Economic History Conference
The Decline of Jute and the De-globalization of Dundee
Jim Tomlinson, University of Dundee
This paper is part of an on-going project financed by the Leverhulme Trust entitled: ‘Managing Decline: the Case of Jute’. It uses the case of jute to contribute to two broad issues in modern British economic history—the management of industrial decline and the character and significance of patterns of globalization/deglobalization.
As is well-known, Britain on the eve of the First World War was an extraordinarily ‘globalized’ economy in comparison with any other large state. Within Britain there was a spectrum of local and regional levels of exposure to international economic forces, and on that spectrum Dundee was an extreme case of openness. This derived from the city being overwhelmingly dominated by one industry, jute, which drew its raw material from abroad and sold most of its output in international markets. This industry directly employed almost half of all workers in the city in the early 1900s, two-thirds of them women. [1] The economic welfare of the inhabitants of Dundee was thus especially affected by international economic forces in the era of free trade. Like other Britons, Dundonians had gained enormously from cheap imported food in the last quarter of the nineteenth century, but they had also begun to be affected by serious competition in jute markets, especially from Calcutta. This competition acted to keep down money wages in the industry, and from the early 1900s led to the beginnings of the decline of the industry in Britain, with output and employment starting to fall.
Thus, like all the staples, jute eventually had to contend with both shifting patterns of demand for its product and increased competition. The great boom in the industry in the second half of the nineteenth century was built above all on the production of jute bags, used for the transportation of all manner of agricultural products, coal, fertilizers and chemicals. Thus in this period jute boomed as part of the enormous growth in international trade, especially in primary products. [2] In the twentieth century other uses of the product became more important, partly because substitutes developed to the use of bags for the transport of bulk products, notably containerization, and partly because of the use of different material for bags, notably paper and later polypropylene. [3] Alternative uses for jute were found especially in backing for linoleum and woven carpets, so that even by 1936 such non-bag uses consumed around a third of the total of Dundee production. [4] The other aspect of the story was competition from other countries. The most important of these was India, though there was also significant production in continental Europe. Competition from India was evident even in the home market before the end of the nineteenth century, but was even more significant in capturing overseas markets. As Gordon Stewart rightly emphasizes, by the 1930s the Calcutta industry was the key player in the world market, Dundee reduced to a bit part.[5]
Faced with this competitive pressure, the jute employers (acting both individually and collectively) developed a number of strategies to resist or manage this decline. These can be summarized under three broad headings: protection, ‘modernization’ of jute production and corporate diversification by erstwhile jute companies.
The story of protectionism in jute is discussed at length elsewhere.[6] The bulk of jute employers became committed to a protectionist stance before the First World War. However, the pursuit of this was constrained both by the characteristics of the industry (it was primarily an export industry; its main competitor was within the Empire, and hence raised major problems of imperial policy); and also by politics (in Dundee, as elsewhere, no mass support for protectionism emerged). However, the industry was given protection for strategic reasons in 1939, and this continued post-1945 largely because of arguments about employment. From the 1940s the employers deployed the labour market argument with some success, building local coalitions of support, and achieving some influence in national policy. The industry was protected by the ‘Jute Control’ from 1939 to 1969 (albeit with cumulative reductions in levels of protection from 1957), and by diminishing quotas thereafter.
‘Modernization’: as Marx observed many years ago, ‘the bourgeoisie are constantly revolutionizing the means of production’ and the jute employers were no exception. They did not simply adopt a passive posture in response to competition, so, for example, in the inter-war period, there was a major period of amalgamation, which also commonly involved vertical integration. [7] But arguably it was only from the 1940s that the industry as a whole pursued a distinctive ‘modernization’ strategy, combining (i) major investments in new equipment, especially looms; (ii) significant reforms of working practices, including extensive shift working and job evaluation (iii) a market shift towards more complex products less subject to Indian competition.
Third, the jute companies (especially the ‘big two’ that emerged in the 1920s, Jute Industries Limited, and Low and Bonar) pursued corporate diversification: this involved movement into both related technologies/products, most importantly polypropylene, and into wholly unrelated activities. [8]
In the context of this broad summary of the history of jute, this paper focuses on two main issues:
a) The relationship between the protection granted to the industry from 1939 and the ‘modernization’ of the industry in the post-war years, and;
b) The impact and significance of the decline of jute in ‘de-globalizing’ Dundee.
