The Growth of Specialisation in English Shipowning, 1750-1850

The Growth of Specialization in English Shipowning, 1750-1850Author(s): Simon VilleSource: The Economic History Review, New Series, Vol. 46, No. 4 (Nov., 1993), pp. 702-722Published by: Wiley on behalf of the Economic History SocietyStable URL: http://www.jstor.org/stable/2598254 .

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Economic History Review, XLVI, 4(I993), pp. 702-722

The growth of specialization in English shipowning, I 750-I85O

By SIMON VILLE

S tudies of the growth of the firm have concentrated upon vertical integration as the most common path of expansion, emphasizing the efficiency and

competition benefits it has brought. Efficiency improvements have resulted from transaction cost economies, technological nonseparabilities, improved information flows, and more secure property rights. At the same time vertical integration has boosted the competitive position of firms, allowing them to behave strategically in order to outwit competitors.2 Strong support for the significance of vertical integration has come from several business historians who have linked modern economic growth with the visible hand of the vertically integrated corporation and argued that industries unable to move to centralized production have stagnated. Chandler's celebrated thesis viewed the large-scale vertically integrated firm as the appropriate institutional response to the challenges of innovation and economic growth.3 Lazonick has focused on the failure of British firms to follow this course as being a central element in Britain's relative economic decline.4

It is important to remember, however, that there are also costs associated with vertical integration, particularly those connected with its establishment and with internal administration. The firm can become locked into a single capital intensive innovation and a sole internal supplier. Where different minimum scales of efficiency exist between adjacent stages of production the firm may need to buy some supplies from, or sell some of its inputs to, other firms thereby partially negating the benefits of internalization. Activities which generate joint products are also unsuitable for integration because of the problem of disposing of the unwanted output.5 The existence of costs as well as benefits suggests that vertical integration is only one of several possible paths of development. Horizontal integration and conglomeration offer alternative routes, the former yielding economies of scale and the latter economies of scope. As a result there is also a school of thought among some business historians which rejects the Chandler/Lazonick emphasis

I I would like to thank Steve Nicholas (University of New South Wales), Mark Casson (University of Reading), Steve Jones (University of Auckland), Gordon Boyce (Victoria University of Wellington), Douglass North, the participants at his seminar at Washington University, St Louis, Mo., and those at the joint seminar programme at the Australian National University, together with an anonymous referee for their helpful comments on this article.

2 For recent surveys of vertical integration, see Casson, 'Theory of vertical integration'; Davies, 'Vertical integration'.

3 Chandler, Visible hand. 4 Elbaum and Lazonick, 'Institutional perspective'. In 'Competition, specialization', p. 37, Lazonick

argues that vertical specialization in the British cotton industry caused its downfall by breeding managers who were too narrowly specialized and inculcated with 'individualistic aptitudes as perfect competitors'.

5 Unless there happen to be scope economies.

(? Economic History Society I993. Published by Blackwell Publishers, io8 Cowley Road, Oxford OX4 iJF, UK and 238 Main Street, Cambridge, MA 02142, USA.



SPECIALIZATION IN ENGLISH SHIPOWNING 703

upon vertical integration. This viewpoint is either sceptical about the importance of vertical integration to the success of individual companies and industries6 or goes further by analysing examples of alternative paths of corporate development. As a recent paper noted, 'disintegration using Marshallian external economies and vertical integration are both active strategic alternatives open to the entrepreneur'.' A study of the microcomputer industry also emphasized external economies and viewed its history as one of 'the development of capabilities within the context of a decentralised market rather than within large vertically integrated firms'.8 The current article is intended as a contribution to the discussion on organizational structure and offers further evidence that vertical specialization and horizontal integration provide legitimate paths of development for a successful, expanding industry.

