Introduction

By ‘industrialization’, for the purpose of this study, is understood a process of change in time at the centre of which is a switch from manufacture of commodities by hand to that using machinery and mechanical motive power. It marks the rise of ‘modern industry’, absorbing increasing proportions of fixed capital relative to circulating capital. Its corollary is the factory system, entailing the problems of recruiting, training, and managing a spatially concentrated labour force and of apportioning resources between various factors of production in accordance with the nature of the individual enterprise and its ultimate aim of maximizing profit.

In the long run, and at a pace and in patterns differing with individual economies, industrialization releases processes of change in the nature of society, in the composition of the labour force, in the structure of the GNP, and in incomes per head.

In Russia ‘modern industry’ of any significance dates from the 1830s, when it was confined by and large to the cotton-spinning and beet-sugar industries. By 1861, a date conventionally regarded as the watershed separating modern from traditional Russia, about 85 per cent of sugar and about 90 per cent of cotton yarn was produced in factories by mechanical means. In these two industries there was undoubtedly continuity across the watershed of the Emancipation of serfs in 1861. Other industries, however, were only marginally affected by the new methods of manufacture: cotton-weaving remained at the handicraft stage, and mining, metallurgy, and metal-processing in particular remained backward and traditional.

Introduction: Modern Business Enterprise

Large business enterprises have come to dominate American production, distribution, transportation, finance, and services. Such enterprises have been products of, and prime movers in, the rapid industrialization of the United States. Indeed, this new institutional form now plays a major role in all the urban and industrial economies of the non-Communist world. Giant business organizations have become hallmarks of the twentieth century.

Modern business enterprise makes use of more workers, managers, owners, machines, materials, and money than any other economic institution in history. Because of its size, it is impersonal in tone and bureaucratic in organization. Its managers, workers, and owners cannot possibly come to know one another. Its control requires the creation of a carefully defined hierarchy of offices, each with its own functions and responsibilities. The lines of authority, responsibility, and communication among offices are also carefully defined. Detailed accounts and other statistical and financial data flow through these channels. Control through statistics has become a basic managerial art. The managers of these enterprises make their careers in a single industry and often in a single firm. They are rarely, if ever, owners of their enterprises, for nearly all the enterprises are ‘publicly owned’ corporations in a legal sense, and their stock is held by thousands or even tens of thousands of shareholders. In only 15.5 per cent of the 200 largest corporations in 1963 did an individual, family, or group hold as much as 10 per cent of the stock.

Size and Structure of the Labour Force

The industrial revolution in Germany is generally dated from the 1840s. It exerted too localized an initial impact, however, to significantly relieve the pressure on subsistence caused by the rise in population from 15 million in 1750 to 35 million in 1850. The heavy emigration that began in the 1840s reduced the annual rate of population growth from over 1 per cent between 1815 and 1843 to 0.7 per cent between 1843 and 1871. The spread of industrialization then permitted the rate of growth to recover to 1 per cent per annum between 1871 and 1890 and to rise to no less than 1.4 per cent per annum between 1890 and 1914, when the population reached 67 million.

Food prices largely determined the timing of the migration of the one million emigrants who had left – mainly from the West and South – before 1860. Unprecedented peaks were recorded when rye prices soared in 1846–8 and again in 1853–5. Emigration from East Germany rose rapidly once land reclamation ground to a halt in the 1860s. The great boom of 1871–3 stimulated high internal migration in West Germany, but failed to divert most East Elbian migrants from American destinations. Both internal migration and emigration declined abruptly in the general slump from 1874 to 1878. The American recovery after 1879, coinciding with agricultural depression in East Germany, released a pent-up emigrant backlog. The emigration rate reached 4 per thousand between 1880 and 1885, when about a million emigrants left Germany.

Introduction

Even though neglected by historians since E. Levasseur and a few other precursors, the demographic analysis of the labour force has been the subject of much contemporary attention, and it is not surprising that the failings of historians have been redeemed by demographers and economists. One fundamental demographic fact is apparent, however: the weakness of French population growth from the 1800s until the 1940s. With its 28.3 million inhabitants at the end of the eighteenth century, France was the ‘China of Europe’, accounting for 15 to 16 per cent of its population, while Napoleon's military success was based largely on her big battalions. But this population growth was checked very early and slowed down after 1850, when it reached 35.7 million. In 1911, France's 39.6 million inhabitants made up only 9 per cent of the European total, and the density of her population was the lowest on the continent, at a level in 1846 that Great Britain had reached in 1775. The population increased by only 14 per cent in 60 years or so, as against 78 per cent in Great Britain, 64 per cent in the Netherlands, 56 per cent in Belgium, and 57 per cent in Germany. The nineteenth century, long considered the period of decisive transformation, was in fact one of stagnation, and a catastrophe intervened after the First World War before a spectacular reversal of the situation, in a twentieth century which, beneath superficially confused trends, was to prove an epoch of real change.

