Draft: work in Progress

The interplay of small and large firms in the concept of ID: an historical perspective

Belussi Fiorenza and Caldari Katia Department of Economics “M. Fanno” University of Padua [email protected] [email protected]

Abstract Despite the new interest shown by many economists, social scientists and observers of the changes of the modern socio-economical reality for the concept of the industrial district – ID – (or for analogous and related notions like clusters, industrial milieux, etc.) the analysis of this particular form of industrial structure is quite old, and dates back to the early studies of Alfred Marshall (1860s). Industrial district has become nowadays a conceptual category which can be contrasted to the idea of the large hierarchical firm which dominated the economic scene in the Fordist era, but it is also a modality of resource coordination which has been developed historically in many organisational “territorial variants” which include a diverse interplay of small and large firms. This was observed by Marshall himself when he wrote that an industrial district can be made either of large or small firms, even though the latter get more important advantages. Our analysis tracks back the development of the concept of ID along an historical perspective that considers not just Marshall’s but also the contribution of Sargant Florence with his “discovery” of the efficiency of “highly localised industries”, passing through the “evolution of localised industry” of others British economists belonging to the “old Cambridge school”, like Chapman and Robertson, since it will encounter the modern interpretative economic reflections on the clustering of economic activity.

Keywords: industrial districts; size of firms; localization; division of labour. Jel Classification: B1; B25; O18.

“The locus classicus of urban manufacture by small workshops is medieval Florence, which still has streets named after the highly localised industries that plied there – the via Calzaioli or Corso dei Tintori, for instance, once given over to the shoemakers and dyers. A special set of cases contrary to a general law is usually referred to as an effect. I hope I shall not be considered immodest if this current of localised plants running counter to the main stream of a positive correlation of size of plants and localisation is called, for short, the Florence effect” (Florence, 1964, p. 69)

1. Introduction Despite the revived interest shown by many economists, social scientists and observers of the changes of the modern socio-economical reality for the concept of the industrial district – ID – (or for analogous and related notions like clusters, industrial milieux, etc.) the analysis of this particular form of industrial structure is quite old, and dates back to the early studies of Alfred Marshall (1870s). Industrial district has become a conceptual category, which can be contrasted to the model of the large hierarchical firm, which dominated the economic scene in the Fordist era, but it is also a modality of resource coordination, which has developed historically in many organisational “territorial variants” which include a diverse interplay of small and large firms. This was observed by Marshall himself when he wrote that an industrial district can be made up of either of large or small firms, even though the latter profit most (Marshall A. and Paley Marshall M., 1879, p. 74). Our analysis traces back the development of the concept of ID along an historical perspective that considers not only Marshall’s but also the contribution of Sargant Florence, who “discovered” the efficiency of “highly localised industries”, passing through the “evolution of localised industry” of other British economists belonging to the “old Cambridge school”, such as Chapman and Robertson.

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2.Alfred Marshall and Industrial Districts. 2.1.The founder of ID economics: Alfred Marshall Alfred Marshall is the “father” of the modern concept of Industrial District. Even though he has long been considered an exponent of the neoclassical school1, more recently his “heterodox” or “anomalous” position or peculiarities with respect to that school have been emphasized2. Instead of the “old” Alfred Marshall, known as the economist who in the Principles of Economics uses marginal reasoning and other tools typical of that school, a “new”, more multifaceted Marshall is now recognised3. In opposition to mainstream economics, a number of “anomalies” are underlined: “The first and fundamental anomaly is about the idea of man as variable entity, (…) [the] second anomaly is about the discovery and the development of the district as an alternative to the big (and bigger and bigger) and integrated factory system. (…) The third anomaly is linked to a set of studies and social challenges of that time. (…) The fourth anomaly is about the nature of strictly speaking economic science. (…) The fifth anomaly comes out from the previous ones: the horizon of social sciences is, according to Marshall as to Marx, Comte and J.S. Mill, a general science of society. (…) The last anomaly (…) is his conception about the capacity of the market to solve the problem of adaptation of man’s efforts to attaining man’s ends (…)”. (Becattini, A Turning Point…) In the following pages we will dwell upon what, according to Becattini, is the second anomaly: the presence of “industrial districts” in Marshall’s reasoning. 2.2. The “discovery” of ID Alfred Marshall “discovered” the existence of industrial districts quite early, probably in his “Wanderjahre among factories”4 and dealt with them from his first approach to economic science. Significant references to industrial districts are made, for instance, in The Pure Theory of Domestic Value, a work that can be dated between 1873-7 (see Whitaker, 1975, II, pp. 3-236). We will look more closely at it later, since the starting point for our analysis it the Principles of Economics. The main reason for our choice is that in the Principles Marshall clarifies the difference between “localized industries” and “industrial districts”. A localized industry is simply “an industry concentrated in certain localities” (1961, p. 268).

Actually, the term was coined just for him: “the term neoclassical was first used by Veblen (1900, pp. 242, 260-62. 265-8) in order to characterize Marshall and Marshallian economics” (Aspromougos, 1991, p. 502). 2 The bibliography is large: see for instance Becattini, Dardi, Groenewegen, Raffaelli, Marchionatti, Loasby. 3 See, for instance, the important biography of Marshall written by P.Groenewegen; the precious collection of Marshall’s correspondence edited by J.Whitaker, and the illuminating reconstruction of Marshall’s thought and cultural background of T.Raffaelli. 4 From a letter to Flux (8th March 1898) where Marshall explains that his “confidence in Cournot as an economist was shaken when (…) [he] found that his mathematics re I.R. led inevitably to things which do not exist and have no near relation to reality”. (Whitaker, 1996, vol. II, p.227-8) 1

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Marshall distinguishes “elementary localization”, due to or caused by the exigencies for the producers (in the early stages of civilization) to be close to the resources on which they depended. According to Marshall, this elementary localization coincides with the early stage of industrialization and marks the way to the modern developments of division of labour. The main reason of this primitive localization is due to physical conditions (such as climate, soil, mines, quarries, access by land or water): it had effected many English districts like Staffordshire, Bedfordshire and Buckinghamshire. From a historical point of view, another cause of localization is recognized in what Marshall calls “the patronage of a court”, that produces a “demand for goods of specially high quality”. This cause worked in Lancashire and “the greater part of England’s manufacturing industry” (1961, p. 269). Another important cause for localization, and therefore for “districtalization”, introduced in Industry and Trade, is the presence of a town: “Almost every industrial district has been focussed in one or more large cities (….) [But] after a time factories, requiring more space than was easily to be had where ground values were high, tended to the outskirts of the city; and new factories grew up increasingly in surrounding rural districts and small towns. Meanwhile the trading functions of the city developed”(1919, p. 285). Once a district is well developed, it is probable that in the central sites of a large town rent is higher. This makes the factories congregate in the outskirts of large towns “and in manufacturing districts in their neighbourhood rather than in the towns themselves” (1919, p. 273). This movement has characterized textile manufactures: Manchester, Leeds, and Lyons. Marshall recognizes two main kinds of localization: manufacturing town and district: usually they both are included in the more general concept of “industrial district” but Marshall underlined peculiarities that make it worthwhile to take them apart. First of all, there was an important division of labour between towns and industrial districts, emphasized in Industry and Trade: The largest industries, and especially those that need massive plant, are located increasingly in industrial districts; the central cities of which are giving themselves more and more to work directly and indirectly connected with marketing (1919, p.285). This division of labour moreover takes place for economic reasons: in fact “the high value of land in large cities tends to drive away those branches of production which have been taken over by massive machinery, and especially those which must be accommodated in low wide spreading sheds; though large cities retain some hold of work in which each of many floors of a high building can afford space for a multitude of workers, each tending a machine that does light work. Thus many of them are centres of printing, especially for newspapers: and of course they are the chief centre of commerce and finance” (1919, p.284).

