Friday, 26 March 2021

The Empire Marketing Board and the Failure of ‘Soft’ Trade Policy, 1926-33

By David M. Higgins and Brian Varian


Can a country with a free-trade policy also pursue a preferential trade policy? In the 1920s, Britain tried. Britain's Empire Marketing Board (EMB) was created in 1926 to extend a non-tariff preference to imports from the empire by means a widespread publicity campaign. As we find, the EMB's campaign failed, and we offer several explanations why.


Between 1926 and 1933, the Empire Marketing Board (EMB) sought to influence the purchasing habits of British consumers.  This initiative was ambitious because British consumers had long been accustomed to purchasing produce from non-empire sources, for example, Argentine beef, Chinese tea, as well as Danish butter and Dutch cheese.  The campaign was also unprecedented: public money was expended on a marketing campaign intended to provide a ‘soft’ trade barrier to favour empire producers.

As an instrument of trade policy during the interwar period, the EMB appears unusual in the economic history literature which has been dominated by analyses of ‘hard’ policies involving tariffs.  The creation of the EMB was an attempt by the British government to reciprocate the formal tariff preferences that the Dominions extended to British exports.  The establishment of the EMB was necessary precisely because Britain maintained an essentially free trade policy until 1932.  Indeed, prior to that date, tariff reform, which sought to abolish Britain’s commitment to free trade, was responsible for the Conservative government losing its overall majority in the General Election of 1923.

 

Evaluating the effectiveness of the EMB

The fundamental objective of the EMB was to ensure that the British empire accounted for a growing proportion of Britain’s produce imports.  Consequently, the Board pursued three major policies: it financed research into the problems affecting empire food production; provided market intelligence to British trade organisations; and launched a major, national, publicity campaign involving ‘empire shopping weeks’ and the commissioning and distribution of iconic posters which appeared on billboards in major cities and towns.  Each policy was interrelated. For example, improvements in the quality and regularity of the supply of empire produce would help make the Board’s publicity more effective (Figure 1).

 

Figure 1.      Example of an EMB poster


In our study we assess the impact of the EMB’s publicity campaign on Britain’s empire imports.  Posters were a key component of the EMB’s total publicity, accounting, on average, for 35 per cent of the Board’s total publicity expenditure between 1926 and 1932.  We selected posters issued in 1927 that advertised a particular commodity and Dominion, for example, Australian frozen beef.  Our total sample includes advertised and non-advertised commodities originating from other parts of the empire and from non-empire countries.

The econometric results indicate that the EMB’s poster campaign did not affect the empire’s share of British imports for any of the advertised commodities in our sample: Australian frozen beef, Canadian grain, Ceylon tea, Indian rice, Mauritian sugar, New Zealand butter, and New Zealand cheese.  We advance three explanations for the failure of the EMB.

 

Explanations for failure

First, our re-examination of the EMB’s publicity expenditure indicates that it was small when compared with the advertising expenditures of the official Dominion organisations responsible for exports -- the Australian Dairy Produce Control Board, the New Zealand Dairy Produce Control Board, and the New Zealand Meat Producers Board.  On a standardised basis, the publicity expenditure of the EMB was considerably smaller than that of the Control Boards.  Moreover, the EMB’s expenditure was much less focused: not only did the EMB advertise a diverse range of empire produce, from Cyprus brandy to Malayan pineapples, but much of its advertising did not indicate an association between a Dominion and a commodity or, indeed, feature either a specific Dominion or commodity at all.

Second, it is remarkable that so much effort was devoted to persuading consumers to ‘buy Empire’, when many empire commodities were retailed without an indication of geographical origin.  Landmark legislation was introduced by the Merchandise Marks Act, 1926.  This Act stipulated that producers could make an application for a Marking Order to ensure that specific foodstuffs indicated country of origin.  However, this Act was never applied to cheese, grain, rice, or sugar.  Attempts were made to secure the marking of tea, but this was vociferously rejected by tea distributors and retailers, and famous British tea-blending companies for whom company brands were incomparable marketing assets.  A Marking Order for butter was secured in 1931, but even this Order left considerable leeway to grocers on the precise indications of origin they applied to pats of butter.

Beef (including frozen beef) was subject to a Marking Order from 1933, but by then there had been a pronounced change in the preferences of British consumers toward chilled beef, which was largely supplied by Argentina and the River Plate.  In fact, technological factors meant it was not possible for Australia to supply chilled beef to Britain during the interwar period. By the late 1920s, British consumers’ views of frozen beef were so disapproving that sales of this  commodity were restricted to asylums, other public institutions, and the British army!

