Managerial Inefficiency and the British Climacteric, 1860-1914

Abstract

This paper argues that a key reason for Britain's economic decline was the management culture of British industry, in particular the unwillingness of British entrepreneurs to decentralize decision-making within their firms, in comparison to their foreign counterparts. A theory of delegation is developed, and its importance to economic growth established. While it is difficult to directly measure how much authority is delegated within a firm, the paper describes how using this hypothesis, many observed characteristics of British industrial development can then be explained, most importantly the lesser ability of large British firms to generate innovations and maintain growth in all aspects of the firm. In support the paper analyzes the development of a number of industries, particularly the chemical and electrical engineering industries, and examines descriptions of British management practices by contemporaries and recent historians. Thus vigorous entrepreneurship is observed early in the life of many British industries, but as the industries matured and larger firms became appropriate and are developed in the US and Germany, British firms fell behind their counterparts in productivity and their ability to grow.

Keywords: British economic decline, delegation of authority

JEL Classification: N83, N80, N33, D89, L29