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This “primitive” localization, if it lasts long enough, becomes a “more compound” localization from which industries gain a number of advantages5: 1) Hereditary skill: “the mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously” (1961, p. 271) 2) The growth of subsidiary trades that “grow up in the in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material” (1961, p. 271). 3) The use of highly specialized machinery: This advantage comes from the high division of labour and specialization that characterizes a district “in which there is a large aggregate of production of the same kind, even though no individual capital employed in the trade be very large” (1961, p.271). 4) Local market for special skill: a localized industry offers “a constant market for skill” (p.271) so that employers do not have any problem when they are looking for workers. On the contrary, “an isolated factory” may have problems finding workers. These aspects are the keynote of industrial districts that can be considered in this first approximation to be the result of long-lasting localization. Also in Industry and Trade, “a study of industrial technique and business organization; and of their influences on the conditions of various classes and nations”, Marshall pays particular attention to industrial districts and localization. Localization is considered to be a “natural”, gradual movement due to the causes just mentioned from Principles since, It is a general rule that specialized branches of production are apt to rise in places which offer suitable raw material (…); which have a favourable climate and access to good markets for sale of the products (1919, p. 150) . As we have seen, these are the first aspects necessary for a concentration of a number of firms in a particular “district” to occur. But they are not enough for talking of an “industrial district” proper. What is absolutely distinctive of the latter is the presence of a special atmosphere6. This is clearly stated in Industry and Trade when Marshall, talking of two districts, maintains Sheffield and Soligen have acquired an industrial “atmosphere” of their own; which yield gratis to the manufactures of cutlery great advantages, that are not easily to be had elsewhere: and an atmosphere cannot be moved (1919, p.284). Of course, Marshall recognizes that “localized” industries have also some disadvantages. The most serious problem is connected with the fact that in a district the demand for only one kind of labour may become too extensive. This problem is easily solved: it is enough that in the same area industries of a supplementary character grow. When the problem of the labour market is solved, localized industry can experience a “continued growth”. Here Marshall speaks of manufacturing towns (1961, p. 272). 6 The term is also found in the subject index of the volume. 5

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It is this special atmosphere that gives a number of advantages to the firms gathered together in a particular area. In The Pure Theory of Domestic Value (1873-7), in Economics of Industry (1879), in the Principles (1890), with regard to the characteristic aspects of industrial districts, Marshall underlines the widespread knowledge and information that are “in the air”7 (1975, II, p. 197), so that “mysteries of the trade become no mysteries; (…) and children learn many of them unconsciously” (1961, p.271). In Industry and Trade “air” is replaced by “atmosphere”, a broader term, in order to mean a “milieu” (or a “creative milieu”, Becattini, 1991), characterized by the four features mentioned above from Principles and as source of important innovations. An “atmosphere”, in order to become established and characterize a district, requires that a long period of time pass after localization has begun. In Industry and Trade Marshall’s general (though implicit) aim is to investigate the conditions that sustain the growth of business size and also asks if this expansion is an inevitable process or if medium (and small) size firms have place8. 2.3. Small and medium firms versus large businesses: the raison d’être of Industrial districts In Industry and Trade the contrast between small/medium and large firms is constantly raised. Marshall does not hide his preference for the former: many might be the reasons why he did not like large firms very much

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but what we want to emphasize here is that the question of small and large

firms is a old theme in Marshall. In The Pure Theory of Domestic Value he wrote The customary method of treating the advantages of division of labour appears to me defective, inasmuch as it takes but little account of this fact. For the manner in which these advantages are discussed in most Economic treatises is such as to imply that the most important of them can as a rule be obtained only by the concentration of large masses of workmen in vast establishments. (1975, vol. II, p.195)

7 Where large masses of people are working at the same trade, they educate one another. The skill and the taste required for their work are in the air, and children breathe them as they grow up (1879, p.53) 8 In a letter sent to Taussig (dated 15th August 1893), Marshall answers: “Is it true that ‘two very different methods of doing the same thing rarely continue to exist side by side’ (p.100). Has the slotting machine driven out the chisel for work that it could do? Or have large firms each with many foremen driven out the small master with none in any but a limited class of trades?” (Whitaker, 1996, vol. II, p.98) 9 A reason can be found in his support of free enterprise contra the marxian school “Marx and his followers resolved to be practical, and argued that history showed a steadily hastening growth of large businesses and of mechanical administration by vast joint-stock companies: and they deduced the fatalistic conclusion that this tendency is irresistible; and must fulfil its destiny by making the whole State into one large joint-stock company, in which everyone would be a shareholder; but no one would have much scope for independent initiative (..)” (1919, pp. 1767). But, a further and perhaps more hidden reason is traceable in his philosophical beliefs and his early studies: in order to understand his attitude towards large firms, see Raffaelli, 1990, 1991, 1994 and 2003.

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This can be and is generally true for those industries that “are not fairly to be classed as manufacturing industries” (1975, II, p.195), i.e. metal industries and all those industries, which have a direct contact with the consumer. After this early writing, Marshall repeatedly contrasts large size business with industrial districts made of small and medium size firms: The advantages of production on a large scale can in general be as well attained by the aggregation of a large number of small masters into one district as by the erection of a few large works. It is true that the disadvantages under which the small masters lie in the competition with large firms are increasing more rapidly than are their peculiar advantages; and that in most though not in all directions there is a tendency for small masters to be supplanted. But in the metal trades in question10 and in many others the advantages which are generally classed under the heads of division of labour and production on a large scale can be obtained almost as fully by the aggregation into one district of many establishments of a moderate size as by the erection of a few huge factories (Whitaker, 1975, vol. II, p.196). So “the customary method of treating the advantages of division of labour appears (…) to be defective”, since “it takes little account of (…) [the] fact”, that advantages of production can also be attained by small firms if they are gathered in a district. In this early unpublished11 essay, Marshall only “outlines” his explanation, foreshadowing the characteristics found both in the Principles and in Industry and Trade12. In “The Old Generation of Economists and the New”, published in The Quarterly Journal of Economics, Marshall had noted that

