The Dynamic Economy of Nineteenth-Century London - Essay Example

The Writer’s name] [The Professor’s name] [The Course Title] [Date] The Dynamic Economy Of Nineteenth Century London In the context of nineteenth-century London, economic theory is important for three reasons. First, it enables deductions to be made about real world economic processes. These can then bring life to the historical information available. Second, economic theory enables clear expression of the interconnectedness of urban economic activity; and, third, it helps to identify the way in which London's economy related to the wider national and international ones. A core concept is that of agglomeration economies. They are generated by the crowding together of economic activities into an urban area, and increase with city size. Such clustering provides mutual benefits to producers and consumers, lowering their costs and extending their range of options. Another key component is the notion of competition for the resources of a city: its labour, land and other inputs. There are simultaneous processes of mutual benefit and adversarial competition - or attraction and repulsion - that determine which activities are undertaken in a city and how they change over time. Together they help to explain why London was of the size it was, the activities in which it specialised and the spatial structure of the urban area. Economic theory for many is an arid subject. The models of economists may seem too abstract and based on too many simplifying assumptions to be of use in investigating a particular city's economic development. It could be argued that cities are too full of rigid, long-lasting built structures to correspond to the flexibility assumed in many economic models. City dwellers, moreover, do not have the simplified rational behaviour attributed to them. Such criticisms of assumptions, however, tend to miss the point. All deductive analysis is abstract and, hence, makes 'unrealistic' assumptions. Just as modern geologists in their quest to understand mountain building are gaining insights through assuming that solid mountains act like fluids, so does economic analysis benefit from its assumptions. Analysis, nevertheless, if it is to aid the understanding of London's economic development has to bring in a wider range of factors than those provided by urban economic theory alone. Urban development, for example, is path-dependent in the sense that what already exists influences the future trajectory of growth. This is most obvious in the evolution of city transportation systems, but it is also apparent in the institutional frameworks within which economic activity takes place. Analysis also has to be sensitive to such factors as the prevailing state of technology. These determinants of urban economic life and general comments on their effects on London in the nineteenth century. Transport costs are examined first, followed by the impact of economies of scale in production and consumption. An analysis of agglomeration economies and diseconomies is then undertaken and their role in influencing the growth and size of the metropolis outlined. The importance of considering institutions in the capital's evolution is then argued for. After this, some issues related to infrastructure and urban politics are considered and, finally, the role of London in the wider national economy is examined. Transport The production of goods and services requires the movement of inputs to points of production and outputs from them to consumers. The location of economic activity can consequently be viewed as a problem of transport cost minimisation. Transport costs affect location when they are a significant component of total costs. This is likely to occur when the scale of production is such that large amounts of inputs are needed and the volume of output is too great for a local market alone. Not all industries are like that: some are ubiquitous - traditional bakers and repair shops, for example; others are relatively footloose and could set up profitably at many locations. But most face situations where some inputs are bulky and expensive to ship and their markets are found at different places from some of their inputs. Transport costs will then pull firms towards input sources or their main markets. It is unlikely that producers will locate at intermediate points between a source of a bulky raw material and a main market, because such locations are not minimum total transport cost points. Intermediate places require extra handling charges and, hence, higher total transport costs. They also face the disadvantage that transport charges tend to fall per kilometre travelled with greater distance. Industries where the cost of transporting the raw material is high relative to that of the final product, therefore, generally locate near the site of that raw material; whereas when finished products are more bulky, difficult or expensive to move producers locate at the site of a major market. This simple distinction provides a good rule-of-thumb for many London-based manufacturing activities. Bulky input-using industries are relatively absent and consumer goods and government purchase industries are strongly represented. Such nineteenth-century industries as iron and steel, most heavy engineering and all textiles - prodigious