World Market Transformation

Inside the German Fur Capital Leipzig 1870 and 1939

Robrecht Declercq

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317212638
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Mode- & Textilindustrie

To the surprise of many, regionally embedded clusters of small to medium sized businesses have continued to exist in spite of industrialisation and mass production. While scholars have discovered that the advantages of embeddedness in terms of industrialisation were situated in interfirm cooperation and conflict resolving mechanisms, it is far less clear how changing historical circumstances on the world market, i.e. globalisation, affected such systems.

Taking a look inside Leipzig, a capital of the global fur industry between 1870 and 1939 with its numerous highly specialised businesses, both in production as well as trade, World Market Transformation examines the robustness of district firms within the highly volatile international fur business. This book examines how firm embeddedness not only served to overcome challenges related to industrialisation, but also strengthened the abilities of cluster firms to deal with changing world market circumstances.

World Market Transformation integrates the "interior-biased" research tradition on local business systems and industrial districts into the "exterior" fields of global and transnational history. It is demonstrated that the local business district not only emerged because of the expansion of international trade, but that district processes of interfirm cooperation also gave shape to the spatial distribution, conventions and structures of the very same world market. The analysis of embedded communities thus offers an important instrument to examine phenomena of economic globalisation, but also how such macro-economic developments have been shaped and actively constructed by local actors.

Part I

Local Business Systems and Global Trade

1 The Leipzig Fur Capital as a Local Business System

Industrial Districts as a Capitalist and Industrial Alternative

While it has been commonly held that both industrialisation and the emergence of modern capitalism favoured the rise of big business, regionally entrenched and decentralised modes of production have nonetheless persisted. The concept of the industrial district, which describes the spatial concentration of small to medium-sized firms and highly specialised businesses in a single sector, is one of the most well-known examples of such an alternative to big business and corporate development. The robustness of such business clusters has been traditionally explained by a number of advantages that were generated through the proximity of firms: a predisposition towards cooperation, interfirm networks, and the sharing of innovations or technological modifications. These factors mitigate the costs of decentralisation. A large number of historical studies have used the concept of the industrial district in order to revive ‘alternative’ worlds of industrialisation, to nuance the spread of corporate development, and to modify teleological accounts of modern capitalism. Most importantly, the emphasis on geographically defined industrial districts has revealed regional dynamism and economic variety beneath the level of national statistics.

Many bookshelves can be filled with examinations of the industrial district and regional economics. Why is another study about the industrial district necessary? This book is an answer to a remarkable lacuna in historical research, namely the link between the industrial district and the ‘outside world’ that remains largely understudied. Historical studies have predominantly portrayed industrial districts as self-contained entities.¹ This tunnel vision stands in sharp contrast to the recent interest in contemporary globalisation and its impact upon regional economic entities. While many predicted the final decline of such alternative structures because of imminent global competition, this did not happen. Moreover, despite threats from globalisation, the idea that regions (rather than nation-states) are the dynamic units of economic development is surfacing ever more strongly.² Currently the capacity to adapt to global competition is seen as constitutive of modern industrial districts and business clusters or, for that matter, of regional economies in general. However, industrial districts’ ability to engage in global networks is anything but a recent phenomenon. Therefore, this book examines historical patterns of the adaptation of the industrial district to global competition and the framework in which industrial districts engaged in patterns of internationalisation.

The choice to study one such industrial district, the Leipzig fur industry concentrated in the region of Saxony, is almost self-evident. Saxony historically harboured many industrial districts and clusters that were governed by moderate-sized and highly specialised businesses. Saxon businesses were, on average, much smaller than in the Reich and the family firm was an important institution. Equally, the region’s economy was surprisingly well oriented towards the world market. The small businesses in Saxony typically produced consumer goods and depended upon foreign imports and the export of finished products. The fur industry concentrated in and around Leipzig formed an archetypal Saxon industrial district, but it was also exceptionally well orientated towards the world market. The district’s many small to medium-sized firms were specialised in an aspect of the production process, ranging from trade (wholesalers and brokers) to manufacture (dressing and dyeing). The fur industry of Leipzig was arguably one of the most agile business clusters in Saxony and perhaps even Germany. Over the course of several decades, they turned the city into a leading German and even international fur capital, and managed to retain this position even after World War I. These firms constructed the fur capital as part of one of the most well integrated historical world markets. Like for so many business clusters, the capacity of firms in the region to engage in global networks remains largely un-investigated. This book is about more than the fur industry itself. It is about the abilities of embedded business to deal with capricious globalisation tendencies and processes of world market transformation. How did industrial districts and decentralised business structures manage being part of an economy oriented towards the world market? Taking a look inside the Leipzig fur capital and its global networks, this book hopes to shed light on this blind spot in business history.