That is those in the hands of small masters This work is part of a Manuscript on International Value that Marshall should have sent to MacMillan in the period 1876-7. The volume was never published but in 1879 Sidgwick dedided to publish it for private circulation (that was not so “private”: see Jevons…) a number of chapters of the second part: chapters II and III are entitled The Pure Theory of Foreign Trade; and chapters V e VI The Pure Theory of Domestic Value. 12 1) “It is possible to divide the process of production into several stages, each of which can be performed with the maximum of economy in a small establishment” (1975, II, p. 196). Marshall recognizes that larger firms may have advantages in buying raw materials and selling their products. But he says “if there exists a large number of such small establishments specialised for the performance of a particular stage of the process of production, there will be room for the profitable investment of capital in the organising of subsidiary industries adapted for meeting their special wants” (1975, II, p. 197) 2) The most important economies for a firm “are those which are concerned with the education of specialised skill” and “when large masses of men in the same locality are engaged in similar tasks, it is found that, by associating with one another, they educate one another (…) The skill required for their work is in the air, and children breathe it as they grow up” (1975, II, p. 197). In a district where there are many workshops a man can easily find a place and moreover the “large extent of the [skilled labour] market” makes it easy for employers to find the required workmen. 3) When the number of men engaged in a particular industry is very large “there are to be found among them many who, by their intellect and temper, are fitted to originate new ideas. Each new idea is canvassed and improved upon many minds”. (1975, II, p.198). 10 11

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everyone is aware of the tendency to an increase in the size of individual businesses (1897, p.307). The growth of business size was one of the most distinctive aspects of his time and large organizations, together with their more modern forms (Joint Stock Companies, Trusts), are the main subject of his Industry and Trade13. The distinction between internal and external economies of scale is well known: “Internal economies are those connected with the organisation of an individual firm: they increase as the firms rises to the first rank, and they dwindle as the firm decays. The External economies depend on the general organisation of the trade, on the growth of the knowledge and appliances common to the trade, on the development of subsidiary industries, and so on” (1898, p.50). Business size is connected with internal economies and large size can be achieved through vertical or horizontal integration Whenever a business expands into a stage higher or lower than with which it was originally occupied, its expansion is vertical. (...) On the other hand, a business may proceed gradually and tentatively when extending its operations horizontally in the same stage (1919, pp.215-16). The choice between one or the other depends on the kind of products and on the productive process. With vertical expansion firms abandon the specialization in one product while with horizontal expansion firms become multi-plant “without altering the character” (1919, p. 216) of their productive process. Vertical integration is suited for heavy industries since The central task of the heavy steel industries is the handling of great volumes of homogeneous fluid steel, ready to be worked up into an infinite variety of products large and small. (1919, p.218) On the contrary, horizontal integration is typical of textile industries that offer the best instances of the coexistence of numerous establishments, repeating one another (1919, p.218). Marshall had noted that “the growth of internal economies is generally more rapid than of external (1898, p.50) and in Industry and Trade he indicates that “with the growth of capital, the development of machinery and the improvement of the means of communication, the importance of internal economies has increased steadily and fast; while some of the old external economies have declined in importance” (1919, p.167). Nevertheless, we find that in the same book, he remarks: 13 The book is a model of modern industrial economics for that time: manifold “modern” aspects have there place, for instance, the analysis of Scientific Management, of marketing techniques, of industrial locazation, of advertising (see Groenewegen, 1995, pp. 707-15).

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One of the most impressive achievement of modern technique is its power to handle masses too great for any force which was at man’s command until recently. But, as often happens, that which is most wonderful, is not that which has exercised the greatest influence on the course of evolution. Those industries which need to handle very large single masses must necessarily be concentrated in the hands of a relatively small number of large business; but they are not numerous (1927, pp.217-18). Industrial reality should be made of large, as well as small and medium size businesses: according to Marshall each had a raison d’etre with advantages and disavatnages as we can suppose from the following quotation: It is true that giant businesses alone are capable of some of the chief tasks of industry in the present age. But, where their presence is not demanded by technical considerations, the immediate increase of strength, which would result from a rapid enlargement of their sway, might be purchased at too great price: the value of (...) free individuality (1919, pp.577-78). The presence of small and medium firms is considered a necessary condition even though large firms are more advisable in a few areas? It seems that the growth of a considerable number of great firms in all heavy industries, and especially in heavy steel industries, is to be welcomed (...) [But] such a growth will of course tend to impair the supply of that individual initiative, which is by far the most important element of national wealth: but that tendency may be relatively slight, if an open field be kept for small businesses in appropriate industries (1919, pp.593-94). Small businesses, in fact, “are on the whole the best educators of the initiative and versatility, which are the chief sources of industrial progress” (1919, p.249). But is the district made up of small, medium and large firms? As we have seen, in his early writings Marshall contrasts large firms with small firms collected in a district. The distinctive character of a district seems to be the small size of firms that belong to it. In Industry and Trade Marshall is more evasive on this feature. Here, in fact, we also find that The largest industries and especially those that need massive plant are located increasingly in industrial districts (1919, p. 285). Talking about Sheffield and Solingen, he does not say anything about the dimension of the firms that belong to those districts. It seems that in Industry and Trade Marshall is more concerned with the efficiency than the dimension of firms. What he really wants to underline is that

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The leadership in a special industry which a district derives from an industrial atmosphere such as that of Sheffield or Solingen, has shown more vitality than might have seemed probable in view of the incessant changes of technique (1919, p.287). Vitality14, capacity of being in step with changes but also of innovations15, the widespread knowledge16, all these and many other features are what in the end characterize industrial districts, leaving aside the size of firms that belong to them. Thanks to these features, districts keep on living: Thus although even a little obstinacy or inertia may ruin an old home of industry whose conditions are changing; and although the opening out of new sources of supply or new markets for sale may quickly overbear the strength which old districts have inherited from past conditions: yet history shows that a strong centre of specialized industry often attracts much new shrewd energy to supplement that of native origin, and is thus able to expand and maintain its lead (1919, p. 287). Of course, the importance given to small and medium firms is so widespread that we think it is wellfounded to suggest that Marshall thought in terms of small and medium size firms – in particular when contrasted to large businesses – in industrial districts–. 3. The “old” Marshallians 3.1. The Marshall legacy Among those who followed Marshall’s lessons in Cambridge, Florence and Chapman were his most prominent pupils, and the former was the more productive author, who from his chair in Birmingham chronicled the first half of the twentieth century from his first article to his last volume, Economics and Sociology of Industry, in 1964. Florence and Chapman were also the first authors to present rich “monographs” of real cases of local development, and empirical studies of industrial concentrations (the Midlands, Coventry, and the Lancashire cotton district ). Their method of research, in the words of Florence, was focused on the realistic analysis … used at Cambridge, to an approach based on observation and records of the real facts, but proceeding beyond mere description and empiricism to “Vitality” is commonly considered as the “ability to survive and grow”. According to Marshall it is connected with elasticity and strenght (Marshall, 1961, pp. 194 and 301). 15 As in the case of Sheffield that “was unwilling to adopt (..) [a] new method: but having once been fully convinced of its efficiency, is adoping it; and she is striving vigorously to regain the ground lost by her delay” (Marshall, 1919, p. 213 n.) 16 “Each man profits by the ideas of his neighbours: he is stimulated by contact with those who are interested in his own pursuit to make new experiments; and each successful invention, whether it be a new machine, a new process, or a new way of organizing the business is likely when once started to spread and to be improved upon” (Marshall A. & Paley Marshall M. 1879, p.53). 14