General Characteristics

Economic historians commonly describe the period from the late 1880s until the First World War as a period of intensive industrialization in Russia, during which a number of structural changes in the economy and society took place. It was a period marked by rapid population growth and advances in agriculture: the growth of the planted area and of crop yields, the increased commercialization of agricultural production, and a rise in the mobility of the agricultural labour force. It was accompanied by a rapid increase of capital overhead, chiefly railways, built with the assistance of foreign capital and government subsidies. But it was also a period of accelerated urbanization, an expansion of the market economy which stimulated the growth in the size of the capital stock of industry as the fastest-growing sector of the Russian economy. The increase of industrial production was also due to the formation of an industrial labour force, growing both in numbers and quality of its industrial skills. To be sure, all these changes were not sufficient to transform Russia from a backward agricultural economy into a modern industrial one; nevertheless, much was achieved during this particular period that facilitated the subsequent efforts to industrialize Russia.

It is, therefore, to the chief elements of change – the economic and social forces that harnessed Russia to the chariot of industrialization – that this chapter addresses itself. The task is a difficult one for a number of reasons.

The Background

Just after the Second World War, American economic historians launched a debate, which has remained inconclusive, on the causes of lags in the rate of growth of the French economy during the process of industrialization in the nineteenth century. Seeing a country impoverished by persistent depression in the 1930s and weakened by the German occupation, they sought other than specifically contemporary factors to explain the lag experienced by France in comparison with other European nations, particularly the two main belligerent powers of western Europe, Britain and Germany, who had led a titanic struggle for five years. If France had been retarded in her economic development, how was this to be explained?

Awareness of this supposed lag was certainly not new, for the industrial superiority of Britain and Germany – not to mention that of the United States – had long since been recognized. In the nineteenth century, scholars and economists had already noted this difference and tried to explain it. In 1819, the chemist and government minister Chaptal, who in addition to having an advanced scientific training was a strong and intelligent administrator, noted, ‘If we have not made as extensive use of machinery [as in England], it is because manual labour here costs less and because the low price of fuel in England allows them to use steam-engines with advantage everywhere.’ Richard Cobden could also remark:

“whilst the indigenous coal and iron in England have attracted to her shores the raw materials of her industry, and given her almost an European monopoly of the great primary elements of steam power, France on the contrary, relying on her ingenuity only to sustain a competition with England, is compelled to purchase a proportion of hers from their great rival.”

Justification

Conjecture: an opinion formed on slight or defective evidence or none.

The above definition conveys very well the true character of many of the results which emerge from the exercise which follows: the estimation of capital accumulation over the period 1760–1860. As will soon be abundantly clear, the sources at present available for this period do not provide the evidence which would enable one to construct even moderately respectable estimates for certain key sectors – notably manufacturing – and hence for the whole economy. At crucial points we are able to proceed only by reliance on conjecture and speculation. The results are accordingly of limited pretension and humble status; the most that can be claimed for them is that they may indicate the broad orders of magnitude of the extent of the capital expenditures in each decade on both fixed assets and inventories, at home and abroad, and of the corresponding growth of the stock of capital; the approximate distribution, by sector, of domestic fixed capital; and the broad pattern and rate of change of capital over the hundred-year period in relation to the growth of population and of the national economy.

What justification is there for attempting at this stage to construct new estimates for the economy as a whole, when so much still remains to be done on the individual sectors which can alone provide a proper foundation for aggregate estimates? Partly the answer is to be found in the great historical importance of this period of early industrialization in Britain, the uncertainty surrounding the existing estimates, and the desirability of bringing together the estimates for individual sectors which have resulted from investigations undertaken since the last synthesis was prepared.

Introduction

Because of its rapidity, sustained achievement, and initial low per capita income, the process of Japanese industrialization is a fascinating subject of study for economists and economic historians. An increasing number of Western students of Japan, after nearly two post-war decades of concerted work with their Japanese colleagues, are providing us with a substantial amount of quantitative evidence on the performance of the Japanese economy during the past hundred years. This evidence has been examined and re-examined, and we now have extremely useful sets of analyses and yet more refined data which compare favourably with those made for any other nation.

While these studies on Japan – analogous to those of Deane and Cole and others on England – were being made, another set of equally important questions for economic historians trying to understand Japan's industrialization suffered relative neglect. I refer to the set of questions which can be loosely classified under the heading of ‘entrepreneurship and management in historical perspective’. More specifically, this is the whole spectrum of questions relating to the rise, recruitment, and composition of entrepreneurship; ownership and control; and the management of industrial firms in the process of Japan's industrialization and modernization.

