New Lanark and Efficiency Wages

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New Lanark and Efficiency Wages



Monojit Chatterji

University of Dundee
The purpose of these notes is to show how labour economics can be used to analyse and understand real economic episodes and events. The case study in question is Robert Owen’s management of the New Lanark Cotton Mills in the 19th century. We start by outlining the details of the case, then propose a theoretical framework, and finally use the framework to understand the case.
Owen at New Lanark: Most of the published works on Robert Owen deal with his role as a benevolent employer, and explore in detail the social and educational reforms he pioneered at the cotton mill village of New Lanark during his 25 year period as mill manager. This information sheet considers Owen’s role as a businessman, focusing on the economics of the mills at the start of the 19th century. Owen is known to have been a strict but fair manager, and on his arrival at New Lanark in 1800, he planned to tighten up on the day-to-day running of the establishment in order to maximise output and profits.
In the year 1764, twenty years prior to the establishment of New Lanark Mills, cotton, as an article of commerce, was scarcely known in the United Kingdom. However, the benefits of this relatively cheap, and easily manufactured fibre were soon realised, and, coupled with an increase in the demand for the fibre in the clothing industry, the cotton trade was booming by the end of the 18th century. Owen kept a close eye on the cotton trade throughout his working career and continually campaigned for a repeal of the duty on the importation of cotton wool. This, he felt, was putting a limit on a trade that provided significant employment and commercial revenue for the British economy.
In 1800 Owen and his partners bought New Lanark Mills for £60,000, at a time when the establishment had become one of Britain’s largest manufacturer of cotton yarn. One year prior to this Owen married Caroline Dale (daughter of New Lanark’s founder – David Dale) immediately entering Owen into an agreeable position. His father-in-law was a cashier of the Royal Bank of Scotland and well known in the aristocracy of Glasgow’s Merchant City. Access to extensive trading capital was also gained, such as the excess funds of Archibald Campbell of Jura. This agreement with Campbell had first been established by Dale through marriage, and provided Owen with significant capital funds to be invested in the mills.
Owen’s relations with his partners were not always agreeable, not only because he could be a difficult man to work with, but also because his partners were concerned over his delay in paying back debts. In 1812/13 he had significant problems in meeting the share calls for Campbell of Jura, resulting in Campbell seeking legal advice against him, and raising alarm bells to his partners at that time. After Owen created a new partnership in 1814, he refused to both re-employ, and re-pay his under-manager Humphreys. Owen lost the court hearing, and was ordered to pay what he owed to Humphreys.
Many other disputes arose over Owen’s desires to channel funds into the social well-fare of the villagers, against the will of his commercially focused partners.

Finding a workforce

When Dale first opened his mills, he found it difficult to recruit a large enough workforce. The surrounding area was scarcely populated, and with a fair proportion of the population working at home or in agriculture, long hours working indoors at a noisy machine, was not an attractive option for most citizens.
David Dale turned to orphans from the poorhouses of Edinburgh and Glasgow to supplement his workforce, providing food and shelter for these children, some as young as six years old, in return for their labour. Around 400 “pauper apprentices” worked for David Dale.
At this time families from the Highlands were starting to emigrate in search of a new life. Dale persuaded many Highland families to move to New Lanark and work in the mills. Both the pauper apprentices, and in-coming families, were well received by Dale who provided comfortable accommodation and fair conditions for them (in comparison to other mills of that era.)

Owen Introduces Efficiency Measures

When Owen arrived at New Lanark, much could be criticised both in the efficiency of the plant, and in the social state of the village affairs. Owen therefore introduced a series of changes to both the economic, and social arrangements of the mills and village, to alleviate these problems. It must be noted however, that Owen had a tendency to paint a grim picture of the village during Dale’s ownership, in order to exaggerate his own achievements in the years to follow.
Having dismissed Kelly and Dale, who were managers under Dale, Owen started his factory floor reforms almost at once. “Output, labour costs, hours of work, stocks of yarn, types of cotton and their origin as well as every other aspect of factory production were rigorously supervised, as the superbly kept ‘ Produce’ and ‘Report Books’ amply illustrate.”1
By recording each worker’s output, individual production was also monitored, and by carefully choosing those who were to be delegated powers, he maintained considerable control over the day-to-day decisions being made. By meticulously maintaining his records Owen could present to his partners, at any time, the annual output for the whole factory as well as the total production costs for each year. Overall, he was successful in reducing waste and raising productivity, with output rising from 514,750lbs weight in 1801 to 1,146,842lbs in 1809, and more than 1.6million lbs in 1812. 2 (See table at end of sheets for further details on production and labour costs.)
In the home markets, Owen sold to contacts throughout Britain, whilst the main foreign exports were to St.Peterburg. Every 10lb bundle of export yarn had a label attached to it, bearing an illustration of New Lanark. Even if the purchaser could not read English, he could easily recognise the New Lanark logo, which soon earned the product its familiar name- ‘picture yarn’. Owen was therefore introducing what we would name today, a ‘brand logo’.

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