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comprehensive measurement and causal interpretation and a hunt for some possible underlying logic (Florence, 1964, p. V). Their work is interesting not only because they are “in nuce” the first empirical case studies of IDs, but because in their work they developed new concepts that were used much later by evolutionary economists. These notions, that clearly originate in the Marshallian biological metaphor for industrial evolution, were developed by Florence: dynamism of economic organisations, multi-factor explanations of the scale of organisation (including motivation and non-economic psychological reasons, incentives and capacities), persistent differentiation of firms and plants which fits their new development (“a quasi-biological, trial-and-error, fight-for-survival trend” that defines an industry, p. 24), the role of institutions, the role of entrepreneurship, and the analysis of forces promoting or hindering adaptation to new developments. 3.2. Chapman’s industrial district of Lancashire The monumental work of Chapman on the Lancashire cotton industry was published 1904. It is the first industrial district case study ever published: more than 300 dense pages covering the origin of the district, its historical development, its pattern of technological development, and its triggering events. This work is also an analytical tool for understanding, more generally, the passage to the first industrial revolution, because it all started in the North of England in the textile industry. Chapman, who wrote this book under the Marshall’s supervision, does not limit himself to being an industrial economist; he is also interested in the evolution of social institutions and the social and political consequences of the introduction of the factory system. Despite the many relevant ideas presented in this volume, for the sake of brevity only a few will be illustrated here. As Chapman himself declared his book could be seen essentially as an “industrial morphology” (Chapman, 1904, p. I). In the course of his investigation he deals with a) the district’s origin and the coming of the factory system, b) the development of local industries from hand-loom weavers to cotton spinning, c) the invention of new machinery, and d) the development of some modern problems of organisation, related to the concentration of firm management (joint-stock enterprise and combinations) which characterised the district in the first years of the nineteenth century. In the beginning Chapman describes how the cotton industry in Lancashire was first established by refugees who from the Spanish Netherlands during the second half of the sixteenth century due to unrest and persecution, “Flemish weavers did settle at time in and about Manchester” (p.1), the kind of extraordinary event that has often characterised the take off of IDs.

The reasons for its rapid

development were first, the local experience in dealing with linens and woollens, and the existing commercial arrangements for providing material, handling, and finishing, and secondly, the fact that

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the new art was not subject to the restrictions of local gilds and corporations. The new industry developed in parallel with woollens but at the end of the eighteenth century only “cotton, cotton, cotton, was become the almost universal material for employment” (p.2). By 1774 in Manchester there were as many as 30,000 workers engaged in the cotton industry. The Manchester merchants, and their direct knowledge of foreign markets, thus the commercial side (such as in Prato, an other historical textile district in Italy) was, according to Chapman, the more important factor, which gave impulse to the industry, together with pre-eminence of Lancashire manufacturing. The improvements of machinery were at the beginning sustained by the workers themselves, who were often self-employed, and then by the local Societies of Arts. As known, John Kay’s invention of the flying shuttle in Manchester in 1738 began the modern developments. The flying shuttle started to be widely applied when the son of John Kay, Robert invented the drop-box, in which the weavers could keep different coloured threads. During the nineteenth century weavers who owned 4-6 looms and worked with the help of one or two assistants was common. Subsequently, power-looms were invented and employed in the first decades of the nineteenth century, but at first the new machinery was inefficient, and often required other inventions before become useful. The introduction of the factory system helped the weavers to manage heavy and complex machinery. Often they were improved thanks to the assistance of ingenious mechanics. For about a century the competition of power-loom was not very serious, and in 1820 there were still 240,000 handlooms active in Britain. The development of weaving technology was gradual, Chapman himself speaks about “gradual evolution” (p. 54), while in spinning radical new technology enter began with spinning by rollers, this was a real “revolution”. On the contrary the spinning jenny and spinning mule evolved slowly, and two different factory systems co-existed for a long time. The period from 1788 to 1800 was the golden age of the cotton industry in Lancashire, and the district benefited greatly. But subsequently what in modern terms we might call a price war between goods produced by power-looms and handlooms led to the decline of latter, with a “depression which ultimately [drove] them out of existence” (p. 40). Chapman offers a vivid description of the mechanism that caused over production in the district and a stable decline in salaries of handloom weavers. Not foreign competition but home competition proved the most terribly enemy of the oldfashioned hand-loom industry (p.47). In fact, most hand-loom weavers competed with the factory, instead of entering it and attempting to secure for themselves as large a share as possible of gains resulting from new economies in production (p. 46).

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The absence of entry barriers in the handloom business caused the system to the collapse. In the mean time, Chapman observed that “in the United States, the automatic loom is already applied extensively, but in England it is making its way more slowly” (p. 32), and this is because, they were more “serviceable” for the type of standardised cloth produced than for the “qualities upon which the English trade chiefly depends”. We can see here the first signals of the weakness of the Lancashire district, and the start of its decline. Chapman described the various steps of the development of local industry. First, we have the weaver’s cottage, then “yarn was spun in factories” (p. 161). Developments in spinning were carried out by shop floor local inventors who became great entrepreneurs. The mechanism of the dynamics of industrial districts is thoroughly explored by Chapman, product differentiation in all its detailed forms as well as leads and lags in the modernisation process. By the mid 1800s spinning and weaving were done in one building, but at the end of the century the advantage of specialisation brought about a new separation of spinning and weaving (and different skills are required in the organisation of the two business, because marketing is more difficult for weavers than for spinners). Hence, in weaving, men with little capital rent buildings and “turning”, can produce sucessfully on a small scale. In 1899 the Lancashire district was the home of nearly 76% of all the cotton firms in the UK. Lancashire provided cheap cool, damp climate (and so, the right “atmosphere”) and, then, business specialisation. The last point is well developed by Chapman. The existence of the Manchester Exchange was the right institution, which allowed the cotton industry to take off. And, once again the localisation of producers of specialized machinery, provided “a close adaptation of means” to local needs. Chapman’s volume on Lancashire district also deals with the analysis of local

trade unions and

employers associations. It is the first account and analysis of an industrial district in the economic history, and therefore, also documents the first revolutionary changes of industry as a whole. 3.3. The four “s” of Florence: size, scale, site and scope (1953, p. 4) Among the Marshall’s disciples, Florence was, without a doubt, the most interested in the industrial phenomenon, in other words, in the interpretation of the persistent features of the industrial structure, and in theorising on the logic of industrial organisation. Certainly most of his interest was devoted to comparative studies of industry in different countries in which he made use of numerous statistical tools that he helped to develop. In this regard, perhaps his most successful undertaking is the book The Logic of British and American Industry of 1953. He proposes a structural approach to the interpretation of facts and trends “within the real world of industry”, an approach which is both realistic and analytical at the same time (p. 1). At the beginning of 1960 Florence, in the preface of the second edition of his work, disclosed his true intention