Predicting a firm's organizational strategy is difficult. Williamson has argued that vertical integration is likely when a market transaction has a high rate of recurrence, if the assets used are highly specific to a particular task and where there is a high degree of uncertainty.9 Since some of the drawbacks and advantages of vertical integration are industry specific there may be patterns of expansion peculiar to individual sectors. An industry with different scales of minimum efficiency and possessed of external economies and public goods, for example, may be more suited to horizontal than vertical integration. The growth pattern may also relate to the stage of development or rate of growth of the industry. Stigler's life cycle hypothesis argues that firms tend to be vertically integrated at the beginning and end of an industry's life.10 In the early years integration is encouraged by a desire to protect innovations, the need for quality control, the absence of specialist concerns, and the unwillingness of existing suppliers to develop a new input line without charging a risk premium. As the industry grows, vertical disintegration and specialization develop to take advantage of economies of scale. With the contraction of the market in the declining years, vertical integration returns as a defensive reaction. Critics of the hypothesis allege that it only takes account of production costs and neglects transaction costs.11 Empirical testing has not been particularly supportive. The study by Robertson and Langlois of the American automobile industry, for example, showed a more complex picture of changing growth strategies over time. 2

6 Mass, 'Technological leadership'; French, 'Manufacturing and marketing'. 7 Robertson and Langlois, 'Innovation', p. 364. 8 Langlois, 'External capabilities'. 9 Williamson, Economic institutions, esp. ch. i. 10 Stigler, 'Division of labor'. 1 Williamson, Economic institutions, pp. I26-7. 12 Robertson and Langlois, 'Innovation'. For other sceptical applications of the life-cycle hypothesis

see Tucker and Wilder, 'Trends in vertical integration'; Tucker and Wilder, 'Trends: a reply'; Levy, 'Testing Stigler'; Stuckey, Aluminium industry, pp. 26-46.

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704 SIMON VILLE

Rosenberg's investigation of the American machine tool industry in the nineteenth century, however, lends some support to Stigler's thesis or, at least, that part which links the growth of an industry with vertical disintegration and specialization.13 Rosenberg attributed the development of specialization to the growth of the size of the industry and the development of 'technological convergence' which meant that particular machine tools could be applied to a widening number of industries. The machine tool industry is seen as one of Stigler's 'general speciality' sectors which relate to the functioning of many industries and therefore are highly sensitive to changes in the rate of economic development."4 Thus it contributed to, and benefited from, the rapid expansion of American industry in the second half of the nineteenth century.15 Stigler cites shipping, the railways, and banking as other examples of 'general speciality' sectors.

This article analyses the changing structure of the firm in the English shipping industry in the century from about I750. It indicates a trend towards functional specialization as increasing numbers of firms concentrated upon the shipping activity. Specialization was associated with the vertical disintegration of enterprises which had combined shipping with other functions such as wholesale trading or shipbuilding. It was also connected with horizontal integration as specialist shipping firms frequently acquired a number of additional vessels in order to replace their disinvestment in other activities. While this article is concerned with the changing organizational structure of shipping enterprises, it is worth noting that most of these specialist firms were proprietorships or small partnerships. Thus, the functional specialization of the firm also represented a form of occupational specialization by the owner-manager. The occupation of owning and operating vessels is best referred to as shipownership. 6 Thus, the article is concerned with the functional specialization of shipping firms and the growth of the specialist shipowner as the entrepreneur. This is particularly significant because most of the extant primary evidence and secondary literature, acknowledging the informal nature of business enterprises in this period, deals with shipowning as an occupation.

It is significant that these developments occur at a time of rapid growth of the English economy in general and its mercantile marine in particular. The approach will take account of both production and transaction costs. In a recent analysis of vertical integration in shipping, Casson argued that since the end of the nineteenth century this structure has been rare because of high costs. These resulted in particular from different scales of efficiency in adjacent processes, and the existence of the joint products of outward and return passages. Where it has existed, this has been in response to the problems of the continuity of flow of production and quality control.

13 Rosenberg, 'Technological change'. 14 Stigler, 'Division of labour', p. I92. 15 Rosenberg says the machine tool industry acted as 'an external economy of enormous importance

to other sectors of the economy': 'Technological change', p. 425. 16 This can be distinguished from a shipping investor who simply derives an unearned income from

shipping without involvement in management.

