Network Preferences and the Growth of the British Cotton Textile Industry, c.1780-1914

Abstract

The paper considers the dual aspect of social networks in terms of 1) product innovators and developers and 2) the providers of finance. The growth of networks can be explained as a function of incumbents and entrants’ preferences to link with specific nodes defined according to the underlying duality. Such preferences can be used to explain network evolution and growth dynamics in the cotton textile industry, from being the first sector to develop in the industrial revolution through to its maturity. The network preference approach potentially explains several features of the long run industry life cycle: 1. The early combination of innovators with access to extensive credit networks, protected by entry barriers determined by pre-existing network structures, leading to lower capital costs for incumbents and rapid productivity growth, c.1780-1830. 2. The spread of innovation and productivity through value chain linkages during the nineteenth century. 3. The trust movement, joint stock and personal capitalism: the emergence of large firms and a preference for regional financial markets in Lancashire and Scotland. 4. The consolidation of regional instead of national business groups which help explain the decline of the industry. The paper uses case studies of firms, networks, and market institutions based on a mixture of archival evidence, drawn mainly from the financial records of a large sample of cotton firms, and contemporary publications. It stresses human interactions (as opposed to population ecology mechanisms) as determinants of the character, scale and scope of network evolution. Intergenerational features of the networks are identified and classified by these characteristics. Networks were typically bounded in terms of product innovators and less bounded in terms of finance providers. Consequently, finance providers tend to provide the impetus for the rate of network growth in expansion, maturity and contraction phases.