During the past several years, increasing attention has been paid to these questions by Japanese and Western students alike. But the literature on these aspects of Japanese economic history is either inaccessible or fragmentary, or both. The inaccessibility is mostly due to the fact that the literature is available only in Japanese.

Introduction

One of the grand themes of the literature on economic development relates to the behaviour of the investment rate in the early stages of modern economic growth. Economists from Adam Smith onward have given capital formation an important role in economic growth, and a considerable literature has grown up around the notion that modernization involves a rise in the share of income invested. The American record displays a very prolonged and pronounced long-term movement in this share, a movement that has not as yet received a very full analytical treatment.

The fraction of American real net national product devoted to investment rose from an average value of perhaps 6 or 7 per cent in the first four decades of the nineteenth century, to between 10 and 12 per cent in the decades just before the Civil War, to 18–20 per cent in the decades between the Civil War and the First World War (see Table 1). This development is one of the most striking aspects of American nineteenth-century economic growth, and we have chosen it as the organizing theme of this chapter. We have brought together the evidence on the volume and composition of saving, investment, income, and the capital stock and have attempted to answer two questions: (1) What role did the dramatic increase in the investment share play in American economic development? (2) How can the increase in the share be accounted for?

Introduction

An industrial revolution transforms a traditional society into an industrial one. The primary agent in this process is the factory system, which organizes capital and labour on a scale unheard of in traditional society, on the basis of technology and behaviour that are difficult for ‘traditional man’ to understand. By the logic of traditional social organization and according to the outlook of traditional man, the human dimension of a typical work place under the factory system is mysterious and fearsome: that is, a large number of workers, far exceeding the population of a typical traditional village, are organized into a work force in which tasks follow the dictates of the technologically determined division of labour but hang together at the same time in an interdependent framework administered by management. In other words, workers are divided and ruled by managers who derive their authority from technology and the market. Whether this new social structure, though limited to the workplace, is a boon or peril to traditional man depends very much upon the style and pace of industrialization. Eventually traditional man is transformed into ‘industrial man’, as he sheds the traditional outlook and work habits and acquires new personal qualities that enable him to manoeuvre rationally in the class structure of an industrial society. These concurrent transformations, societal and personal, are often fraught with lags and frictions requiring facilitating or regulatory interventions by the state. This chapter sets out to trace these developments in the course of Japanese industrialization.

The Course of Development

‘Scandinavia’ is an international term; it is hardly ever used by Scandinavians. In its strict sense, it means the three countries of Denmark, Norway, and Sweden, but in practice it inevitably includes Finland, not only for historical reasons but also because Finnish society, both generally and economically, is typically Scandinavian. Finland even managed to retain its Scandinavian characteristics through a century of Russian sovereignty (1809–1917). For the purposes of this paper, however, it may simplify things if the very interesting Finnish case is treated separately, after the sections on Scandinavia proper.

The combined population of Denmark, Norway, and Sweden was 4.1 million in 1800, 6.3 million in 1850, 9.7 million in 1900, and 14.6 million in 1950. Thus in 150 years it had more than trebled. It is impossible to give precise, or even imprecise, figures for the national product of the three countries during the earlier part of the period, though a recent and very tentative Danish estimate goes as far back as 1820. Comparisons are possible beginning in the 1860s. During the ninety years from 1860 to 1950 the Swedish national product increased by a factor of fourteen – perhaps a somewhat exaggerated calculation – and its Danish counterpart by a factor of ten, while the Norwegian figures show an eightfold increase during the somewhat shorter period 1865–1950. These figures must of course be treated with the greatest caution, since the definitions and the means of calculating the figures are different in the several countries.

The Industrial Revolution: Economic Models of the Labour Market

In Britain, the hundred years or so between c. 1750 and c. 1850 saw the competition of what is conventionally called the industrial revolution, and with it the corresponding transformation of the labour force from its traditional structure into a modern industrial working class. These changes constituted a stage in an irreversible social evolution, the creation of modern industrial capitalism. The new character given to society included the emergence of new classes and of new relationships between classes.

The period as a whole has a certain unity and is marked off without much difficulty as the transitional link between relatively more stable economic relations that preceded it and a re-stabilized, but different, framework that followed. Economic theorists who lived through it, beginning with the ‘classics’ of Political Economy, as well as more recent writers on economic development, have been inclined to treat it as a particular and indeed unique phase with certain laws and characteristics of its own. As far as the market for labour in this period is concerned, there has been a remarkable and indeed striking unanimity among them and among all observers. The general axiom is that in this period as a whole the market operated against labour, and that wages tended therefore to be at or near subsistence levels.

The mercantilist writers of the seventeenth and eighteenth centuries had looked upon labour as merely a factor of production, which, in a competitive world in which most industry was highly labour-intensive, should be obtained at the lowest possible cost.