consumers of coal and other bulky inputs - gained no benefit from locating in the capital; whereas consumer-oriented industries had strong attachments towards it, including clothing, furniture, drinks, foodstuffs, printing and light engineering. London, as a result, was and would always be distinctive as a manufacturing centre from the industrial regions of the Midlands and North. An exception to the rule about intermediate locational points occurs when there is a transshipment point, such as a seaport. There, raw materials inevitably have to be handled as they are moved from one transport mode to another. This encourages firms dealing in bulky imported raw materials to set up at transshipment points. In consequence, another reason is offered for London-based manufacturing industries - its port. In particular, stimulation was given to import-processing industries, such as foodstuffs and timber-related activities, which included shipbuilding before the advent of ironclad ships. Services have other locational pulls. For some of them, those that are consumed as they are produced, locating near to consumers is imperative. Domestic service, retail facilities and the like consequently follow consumer demand; as do non-manufacturing production activities, like building, water provision and, in the nineteenth century, gas and electricity production and supply. Transport similarly is primarily population driven. Some other service activities need to locate in places that maximise their market area (like department stores) or to be near to the functions that they serve (for example, lawyers and public administration). Other ones, like finance, gain from good information and pools of skilled labour and, so, benefit considerably from locating at places where extensive intermediation takes place. Given its role in Britain, therefore, London was a place with thriving service activities. Some of the major scale economies derive from the principle of specialisation. Craft workers, for instance, are considerably more productive when they undertake a limited number of skilled tasks. But to specialise they need to be able to sell large volumes of output, and a large city provides that opportunity. Such craft workers may also be linked to others in complex divisions of labour. Nineteenth-century London exhibited this type of scale economy extensively and was the home to a wide array of, often inter-connected, craft specialisms. With industrialisation from the eighteenth century, scale increasingly became associated with factory production. Factories were steam powered, so it is often believed that they must have mainly been located on the coalfields. By deduction, London is then regarded as a place with few factories. Scale economies combined with transportation costs, however, suggested otherwise. The locational balance was tipped towards London when the relative cost of transporting the finished commodity was greater than that of inputs found elsewhere; when its port and railhead facilities gave a metropolitan location a transport cost advantage; when the necessary inputs were generally available everywhere; or when the most expensive input was labour. As by far the most concentrated, richest consumer market in Britain, the pull of a metropolitan location was strong. Once there, scale economies could be achieved within a single plant or through networks of producers specialising in particular parts of the division of labour, depending on the industry in question. The range of goods produced in the nineteenth century was obviously far smaller than now - partly because average incomes were much lower and many of today's consumer goods still had to be invented. Even so, the capital bristled with manufacturing activity. (Edelstein, 45-52) Much took place in small workshops or in people's homes. At the other end of the scale, the heavier, larger plant-oriented activities included many of the materials needed to build and equip houses, commercial buildings and other built structures - such as paint, linoleum and iron castings; others were in industries creating intermediate inputs for the client London industries - such as many of those in chemicals and imported raw materials processing; further large enterprises could be found in a range of activities - such as drinks, food processing, consumer durables and transport equipment. There were, for example, several relatively large plants producing pianos (the nineteenth-century equivalent of the television). Government armaments, energy production, brewing and transportation also generated large employment sites in the capital. Increasing Economies Of Scale Over the course of the nineteenth century, the optimal scale of production grew and the costs of transport fell. After mid-century it became increasingly possible for firms in consumer-oriented industries to supply the national market from plants sited at one or two locations. Firms began to use marketing, branding and other means to achieve country-wide presences. London, as the country's largest consumer market by far, was an excellent place to locate a nationally oriented plant, and such businesses started to appear in the capital, adding more factories to the capital's tally. A good example is margarine. In the main, none the less, nineteenth-century branded goods production occurred at provincial locations, rather than in the capital. Yet, even though scale economies did increase, Britain was still generally characterised by relatively small plant and firm sizes in comparison to those emerging in Germany and the USA. Some have put this down to entrepreneurial failure; while others attribute it to the characteristics of activities in which contemporary Britain specialised and the relatively small size of the domestic market. 