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Specialization is seen as resulting from the opportunities for economies of scale and the development of sophisticated contractual arrangements.17

II

In the early eighteenth century shipowning hardly existed as a distinct and specialist occupation. The term 'shipowner' was infrequently used: it does not appear in the commercial directories of Bristol, London, Liverpool or Newcastle before the early nineteenth century and occurs only rarely in the early years of the statutory shipping registers which had been established in I786.18 Ships were owned and operated from within a variety of organizational structures, ranging from large vertically integrated mercantile firms to groups of small, passive investors led by a ship master or manager. Davis noted that 'in the eighteenth century there was no such thing as the shipping firm; a ship was managed-as a minor part of his general activity- by one of the merchants who owned a share in it'.19 In a study of London bills of exchange, he found that half the shipping investors were 'merchants' and none were 'shipowners'.20 West India merchants from Bristol and London feature widely as owners of ships on the registers of those ports. The Pinneys of Bristol, for example, operated in the West India trade by owning a wholesale trading business, a fleet of vessels, and a sugar plantation.21 The chartered trading companies grew up in Britain and Europe in the sixteenth and seventeenth centuries as a result of being granted official monopolies over particular trades. They have been viewed as the earliest examples of multinationals which allegedly 'undertook the entire range of activities from the procurement of commodities in distant lands to their wholesaling in Europe' and yielded economies by internalizing highly recurrent transactions.22

While the larger mercantile firms were concentrated in the overseas trades, coasting was more frequently in the hands of groups of tradesmen and other passive investors under a system of fractional ownership. Legal title to all vessels was in the form of 64 notional shares; mercantile firms typically owned all the shares in vessels they operated while coasting vessels were more often shared by a number of individuals.23 Thus, a vessel might have a dozen or more owners and would be operated as a single unit. The managerial role was frequently left to the ship's master or, alternatively, an individual investor with some shipping experience who might act as manager

17 Casson, 'Shipping industry'; idem, 'Theory of vertical integration', p. 33 points out that specialists do not have productive operations to distract them and that vertical integration is only likely to exist in transport where there is a high degree of asset specificity.

18 Davis, English shipping industry, p. 8i. 19 Idem, 'Maritime history', p. I7I. 20 Idem, English shipping industry, p. Ioo. 21 Pares, West India fortune. 22 Carlos and Nicholas, 'Giants', pp. 406-7; see also Anderson, McCormick, and Tolleson, 'East India

Company'. The extent of vertical integration varied from time to time although chartered vessels were generally sailed as part of a single company fleet: Minchinton, 'Corporate ship operation', pp. I33-6. Similar policies were adopted by the Dutch East India Company: Prakash, East India Company, p. 26i.

23 See Jarvis, 'Fractional shareholding'. There were, however, also many jointly owned vessels in the overseas trades.

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706 SIMON VILLE

for several independently operated vessels in which he had an interest.24 Thomas Hall is an important and interesting example of a managing owner or 'ship's husband' in the I730s and I740s. At his death in I748 he was managing owner of I8 vessels in most of which he had a I6th share. Hall manifests many of the features of shipping management at the time: he concentrated vessels into only a few trades and generally operated each ship as a single enterprise, he was a non-specialist with a range of other business interests, and he integrated vertically by buying and selling the cargoes he carried.25

Tradesmen linked to the shipping industry, such as sailmakers, blockmak- ers, ship chandlers, and joiners, resorted to related investment in vessels to extend their business patronage.26 They put their money into many vessels, particularly coasters whose small size and greater age minimized the investment, and whose frequent visits to the home port provided regular work opportunities. Philip Kirton, a Newcastle sailmaker, owned a small share in 22 separate vessels in the mid I780s, an example which is replicated by many other tradesmen.27 Shipping also attracted passive investors with no occupational connection to the industry. It provided one of the few outlets for small-scale risk capital in the eighteenth century. The 'Bubble' Act of I720 restricted the formation of joint stock companies. Under the 64th system, shipping investors were deemed tenants-in-common, able to buy or sell a share without reference to the other owners. Shipping was governed by Admiralty law which permitted a degree of limited liability since the corporation was based upon the ship, not the individual. Clergymen, solicitors, physicians, and teachers were attracted through professional and personal contacts and kinship.

