Geoffrey Owen - From Empire to Europe - The Decline and Revival of British Industry Since the Second World War

Source: Angus Maddison, Dynamic forces in Capitalist Development , Oxford, 1991, pp. 228–31.

Another distinctive feature of industrialisation in the US was the scarcity of skilled labour. The British apprenticeship system was transplanted to North America in colonial times, but it never established deep roots. 15The US was a dynamic, settler society in which labour was more mobile than in Britain. Opportunities for self-employment were greater, and the restrictions on personal freedom which apprenticeship entailed were less acceptable. Hence employers had difficulty in retaining the apprentices they had trained. Attempts to impose sanctions on runaway apprentices were unsuccessful and, except in a few trades such as printing, the system had virtually died out by the end of the nineteenth century. Since American manufacturers did not have access to the pool of skilled workers which was available in Britain, they looked for manufacturing methods which economised on the use of craft skills.

In the early stages of industrialisation American employers used the British internal contracting system, but as the volume of production rose and expensive investments were made in high-output machinery, these informal arrangements were no longer adequate. Tighter discipline and closer supervision were needed. In the 1890s Frederick W. Taylor, a production engineer at a leading steel company, worked out new ways of organising and motivating shop floor employees in order to ensure that machinery was used productively. Taylor’s approach, which was set out in his Principles of Scientific Management , published in 1911, was to establish scientifically how much time and effort a particular task required, and to reward workers who consistently achieved those standards. The ‘Taylorist’ style of management, giving workers less control over the pace and organisation of work, was resisted by the American trade unions, which, like their British counterparts, were organised on craft lines. But American employers were not prepared to compromise on the principle of managerial control. ‘British employers generally chose to accommodate the craft workers; US employers, to confront them.’ 16

The increasing scale of manufacturing operations brought with it the need for well-trained, technically competent managers. The Morrill Land Grant Act of 1862, providing federal support for the creation of new universities, led to an expansion of engineering education. One of the new institutions was the Massachusetts Institute of Technology, which formed close links with the electrical engineering industry. The first business school – the Wharton School of Finance and Commerce at the University of Pennsylvania – was opened in 1881. The expansion of commercial education put pressure on the older, classical universities to make their teaching more relevant to the needs of industry. 17Harvard’s Graduate School of Business Administration, modelled on the Harvard Law School, was founded in 1908.

The professionalisation of management was accelerated by the wave of mergers which took place around the turn of the century. Entrepreneurs in industries making high-volume, standardised goods invested heavily in machinery and equipment, and profitability depended on keeping this expensive plant fully employed, and on avoiding destructive price wars. When cartels were prohibited by the Sherman Antitrust Act of 1890, mergers were seen as a more secure means of keeping competition under control. Several industries acquired an oligopolistic structure, which was to persist with little fundamental change until after the Second World War. An extreme case was United States Steel Corporation, which at the time of its creation in 1901 accounted for 65 per cent of America’s steel-making capacity. Most of the big mergers which took place around the turn of the century involved the transfer of ownership from the original founders or their descendants to outside investors, and the appointment of salaried executives to senior posts.

Industrialisation in the US was characterised by scale, organisation and raw-material intensity. The US did not have any great reputation at this stage for scientific originality. As in Britain, American technology was oriented to the shop floor and built on practical experience. 18American entrepreneurs were good at taking inventions made elsewhere, like the internal combustion engine, and adapting them to local conditions. Even in electrical engineering, which was an outstanding American success, Thomas Edison was a brilliant experimenter, not a trained scientist, although he recognised the need for scientifically trained colleagues to translate his ideas into practice. The growth of the US electrical industry rested on organisational skills – the construction of an integrated system for generating, transmitting and distributing electricity – and on the recognition that, once the system was in place, a mass market was waiting to be tapped.

At the start of the nineteenth century the German states lagged behind France and Britain in economic development, but the pace quickened in the 1840s. A powerful boost came from railway construction, and heavy industry played a more central role in German industrialisation than it did in Britain. One of Europe’s largest concentrations of coking coal was in the Ruhr valley in Westphalia, and within the space of thirty years this previously agricultural region was transformed into the powerhouse of German industry. Alfred Krupp built his first iron-works in Essen in 1836; by 1873 this firm’s labour force had increased to 16,000. 19The engineering industry also benefited from the railway boom. In the 1840s most of Germany’s locomotives were imported from Britain, but Borsig in Berlin and other German manufacturers gradually reduced their dependence on British technology and developed their own designs. By the 1860s import substitution was complete and Borsig was competing with British manufacturers in export markets.

The rapid growth of the iron and steel industry paralleled what had happened in the US, but in other respects Germany followed a different path. The division of the country into separate states meant that a unified market was slow to emerge. Even after the formation of the customs union in 1834 and the unification of the country under Prussian leadership in 1871, the domestic market was more fragmented than that of the US, and there was little scope for mass production. Since Germany was also poor in natural resources, apart from coal, entrepreneurs had to find other ways of catching up. They did so through skill rather than scale. Instead of tackling their British and American competitors head-on, they looked for market niches and sought to tailor their products to the needs of specific customers. In cotton textiles, for example, while the British were supplying large quantities of yarn and cloth to India and other distant countries, German mills concentrated on higher-income European customers who were willing to pay a premium for quality and variety. 20In engineering the focus was on custom-designed machinery produced in small batches. 21

This strategy was crucially dependent on the skills of the workforce. Like Britain, Germany relied on apprenticeship as the principal means of skill formation, but, in contrast to Britain, it was supplemented by government-financed vocational schools at which apprentices received part of their training. In addition, most states established technical high schools, later upgraded to universities, for the training of engineers. The classical universities were reformed, and, although their mission was strictly non-vocational, the systematic pursuit of knowledge for its own sake contributed to the scientific advances – notably in chemistry – which underpinned the success of German entrepreneurs in the second industrial revolution.