«Dynamics of “Overlapping Clusters”: Economic Development in the Industrial Region of Aachen, 1800‐1860 Alfred Reckendrees, Associate Prof., Dr. ...»
Dynamics of “Overlapping Clusters”: Economic Development in the Industrial Region
of Aachen, 1800‐1860
Alfred Reckendrees, Associate Prof., Dr. phil.
Copenhagen Business School, Centre for Business History
The economic transition characterizing the process of European industrialization in the 19th century
was concentrated on regions rather than on states. In the first half of the 19th century, the region of
Aachen (in the west of Prussia) pioneered on the territory of the German states and developed to a powerful industrial region. The implementation and diffusion of the factory system and the economic impact of adapted and new institutions make the core of this paper. Reciprocal interconnections between firms of different clusters shaped the region and created economic dynamics. Investments transgressed the boundaries of single industries and new industries emerged. One important feature of the regional production system was cross-sectional knowledge transfer; a second was institutions supportive to this process.
European early industrialisation was concentrated in regions rather than states.1 In the case of the German states, the region of Aachen (Prussian Rhine province) was pioneering as measured by the diffusion of the factory system, by employment and industrial production. In the first decades of the 19th century, traditional branches that had dominated the export industries based on artisanry and the putting-out system in the early modern period, particularly woollen cloth, introduced modern factory production with power engines and sophisticated machinery.
Coal mining developed to industrial scale, and industrialisation of iron and steel led to spatial concentration of production. New industries emerged within the region reflecting changes in industrial demand and new raw materials. Supportive institutional arrangements advanced rapid transition to industrial capitalism. By 1860, two thirds of the regional workforce was employed by industry. This article takes a regional and industry based approach in order to * I wish to thank the participants of the session “The rise and decline of industrial districts, 18 th-21st centuries” on the World Economic History Conference in Stellenbosch, 2012, for comments and suggestions; special thank goes to the session organizer, Jordi Catalan.
Pollard (1981); Fremdling, et al. (1979); Hudson (1989); Wilson and Popp (2003a); Pierenkemper (2004).
For an overview of regional approaches to economic development, see: Scott (2000).
analyse economic development in the region of Aachen and in order to explain how and why different clustered industries created interconnections allowing for cross-sector learning, knowledge sharing, and technical and entrepreneurial spill-over. The framing ideas of the analysis are borrowed from traditional and modern literature on industrial districts (ID)2 and on clusters.3 The two concepts share similarities, but they have distinct perspectives. 4 The (neo-) Marshallian ID is defined as a local concentration of a large number of small and medium sized firms within a dominant industry (usually light manufacturing) involving both horizontally competing and related vertically specialised firms as well as companies providing specialised services. The ID constitutes an economic system functioning as a viable alternative to vertical integration and large scale production (even in mass production industries). To a certain extent, other industries ‘may be localised in the district […] for example the nuclei of new industries, or the remains of old industries’.5 Due to its “industrial atmosphere” (Marshall), the people in an ID share belief systems and develop social institutions that support collective interests, they form a “socio-territorial entity” (Becattini), in which ‘community and firms tend to merge’.6 IDs allow for (vertical) division of labour between firms, for learning and knowledge sharing despite of competition; they create economic advantages external to the firm, yet internal to the district (“Marshall-Arrow-Romer externalities”, produced and consumed in a given sector): economies of scale, cost reduction and increased returns.7 Whereas the ID literature stresses local concentrations of small manufacturing firms, a cluster may encompass different configurations, including coexistence of few very large companies with many small and medium sized companies. According to Porter cluster is defined as a ‘geographically proximate group of interconnected companies, service providers and associated institutions in a particular field, linked by externalities of various types.’ Like an ID it is supposed to create advantages external to the firm, for example because firms in related industries (specialized suppliers of components and services) offer advantages to the firms of the cluster. In combination with strong competition among the companies central to the clustered industry leading to higher levels of specialization, this increases overall competitiveness and innovation capacities. Porter emphasized that ‘the industry may not be the appropriate Marshall (1919), (1920); for the modern (neo-) Marshallian concept see Piore and Sabel (1984); Becattini (1990), (2002); Dei Ottati (2003); Becattini, et al. (2009b).
Porter (1990), (2000), (2003); Porter and Ketels (2009); for a historical perspective on regional clusters Wilson and Popp (2003b).
Zeitlin (2008); Porter and Ketels (2009).
Becattini, et al. (2009a), p.xviii.
Becattini (1990), p.38.
Bellandi (2007); Becattini, et al. (2009a).
unit of analysis […] specialization in clusters of related industries, not in industries per se, should lead to better regional performance.’ He then introduces related and “overlapping clusters” that should be associated with higher performance than unrelated clusters.8 Both concepts share the spatial approach and provide contextualized interpretations of economically successful environments not explained by mainstream microeconomics. They are similar but want to explain partly different phenomena. In Porter’s perspective ‘IDs are one type of a cluster’ achieving ‘their advantages primarily through local outsourcing on the local level’9 and social embeddedness. Cluster research draws more on industrial economics, company strategy, and formal institutions. In a historical perspective, however, some of these differences disappear. First, industrial regions encompassing different industries very often emerged from (proto-) industrial districts.10 And second, formal institutions supportive to modern clusters (like trade associations, standard setting agencies, quality centres, technology networks) did not yet exist in the late 18th and early 19th century or they disappeared when the guild system was dissolved. At the time, social embedded economic activity was probably more important than slowly developing new formal institutions. A third approach focusing on spatial dimensions of economic development, “regional industrialisation”, is less specific than the concepts of IDs and clusters. It mainly focuses on input-output analysis and forward and backward linkages of industries11 (corresponding to “related industries” in the cluster and “specialised suppliers” in the ID concept. The differences of the approaches mainly result from the units of analysis: In the case of ID it is an industry and its organisation; the cluster approach analysis related firms within their network and surrounding institutions; the concern of regional industrialisation is the respective region that may be host to clusters or may include an ID. This paper aims at analysing regional economic development just like “regional industrialisation”, but it uses analytical ideas from the concepts of IDs and clusters for analysing and explaining regional economic dynamics.