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It may seem strange that economics, which is supposed to be a science and not a branch of applied mathematics, should be so late in analysing one of its chief subject mattersindustry (p. xiii.) The starting point of his structural approach are the questions of what, observably, not abstractly, is social structure of factories, firms, industries and their governance, in which the size of an organisation is compared with its scale of production and of operation. The technological aspects of industries are analysed, to see how they influence industrial processes and production sequences (where relations between upstream and downstream phases are visualised as areas of frequent or occasional integration). He develops the idea that increasing specialisation is not only the result of the application of technology, but he proposes the hypothesis of organisational diversities (later he would refer to this as “ergological interpretation”, deriving from ergon, the Greek word for work, xvi, second edition Florence 1964), which derive from more fundamental circumstances such as the setting of the work or activities, including the supply or input side and the type of materials used (heavy, perishable, uniform), and on the demand side, the type of market to be served (consumer, producer, mass, batch, jobbing). This is an early attempt at creating a more sophisticated industrial taxonomy than those furnished by his contemporaries. The unit of analysis is of overwhelming importance for Florence, ranging from plants, to firms the unit of governance under capitalism, and “localised” congregation of factories and workers, that make up industrial centres: towns (…) are extremely important factors in the development of industrial techniques (p. 15). And finally, industry, which are not just the additive sum of firms and plants, because first, industries are formed by organisations which are added up starting from plants and not firms (a firm may have plants which operate in different industries), secondly, industries are not a random assembly of plants and firms; they perform specific transactions which are easily distinguishable by the type of work or activity done. Quoting Young, Florence argues that the progressive division and specialisation of industries is an essential part of the process by which changes are associated to the growth of production. The “obsession” of Florence is designing satisfactorily measurements of economic differentiation of plants, firms, industries, localised areas, and towns (he has dedicated an entire volume to the issue of investment, location and size of plants in 1948). His reflections explore many interesting research

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questions, some of which had been suggested by Marshall himself17. This illustrates the intellectual climate in which Florence analysis on “highly localised industries” should be placed. He came to study the phenomenon of aggregation not from individual case studies of industrial districts but from his long-lasting inquiry into the nature of industrial structure. 3.3.1. The discovery of highly localised industries Florence is conscious of the existence of a historical trend toward the localisation. And as he explained in his last work, the localising of particular industries in various countries, or in regions within countries, is the result of the application of science to transport and communication, this is related to the widening of markets and to sources of supply (Florence, 1964, p. 11). But he tries to go deeper and to develop general interpretations both for highly localised and for non-highly localised industries (Florence, 1948). He takes pains to describe the logic of localisation and dispersion, throughout his many works, where for instance he offers simple evidence to illuminate his findings: some manufacturers are as highly, if not more highly, localised than mining; some are as dispersed as services (Florence 1953, p. 39). Long before the generalisation of statistical methods by the American school of regional studies of Isard (1960), Florence developed ingenious methods for studying spatial location patterns: the location quotient, the coefficient of localisation, and the comparative ranking for measuring, respectively, the

17 For instance: 1) why do we see a slow change towards larger plants (Florence, 1954; 1957); 2) to what extent is mechanisation changing the basic conditions of production; 3) why does not the law of increasing returns automatically push small firms out of the market place (why if large firms earn higher profits, do small firms exist in nearly every industry and even prevail in some? 1953, p. 63); 4) why, if small plants do not require small firms, do multi-plant firms typically have large plants, and small plants tend to be owned by small firms; 5) why does the empirical data justify “speaking of a size distribution of plants, rather than a representative size”? Florence (1953, p. 23) appears to be against speaking of an optimal size as a “pure economist” would, after considering the normal minimum-cost, maximum-gain plant size (firm) to which an industry tends to converge (p. 26). He also finds intriguing results from his statistical data and using his own words “ this is the first shock impression of the real situation”); in fact, considering plants or firms, their “distribution is not normal, like that of the heights of men with many of medium size, a few short and a few tall” (p. 35). In all industries he analysed the distribution of firms is “skewed with an abnormal shape in its extreme range, given the existence of some very, very large plants and a multitude of many small plants”; 6) why do we observe a law of “tertiarisation” in industrial firms, which enhances the importance of management in the modern business where the increasing of the staff ratio (salaried, clerical, administrative and technical workers to industrial workers) is clearly related to increased productivity; 7) how varied are the forms and the extent of integration (as opposed to specialisation); integration relates to combining similar activities (a brass bed plant making wooden and iron beds), or to lateral integration, or to diagonal integration; but integration is not invariable; “in short, processes and services may be integrated, disintegrated, or partially integrated” (Florence, 1953, p.45). Interestingly, in the same year in which Coase published the nature of the firms, Florence developed similar ideas on the same issue: should auxiliary services be provided within the firm or should they be purchased externally (Florence, 1937)? And what impact does this have on the plant/firm size? Thus, he drew the conclusion that the size of plants or firms is not completely comparable because “if organisations of any given size specialise in one or a few products or processes, output will be on a larger scale than if they integrate many products and processes”; again he returns to his master, as Marshall said, “large-scale operation is only a species of the genus of large-scale production organised by any number of firms, large or small” (p. 4 and 56-57).

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incidence of particular industries in particular places (in the USA and the UK), and the degree of industry localisation in general. In the book he describes four classes of spatial behaviour. Industries/services can be a) systematically dispersed, because tied to the place of residence of consumers or due to scattered extraction, like brick manufacture, or, on the contrary, b) moderately localised (due to localised extraction like iron and steel) or, again, c) highly localised (like mining, or “swarming” without reference to extraction or to consumers, like cotton), and finally, d) with variable patterns of localisation (footloose like electric machinery, or linked to other industries like textile machinery). Florence’s conclusive argumentation is that All these location patterns can be observed in British and American industries. Moreover the same industry tends to have the same pattern in each country in spite of the great geographical and climatic differences (Florence, 1953, p.40). He also remarkably adds that Britain has kept the localisation of certain industries in certain places remarkably stable, though not the location of its manufactures as a whole Florence, 1953, (p.41). “The change in the location of manufactures as a whole”, Florence argues, the movement, for instance, after 1920 from the North and from the south Wales to the Midlands and the South of England has, in fact, been mainly due to this very tendency of particular industries to stick to their locality. The South and Midlands increased their industrial employment because their particular local industries including locksmithing, brassware and other metal working and pottery were prospering, and the industries staying in the north, iron and steel, shipbuilding, cotton, wool, worsted, were not. (…) Some localised industries have, however, not remained where they first localised, particularly industries rooted to their materials or linked with specialised markets, when their material or they markets, changed in location”.(Florence, 1953, p. 42). Here he cited the case of American iron and steel industry, which at the time was re-localising around the emergent motorcar industry. Highly localised industries are often situated in urban areas. Florence notes a significant pattern of urban decentralisation. Movements of the particular industries themselves has occurred not so much between regions as in the same region from the centre of cities to suburbs (Florence, 1953, 43).

