1 - Industrialization and Capital Formation

Summary

From around the mid eighteenth century, innovations in technology and infrastructure transformed the textile economy of north-west England. Interacting innovations created a dynamic and discontinuous process of industrialization. Innovations impacted at different times on different stages of production and marketing of cotton textile goods. Conversion of raw cotton into marketable products can be analysed for convenience into three value chain components: spinning, weaving and distribution. The value chain refers to the stages of transformation from raw cotton into a final product for the customer. We can use these overview components for illustration, ignoring the more nuanced practical details of each component.

Technological innovation, for example, jenny-spinning, typically affected only one component, spinning. Network infrastructure innovations, such as turnpike roads and canals, created development opportunities for all three, with associated opportunities for entrepreneurs to reconfigure the relationship between them. Second-generation turnpike roads used easier gradients and better surfaces to connect towns, but otherwise avoided settlements, while improvements to existing roads facilitated the operation of distributed weaving and finishing networks. These structures of innovation are vital because they explain the step changes in capital requirements during industrialization. Differing rates of innovation within and across value chain stages give rise to a series of models of industrial organization. Each model persists only for a couple of decades at a time, and has differing demands on capital and its composition, in terms of fixed and working capital.

Table 1 illustrates the four such distinct models and sets out broadly illustrative time periods to describe the value chain features of each one. It uses anchors based on decades most closely adjacent to essential dates in the innovation process. For example, the transition from model 1 corresponds approximately to the period ending with the expiry of Arkwright's patents, which had hitherto limited the supply of factory-spun yarn. The transition from model 2 in spinning likewise corresponds to the end of the Boulton & Watt steam engine patent and the rapid associated adoption of factory-based mule spinning. During these transitions, weaving remained unchanged until the technical improvement and widespread adoption of the power loom. The result was the end of domestic outworking and the transition from model 3.