The key conclusion to emerge from our study is that soft policies were not an effective substitute for tariffs and other types of quantitative trade restrictions. The introduction of hard barriers to trade had to await changes in the political and economic environment which occurred in the early 1930s.  

 

David M. Higgins
david.higgins@ncl.ac.uk

Brian Varian
b.varian@newcastle.ac.uk

 

Friday, 5 March 2021

YSI Economic History Graduate Webinar, Spring 2021

 

Dear all,

We are launching a third YSI Economic History Graduate Webinar this Spring. In previous editions we provided a platform for young researchers to present their ongoing work and get feedback from senior scholars. The online format made exchanges from people from different regions and research areas possible, offering early stage researchers an important venue in these times of disconnection. As social distancing remains a reality, so does connecting online to reach out to the community.

For these reasons we want to invite all young scholars working in Economic History to submit a paper for our 2021 Spring series. We welcome all sorts of contributions, regardless of time period or geographic area, as well as qualitative or quantitative approaches. You do not need to be registered with YSI to apply but we encourage all young scholars to join the community.

Send us a full paper version and an updated CV to: eh@youngscholarsinitiative.org

The deadline for papers is March 26th, and we’re planning on starting the sessions in April.

If you are interested in attending the webinar and receive the programme, please register using this form. The seminars will be held on Zoom and last 60 minutes on Tuesdays afternoon (Western Europe time). 

See you online!  

The YSI graduate seminar in Economic history is a joint collaboration between Ester Treccani, Jordi Caum Julio, Maylis Avaro and Xabier Garcia Fuente, with support from the Institute for New Economic Thinking and the European Historical Economics Society. 

Wednesday, 3 March 2021

Optimism or pessimism? A composite view on English living standards during the Industrial Revolution

By Daniel Gallardo Albarrán (Wageningen University, @DanielGalAlb) and Herman de Jong (Groningen University)

blog post based on the article, "Optimism or pessimism? A composite view on English living standards during the Industrial Revolution ", available on EHER here

Introduction

The consequences of industrialization for the living standards of the mass of the population have been intensively debated ever since the days of William Blake, Karl Marx, and Charles Dickens. Over a period of roughly 100 years after ca. 1750, Great Britain set the basis for a dynamic and self-sustained process of economic development that eventually would improve the lives of millions of people. Although the positive outcomes of this process for human well-being since the 19th century are not disputed, the same does not apply to the years between 1750 and 1850. New methods of production and labor organization brought economic benefits, but they had a deep impact on citizens’ lives and the environment, as illustrated by the picture below.


On one side, a branch of the literature, represented by the so-called optimists, has argued that the benefits of improved methods of production trickled down in the form of substantial real wage increases after the Napoleonic wars (Clark, 2005; Lindert & Williamson, 1983). On the other side, the so-called pessimists have found that the increase in real wages was much less pronounced than what the optimists claim (Allen, 2009; Feinstein, 1998). Also, further supporting the pessimists’ case, health levels stagnated after the 1820s, annual working time reached new heights in the 1830s, and inequality remained at high levels (Allen, 2019; Broadberry, Campbell, Klein, Overton, & van Leeuwen, 2015; Voth, 2001; Wrigley, Davies, Oeppen, & Schofield, 1997).

The lack of consensus on the evolution of living standards during the classical years of the industrial revolution partially stems from the study of a large number of indicators individually. This can be problematic because these variables often exhibit opposite trends, thus having disparate implications for the analysis of well-being. One way to deal with this is by building a  composite index of welfare combining information on a number of key aspects of people’s lives into a single metric.

We take this approach and build a new indicator to study workers’ living standards during the early phase of industrialization that combines four dimensions of well-being: income, health, working time, and inequality. We draw on Jones and Klenow (2016) to construct a metric that aggregates the utility flows that an average British worker could expect from them those four aspects of living standards. By using utility theory, this article provides a novel and interesting perspective to the literature, which has mostly relied on other methodologies to construct similar indicators.

Results

Our analysis of the evolution of workers’ well-being during the traditional period of early industrialization (i.e., 1760–1850) presents three main findings. First, unlike earlier composite indices or income per capita, our broad welfare series points to worsening living standards until 1800 (see column II in Table 2 of the article, reproduced below). This is the result of a steep rise in both working time and income inequality after 1760 that is not accounted for by other traditional indicators. Welfare growth rates could have been highly negative if life expectancy had not increased by 5 years between 1760 and 1800.