9 Whatever the reason, as the largest manufacturing centre in the country, London was unlikely to buck the 'small is beautiful' trend. It also had a strong handicraft, small workshop tradition - bringing path dependency to its nineteenth-century industrial structure. (Green, 167-70) Again, scale economies in both consumption and transportation increased during the nineteenth century. For the utilities, in the early part of the century, diseconomies often set in at outputs far below those feasible with London's population size. This created fragmented provision but, as technologies improved, scale benefits in many of these activities began to be reaped for very large populations, especially in sewerage, water and gas. This increased potential efficiencies in their provision; yet, the extent to which the prevailing institutional arrangements were up to reaping those scale benefits is another matter. (Kennedy, 105-14) Urban Hierarchies And Scale Economies Urban hierarchies arise because of the existence of scale economies. Some activities can only be supported in towns above a certain population threshold - larger cities then provide those facilities for a range of smaller towns in their hinterlands. Examples are specialist shops, cultural facilities, market exchanges and law courts. A hierarchy arises because progressively 'higher-level' activities require ever larger local population bases and bigger hinterlands. Towns and cities in a country can then be ranked on the basis of the functions existing within them. In the case of nineteenth-century Britain, London towered above all other urban areas in the range and scale of the functions operating there. Agglomeration Economies And Diseconomies So far the location of economic activity in nineteenth-century London has been explained mainly in terms of costs and benefits internal to a particular firm or activity - focusing on transport costs and economies of scale. There are a further range of benefits that arise from the joint existence of many activities and from the size of a city itself. They are part of a general type of economic effect known as an externality. Such 'external' benefits or costs are associated with the existence of a particular activity but they do not influence its scale, which is determined by the marginal costs and revenues directly borne by the decision-making unit (be it a firm, a car driver, etc.). The pollution caused by a firm discharging contaminated water into a river is a classic external cost. Cities generate many external benefits and costs. They arise from the concentration and interaction of separate activities and are, thus, the consequences of agglomeration. Agglomeration economies can be divided into those that improve the productive potential of a particular industry, known as localisation economies, and those that spread across a variety of urban activities, termed urbanisation economies - although, in practice, the two may be hard to distinguish. Such benefits, furthermore, are not limited to businesses but extend to consumers and workers and differentially affect specific social strata. Consideration of agglomeration economies has to be primarily deductive because it is extremely difficult to measure most agglomeration benefits and, hence, direct empirical evidence is weak even for modern cities. Indirect evidence of their overall existence, none the less, is compelling because firms and people are willing to pay much more to locate in large cities, which they would only do if they are more than compensated for those costs by the benefits they gain. Conclusion One of the most visible signs of economic change in the nineteenth century was the expansion of shopping. Less obvious to the naked eye were simultaneous changes elsewhere in the distributive chain and the growing distance between producer and consumer as the intimacy of the small artisanal workshop gave way to the anonymity of the shopping street. Shops were already common in London by the 1800s and sold a wide variety of goods. Half of them probably sold food and drink; others were pure retailers in areas such as haberdashery (dress accessories and sewing items), drapery (textile fabrics) and a variety of luxury goods; yet more were the front selling areas attached to small or large workshops. What changed over the century was the length of the distributional chain and the roles and organisation of shops. London was not especially innovative, with much change imitated from new practices elsewhere. Yet the shift was a profound one for the urban economy and it altered the city's street life and micro-geography. (Michie, 63-90) Developments in retailing were stimulated by improving living standards and by technical changes in production, distribution and enterprise organisation. The 'mass market' was emerging, especially in foodstuffs, basic household goods and clothing. As