of entrepreneurship was concerned. As far as the entrepreneurial acumen of late Victorians is concerned, the analysis of their failure tends to bee three pronged. In the late 19th century Britain, the industrial output plummeted sharply owing to a manifold decrease in demand (McCloskey 1970). Besides, the late Victorians were irresponsible, as far as their panache for indulging in foreign investments was concerned, augmented by commensurate imperfections in the local capital markets (McCloskey 1970). Surely, this far from perfect entrepreneurship gave way to a chronic stagnation in the British economy (McCloskey 1970). The sluggishness in demand could as much be attributed to the emerging competition in the world markets, as to the decline of the entrepreneurial initiative within the UK (McCloskey 1970). As a result, not only the British economic growth came to a standstill, it also dampened the urge to invest in the British markets. The inept capital markets at home led to an above average diversion of funds to the foreign markets. This large-scale capital outflow from Britain in the late 19th century further jeopardized the things in the already lethargic markets at home. In such a scenario, there was little initiative left for the already apprehensive British entrepreneurs to invest in the novel technologies, which could have perhaps led to a revival of the British economy (McCloskey 1970). To make the matters worse, the British entrepreneurs exhibited little enthusiasm to exploit and to make much out of the few, but propitious opportunities existing in the UK (McCloskey 1970). Simply speaking, the late 19th century Britain happened to be a hapless victim of the vicious cycle fuelled by the lagging domestic productivity and a proportionate flight of the essentially British capital and entrepreneurial verve to the foreign climes. 0.3 The Cotton Industry In the late 19th century, the cotton trade in England was concentrated in three districts that are Manchester, Nottingham and Clyde Valley in Scotland (Mass & Lazonick 1990). In the year 1861, cotton industry employed nearly 446,000 workers, which constituted roughly 18.3 percent of the UKs working population (Mass & Lazonick 1990). It is next to impossible to overestimate or exaggerate the importance of cotton sector in the British economy. This stood to be especially more true in the 19th century Britain. At that time, cotton not only qualified to be a major bulwark of the British economy, but also had a salubrious and stimulating impact on the overall British economy. Cotton industry acted as a favourable precursor to various other important sectors and industries like civil and mechanical engineering, chemical industry and wholesale and retail trade. However, a varied cocktail of historical, economic and technological factors led to the fall of the cotton industry in the Victorian England. The Lancashire cotton famine of 1861-1865 gave the first major jolt to the British cotton sector and other ancillary industries (Mass & Lazonick 1990). The blockade of Confederate ports by the Federal Navy during the American Civil War starved the cotton mills in Lancashire and other textile hubs of their staple raw material. This resulted in the closure of cotton factories and mass unemployment. The irony of the situation was that when the textile workers in the UK were starving and rioting and when the economy had come down to its knees, the stakes within the nation turned out to be callous, selfish and unconcerned. The speculators within the UK further aggravated the situation by hoarding the available stocks of cotton and indulging in gross and unrestricted speculation. Though the fall of cotton industry in the Victorian England cannot be totally attributed to speculators, still their activities smacked of a deplorable lack of ingenuity and initiative and a tragic demise of entrepreneurial spirit. The Indian, Brazilian and Japanese textile units posed a strict and stiff competition to the British cotton sector, courtesy the lifting of restrictions on the export of textile machinery in 1842 (Mass & Lazonick 1990). The entrepreneurs in the UK miserably failed to deter the foreign competition by resorting to innovation and invention. However, the European cotton industry was still not match to the English cotton sector, the availability of cheap labour in Asia and Far East grew to be an insurmountable challenge owing to the dilution of the entrepreneurial zeal within the UK. In the year 1873, raw cotton no more qualified to be the major British import unlike the last 50 years (Mass & Lazonick 1990). The straits were further complicated by the inability of the British entrepreneurs to come out with technologies that could rescue the ailing cotton sector. The industry succumbed to the pressure posed by the emerging foreign competition and the transfer of related technologies to the foreign markets (Mass & Lazonick 1990). A strong sterling and the existence of wide spread trade barriers in the international markets made the situation even worse. The British entrepreneurs not only proved to be passive onlookers, but also failed to respond to the challenge by taking care of the structural problems in the cotton industry. The entrepreneurs appeared to be more interested in over-specialization, rather then seeking the integration of the various processes like spinning, weaving, finishing and trade (Mass & Lazonick 1990). The British government also turned out to be stubborn, as far as its admittance of the ineffectiveness of laissez-faire in the face of foreign competition was concerned. This further dampened the entrepreneurial spirit in England, when it was under immense pressure. 