If narrowly defined, both concepts (IDs and clusters) overlook important factors for historically observable economic development, what has been stressed for English early industrialisation, too.12 In the early modern period the region of Aachen might well be described as encompassing a pre-industrial woollen cloth districts and a pre-industrial needle district (with brass as an additional, less important sectors). In the 19th century, the industrial region of AaPorter (2003), p.562.
Porter and Ketels (2009), p.181.
Wilson and Popp (2003b); Hudson (1989).
Fremdling, et al. (1979); Pollard (1980), Pollard (1981); Kiesewetter and Fremdling (1985); Kiesewetter (1988), (2007); Banken (2000); Pierenkemper (2002), Pierenkemper (2004).
Popp and Wilson (2009).
chen does no longer fit to the ID concept. About 1850 the major industries of the region, ‘old’ ones like woollen cloth, coal mining, paper, and needles and also ‘new’ industries such as iron and steel, machinery, railway wagons, zinc produced on large scale with modern factory equipment. In contrast to the (neo-) Marshallian ID, these firms were yet not ‘small’; approximately 2/3 of the districts’ total workforce was working in manufacturing and mining; half of them in factories with more than 100 workers.13 Most important have been woollen cloth, coal mining, and iron and steel, each of them showing strong tendencies of vertical integration.
Yet, reciprocal interconnections between different industries constituted an important feature of the regional economy. It was thus characterized by both ‘Marshall-Arrow-Romer externalities’ and ‘Jacobs externalities’ (defined as flows between firms in all sectors).14 The cluster concept would not be a sufficient substitute for the ID concept, as it would tend to neglect important socio-economic factors such as locality and social embeddedness. It would also assume positive effects of related industries, but not flows across all sectors.
Map 1: Prussia, administrative districts. District of Aachen (dark).
Source: © IEG Mainz, A. Kunz (2001), own adaption.
The development in Aachen is interesting because reciprocal interactions of unrelated industries have been important for regional economic development (woollen cloth, for example, is unrelated to needle making or heavy industry). The different clusters were embedded in a social structure that corresponds to an ID, and they were partly overlapping especially in regard
See Reckendrees (2010), p.63; data: Reinick, 1865-1867, vol.I, pp.152-153.
to developing new industries. Identifying these dynamics of “overlapping clusters” is the purpose of this article.
The transition from commercial to industrial capitalism had been influenced by supportive institutional arrangements partly based on French law:15 In 1798, after the Revolutionary Wars the Rhineland became French and the district of Aachen became the Département de la Roer.
After the French defeat in 1814, the region was integrated into Prussia, yet with few exceptions the French legal system continued. The code civil and the code de commerce rather than Prussian civil law16 constituted the norms of commercial activities. Also other institutions of French origin, like chambers of commerce, commercial courts, or arbitration boards for work related conflicts, helped shaping economic behaviour. New Prussian laws in general did not dramatically influence regional economic development.17 However important French institutions have been for regional economic development, it must be noted that the transition towards a “modern” economy had started long before. Already during the 18th century, the guilds lost capacity to enforce their norms and rules. Capitalist firms emerged and for already about two hundred years farming had not been subject to a feudal regime, instead landownership and inheritable leasing dominated. The French Revolution made this process irreversible and fully implemented private property and bourgeois law.18 In the analytical framework of this study the region is an economic entity rather than a political territory. It has been constructed in terms of economic activity (level of industrial and factory employment).19 Yet, also territory (the border between Prussia and the Low Countries, and later Belgium) defines the region because trade restrictions negatively impacted crossborder exchange of raw materials, prefabricated goods, and labour when the Rhine province became Prussian in 1814. The border had a paradox function20 in that it connected independently developing regions for instance by attracting Belgian investments to Aachen.
German economic historical research on the 19th century has mainly focused on the emergent nation state and the second industrial revolution and less on the formative period of industrial capitalism, the early 19th century. The period is covered in edited volumes presenting Code civile; code de procédure civile; code de commerce; code d’instruction criminelle; code pénal.
On legal institutions in the Rhine province and the continuation of French law: Conrad (1969); Fehrenbach (1974); Bernert (1982); Strauch (1982) The integration of the Rhineland also induced economically relevant changes like the introduction of the Prussian currency and the Prussian trade union. Important were the Railroad Law (1838) and the Joint-StockCompany Law (1843) based on French ideas. Yet, the latter predominantly helped capitalist development in the East of Prussia, for the industry of Aachen it increased State oversight.
See Reckendrees (2010), p.54-55 with further literature. Acemoglu, et al. (2011) overlook the institutional change that had happened already before the French Revolution.
Fremdling, et al. (1979) and Banken (2000) on concepts of constructing economic regions.
On the “border paradox”, see Knotter (2002/03).
the regional approach,21 yet substantial new research has been published only on a few regions like the Saar22 and Saxonia23 or it is limited to a local level.24 The industrial region of Aachen, despite of considerable research on proto-industrialisation in the region25 (though not covering the transition to industrial capitalism), has not been studied accordingly. 26 This article is part of a project on a comprehensive regional economic history of Aachen; the material used comes from public archives, contemporary publications, and also from early 20th century publications that was based on archival sources destroyed in the two world wars.
Map 2: Administrative district (Regierungsbezirk) of Aachen. Industrial region (dark) and coal mining areas (approximately).