These distinctions between the coastal and foreign trades are worth emphasizing. In the eighteenth century most vessels tended to be concentrated in one or the other, and for long periods would be deployed on a single trade route. Davis saw this as the result of entrepreneurial 'timidity and conservatism', and 'a rigidity of mind which saw a vessel committed to one function'.28 However, shipping entrepreneurs had good reasons for concentrating upon a particular route at this time. The limited and variable volume of trade and the poor condition of many coastal harbours favoured the use of small, flat-bottomed vessels. In the foreign trades larger vessels with some specific design features were favoured such as well-armed East Indiamen or capacious carriers of Baltic timber.29 In the overseas trades firms required more shore-based assets some of which were trade specific.

24 Humble, 'Whitby collier', relates the experience of a coaster in the I750s and early I76os where management was entirely in the hands of the master.

25 Gill, Merchants and mariners, is largely based upon Hall. Vertical integration was also widespread on the main coasting route between Newcastle and London where I9 out of 20 cargoes were carried on account: S. C. on Coal Trade (P.P. i8oo, X), p. 58.

26 Anon., Late measures, pp. I3-5. 27 Tyne and Wear Archives Department (hereafter T.W.A.D.), I253, Newcastle shipping registers. 28 Davis, English shipping industry, pp. I94-6. 29 P. R. O., Customs I7/9 indicates that in I785 foreign-going vessels were significantly larger than

coasters in most of the major ports including Hull, Liverpool, and Bristol. There was little distinction in size at Newcastle and Sunderland where capacious colliers were needed for the London coal trade.

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Further reasons for concentration upon a particular trade can be found in the monopoly charters over certain trades, and the reduction of transaction costs by accumulating appropriate levels of information in relation to navigation, markets, and commodity stowage.30

III

By the early nineteenth century there were discernible changes in the organizational structure of the shipping industry. Vertical disintegration, particularly among the chartered companies and merchant firms, combined with horizontal integration of individually operated and fractionally owned vessels, produced specialist shipowning firms. We shall see that these firms tended to be the dominant or sole owner of a fleet of vessels whose operations were likely to be coordinated as a single enterprise.

Most of the chartered companies were in decline or had collapsed. The Muscovy Company folded in I746 and the Levant Company in i825. The demise of the East India Company in i858 followed a long period of decline in the eighteenth century, and the loss of its monopoly both in the India trade in i8I3 and in the China trade in i833 .31 The decline of private mercantile firms in the shipping industry is evidenced in the shipping registers and is confirmed by the remarks of Swinton Holland, a partner in Baring Brothers, who wrote in i826: 'Within the last thirty years, the shipowners of London have entirely changed character . . . the merchant and the shipowner becoming two distinct classes.'32 Palmer's study of British shipping, which took particular account of qualitative evidence presented to Select Committees in the i830s and i840s, concluded that by this time 'integration was the exception'.33 Evidence from individual firms points in the same direction. Rathbones of Liverpool and Henley's of London had originally both operated mercantile enterprises. Some others moved from other linked functions including former ship brokers and agents such as John Bibby, P. & O., and Harrisons. Brocklebanks had previously been shipbuilders.34

There was a simultaneous relative decline in the small, fractional investor who owned a share of an individually -operated and managed vessel. Under fractional ownership, a managing owner acted as executive, often separately for several vessels, in return for a commission. However, some managers began to consolidate by establishing fleets owned solely by themselves. The proportion of vessels in single ownership rose from 2I to 59 per cent in Newcastle between I786/8 and i850, from 24 to 39 per cent in London in the years i824-48, and from 25 to 36 per cent between I786 and i835 in

30 This was particularly the case when these managerial responsibilities devolved upon shipmasters in the coastal trade: see Humble, 'Whitby collier'.

31 Abroad, the Dutch East India Company ceased trading in I792, the French East India Company in I795, and the Danish Asiatic Company in i840, although it conducted little trade after i8i8.

