Market Services and the Productivity Race, 1850–2000. British Performance in International Perspective (review)

This important book comprehensively fills a major gap in the history of Britain's relative economic decline by analyzing shifts in productivity within the nation's service sector. Much of the previous work in this area focused on the performance of industry and agriculture. By the mid-nineteenth century, Britain had a small agricultural sector and USA made major advances as labor moved out of this lowvalue added activity. In Germany, the same process took place but at a much slower pace. Relative to Britain, USA enjoyed a substantial lead in labor productivity in manufacturing by 1870. Broadberry's earlier study (The Productivity Race, 1997) found that the comparative performance of UK manufacturing relative to USA did not change much subsequently, and that German and UK labor productivity in manufacturing was about the same in 1870 and 1990. He concluded that the full explanation of Britain's relative decline was likely to be found in the service sector, which represented such a large component of the economy.

To pursue this issue, Broadberry has undertaken the massive task of analyzing productivity trends across a wide range of market services, including rail transport, shipping, road and air transport, retail and wholesale distribution, banking, insurance, finance, and communications from 1850 to 2000. The study consists of a quantitative examination based mainly on the data available from 1870 to 1990, as well as a qualitative exploration of the factors that affected performance in individual service industries. Across the sector, Britain enjoyed a significant lead over USA and Germany at the beginning of the period, but by 1990 it had been overtaken by both of these nations. While performance varied in different service industries, in aggregate Britain's decline relative to USA was halted in the 1990s, and the country regained some of the ground it had lost to Germany.

The key to relative performance across various service components lay in the transformation of "counting house to the modern office," or the industrialization of service processes. The use of modern office equipment and the routinization of tasks made it possible to improve efficiency by adopting low-margin, high-volume services managed by a hierarchical structure. In contrast, Britain's traditional advantage was based on high-margin, low-volume activities conducted through a network framework. In areas such as finance and parts of merchant trading, where network structures offered important advantages, and in others like nonscheduled air transport, where policy reform had a beneficial impact, Britain performed well. However, other sectors, like retailing and rail transport, where Britain followed US practice and industrialized operations, the results were disappointing. The difficulty lay in competitive conditions and institutional circumstances. In terms of the former, whereas inefficient manufacturing industries were confronted by imports, the service sector was not similarly exposed and collusion was a viable strategy though one that dulled performance.

Institutional settings also impeded investment in human and physical capital. In this regard, Broadberry contrasts the constraining influence of decentralized labor relations and underinvestment in education in Britain with Germany's centralized arrangements, which supported ongoing commitment of resources to people and equipment. In USA heavy investment in mass education and a highly competitive marketplace supported the productivity gains that came from industrializing services. While antitrust, regulatory, labor, and public ownership reforms in Britain laid a basis for improved performance, it was not until the 1990s that the new information technology, which was particularly amenable to network operations, had a decisive effect on halting the decline.

Broadberry's analysis is likely to attract considerable comment, as ambitious and comprehensive works often do. Citing my own work, the author develops a questionable interpretation of developments within tramping and liner shipping firms, and subsequently relies extensively on this in his analyses of other service industries. He contends that tramp operators relied on networks, whereas liner firms adopted full-fledged hierarchies. I found that...