 



Second, we find that well-being improved after 1800 when real wages started rising and the negative effect of longer working time and higher inequality reached a plateau. Although well-being grew by almost 0.7 percentage points annually during these years (column III, last row), the resulting average level of welfare by the mid-nineteenth century does not support an optimistic interpretation of the evolution of workers’ living standards. According to our results, welfare was only 22 percent higher in 1850 than in 1760.

Our third main finding is that welfare exhibits much lower growth than our widely-used measures of overall living standards. If we consider GDP per capita, our calculations suggest that national income tends to overestimate welfare growth for the average citizen during the period by 20 percent. On the other hand, if we consider the well-known Human Development Index or the Dasgupta and Weale index, we find that they show a clear improving pattern between benchmarks, whereas our metric shows a much more pessimistic pattern, especially before 1800. 

Discussion

The last decades of research into the consequences of the industrial revolution have brought a large amount of evidence on a number of economic, demographic, and social aspects of English workers’ lives in the 18th and 19th centuries. An important part of this new evidence is characterized by painting a more complex picture of what earlier generations of scholars initially brought forward and by adding new indicators that revealed opposite movements of well-being for sub-periods.

This article uses an encompassing framework of living standards to put together information about four key aspects of the lives of citizens at that time: material living standards, health, working time, and inequality.  We find that earlier studies drawing on composite indices of well-being are probably too optimistic about trends before 1800, since they do not fully take into account rising annual working time and increasing inequality. By 1850, our calculations show that welfare was 22 percent higher than in 1760 (20 percent less than the improvement in living standards suggested by GDP per capita). Therefore, welfare gains from health and material living standards slightly compensated for the negative effects of increasing levels of working time and inequality.

While encompassing, our indicator does not measure other important aspects of England’s welfare at the time, such as access to knowledge through education, environmental damage, or the social costs of the factory system. Their study in the future may reinforce our view that workers’ lives would not change substantially until the post-1850 period when the productivity benefits of the new forms of production trickled down to the working classes and public health regulation tackled the poor health conditions of the population.

References

Allen, R. C. (2009). Engels' pause: Technical change, capital accumulation, and inequality in the British industrial revolution. Explorations in Economic History, 46(4), 418-435.

Allen, R. C. (2019). Class structure and inequality during the industrial revolution: lessons from England's social tables, 1688-1867. The Economic History Review, 72(1), 88-125.

Broadberry, S., Campbell, B. M. S., Klein, A., Overton, M., & van Leeuwen, B. (2015). British Economic Growth, 1270-1870. Cambridge: Cambridge University Press.

Clark, G. (2005). The Condition of the Working Class in England, 1209-2004. Journal of Political Economy, 113(6), 1307-1340.

Feinstein, C. H. (1998). Pessimism Perpetuated: Real Wages and the Standard of Living. The Journal of Economic History, 58(3), 625-658.

Jones, C. I., & Klenow, P. J. (2016). Beyond GDP? Welfare across Countries and Time. American Economic Review, 106(9), 2426-2457.

Lindert, P. H., & Williamson, J. G. (1983). English Workers' Living Standards during the Industrial Revolution: A New Look. The Economic History Review, 36(1), 1-25.

Voth, H.-J. (2001). The longest years - new estimates of labor input in England, 1760-1830. The Journal of Economic History, 61(4), 1065-1082.

Wrigley, E. A., Davies, R. S., Oeppen, J. E., & Schofield, R. S. (1997). English Population History from Family Reconstitution 1580-1837. Cambridge: Cambridge University Press.

 

Monday, 1 March 2021

Changing Places: The Spatial Dispersion of U.S. Manufacturing during the 20th Century

Nicholas Crafts and Alexander Klein

We provide new estimates of changes in the spatial concentration of U.S. manufacturing from 1880 to 2007.  The average level across all industries fell by more than half over the period.  Creative destruction has had a strong spatial component which eroded the manufacturing belt and when compounded by globalization left a legacy of left-behind voters.  Even so, almost all industries can be described as significantly spatially concentrated at all times. 

See the full paper, now on early view at the European Review of Economic History, here

Everybody knows that the geography of industrial production changed dramatically during the 20th century both across and within countries.  There was clearly a strong spatial aspect to the forces of creative destruction.  The ‘left-behind’ victims of these geographic trends have become an important constituency in contemporary politics.