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However, adds Florence, Within a single country of fairly similar labour conditions, most unrooted, unlinked industries show remarkable persistence in their locality (Florence, 1953, p.42). His theory of localisation is very different from the prevailing standard analysis of the time, for example, Weber, in Standortstheorie, associated location patterns only with physical properties of industry’s materials and products, weight and intransportability, and thus mainly with transportation costs. To summarise final consumers are typically dispersed throughout the population, thus bringing the production of some products/services such as bakers or shoe repair is quite dispersed. But some producers are highly localised, for instance producer-consumers can be highly localised if their market is related to other producers’ location patterns (such as machinery production). If the products are not heavy industrial materials nor heavy industrial products, they may be considered “footloose”, and various location schemes are considered feasible. However, in analysing the changes in relocation patterns, Florence tended to be quite deterministic, the destiny of highly localised areas is of the course of national events. The growth of one region relative to another is largely the result of the national industrial development. The location of industry affects the geographical distribution of the population. During the industrial revolution the North of England grew in population compared to the South. In the last forty years, an opposite trend has set in, and now the population of the South and the Midlands is growing (Florence, 1964, p.73). As regards the 1960s in the UK, Florence noticed a pattern which superimposed: a movement of industry toward greater London and a re-centralisation in the same area. What is lacking in Florence’s analysis is the observation of the competitive position of each individual “highly localised industry” from the point of view of entrepreneurial strategies, innovative strategies, and efforts toward industrial diversification dependent on the entry of new industries into the locale. On the other hand, this was inevitable if we consider his only source of data that he analysed was the Census of Production. For this reason Florence takes the “obsolescence” of industries as “a natural phenomenon” and the main cause of declines of localisation patterns. But this was probably the statistical effect of a widespread loss of the competitive position of the British manufacturing industry as a whole, and not just an unavoidable result of economic progress. So Florence commented: In UK regions, where stagnant heavy iron, and steel, coal-mining, ship-building, and textile industry were localised, a losing of population was observed. The crisis of a town, thus, for instance like Worcester, was related to the loss of employment of a particular

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industry that moved elsewhere, and in this specific case, the glove industry (Florence, 1964, p. 84). 3.3.2. Two polarised patterns of highly localised (district) industry: large firms, small firms and concentration From his analysis Florence derived a general rule: in dispersed, unlocalised industries, smaller plants prevail; in localised industries, larger plants. A corollary is that industries with no representative size, plants tend to be ubiquitous (they are industries with a particularly low degree of localisation), while industries with higher localisation statistically (coefficients between 0,30 and 0,49) and large or largish plants are representative. But two deviations occur, firstly, dispersed industries very often do not have any prevailing plant size at all, and in the centre of large cities (or where the materials for early-stage manufacture are highly localised), localised industries may have a small or medium plant structure thus, argues Florence, a city may offer external economies to the several plants of an industry as a large factory offers internal economies in coordinating its several departments (1964, p. XVIII). Footloose industries often flock together, and this leads to high localisation because of economies external to plants. Florence is extremely interested in the issue of industrial urbanisation, and he dedicated articles, books, and chapters to disentangle the process through which in the last two-century the development of specialisation in some branches of manufacturing occurred together with localisation. A vivid picture emerges from his writings (Florence, 1964), the Detroit area is specialised in motor vehicles (with a 7.58 location quotient); Pittsburgh there is a concentration of blast furnaces and steel mills, in New York of garment factories (4.95 location quotient), of medical instruments (5.00), etc. Certain service industries and services tend to localise in a country’s ‘largest conurbation, such as London, Paris, or New York in which financial activities, scientific research, publishing, arts, applied design, entertainment, and business services are found. Small towns typically do not have large plants, but big cities, on the contrary, both in the US and the UK, have smaller manufacturing plants. According to Florence cities are the locus of external economies for plants, but they do not permit firms full command over factory operations. They offer economic advantages of access to transport, communication, and large markets, opportunities of linkage with other industries, of access to pools of labour, management and finance skills, and, in the long run, for intercommunication between designers and inventors. Disadvantages are shortages of land, congestion, costly commuting, and distance from raw materials. Comparing American and British industry (Tab. IIb p. 71), it emerges that about 1/3 of the considered sectors belong to the category of highly localised industries, but with strong variations in the

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prevailing size is registered. Large plants prevail in industries like motors, cotton weaving, and rayon; smallish or medium sized plants prevail in cotton yarn. Industry wide variation in size, scope, scale and localisation often appears to be an analytical rebus for Florence: if the law of increasing returns is at work why “instead of large-scale production of a few commodities” is there “everywhere smallscale production of a multitude of sizes, shapes, and quantities of the same sort of articles? (p. 80) His answer must be ingrained in the Marshallian evolutionary approach, where complex mechanisms of causation are revealed, pro and cons are weighed, and intervening factors are evaluated Where high localisations of industry exist and survive it is not, in most cases, because of low transportation costs in procurement materials or distribution of products, but to some other economy or set of economies. The stability of patterns of localisation of highly localised industries is explained by what, nowadays, we call “agglomeration” economies, and these economies are mainly based on the labour factor. The pool of expert labour is for a localised industry an asset just as a pool of semi-skilled labour in any big city is an asset to industry generally. Most of the economist’s external economies are economies of localisation. (p. 85). It is a matter “immobile external economies” Florence clarified, already discussed by Austin Robinson (1933) in the structure of competitive industry, under the labels of mass marketing, common processing, and common servicing (Florence, 1948, p. 53). Besides, the concentration of a given industry allows specialised experts and purchasers to shop around. Juxtaposition permits all plants to be visited, en masse, in one journey by selling and buying agents (Florence, 1948, p. 52). Other advantages of local concentration of plants (apart from any natural advantages of the locality) are the reputation that certain goods derive from production in certain places. But Florence adds some more thoughtful explanations. What has not been valued at its true importance in a large localisation of an industry is the possibilities of division of labour between plants in “linked” processes, products and services industries. Thus, size alone does not represent a sufficient element of evaluation of firms’ efficiency. The characteristic of highly concentrated industries based on the small size is the existence of “plant disintegration but local integration18 (p. 92).

Using data on export in 1907 Sargant Florence (1948, p. 54) was able to correlate the export performance of industries with their coefficient of localisation. He reached the conclusion that the majority of industries that have a high coefficient of localisation (over 0,49), were industries with an export proportion clearly higher than the average for industries as a whole. The following localised industries were mentioned as heavy exporters: Jute, Tinplate, Lace, Linen, Cutlery, Cotton, Fish curing and canning, Dyes, Saddlery, and Textile machinery. 18

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The advantage of full employment/exploitation of specialised plants can be combined with proximity. Several specialised plants, if close enough together, may have much the same economies as the separate departments of a large plant; distance between them need not be much further and transport need not be more costly. So, juxtaposition allows lower transport and communication costs: a) between the suppliers to the consumers of materials or products, and b) between one specialised process in production and another; and c) allows specialised auxiliary services on the spot to be fully exploited (Florence, 1948, p. 52-53). In these localisations, the medium-size plants are often specialised in linked industries. When many small firms co-exist often large plants are upstream or downstream in the productive chain. If specialisation in several different types of industry is added, the area is liable to become a conurbation or megalopolis. But highly localised industries populated by small firms also favour entrepreneurship. As Florence argued , a given scale of production by several small firms will undoubtedly offer more points where the powerful profit incentive is applied than a large plant with a salaried servant of a joint stock company in charge (Florence, 1948, p. 86-7). All things considered, many factors favour the concentration of an industry. And in fact this was the main finding of his most recent/last empirical work on Birmingham, presented in an article written with a colleague (Wensley and Florence, 1940): in Great Britain, the fortunes of fourteen industrial areas are restated19, and the “relocation”, or the shifting of industries, is found to be not so important. For Florence and his colleague, the growth of industrial districts is related to existence of cumulative tendencies and to the importance of proximity to markets, labour, supply, and auxiliary services. Once again, it is stressed here that the agglomeration economies, which count, are the well-known external 19 As acknowledged “where possible each district is bounded by an agriculture belt… a precise demarcation of distinct districts is of course impossible, as many of the districts are contiguous and basic industries of contiguous districts most frequently overlap in their location near the margin of the areas. Some of the districts include component areas which might usefully be subdivided – the Manchester Cotton Area is a case in point. A separation of Manchester and District from the cotton area of North-east Lancashire could be urged, and also a separation of the three fairly distinct components of the Birmingham and district region, Birmingham itself, the Black Country, and Coventry and North Warwickshire. However, particularisation and sub-division of manufacturing districts could be continued ad infinitum, and the subdivision here adopted is held to include the major manufacturing district of the country, with the exception of certain concentration of industry which are based mainly upon individual large towns – such as Bristol and Kingston-upon-Hull. The criterion adopted has been that of the concentration mainly of manufacturing population” (p. 141). These notes clarify the method adopted. The districts defined are here very close to the concept of industrial regions or as admitted by the authors they may claim the title of “conurbation” (p. 140). They are not in fact small specific specialised areas in just one typical sector as for instance we find in the analysis of IDs in the “Italian” traditional school. The largest IDs presented by the authors were, thus, the Greater London (8,303,000 inhabitants), Birmingham and District (2,1900,000), Manchester and Cotton District (3,741,000), and so on. A detailed description of the internal composition of the IDs is also provided by the authors. So, we see that in London, in manufacturing, there is a prevalence of clothing (including shoes); in Leicester and Hinckley, hosiery; in Potteries pottery; in Northants, boots and shoes (Wensley and Florence, 1940, p. 146).

