Reviewed by J. R. Edwards Cardiff Business School
The German version of this book was published in 1986. It was well received by the critical academic press and the English version has been translated by Sarah Hanbury Tenison. The purpose of the book is to add to the debate surrounding Britain’s relative economic decline during the latter part of the nineteenth century.
The period covered by Wengenroth’s text, 1865-95, saw Britain lose its position as the “workshop of the world” and most powerful industrial nation, being overtaken by the USA and then Germany. Performance in relation to steel production — an area of rapid technological advance and one which has captured the imagination of historians — is seen as symptomatic of Britain’s failure, with British levels of steel production overtaken by the USA in the late 1880s and Germany in the early 1890s.
This turn-around was for many years explained in terms of British entrepreneurial failure, with its management characterized as essentially pragmatic, technically ill-educated and no match for its efficient, university-trained, German counterparts. The accusation against management is seen to gain strength from the fact that all the major innovations in new steel technology, the Bessemer, Thomas and Siemens-Martin processes, were substantially developed in Britain in the 1860s and 1870s. Wengenroth utilizes the records of numerous companies, governmental archives and the trade literature to build-up a picture of how British and German steel managers tackled the strategic problems and business opportunities implicit in rapid technological change.
Following a brief introduction, chapter one provides a de-tailed account of late nineteenth-century steel-making methods, with its purpose being to provide a technical perspective for the arguments developed in the later chapters. Chapter two deals with the early expansion of steel-making, resulting in over-capacity which was exacerbated by a decline in the level of railway construction. Chapters three and four examine respectively the individual and collective strategies used by firms to “surmount the slump.” Chapter five contains an in-depth examination of the new steel-making processes and new markets, as a further preliminary step before moving on to reach a judgment concerning relative entrepreneurial efficiency in Britain and Germany.
The last chapter is divided into two parts. The first pan re-examines the British debate concerning entrepreneurial decline and, specifically, the steel question. Wengenroth rehearses the respective stances of the two main British protagonists, Duncan Burn and Donald McCloskey. Burn believes that late-nineteenth-century British entrepreneurs missed opportunities for the development of Bessemer steel based on the use of iron ores available in Lincolnshire and Northamptonshire (these were not exploited until Stewarts & Lloyds built the Corby works in the 1930s). McCloskey’s reinterpretation of the evidence leads him to conclude that British entrepreneurs did as well as could be expected given the prevailing economic conditions and resource constraints. Indeed “by any cogent measure of performance, in fact, they did very well indeed” [McCloskey quoted in Wengenroth, p. 251].
Wengenroth sees strengths and weaknesses in both their cases. His overall conclusion is that late-nineteenth-century British managers were substantially innocent of the accusation of entrepreneurial failure. It was not the way steel-making processes developed technically which created Germany’s growing strength on the world markets, but the industry’s tight organisation, formed in the 1870s with the support of the banks and the state (by way of protection), which enabled it to suspend the market as a regulatory mechanism, in the majority of cases indeed forcing them to do so given that they were otherwise threatened with bankruptcy [p. 272]. British firms, doing reasonably well up to the early twentieth century, may be seen as complacent, although this is not a point pressed by Wengenroth. He is rather more critical of their inability to lobby the state for support and combine together to exert collective market power. Though the reader is left with the impression that Wengenroth regards this as the (reasonable?) price paid for entrepreneurial autonomy.
What opportunities does this kind of work open up for the accounting historian? Wengenroth himself makes use of costing data but comments on the lack of surviving material, relying for Britain mainly on that available for the Consett Iron Company Ltd and the Dowlais Iron Company. Wengenroth uses cost per ton data for these companies without giving any attention to their construction and comparability. Of particular importance are the fact that Dowlais almost never capitalised fixed assets so a depreciation charge does not enter into the cost per ton while Consett experimented with a number of methods of computing total cost in the 1860s and 1870s.
The accountant might also be able to help answer the ques-tion of how profits on steel-making were computed, and how useful they were as a measure of performance and a basis for resource allocation decisions. Towards the end of the text, Wengenroth refers to the profits and dividends of “iron compa-nies” as if they were the profits on steel. However, most of the companies discussed by Wengenroth were producers of coal, iron and steel, with varying proportions of the former two items used for internal consumption and, sometimes, sale. Manage-ment made calculations of profits from different sources, and the method of transfer pricing employed was naturally of crucial importance in deciding how much profit or loss was associated with each activity. This is, potentially, an exciting topic for research.
The one area where Wengenroth makes more than a passing reference to cost accounting is on pages 129-34 under the heading “Dumping and cost accounting.” Wengenroth appears to doubt whether management scientifically applied marginal costing criteria for the purpose of pricing overseas sales. How-ever, there does seem to be evidence that German industrialists realised that profits would be lower if dumping was discontinued and levels of production reduced accordingly, and a careful re-examination of the costing data may well reveal a clearer understanding of the costs which needed to be covered by mar-ginal revenue than is indicated in this text.