one of the richest consumer markets in the world, moreover, the impact of these changes was substantial in terms of the number of retail outlets that emerged, the effects on the household economy, the consumer markets producers faced, and the evolving pattern of the new suburbs. (Alexander, 223-30) At the centre of the metropolis, the West End was made the focus of urban consumption by the new retailing technology; while one of the traditional aspects of commerce in the City was greatly reduced in importance. The new forms of retailing, furthermore, helped to break down traditional, regionally based production and consumption patterns. In relation to production, new 'branded' consumer goods could be sold throughout the country, so national, rather than local, markets were the focus of suppliers. London had few specific locational advantages for producers that could operate from one large plant, and they predominantly set up in cheaper locations elsewhere - for example, Lever in Port Sunlight in Cheshire, Cadbury in Bourneville, near Birmingham, and Rowntree in York. In trades where mass production did not take place via the technology of the single plant but via interlinked networks of producers, as in clothing and furniture, the agglomeration benefits of the metropolis meant that they expanded there.( O'Rourke, 122-29) Only large cities could support the latter and the metropolis was an obvious place for such suppliers to locate. As specialist consumption was the virtual monopoly of the wealthy in the early nineteenth century, it was inevitable that activities like the best tailors, dressmakers, jewellers, clock-makers, carriage and piano producers were usually found in the capital, and visiting them was an excuse to go 'up to town'. (Black, 112-30) London retailing in this sense had served a national market for centuries, but by the late nineteenth century and the Edwardian years a much wide range of the population gained benefits from such 'higherorder' retail clustering. The new forms of retailing, in particular, gave the West End and its environs a large array of department stores, intermingled with multiples and specialists and there was intense competition between all of them. This made it the best location in the country to shop, so that the capital's role at the top of the national retailing hierarchy became even more preponderant. (Adburgham, 81-90) An examination of the development of metropolitan shopping habits thus has to consider a range of aspects, from the convenience and keen prices demanded in food shopping, through to the activities that can survive only by attracting clients from a broad geographical area. Examined first is traditional street selling. This went through a long period of peaceful co-existence with shops, before slowly dying away by the end of the century. The characteristics of nineteenth-century shops are then considered; followed by the growth of branded goods and their impact on London industry; and next is considered the expansion of multiple chains, co-operative societies and department stores. The final section comments on the consequences of the new ways of shopping for London's households and industry. (Wrigley, 44-70) Goods had been bought on London streets since it was founded. As late as the 1850s, the cries of some 41,000 itinerant street sellers still resounded - one for every sixty-three residents. Yet, fifty years later, they hardly existed except in the poorest areas. (Atkins, 522-37) Congregating in market areas, or tramping up to fifteen miles a day through residential streets in all weathers, the life of a street seller could be hard and offered only meagre returns. Hawkers were often reluctant traders therefore, victims of unemployment or illness, attracted to the profession by its ease of access. (Barker, 49-51) Many were women. Little start-up money was needed. Barrows, baskets and trays could be hired by the day or week from dealers. Goods sufficient for one or two days' trading could be acquired on credit, or by using a day loan procured from wealthier traders, shopkeepers or publicans. Legal constraints on street trading were limited, encouraging many to try their luck. The 1832 Police Act gave the police discretionary powers to confiscate the goods of tradesmen obstructing the highway, but there were few arrests. Only 361 and 334 cases of obstruction were brought before London magistrates in 1832 and 1837 respectively, and less than half led to the forfeiture of goods, according to a contemporary commentator. Despite the ease of entry and exit for this line of activity, some established street traders, none the less, could have a reasonably good business - one that was passed down through the generations. (Lee, 211-19) A significant amount of street trading was undertaken by 'costermongers'. They sold fruit and vegetables and also fish - particularly once railways had brought the price of fish down to levels that the general populace could afford. According to Mayhew in the late 1850s, around half of the costermongers inherited the trade from their fathers. Most bought their supplies from a wide range of wholesale markets. At midcentury, they purchased half of the fruit and vegetables sold at Covent Garden and three-quarters of Billingsgate's fish. Less numerous, though of equal importance, were