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economies of Marshall. However, Florence does not manifest a particular interest in the investigation of specific internal factors that trigger innovation, growth, diversification processes, local labour costs, firm’s internationalisation strategies, etc.

This part of his analysis, today, is clearly the less

convincing. The growth of each district is seen as dependent on its “basic industry”, rather than upon the development of industries new to the district” ... Cumulative tendencies are thus at work in the rapid growth of Greater London and of the Midlands (Wensley and Florence, 1940, p. 158). This processes of further concentration is seen as lasting forever. The economic advantages of urban concentration outweigh the disadvantages, and these advantages can largely be avoided by the development of industry in the periphery of urban areas rather that at its centre (Wensley and Florence, 1940, p. 158). When Florence wrote this article in the early 1940s, and the UK economy was at the beginning of a long-wave of de-industrialisation (Dixon, 1996), but Florence’s was wrong to forecast a further development [of the urban concentration of industries] of this character is to be expected (Wensley and Florence, 1940, p. 158). A large locality may derive economies from local integration. But, Florence asked himself if such large-scale local integration is to be found in more detailed analysis? (Florence, 1953, p. 87) 3.3.3.The industrial district of Birmingham The motor-car industry established in the Birmingham district illustrates in detail a clear case of highly localised industry where the localisation of a great number of independent medium-sized or small firms, each specialising on some single process or service and depending on a general black-ground of metal processes and services (Florence, 1948, p. 59). This spontaneously organised structure appears to Florence to be an alternative form of firm governance to that of the presence of few larger firms integrating those processes and services. The Birmingham conurbation shows a complex structure combining ubiquitous plants performing processes and services, with “spots” of extremely concentrated plants making specific products (…) This complex production centre of specialised plants reproduces the main advantages of the large plant, namely the physical juxtaposition of consecutive” and sequential “processes and auxiliary services in making of a product or allied products which reduces costs of transport, communication and contacts (Florence, 1948, p. 74).

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What deserves to be stressed is that much vertical specialisation, process by process, is carried out by relatively small or medium-sized plants. Such localisation of interdependent industries increases the density of population to be contacted – markets, sources of material, services – and thus allows narrowly specialised plants, performing perhaps only one process, which would otherwise be too small to secure a large enough business to operate at low costs and often to survive as mediumsized (Florence, 1948, p. 74). In another article the author furnished more details. The Birmingham district described in Wensley and Florence (1940) extends over a large region, its borders are administratively defined by counties (county boroughs and same larger urban districts). It had a population of 2,190,000 inhabitants (the data refers to 1931), and it was characterised by local specialisation in mechanical activities (the proportion of active population occupied in metal manufacturing was 56% of the total working population in 1931). Wensley and Florence

(1940) also offered some rough estimates of local

employment in the specialised activities, which characterised the district. In the mid 1930s about 392,000 employees were involved in motorcycles, general engineering, electrical engineering, founding, and other metal industries. The Florence study represents ones of the first descriptions of the complex processes of the integration-disintegration of activities that occurs in an industrial district. In the Birmingham study, he is finally get down to the level of analysis of the individual firm, using a stratagem (recourse to the telephone directory), that allows him to design a chart of the district decentralisation and specialisation related to the inter-firm division of labour: this methodology allowed him to visualise, using modern economic terminology, the district value-chain or filière, and the ecological population of firms that formed the district. Through this visual methodology, advocated by Florence in his Presidential Address to the Economic Section of the British Association in 1937, he is able to place each firm in the vertical processes that technically constitute the production of a motor-car, starting from smelting, machining, and treatment of metal, through the production of components and specific services, to sub-assembly and assembly (see Fig.1). He finds only a few (10; 14) independent final producers (manufacturers of motorcars and commercial motor vehicles), but hundreds independent firms for each specialised stage of car production (the total number being more than 3000 firms). As he commented Different firms take on different processes in the transformation of raw metal into finished goods. The main stages in this transformation are roughly speaking the refining or smelting of the metal; the forming of the refined material into shapes; the machining and treatment of those shapes; and finally either distinct stages in the sub-assembly and

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assembly of the machined components and parts, or general finishing and “fashioning” of specific products. At this final stage specialisation is by product rather than by process (Florence, 1948, p. 55). The arrangement of the vertical sequence into phases is sustained by services, which have been conceived diagonal (listed under the titles tools, advisers, middleman) because they are liable to be used at the various vertical stages (Florence, 1948, p. 55).

---- Frontiers of Integration common to several large motor-car plants. * coefficient of geographical linkage between non-ferrous tube and pipe and motor and cycle accessories = 0.832 Fig. 1. Scope of motor and cycle trades localized in Birmingham telephone district Source: Florence, 1948, p. 58.

These main lines and auxiliary processes and services could, however, all be performed within the walls of one factory. A large modern establishment in the metal industry will in fact usually be “integrated” vertically, laterally and diagonally, in the sense of including several consecutive processes, several alternative methods and several services.