32 B. L., Huskisson Papers, Add. MS. 38748, fos. 2I7-8, Holland to George Lyall, I7 Dec. i826, quoted in Palmer, Politics, shipping, p. I3.

33 Ibid., p. I2. 34 Davis, 'Maritime history', p. I7I; Jackson, Hull, pp. I42-3; Marriner, Rathbones; Ville, English

shipowning; Davis, English shipping industry, p. 62.




708 SIMON VILLE

Liverpool.35 Evidence of fleet ownership is available from the shipping registers.36 Horizontal integration gave shipowners unrestricted managerial control while the use of somewhat older vessels minimized the additional capital cost. It also provided the opportunity for managerial economies by operating the fleet under a single policy. While we know comparatively little about the operating policies of many individual firms, it seems very likely that the benefit of a single fleet policy was a significant incentive for specialization and that Henley's of London were not unique in adopting this approach.37

As this evidence would suggest, a compensating organizational change was the growth of the specialist shipowner. An increasing proportion of the mercantile marine was owned by individuals calling themselves 'shipowners'.38 In Newcastle in I786-8, 5 per cent of shares were owned by shipowners; by i850 the figure was 48 per cent. In a sample taken from London, I7 per cent of investors were 'shipowners' in i824 and 36 per cent by i848. In Liverpool none of the 65I investors in I786 were called shipowners but the category was well represented by the first half of the nineteenth century.39 Local commercial directories confirm the growth of shipowning: in Newcastle no shipowners are listed in I790 but nearly ioo by i827.

The changing structure of shipping firms was not a uniform process between ports and across trades. The transition occurred earliest in larger ports such as London and Liverpool.40 In Liverpool the decline of fractional ownership took place comparatively early: at the end of the eighteenth century most vessels had no more than three owners while in the smaller port of Whitehaven 6o per cent had more than I2.41 Specialization came generally later in coasting.42 This is partly due to the association of coasting with smaller ports but even in the major ports there is frequently a differentiation between the two sectors.43 A sample of coasters taken from i850 indicates that shipowners accounted for only I per cent of investors

35 Ville, 'Patterns', p. 2I7; Craig and Jarvis, Liverpool registry, tab. 24; Neal, 'Liverpool shipping', p. i6o; Palmer, 'Shipping industry', ch. 2. In the US the trend towards concentration was well under way in several east coast ports by the end of the eighteenth century, but Canada appears untouched by these developments: Gilbert, 'Maritime enterprise', pp. 23, 27; Sager and Panting, Maritime capital, P. 205.

36 Among leading London shipowners pursuing this policy were Michael Henley, James Margetson, and James Mather: P. R. O., Board of Trade I07, London statutory shipping registers.

37 Managerial economies from specialization are discussed below, pp. 7i8-9. 38 Designations of occupation were sometimes misleading: use of 'merchant' or 'gentleman' might

reflect occupational origin or semi-retirement. It reflected the state of flux regarding the term shipowner and the occupation of shipowning.

39 T.W.A.D. I253; Palmer, 'Shipping industry', ch. 2; Craig and Jarvis, Liverpool registry, tab. 24. 40 Swinton Holland in i826 believed there was a trend to specialist shipowning in London, Liverpool,

and Bristol but not yet in the east coast ports: Palmer, Politics, shipping, p. I3. 41 Craig and Jarvis, Liverpool registry, tabs. 24, 25; Jarvis, 'London shipping', p. 4I7. 42 Vertical integration also persisted in slaving and whaling probably for reasons of technological

nonseparability, though neither could be considered a growth area for British shipping by the late eighteenth century.

43 Jackson, 'The ports' (i983), pp. I93-4. The picture is complicated somewhat by major ports such as Newcastle and Sunderland which had a large coasting trade. In both of these ports, however, coal exports were growing more rapidly than the coastwise trade in the first half of the nineteenth century: Ville, 'Sunderland', p. 39. For conditions under which vertical integration could still remain viable see a study of Sunderland entrepreneurs, White's: Ville, 'Expansion and development'.

