7 - Financial Speculation, Restructuring and Survival

Summary

The meddling of garish speculation with the Lancashire cotton trade … proved a commercial and social calamity.

Up to 1914, cotton entrepreneurs facilitated a variety of growth strategies. They built on the technical and financial partnerships of the early industrial revolution to construct corporate empires. Initial phase accumulated capital was reinvested as venture capital to extend the reach of these previously local partnerships. Regional financial institutions assisted these developments. Social entrepreneurs, utilizing often informal stock exchanges to access local pools of capital, evolved into a new class of financial capitalists, specializing in the promotion of ever-larger mills during each upswing in the trade cycle. The effect was a productive circulation of capital within Lancashire. When contemporary commentators levelled criticism, it was at the perceived over-expansion of the industry, which created spare capacity during downturns. Such criticism was aimed at the problem of too much investment, rather than too little, or into the wrong type of technology.

The previous two chapters have mapped the ingredients of the decline that characterized British textiles in the twentieth century. In chapter 4, the evidence shows that entrepreneurs mobilized capital using local and regional financial institutions, which they increasingly used for speculative mill-building projects by cliques of directors who believed they understood the cotton trade cycle only too well. The outcome of these financing methods was the creation of groups of mills run by interconnected directors. Chapter 5 outlined an alternative route to growth, based on combinations of individual mills, which networked directors floated as combines. These amalgamations also featured powerful interconnected sets of directors. Aside from a large number of small firms, specialized mill groups and combines provided alternative models of consolidation after 1920, as Lancashire's markets began to contract. Both models continued to reflect the features of the pre-1914 growth phase. For example, the specialized mill groups tended to rely on the Oldham stock exchange, and also Manchester, whereas the combines raised capital from metropolitan sources, which for the first time now included London.

Entrepreneurial choices of vertical organization and technology, as illustrated in chapter 6, were governed by path dependency and rationality, which in any case was bounded by the absence of decisive breakthroughs in spinning and weaving automation for integrated process production before 1930.