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The existence of a foundry, forge and press-shop, a machine shop, and assembly departments, together with a tool room and repair-shop services would replace the need for purchasing the work of other firms. But the variation in the scope of integration is high: it “is a matter of economics, or industrial politics”. Therefore, in the Birmingham study integration in the district was detected by interviewing several large motor-car manufacturers (who could have integrated their activities through long-term subcontracting or direct integration20 with makers of cylinder casings, piston rings, fittings, radiators, motor body builders, hoods and windscreens, and mudguards). An other interesting feature to underline here is that the Birmingham district was, like all contemporary districts, very differentiated, and contained several “productive” chains, such as motorcycle and cycle manufacturers, which share some technologies, locally developed technological skills and sometimes used the same specialised parts producers (for instance tube manufacturers or motor cylinder castings). In addition to that other products were manufactured in the area, like plate manufactures (50 firms), silversmiths (80 firms), and jewellers (170 firms), and others, which even if placed in a totally different market place could benefit from the characteristic specialisation of the area. But was the Birmingham district made only of smaller firms? Some data presented in his study (p. 61) allow us to deduce that, the district, in the mid 1930s, it was formed by relatively large final producers and small (or medium size) specialised firms. When we look at the existing average number of persons per plant (this is the only Census of Production data available) for industry subdivision, and we compare it with the equivalent numbers for Great Britain, we see a wide range of different plant size rankings from Plate and Jewellery (55) to Electrical Machinery (1080). Thus, this district is not just populated by small producers but is in fact a complex structure characterised by significant interplay of small and large firms. In addition to that, in the district many industries have a greater average size than that at national level: Motor and cycle (400 against 268), Batteries (473 against 250), Machine Tools (238 against 172), Electrical Machinery (1080 against 512). The law of increasing returns raised its head again, and Marshall’s teaching of on how scale economies should be analysed through the interplay between horizontal and vertical integration. Plants here are less integrated but take on larger scale operations. On the other hand, the specialisation on product or process, allowed by the district, tends to diminish average plant size (p. 73). But plants involved in the localisation process industries are not as small as they might otherwise be. 20 Sargant Florence is elusive on this point: how large were the final producers he interviewed? Integration could be arranged through firm integration, cooperative subcontracting, or on the spot use of the local market for the sub constracting. He affirms only that “the frontier of integration might be claimed by motor firms” (p.58). Probably he designs a chart of observed integration.

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In his ample discussion Florence describes several features of his methodological analysis. Firstly, the size of the ID is carefully considered in his analysis. Typically localisation is much closely bunched than a census region, but the data do not allow precise calculations. Within a distance of say two miles (a fairly typical radius from centre to boundary of a county borough) separate factories may also-and do-form a “local” integration. They can exchange goods without much packaging and without the use of expensive fast vehicles. Between two and, say, fifty miles (the fairly typical radius from centre to boundary of a census region), packing and fast motor vehicles are required for transport but the driver can take a return journey in a working day and the responsible parties can contract one other personally (Florence, 1948, p. 68). Secondly, many industries are closely concentrated in the area than others, which are more ubiquitous (three county region as a whole). Components industries in the Birmingham district (region) are more ubiquitous, while industries characterised by making specific final goods are “more spotty” in the area (Birmingham conurbation), with a localisation that is higher but more variable. Thirdly, “the statistically established geographical coincidence of several industries in comparatively small areas may be interpreted in economic terms” (Florence, 1948, p. 67). The origin of the district is not due (simply) to the presence of natural resources, “nor it is a mere coincidence”. Industries have some “functional relationships toward one another”: They specialise in consecutive processes, in servicing, in making goods from the same material and often must, for their efficient operation, be in juxtaposition (Florence, 1948, p. 67). Fourthly, historically the integration in IDs was often in fact the earliest stage. In Birmingham up to 1890s each engineering establishment had commonly produced a host of different types of products and nearly all machines were built to customers’ specification. But when “demand increased firms were driven to concentrate on a narrow range”. Fifthly, through the empirical analysis he clearly discovered that the Census of Productions, in fact, does not give a complete idea of the multitudinous of specialisation in processes that is carried on in a localised centre such as the Birmingham area, because it divides up industries mainly by materials or products rather than processes. Yet the economy of the local juxtaposition of two industries making different products is often not obvious until the processes or services they use in common are set down and recognised (Florence, 1948, p. 69).

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Sixthly, typically district firms specialise in certain processes but perform these for a variety of products. The Census of Productions does not recognise this process leading to immobile external economies where trade specialisation by plant amounts practically to separate “one-process” industries. But fewer processes (i.e. vertical specialisation), other things being equal, imply a smaller size plant. On the contrary assemblers are larger because they are more vertically integrated. Though they are “one product” industries, they are “many processes” industries (p. 70). Seventhly, the localisation of smallish or medium-size plants prevails in some industries (rather than the alternative of large plants) not because of advantages in land or capital, but because of the conditions of labour and of management. And this is influenced by two factors. First, without a policy of full employment, there is a social advantage in having workers “independent of the control of one or few firms…[and] the fortunes of a multitude of smaller firms may balance out employment … thus the tendency to under-employ or over-employ will be lessened” (p.79). Second, the “long-period economic advantage of the small firm is as a testing and training ground for future leadership” (p.79). It is easy where there is a pool of skilled labour for foremen or any others with ambitions to break away from the old firm and set up on their own with hired labour. Few firms survive, but this ease of entry into the trade does enable many to try (…) those who survive among the small men are presumably the more “fit” and they are presumably also trained at least by experience. (...) Next comes the provision of incentive (…) the spur of profit is certainly more widely diffused among small entrepreneurs than in a few large joint-stock companies where managers are paid by salary (p.79). Finally, Florence adds a meta-economic aspect … inventive capacity is encouraged by rivalry between a number of enterprises engaged in similar processes and catering to the same market, and by the close personal contact that can be maintained between the executives of the enterprises concerned (p. 79). This rivalry, he adds, would not exist if they were employed by one large plant alone, and for this reason their organisation in small or medium plants may be more efficient than their organisation in large plants (providing that small firms will not be impeded in finding capital or in acceding to new techniques and new mew methods of organisation). 4. Concluding Remarks Some “new” concepts that have become popular in industrial organization, in geographic economics and business organization such as industrial district, cluster, innovative mileux and so on, have their analytical roots in the “old” Cambridge School and especially in the fundamental contribution of Marshall.

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For instance, the concept of external economies in Marshall is interwoven with both industrial districts and manufacturing towns, while for Krugman or Jacobs these are artificially kept apart and subjected to numerous and inconclusive empirical tests. The importance of industrial districts or “simply” localized industries in specific areas has been acknowledged in the rediscovery of the Marshallian achievements by the Italian school (Becattini) and by the numerous empirical studies that have produced since the mid 1980s (Bellandi, Dei Ottati, Garofoli, Grandinetti, Mistri, Rullani, Sforzi, Tattara, Viesti), and in Porter’s writings, who coined the “catch-all” concept of cluster. For many authors even now category of the industrial district appears to be an extravagance proposed by Italian economists, with no applicability to the real phenomenon of industrial structure. But, as we have seen, this concept has wide and powerful applicability and, in fact, it was applied by Florence to the English industrial reality. Considering the wide-spread use of the concept of cluster to describe the concentration of a given industry in a particular area today, we cannot help going back to Marshall’s analysis and his two-step characterization of the process of localization: on the one hand, a simple concentration – analogous to Porter’s definition of clusterization – on the another hand, a time-dependent process in the formation of a cluster’s identity, institutions, and related transformations in the community, i.e. industrial districts proper, as emphasized by the Italian school of Becattini. Another important aspect is related to the morphology of industrial districts: while some authors have emphasized only the small size of the firms belonging to the district, both in Marshall and in the “old” Marshallians, as we have seen, industrial districts seem to have more complex forms that vary over time and do not exclude the presence of large or medium size firms. What counts for the efficiency of the system is the growing division of labour that divides the individual units but integrates the process spatially. So it makes no sense to discuss the decline of the industrial district phenomenon because some firms grow larger, what is still of fundamental importance is the persistence of the “district effect”, a continuous entry of small firms, where leadership is tested, where vitality is maintained, and where, in modern industrial districts, there is ceaseless interplay between large and small firms takes place.

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