At the level of individual industries, old and new, the British response to American and German competition between 1870 and 1914 was patchy but by no means disastrous.33 World trade in manufactures had become a three-horse race, and the early leader could hardly have been expected to remain dominant on all fronts. Were there, nevertheless, institutional weaknesses, inherited from the first industrial revolution, which were holding industry in Britain back?
One obvious gap, especially compared with Germany, was in the field of technical education. In 1870 British universities were not well equipped to serve the new, science-based industries. Oxford and Cambridge had played no part in the industrial revolution, and had no interest in the world of industry. Nevertheless, although Britain started late in this field, it recovered well. New universities with a strongly technical bent were established in several provincial cities during the last years of the nineteenth century, and the Imperial College of Science and Technology was founded in London in 1908. There was also an expansion of part-time technical education below the university level. The British approach was more decentralised, less systematic and more market-led than in Germany, but by 1914 the gap between the two countries was narrowing. Sidney Pollard, the economic historian, has suggested that Germany’s investment in technical education and the role of the state in it ‘may not imply German superiority, simply a different tradition and a different place in the sequence of world industrialisation’.34
Some historians believe that the creation of the universal bank gave German entrepreneurs a competitive advantage because it provided access to long-term capital on terms which were not available in Britain.35 British commercial banks, even after the mergers that took place towards the end of the century, generally steered clear of long-term lending to industry, while the merchant banks in the City – Barings, Rothschilds and the rest – were preoccupied with raising capital for foreign borrowers. There were flaws in the financial system during this period, but financial markets were sufficiently well-developed to ensure that few creditworthy entrepreneurs were starved of finance. There is no clear evidence that the outflow of capital to support railway construction and other infrastructure projects overseas diverted funds from investment in domestic industry.36 The German universal bank was a response to a particular set of circumstances – a late-developing country undergoing a very rapid process of industrialisation – that did not exist in Britain.
As for the impact of trade unions on industrial performance, labour relations in Britain went through a stormy period around the turn of the century, and again in the years immediately preceding the First World War. This was due partly to a change in the character of trade-unionism, arising from the emergence of more militant ‘general’ unions which represented semi-skilled and unskilled workers. Labour relations became more adversarial, and in industries such as engineering, where craft unions were strong, the number of disputes over working practices and demarcation increased. But the employers generally came out on the winning side in these disputes, and the labour relations system was probably not a significant brake on efficiency and technical progress in manufacturing before 1914.
The late Victorian and Edwardian entrepreneur has been criticised by some historians for his reluctance to break away from craft control – the practice of delegating to skilled workers part of the responsibility for the organisation of work. The argument is that this practice delayed the introduction of ‘Taylorist’ techniques, which called for tighter supervision of shop floor labour.37 But for most British employers craft control was not a competitive disadvantage in the conditions which they faced before the First World War. In shipbuilding, for example, where craft control was solidly entrenched, productivity in Britain was higher than in the US and Germany, and there was no reason to abandon a well-tried production system which was working satisfactorily. This point is also relevant to Alfred Chandler’s strictures about personal capitalism. The main reason for the creation of giant companies in the US towards the end of the nineteenth century was the nature of the domestic market. Firms which were manufacturing on a large scale needed to take direct control over the procurement of raw materials and the distribution of finished products. In Britain, with a smaller home market and more highly developed networks of merchants and other intermediaries, there was less need for manufacturers to integrate backward into raw material purchasing or forward into marketing and distribution.38 Lancashire cotton was the classic case of a successful industry which was both horizontally and vertically disintegrated, with most firms specialising in one part of the production chain.
The comparison with Germany is less clear-cut. In industries where German companies were bigger than their British counterparts, this, too, was mainly due to the character and timing of German industrialisation. The iron-masters of the Ruhr were building a new industry from scratch in an undeveloped region. They needed to do more things for themselves than was necessary in Britain, and to integrate more operations on the same site. Some German companies, of which Thyssen and Siemens are examples, did adopt organisation methods similar to those of the big American corporations.39 But many of Germany’s industries, such as mechanical engineering, were as fragmented, and as dominated by family-owned concerns, as in Britain.
Britain, Germany and the US in the Inter-war Years
One of the consequences of the First World War was to consolidate the position of the US as the world’s leading industrial power. American manufacturers were well placed to profit from the booming domestic demand of the 1920s and to exploit internationally the managerial advances which they had made before the war. Their most spectacular success was in the mass-production industries; US manufacturers accounted for three-quarters of the world’s car exports in the inter-war years. But there was also a push forward in science-based industries as large American firms began to adopt the German approach to company-financed research. The discovery of nylon by Du Pont in 1930 was the direct result of this company’s decision to build up a team of first-class scientists and engineers and give them the same facilities which they would have enjoyed in an academic environment.40 American Telephone and Telegraph created in Bell Laboratories what was to become America’s foremost industrial research institution.41
The broadening of American industrial capabilities was reinforced by new managerial techniques. Alfred Sloan at General Motors, which overtook Ford as America’s largest car manufacturer during the 1920s, showed how economies of scale in large, multi-product companies could be combined with efficient central coordination. The General Motors multi-divisional structure, which separated the day-to-day management of the car businesses – Chevrolet, Pontiac, Cadillac and so on – from the supervisory role of the head office, was widely imitated in the US and later in Europe. Sloan was an example of the kind of professional manager who filled many of the top executive posts in American industry. The separation of ownership and control, which had been a distinctive feature of American capitalism before the war, was taken further as companies increased in size through mergers and acquisitions.
The rise of American industry provoked a mixture of admiration and fear in Europe. Businessmen made pilgrimages to Detroit and tried to learn how the Americans were able to combine high productivity, high wages and high standards of living.42 Of the leading European countries, Germany was the most influenced by American ideas, but its ability to maintain its pre-war momentum of growth, let alone catch up with the US, was constrained by the legacy of the war. The establishment of the Weimar Republic in 1919, and the integration of the working class into the political and economic system, left unresolved many of the political tensions which had existed under the Kaiser. Employers, especially the coal and steel magnates of the Ruhr, resented the new-found power of organised labour,