Wheels of change: skill-biased factor endowments and industrialisation in eighteenth century England

by Joel Mokyr (Northwestern University), Assaf Sarid (Haifa University), Karine van der Beek (Ben-Gurion University)

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Shorrocks Lancashire Loom with a weft stop, The Museum of Science and Industry in Manchester. Available at Wikimedia Commons

The main manifestation of an industrial revolution taking place in Britain in the second half of the eighteenth century was the shift of textile production (that is, the spinning process), from a cottage-based manual system, to a factory-based capital-intensive system, with machinery driven by waterpower and later on by steam.

The initial shift in production technology in the 1740s took place in all the main textile centres (the Cotswolds, East Anglia, and in the middle Pennines in Lancashire and the West-Riding). But towards the end of the century, as the intensity of production and the application of Watt’s steam engine increased, the supremacy of the cotton industry of the northwestern parts of the country began to show, and this is where the industrial revolution eventually took place and persisted.

Our research examines the role of factor endowments in determining the location of technology adoption in the English textile industry and its persistence since the Middle Ages. In line with recent research on economic growth, which emphasises the role of factor endowments on long run economic development, we claim that the geographical and institutional environment determined the location of watermill technology adoption in the production of foodstuffs.

In turn, the adoption of the watermill for grain grinding (around the tenth and eleventh centuries), affected the area’s path of development by determining the specialisation and skills that evolved, and as a result, its suitability for the adoption of new textile technologies, textile fulling (thirteenth and fourteenth centuries) and, later on, spinning (eighteenth century).

The explanation for this path dependence is that all these machines, including other machinery that was developed in various production processes (such as sawing mills, forge mills, paper mills, etc.), were all based on similar mechanical principles as the grinding watermills. Thus, their implementation did not require additional resources or skills and it was therefore more profitable to invest in them and expand textile production, in places that were specialised and experienced in the construction and maintenance of grinding watermills.

As textile exports expanded in the second half of the eighteenth century (both woollen and cotton textiles), Watt’s steam engine was introduced. The watermills that operated the newly introduced spinning machinery began to be replaced with the more efficient steam engines, and almost disappeared by the beginning of the nineteenth century. This stage of technological change took place in Lancashire’s textile centre, which enjoyed both the proximity of coal as well as of strong water flows, and was therefore suitable for the implementation of steam engine technology.

We use information from a variety of sources, including the Apprenticeship Stamp-Tax Records (eighteenth century), Domesday Book (eleventh century), as well as geographical databases, and show that the important English textile centres of the eighteenth century, evolved in places that had more grinding watermills during the Domesday Survey (1086).

To be more precise, we find that on average, there was an additional textile merchant in 1710 in areas that had three more watermills in 1086. The magnitude of this effect is important given that there were on average 1.2 textile cloth merchants in an area (the maximum was 34 merchants).

We also find that textile centres in these areas persisted well into the eighteenth century and specialised in skilled mechanical human capital (measured by the number of apprentices to masters specialising in watermill technology, that is, wrights, in the eighteenth century), which was essential for the development, implementation and maintenance of waterpower as well as mechanical machinery.

The number of this type of worker increased in the 1750s in all the main textile centres until the 1780s, when their number was declining in Lancashire as it was adopting a new technology that was no longer dependent on their skills.

Lancashire textiles in the long run: A financial perspective

by Steven Toms (University of Leeds)

 

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Burnley, Lancashire, c.1900

 

Following decades of long run economic decline, recent calls to establish a “Northern powerhouse” offer some hope for the reinvigoration of once proud manufacturing regions of the industrial revolution. A recent 2015 report by the Alliance Project suggested that the textile sector had the capacity to create 20,000 jobs in the Manchester region by 2020.

But how would such a revival cut across the systemic causes of longer run decline? And what lessons, if any, can be learned from earlier phases of industrialisation?

To examine the long run rise and fall of the Lancashire textile industry, this research project has assembled financial data from over a hundred mainly Lancashire textile firms over the period c.1790-2000. Analysing this data in the context of wider economic trends and the strategic options available to individual firms offers new perspective on the long run dynamics of this once great industry.

Regardless of the size of the market, and the market share of the firms involved, firms’ profits were typically highly volatile. So although market instability was a continuous feature, profit instability reflected specific investments, which differed through time, according to ownership, industry organisation and technology.

In the early industrial revolution, the working capital cycle of inventory and credit was crucial, such that profit volatility reflected material supply and monetary conditions. Firms that were most successful in financial terms automated specific processes, using their enhanced capacity to exercise control over the remainder of the value chain and final product markets.

Greater investment in fixed capital in subsequent phases of industrialisation meant added risk in the face of volatile markets. Entrepreneurs were pressured by such investments to impose notoriously long working hours and lobby against regulatory interventions.

The most successful firms built partnerships that combined technical innovation, market access and mutual financial support. Like modern day venture capitalists, entrepreneurs operated through informal networks rather than hierarchical integrated structures.

Throughout the nineteenth century, and up to the post war boom and slump of 1919-1921, volatile profits reflected over-investment during upturns and surplus capacity during downturns. After 1920, firms that were most successful were those that avoided the temptation to refinance during the 1919 boom, and such firms at least survived, as profit opportunities dwindled in a declining market.

As more firms exited the industry, the remainder were absorbed by textile-based conglomerates. These firms enjoyed a short-lived period of success in the late 1960s and early 1970s, promoted by regional assistance and productivity-boosting capital investment.

Even so, exports dwindled further and the textile producers became increasingly dependent on contracts with large retailers. The more financially successful took advantage of strategic relationships with retailers to make further productivity enhancing investments.

The globalisation of retail in the 1990s undermined these relationships, resulting in the outsourcing of much of the remaining British textile industry to cheaper overseas locations. The few surviving firms had adopted niche strategies producing specialised fabrics for sectors like healthcare, outdoor equipment and motor vehicles.

Recent successes stories have also reflected strong demand in international markets for authentically British clothing. The Burberry brand is one good example and Marks and Spencer’s “Best of British” range is another. Authenticity requires genuine sourcing, which helps explain the opening of the first Lancashire cotton-spinning mill for several decades, in 2015, at Tower Mill, Dukinfield.

 

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Tower Mill, Greater Manchester, 2017

If textiles are to revive further in Lancashire, the lessons of history are important.

Regional, rather than national, financial institutions, ranging from informal networks to country banks to local stock markets, underpinned previous phases of development, and London’s influence as a financial centre then, and today, has little to do with investment in northern manufacturing.

Public sector funding, via the Greater Manchester Combined Authority, has helped secure the immediate future of Tower Mill. Meanwhile, recent research has identified further growth potential in the form of medium and small textile firms in the region fit the usual criteria for investment by private equity (n=52) and venture capital firms (n=125).

However, these are mere possibilities, and a far cry from the closely integrated networks of innovation and finance that underpinned success in earlier generations. Even if the demand for “Britishness” in fashion conscious international markets remains stable, and that is a big “if”, given the long run context of volatility, supportive regional financial institutions seem to be lacking.

In this sense, the lessons of history overshadow the future of the textile component of the Northern powerhouse project.

 

To contact the author:  @steventoms_lubs