street sellers dealing in cooked food, drink and manufactured goods. Many working-class families lacked, or could not afford to heat, an oven and generally cooked food in pots, which restricted choice. Ready-made meals and drinks were much in demand - a need met by countless food and drink hawkers. Their wares were sometimes self-prepared but, more generally, were obtained from wholesalers and drinks suppliers. Mayhew in the early 1860s reckoned that 124 million oysters were sold on the streets annually and counted 500 soup and eel traders, 300 whelk-sellers, 300 tea and coffee stall keepers, 300 sellers of sheep's trotters, 500 of muffins, and 1,500 of ginger-beer. New treats included ice-cream from 1850 and fried fish at around the same time. Street dealers in manufactures, such as crockery, glassware and metalwork, either sold their goods for cash or bartered them for old clothes, subsequently sold to second-hand clothes exchanges. Again, the goods were either made by the hawkers themselves or, more usually, bought from specialist wholesale markets known as 'swag' shops. Numbering around 150 at mid-century, swag shops were often large-scale establishments, employing up to 200 people, and were locationally concentrated. Glass and crockery shops, for example, were to be found in Spitalfields, and haberdashery wholesalers in Bishopsgate. More expensive working-class goods, such as furniture and clothing, were sold in the street by tallymen, who encouraged custom by offering credit. Although their lending terms were generally high, few of their customers earned enough to be able to save for such purchases nor could they obtain credit in shops. The London economy was an interconnected entity operating in a wider British context. Explaining those inter-relationships is the key to comprehending its development and outcomes. The problem of understanding nineteenth-century London, therefore, is one of theory as much as assembling the available historical information. In many recent histories, it has been argued that London industry was exceptional in the context of Britain at the time. According to these accounts, a relatively narrow range of consumer goods industries was at its industrial core, locked into production processes predicated on cheap labour and sweating. In contrast, this paper has argued that there were a wide range of industries and that London became industrially less specialised over time. Those industries had a variety of histories - yet the majority prospered, so that overall employment grew at a rate that was somewhat faster than population growth, decade after decade. General techniques of production, as well as the range of goods produced, inevitably improved over the 115-year period, and many metropolitan industries adopted contemporary advanced techniques. The firms that prospered did so because of the importance of the local market and the ability to utilise significant agglomeration economies. The result was often dense networks of small producers, rather than large-scale plants, but these networks were highly productive in a context where communications and transport were much slower and more expensive than they are today. Large plants, however, existed in the sectors where technology made them the preferred method of production but locational advantages still favoured London and its environs, such as in brewing and pianomaking. Plants grew larger over the period, moreover, in gas, water, chemicals, clothing, food processing, printing and transportation utilities, to name but a few. London industry did not require extremely low wages for its survival and success. It was the technologies associated with urban production that primarily determined the types of production methods used rather than the low earnings of the unskilled. Works Cited Adburgham, A. (1979) Shopping in Style: London from the Restoration to Edwardian Elegance, London: Thames & Hudson. Alexander, S. (1983) Women's Work in Nineteenth Century London: A Study of the Years 1820-50, London: Journeyman Press. Atkins, P. J. (1980) 'The retail milk trade in London 1790-1914',Economic History Review, 33 (4), 522-37. Barker, T. C. (1989) 'Business as usual: London and the Industrial Revolution', History Today, xxxix, 49-51. Black, I. S. (1996) 'The London agency system in English banking 1780-1825', London Studies, 21, 112-30. Edelstein, M. (1982) Overseas Investment in the Age of High Imperialism. The United Kingdom, 1850-1914, London: Methuen. Green, D. (1991) 'The metropolitan economy: continuity and change 1800-1939' in Hoggart, K. and Green, D. (eds) London: A New Metropolitan Geography, London: Edward Arnold. Kennedy, W. P. (1982) 'Economic growth and structural change in the United Kingdom, 1870-1914', Journal of Economic History, 42, 105-14. Lee, C. H. (1986) The British Economy Since 1700: A Macroeconomic Perspective, Cambridge: Cambridge University Press. Michie, R. C. (1997) 'London and the process of economic growth since 1750', London Journal, 22 (1), 63-90. O'Rourke, K. H. and Williamson, J. G. (1999) Globalisation and History. The Evolution of the Nineteenth Century Atlantic Economy, Cambridge, Mass.: MIT Press. Wrigley, E. A. (1967) 'A simple model of London's importance in changing English society and economy, 1600-1750', Past and Present, 37, 44-70. Read More