0.4 Iron and Steel The plight of the iron and steel industry in the Victorian England epitomised the ultimate annihilation of the English entrepreneurial potency. In the late 19th century, Britain not only started to loose its supremacy in the world iron and steel markets, but also became a bulk importer of steel by the end of 1913. As per the opinion of Johnson (1994), the British productive contribution to the global iron and steel markets that rested at 43 percent in 1870, eventually dwindled to 10 percent in 1913. Still there is no dearth of scholars, who interpret the decline of British dominance in the iron and steel sector as being inconsequential, as far as the decline of British economy was concerned. Yet, there is no denying the fact that the constraints in the iron and steel sector significantly slowed down the rate of growth in the dependent sectors like railway and coal, and certainly impacted the growth of other vital sectors like shipbuilding, metal and engineering (Johnson 1994). Realistically speaking, at the very dawn of the Victorian era, the British lead in iron and steel was fast overtaken by the industrially vibrant and proactive economies like the US and Germany (Allen 1979). The Achilles heal of the British entrepreneurs was that they were excruciatingly slow in inventing and adopting new technology. The hallmark of successful and avid entrepreneurship is that it is always willing to adapt to the changing circumstances and scenarios. Influx of new technologies stands to be one such changing scenario. However, as far as the iron and steel industry was concerned, the British entrepreneurial response was always signified by stifling inertia and inactivity. For example, Britain had abundant deposits of phosphorus rich iron ore. The advent of Gilchrist-Thomas process of separating phosphorus from iron ore presented the British steel corporations with an opportunity to exploit the locally available cheap stocks of iron ore (Allen 1981). A little initiative on the part of British entrepreneurs would have definitely revolutionized the national steel industry. It is understood that the European steel conglomerates took no time in adapting to and accommodating the Gilchrist-Thomas process at their production facilities, as far back as in 1980. Unfortunately, the British entrepreneurs stubbornly remained stuck with their obsolete acid steel making technology (Allen 1981). In fact, they were so apprehensive about shifting to new technologies, that it never occurred to them they could have literally metamorphosed the local steel industry for good, by going for the latest and more efficient blast furnaces. The decline of the British steel sector represented the decline of the English entrepreneurial spirit. No existing evidence is indicative of the fact that the British economy happened to be so marred and weak in the late 19th century that it discouraged or hampered the existing entrepreneurial initiative. Perhaps, the Victorian entrepreneurs were more interested in taking advantage of the lucrative speculation related opportunities in the global markets, to bother themselves with any notion of adjustment, innovation and evolution. Astute historians like Dintenfass see a direct correlation between the fall of the English steel sector and the essentially British entrepreneurial verve (1992). According to Dintenfass: “The British iron and steel industry failed to exploit new appliances and production methods as extensively and rapidly as did its overseas competitors in the decades leading up to the First World War. Neither demand constraints, raw material costs, nor the efficiency of inherited practices warranted this neglect of innovations that others employed with profit, and the industry paid the price for its technological conservatism in declining competitiveness and lost custom. Here is the history of an industry that supplied one of the essential ingredients of modern economic life, is clear cut evidence of a British resistance to economic change (1992).” 0.5 Electrical Manufacturing The late Victorian economic decline was a very broad based economic and entrepreneurial failure. It had as much to do with inefficient managerial skills as with the obstinate refusal of British industries to adapt to new technologies. The British industries not only lagged behind technologically, but also gave up before the Americans and the Germans in their managerial scope (Shiman 1991). The British managerial elites were aristocratic and somewhat feudal in their moorings. Therefore, they simply refused to delegate responsibility to the subordinates (Shiman 1991). This aversion to the delegation of authority and decision making powers made the British firms incapable of withstanding the foreign competition that was cropping up in the Second Industrial Revolution (Shiman 1991). The ramifications of these blunders were manifold. This included an inability to forge successful mergers, an inbuilt resistance to a synchronized and methodical development of appropriate R&D technologies and facilities and a failure towards practising a pragmatic and proactive approach towards global sales and marketing operations (Shiman 1991). British industries simply failed to make sufficient budgetary allocations and time for the development of apt management programs and theories (Shiman 1991). It is not a surprise that a majority of the available historical and economic literature and data pertaining to the entrepreneurial decline squarely blames the management culture and economic institutions within Britain for the dilution of the British competitiveness (Shiman 1991). The British entrepreneurial ethos, culture, business traditions and academic institutions, were fixed and ossified to the extent of being blatantly insensitive to the emerging global realities (Shiman 1991). A