The Industrial District and Regional Business Clusters: A Short History

The economist Alfred Marshall was one of the first to wonder about the persistence of small firms in a world where the growth of big business seemed unstoppable. In 1922, he described the cost-saving benefits for firms located near external factors such as available labour, related industries, relevant knowledge, and exploitable resources. Marshall argued that these factors prevented the growth of “internal economies,” by which he meant the growth of a firm. In other words, he asserted that large-scale production could also be achieved by groups of small-sized and specialised firms that were concentrated in a given geographical area.³ A high number of specialised firms contributed to various stages of the production process and thereby prevented its concentration in a single corporate firm. Marshall called these localised production structures “the industrial district.”⁴

The concept of the Marshallian industrial district (and by extension the link between location and firm behaviour) remained rather obscure for several decades because of the success of Chandlerian-inspired management literature. It re-appeared much later in post-war Italian economic sociology, where scholars put industrial districts at the centre of a post-Fordist economic growth model (the so-called “third Italy”).⁵ In the 1980s, Giacomo Becattini and others claimed that the post-war Italian economy saw the emergence of 60 to 100 industrial districts, which became leading economic entities in a period when major Italian firms were declining.⁶ This new research trend introduced a few novel elements into industrial district theory, such as the importance of artisans and a shared ‘attitude’ to work.⁷ Based on the Italian district, this research formed the canonical neo-Marshallian definition of the industrial district, which stressed the importance of external economies arising from the concentration of small to medium-sized business with characteristics derived specifically from Italian cases, such as the presence of artisans and an ‘industrial culture’ that gave a common identity to members of the district.⁸

Researchers who were dissatisfied with the conflation of the industrial district and the Italian context presented several new cases outside Italy. This expanded the research field and led to the development of new concepts to describe variations of business concentration, such as decentralised production systems and non-industrial districts. The variety exhibited in different regional case studies and dissatisfaction with the Italian-based neo-Marshallian research obviously put the consensus regarding the definition of the concept under pressure. In this book, I adhere to the definition advanced by Jonathan Zeitlin, who has returned elasticity to the notion and ousted some of the highly specific and context-bound elements of the concept. Zeitlin defined an industrial district as a “geographically localized productive system based on an extended division of labor between small and medium-sized firms specialized in distinct phases or complementary activities within a common industrial sector.”⁹ Importantly, Zeitlin stresses that essential elements are variable (the degree of localization, the extent of interfirm networks, etc.), which means that diversity is inherent to his definition of the concept.

An important advantage is that Zeitlin’s definition brings the concept of the industrial district again closer to another popular concept that also deals with the phenomenon of business concentration, the ‘cluster’ as coined by Michael Porter. Michael Porter has defined clusters as “a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities.”¹⁰ Both concepts stress the importance of interfirm relations and tendencies to cooperate as part of the business structure.¹¹ The concept of the industrial district remains however more compelling in terms of the interfirm relations. The concept involves the presence of coordination mechanisms and fluid cooperation that checks opportunistic behaviour.¹² Social relations in the district actively direct economic behaviour and include tacit agreements, a sense of local belonging, the coordination of actions, joint investment, and cooperation.¹³ In addition, the ‘cluster’ encompasses a wider economic structure and stresses externalities that are much broader in scope to those typically considered in industrial district theory. Porter’s concept also involves configurations other than those existing uniquely of SMEs. While both concepts share many similarities and an intellectual pedigree, the size distribution of the firm, embeddedness and decentralisation differentiate both concepts. Therefore, industrial districts can be seen as a specific type of business cluster, characterised by multitudes and highly specialised SMEs.¹⁴

Contributions and Shortcomings

The concept of the industrial district has played a fundamental role in economic and business history. Firstly, industrial districts have been used to point to decentralised forms of production, like the varieties of capitalism that manifest in regional spaces. In this sense, the discussion about industrial districts is often merged with the debate surrounding the importance of economic regions.¹⁵ Franscesca Carnevali stated that this extensive literature has the common goal of “seeking to provide an alternative tale of industrialisation than that found in the broad sweep of national statistics.”¹⁶ She argued that regionalised and localised economic structures often contributed to national economic growth in ways that are often overlooked in aggregate studies. As such, the contribution of the industrial district lies in the scale of analysis used. The discovery of industrial dis...