The long run move of manufacturing employment out of the manufacturing belt which is reported in Table 1.  Whereas 87.2 per cent of manufacturing employment in the U. S. economy was in the manufacturing belt in 1880 by 1940 this had fallen to 73.6 per cent and in 2007 to 42.9 per cent.  Within this, the East North Central (mid-west) region has a different chronology with a rising share from 1880 to 1947 and then a steady decline during subsequent decades.

Measuring Spatial Concentration

It is important to control for differences in the size distribution of plants when measuring spatial concentration and also to take account of the geographical position of regions through allowing for ‘neighbourhood effects’.  The spatially weighted version of the Ellison and Glaeser index has these desirable features and provides a better measure of spatial concentration than traditional indices such as Hoover’s localization coefficient but has not previously been used by economic historians.  In our new paper (Crafts and Klein, forthcoming) we present estimates of this index for manufacturing industries in the United States for selected years between 1880 and 2007.  We find as follows.

First, there was a big decline over the long run in the average spatial concentration index.  This occurred in two phases - gradual prior to 1940 and rapid after 1940.  The mean across all industries was 0.223 in 1880 which fell to 0.183 in 1940 and 0.096 in 1997 (Figure 1).  Greater spatial dispersion was characteristic of the vast majority of manufacturing industries by the second half of the 20th century.

Second, the measured decline in spatial concentration before 1940 confirms the views of economic geographers writing around this time who stressed the de-centralization of economic activity but has been overlooked in more recent literature.

Third, nevertheless almost all industries are spatially concentrated in the sense that the index score is always positive and significantly different from zero.  Indeed, the vast majority of scores throughout the period are above 0.05, the level which is conventionally described as ‘highly concentrated’ and indicative of the existence of significant local cost advantages.  This was still true at the end of the period in 2007 when the mean was 0.098.

Decline of the Manufacturing Belt

The context for long-run changes in the location of manufacturing has strong similarities with the stylized core-periphery model associated with Paul Krugman which places transport costs centre stage.  The model envisages a move from very high to intermediate to very low transport costs driving a move from dispersed to spatially concentrated then back to dispersed locations for manufacturing.  In the spatially concentrated (manufacturing belt) phase the core benefits from economies of scale and proximity to markets and suppliers which raises productivity but also tends to raise wages; subsequently, however, in the context of much lower transport costs, the wage gap becomes too high and moves to the periphery promote a convergence of wage rates.

The costs of moving manufactured goods declined by over 90 per cent in real terms between 1890 and 2000 from 18.5 cents per ton-mile to 2.3 cents (at 2001 prices).  In fact, much of this decrease occurred by 1967 when the cost was only 5.6 cents (at 2001 prices) while by 1891 the railroad revolution had already cut transport costs to about 10 per cent of the 1820s’ level and the manufacturing belt had been born.   We calculate that the ratio of the average wage in manufacturing in East North Central and Mid-Atlantic states relative to East and West South Central states rose from 1.22 in 1890 to 1.52 in 1940 before falling to 1.15 in 1987.

An excellent example of this process is Motor Vehicles and Equipment (SIC 371) where overall geographic concentration fell in the second half of the 20th century but where significant localization persisted in a new configuration.  The index for SIC 371 was 0.191 in 1940, 0.120 in 1958, 0.106 in 1977 and 0.094 in 1997.  This is reflected in maps 1 to 4 which show an evolving pattern of spatial concentration over time such that by 1997 the move away from the 1940 situation of a dominant position for Michigan and an east-west corridor in the southern Great Lakes region has been superseded by one in which Michigan is still a major centre but clusters within ‘Auto Alley’ extend as far south as Alabama.

Blue to Red 

Clearly, industrial geography changed greatly during the 20th century.  Spatial adjustment can be seen as an integral part of the creative destruction which was instrumental in promoting this change.  The relative decline of traditional manufacturing areas was driven by domestic cost factors and not simply attributable to globalization.

It might be argued that with a relatively flexible economy and mobile society the United States has coped with these pressures quite well.  Even so, some workers have been left behind and addressing their grievances has become a big political issue.  While cities like Boston have regenerated with knowledge-intensive business services and a highly educated workforce others such as Detroit have not been so well-placed.  Of the six states which were red in 2016 but had been blue in 2012, four (Michigan, Pennsylvania, Ohio and Wisconsin) were in the manufacturing belt – their electoral college votes won it for Trump.

 



Reference

Crafts, N. and Klein, A., “Spatial Concentration of Manufacturing Industries in the United States: Re-Examination of Long-Run Trends”, European Review of Economic History, forthcoming.