I
In inter-war Britain the imposition of protection in 1931/2 led to an ‘arms length’ industrial policy, by which government sought to do deals with various depressed staple industries. The deals would involve the industries receiving protection in return for ‘putting their house in order’ by pursuing measures to improve their efficiency. By all accounts this diplomacy was not very successful. The National government, ideologically committed to protectionism, effectively had little leverage on industries who knew that promises of rationalization would not have to be delivered to secure the tariffs and quotas they desired. [9]
In 1929 such a deal was proposed by a leading figure in jute, George Bonar, who
suggested that the increase in European competition of the 1920s would be halted by protection, and in return the industry would put its house in order.[10] In the event the industry did get protection against European producers in 1931, but not against the key competitors in India until 1939, and the idea of a ‘deal’ was not revived until the mid-1940s. This idea was central to the Report of the tripartite Working Party in 1948. [11] The Report argued that there was:
‘no prospect of the jute spinning and weaving industry in this country achieving stability, unless it is afforded protection in the home market when it is again subjected to the competition which existed before the war from low priced imports of jute goods from India…we have satisfied ourselves that no amount of re-organization and re-equipment on the part of the home industry will bridge the gap between costs of production in the two countries.’ The Report that there was great scope for modernization of the industry through voluntary amalgamation, rationalization and re-equipment, but:
‘To enable the industry to develop on these lines, however, it is essential that it should be assured now that, when necessary, it will be afforded protection against low-priced Indian imports. At the same time, we are strongly of the opinion that the industry should not be granted protection unless it is prepared to carry out reorganization and re-equipment on the lines indicated’.[12]
But as the President of the Board of Trade, Harold Wilson, immediately made brutally clear, such a formal deal was not possible. Protection could not be offered to the industry because of ‘our commitment under the trade agreement with India to afford free entry of Indian jute goods into this country’ and he referred to the ‘possible reactions India to an assurance now of protection in the future’. He went on: ‘in any event it would be contrary to normal tariff policy to give assurance of protection at some future date under conditions which could not now be foreseen’.[13]
British concerns, were twofold. In the short-term; ’an announcement of our intention to protect the UK jute industry might bring to a head current resentments of a more general and political nature and lead to retaliatory action’. In the longer-term the fear was of having to pay an unacceptably high price to protect jute in any negotiations, given its importance to India, a price in the form of loss of trade preferences, demands for new preferences, or increased tariffs on British goods. [14] Behind the scenes the Board of Trade also objected to protection on the grounds that it would reduce competitive pressure on the industry, and thereby slow the necessary re-organization.[15]
Despite the absence of any formal deal, the fact is that the twenty years after the Report did see a combination of protection and significant ‘modernization’ of the industry, so we can usefully think of that period in the history of jute as involving an implicit deal, whose terms and consequences can be examined. The interest of this approach derives in part from the literature on how far the protection afforded British industry in the post-1945 years contributed to inefficiency and lack of competitiveness, and for an allegedly general problem of ‘industrial decline’. [16]
The kind of changes in the industry envisaged in the Report were very much in line with contemporary understanding of the sources of higher efficiency, a topic very much at the centre of the Labour Government’s polices. [17] Some of these had a clear political aspect, most obviously the favouring of tripartite ‘Development Councils’ for fragmented industries, with a prime purpose of encouraging amalgamations, themselves seen as a necessary condition for many other improvements in efficiency. In the case of jute no such body was set up, but rather a body called the British Jute Trade Federal Council was established, combining the interests of producers and merchants, but which, unlike a Development Council, had no trade union participation.[18]
A later report in the Scotsman suggested that the Board of Trade had denied the industry protection because of this failure to set up a Development Council, but as noted above, Wilson had other reasons for such a denial.[19] It is probably more accurate to say the matter worked the other way round-the absence of formal protection provided the industry with an excuse not to set up a Development Council. The employers objection to such Councils was not only the involvement of trade unions, but also that some schemes for Councils in other industries involved strong encouragement of amalgamation. However, while there was no collective body encouraging amalgamation in jute, amalgamations did occur, continuing the trend established in the 1920s when Jute Industries Limited and Low and Bonar became the two dominant firms in the industry. Describing the period since 1948, Lewis Robertson wrote: ‘Regrouping within the industry occurred, though in the absence of an unqualified and definitive assurance from the Government of the day, and of the advisory machinery envisaged, it did not take the regimented form contemplated by the recommendations of the Report, which was conditional upon a definite assurance of continued protection’. [20] He calculated that since 1948 the number spinning firms had fallen from 26 to 18, and cloth manufacturers from 36 to 24, mostly as a result of amalgamation, with three firms ceasing to produce entirely. [21]
Whether the enthusiasm for amalgamation as a pre-condition for greater efficiency was correct for jute is unclear. As Broadberry had plausibly suggested, Dundee jute up to the 1940s had a relatively good productivity record based on the realisation of external economies of scale. [22] It was commonplace to assume that amalgamations were a necessary condition for higher levels of investment in the industry, and in turn this would generate higher productivity, but Howe’s analysis just of the 1969-77 period had ambiguous results, with capital intensity being related to average productivity, but not the growth of productivity, and we have no calculations of such relationships for the earlier period. [23] Nevertheless, given imperfections in the capital market, amalgamation, other things equal, probably encouraged investment, which expanded rapidly post-war. Howe’s calculations suggest investment rose to a peak annual level of £1.5m. in 1954, with a cumulative total of £30m. between 1945 and 1972. [24] The pattern over this period, with sharp rises peaking in the mid-1950s, then a slowdown followed by a renewed acceleration after 1964 fits with contemporary narratives. The first period was one of especially rapid shift towards automatic spindles, and looms to weave wider cloth, while the later boom was related to the switch by jute companies to polypropylene (see below). Investment in jute machinery declined sharply after 1968, while that in synthetics machinery overtook that in jute by 1971. [25]
This investment was substantially funded from ploughed-back profits. Between the end of the war and the mid-1950s profits recovered from their depressed level of the 1930s, with strong demand and output and, up to 1954, employment expansion. Contemporary analysts suggested: ‘the first ten years after the war were years of prosperity and high profit margins, which produced a sizeable capital fund for the first time in perhaps half a century’. [26]