cursory perusal of the history of electrical manufacturing in Britain testifies to the ineffectiveness and shallowness of the English managerial skills in the late 19th century. At the very beginning of the 20th century, the electrical manufacturing in Britain was almost appropriated by the foreign firms. By 1908, almost 59 percent of the sales activities in electrical hardware emanated from the subsidiaries of the foreign firms (Shiman 1991). The British industries simply had no standing, as far as the manufacturing of metal-filament lamps and the harvesting of alternating current was concerned (Shiman 1991). While the American and German manufacturers could boast of well equipped and resources rich R&D facilities, the British electrical manufacturing industry was still adjusting to a technology-oriented environment. There certainly existed talented professionals in the UK who had complementary abilities. However, the English entrepreneurs never made any serious attempt to utilize their skills, as was being done by General Electric in the US and AEG and Siemens in Germany (Shiman 1991). The British entrepreneurs simply failed to realize that, “Large efficiently run organizations were required both to produce and sell equipment. Innovations had to be evaluated for technical and commercial efficiency; production models had to be developed, tested, and improved in reliability so that customers would want to use them, and a technically skilled sales force had to be trained and sent out to sell, install, and provide support for these systems (Shiman 1991).” The forces within the British firms, be it the sales and marketing personnel, engineering staff or commercial businessman, worked independent of each other, without making any concerted attempt to be cohesive and coordinated in their activities. 0.6 The Capital Market One other pivotal cause of this economic decline was the inability and failure of the English financial system and capital market to play an effective and meaningful role, as far as the channelling of the British savings into British firms and businesses was concerned (Grossman & Long 1996). The financial institutions and capital markets based in London suffered from inbuilt biases and unrealistic perspectives, which made them, divert the British capital to overseas colonies, even if they portended humble returns (Grossman & Long 1996). It seemed that the English capital markets simply lacked a sense of faith and trust in the domestic entrepreneurial wisdom and manufacturing potential. If the financial institutions in the Victorian Britain had acted with farsightedness and poise, the exported British capital would have not only accumulated high returns, but would have magnanimously invigorated and revitalized the British economy. This flight of capital gave way to a vicious cycle, where a dearth of capital led to low productivity, and low productivity shattered the confidence of the capital market. There exists ample evidence and data to conclude that the capital markets in the late 19th century Britain were pricing the local industries way low as compared to the foreign concerns (Grossman & Long 1996). The capital markets within Britain simply shied away from technology driven nascent firms to vie for slow-growing yet established foreign firms (Grossman & Long 1996). 0.7 Conclusion Simply speaking there is left no doubt pertaining to the fact the British entrepreneurship miserably failed between 1870 and 1914. This failure was not only a failure of the essential character traits like confidence, poise, adaptability and trust, but also an outcome of the deep grained social perspectives, industrial culture, academic planning and organizational inefficiency in the late Victorian England. It is not that the economic meltdown in the UK in the era under consideration was inevitable or irreversible, but was in fact a scenario fomented by the inherent and acquired shortcomings in the British entrepreneurship. Accepting this reality will not only be enlightening, but will allow the future generations to avoid underestimating the essential strengths and flaws in the domestic economy in general and the global economy in particular. Works Cited Aldcroft, Derek (ed.) 1981, Development of British Industry p 34f in Donald N. McCloskey With Lars G.Sandberg, ‘From Damnation to Redemption: Judgements on the Late Victorian Entrepreneur’, in Donald McCloskey (ed.); Enterprise and Trade in Victorian Britain, Essays in Historical Economics, George Allen & Unwin, 1981. Alford, B.W.E 1996, Britain in the World Economy since 1880, Longman, London. Allen, R.C 1979, ‘International Competition in Iron and Steel’, Journal of Economic History, vol. 39, no. 5, pp. 111-121. Allen, R.C 1981, ‘Entrepreneurship and Technical Progress in the Northeast Cost Pig Iron Industry: 1850-1913’, Research in Economic History, vol. 6, no. 3, pp. 87-98. Crouzet, F 1982, The Victorian Economy, Methuen, London. Dintenfass, Michael 1992, The Decline of Industrial Britain: 1870-1980, Routledge, London. Grossman, R.S & Long De, J.B 1996, ‘The British Stock Market and British Economic Growth, 1870-1914’, Preliminary and Incomplete Conference Draft, viewed 4 December 2009 Johnson, P 1994, 20th Century Britain: Economic, Social and Cultural Change, Longman, London. Mass, W & Lazonick, W 1990, ‘The British Cotton Industry and International Competitive Advantage: The State of Debates’, Business History, vol. 32, no. 4, pp. 126-135. McCloskey, D.N 1970, ‘Did Victorian Britain Fail?’, The Economic History Review, Vol. 23, no. 3, pp. 446-459. Shiman, D.R 1991, ‘Managerial Inefficiency and Technological Decline in Britain’, Business and Economic History, vol. 21, no. 6, pp. 89-98. 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