Business History

Charles Harvey

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781135183332
• Topic: Business
• Subtopic: Business General
• Index: Business

First Published in 1989. This group of studies first appeared in a Special Issue of Business History, Vol.XXXI, No.3. (July 1989). These introductory articles cover a breadth of topics including British entrepreneurs, the accumulation of riches in Victorian Britain and the importance of locational choice. Written by a variety authors, this title also opens with an article from the general editor, Charles Harvey.

Competition, Co-operation and Nationalisation in the Nineteenth Century Telegraph System

By JAMES FOREMAN-PECK

Victorians did not generally regard nationalisation favourably. If both free market behaviour and armslength regulation proved unsatisfactory, the regulation of industries such as gas and water might be internalised by municipal ownership so that local interests were able to oversee local services.¹ When the performance of national services was called into question, as it was with the railway network, increasingly detailed armslength regulation was preferred, albeit with less than perfect results.² True, the national postal network remained state owned, but special characteristics, in particular the lack of capital employed, together with the Rowland Hill reforms, accounted for the high prestige of this nationalised industry by the 1860s.³

The early telecommunications network is a curious exception in Victorian industrial policy. Unusually by European standards, the United Kingdom began with a private system which was nationalised after 24 years because of public concern about the service. Nationalisation was supported by most newspapers, which resented the telegraph companies’ monopoly of the news, and by Chambers of Commerce which felt the service was too expensive, inaccurate and insufficiently widespread geographically. The Post Office saw an opportunity to remedy this last defect by employing existing sub-post offices as telegraph stations in a Post Office-owned system.⁴

Under Acts of 1868 and 1869, nationalisation did indeed spread telegraph service and greatly increased the use of the system, but soon the network was running at a loss. Investigation by a Treasury committee made no impression upon the growing deficit.⁵

In the light of the privatisation policies of the 1980s, these facts themselves are striking, but so too are the issues they raise for British industrial history. Apparently neither the privately owned nor the nationalised industry were especially satisfactory organisational forms for the nineteenth-century telegraph. In the following two sections, first, the expansion of the private industry, and then the growth of the Post Office system are described with a view to identifying the salient features of telegraph development which caused public dissatisfaction. The models which can explain and evaluate the behaviour of the industry in the two stages are discussed in the third section. The fourth section then presents evidence for and against these models so that some judgement can be reached as to the strengths and weaknesses of the two forms and how they might have been improved.

I

The Process of Competition and Co-operation

Whereas the American industry by the late 1860s came to be dominated by one firm, Western Union, British market concentration declined almost continually throughout the private enterprise period. The Herfindhal index of British telegraph concentration fell from 1 in 1849 to 0.56 in 1855, reaching a nadir of 0.27 in 1861, rising again to 0.47 in 1865 and ending in 1868 at 0.41.⁶ The strategy of the incumbent British firm, the Electric and International Telegraph Company (the ‘Electric’ or EITC) was to establish a profitable ‘modus vivendi’ with other firms in the industry, even if that meant losing market share. By contrast, Western Union absorbed and rationalised rival enterprises. The greater role of mergers and concentration in American industrial organisation is often attributed to the 1890 Sherman Act. Since the legislation had not then been passed, it cannot explain the divergent courses of telegraph concentration in the two countries before 1868.

In response to new entry, the Electric’s tariff reductions in 1852, 1854, 1862 and 1864–65 were significant sources of sales growth for the company itself and for the industry (Table 1). The EITC’s profitability suffered most with the tariff reductions of 1854. Thereafter price stability appears to have been maintained until the entry of the United Kingdom Telegraph Co. (UKTC). (Although the London and District made inroads into the EITC’s apparent market share, in fact the service offered was probably not directly competitive). After an agreement had been reached with the entrants in 1856, the Electric doubled the London-Birmingham tariff and increased the rates on the Manchester-Liverpool and Manchester-Leeds routes by 50 per cent.⁷ The Electric reduced the number of stations by one-fifth between 1850–52 and then almost doubled the number of offices open to the public in the following two years (Table 1). 1859 saw a reduction in the number of offices but the advent of the UKTC caused a massive expansion in 1861; again offices open to the public nearly doubled in two years. Entry of the UKTC with a uniform one shilling tariff was met by Electric tariff cuts at nearly 200 places, but only where the Electric faced competition.

The established companies owned the rights of way for telegraph lines along railway routes yet this was not an insurmountable entry barrier. The UKTC put up lines instead alongside public roads, a policy which the incumbent firms bitterly resisted by legal proceedings. ‘Men therefore were employed to traverse the roads, suggesting opposition and making the grossest misrepresentations; counsel’s opinion of an adverse character were obtained and circulated, suggesting how this company’s poles should be cut down’.⁸ Profitability of the Electric reached a trough in 1862, as the company’s price cut restored most of

Table 1 The Electric Telegraph Company in the British Market 1849–1868

the market share lost in 1861. Rapid sales growth and an expansion of offices was however insufficient to prevent a reversal of the gain over the following three years. The company lost money on the one shilling tariff on the London to Liverpool and London to Manchester routes and was obliged to put up more wires to cope with the traffic generated.⁹ However, the Electric possessed the resources to survive the price war and therefore was able ultimately to dictate peace terms. In September 1864 the conditions for ending the tariff war were that the UKTC was to make no further extensions for two years in return for the EIT maintaining prices.¹⁰ Almost one year later, in June 1865, the UKTC proposed that the rate for inland messages be increased for up to 100 miles, to 1s., up to 200 miles to 1s.6d. and over 200 miles, to 2s. The proposal was accepted on the condition that the UKTC publicly announce in each town where they had a station that the uniform one shilling rate had proved a failure.

The price agreement of 1...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• CONTENTS
• Business History: Concepts and Measurement
• Production, Employment and Labour Productivity in the British Coalfields, 1830–1913: Some Reinterpretations
• ‘Wealthy and Titled Persons’ – The Accumulation of Riches in Victorian Britain: The Case of Peter Denny
• British Entrepreneurs in Distribution and the Steel Industry
• Interpreting the Record of Wage Negotiations under an Arbitral Regime: A Game Theoretic Approach to the Coal Industry Conciliation Boards, 1893–1914
• Competition, Co-operation and Nationalisation in the Nineteenth-Century Telegraph System
• The Birth and Death of Firms in England and Wales during the Inter-War Years
• Locational Choice, Performance and the Growth of British Multinational Firms
• Index