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in shipping in Glasgow, 9 per cent at Whitehaven, IO per cent at Ipswich, and I I per cent in Liverpool: in the subsequent half century coastal shipowning increased at all of these ports except Ipswich.44

The evidence relating to the use of the term shipowner, sole ownership, and registry material on fleets mark a consistent and significant development. The fact that the term 'shipowner' was most frequently applied to sole owners, and it was they who were establishing their own fleets, confirms both the growth of specialization and its link with horizontal integration. It also confirms shipowning as the main activity and therefore the principal, possibly sole, source of earned income for these firms.45

Supporting evidence is available from the pioneering London shipowning firm, Michael Henley and Son.46 They began as Thames watermen in the I760S, before expanding forwards into coal merchanting, then backwards into vessel ownership in the coal trade, and finally specializing in shipowning from the end of the century. The firm owned fixed capital consisting of up to 20 vessels together with shore-based assets, neither of which was linked to any particular trade. Shipping management was a full-time occupation, pursued under the title of shipowner, and sole vessel ownership of a coordinated fleet facilitated quick and effective decision-making. They frequently bought in specialist services from middlemen, especially shipping agents based at particular ports, freight brokers, and marine insurers. This enabled them to make more effective use of their tonnage by pursuing an active deployment policy of switching vessels between trades according to the dictates of the market and, as a result, yielding higher rates of return.

Proprietorships and partnerships were the predominant types of ownership before i850. In addition a scattering of joint stock companies operated steamships. Since steam constituted no more than IO per cent of British registered tonnage and only a portion of steam, often river boats, was operated under such a structure, the joint stock company had only minimal significance for the shipping industry prior to i850 .4 The London shipping registers of i848, for example, recorded only I5 joint stock companies compared with 47 trading partnerships and 492 individual owners.48 Joint stock companies came even later on the Mersey.49 These steamship companies were also functionally specialized. However, the link between the organizational structure of the firm and the occupational specialization of the individual did not apply, since the companies were owned by a wide range of investors from many walks of life. While the explanations of organizational change discussed below also have relevance to joint stock companies, this type of enterprise is largely a product of the period after i85o and is associated with a further set of developments putting it beyond the scope of this article.

4Bagwell and Armstrong, 'Coastal shipping', p. 202. 45 Sole management of a fleet of 5 or I0 vessels would probably require the full-time attention of an

individual entrepreneur. 46 See Ville, English shipowning. 47 Mitchell and Deane, Abstract, p. 22I. 48 Palmer, 'Investors', p. 46. Only 2I7 of 334 steamers on the London register in i852 were owned

by joint stock companies: ibid, p. 46. 49 Cottrell, 'Steamship'.




7IO SIMON VILLE

IV Studies of specialist shipowning have explained its growth in terms of the

expansion of demand for shipping. Davis noted that, 'only when the Industrial Revolution was changing the scale of English commerce did shipowning become an occupation in its own right'.5o The demand for shipping is a function of the volume of cargo and the distance it is carried, both of which increased significantly in the century after I750. Given incomplete extant evidence on trade volumes, estimates of the demand for shipping can only be an approximation. Imlah calculated that the volume of overseas trade expanded eightfold between the mid I790s and i850s, a growth rate greater than for national output.51 Adaptations of 'official values' used by Customs produces a form of constant price index which can be used as a proxy for trade volumes. The result is again accelerated growth of overseas trade from the second half of the eighteenth century.52 Davis estimated a sevenfold growth in the real value of British overseas trade between the mid I780s and I850s.53 This is very similar to Imlah's results for which it may serve as a rough confirmation, since the composition of trade between manufactures, raw materials, and foodstuffs remained relatively stable.54 The average length of haul probably increased although we have no disaggregation of trade volumes. Davis's figures for the changing geographical distribution of British overseas trade (table I) point to a relative

Table I. Geographical distribution of British overseas trade, I784/6 and 1854/6 (% share of value)

1784/6 i854/6

Europe (excluding Ireland) 45 38 Near East I 5 Africa 2 3 Asia 19 I5 Australia o 6 Canada 4 4 United States I2 I9 West Indies I7 5 Latin America o 7

Source: Davis, Industrial revolution, pp. 88-93.

50 Davis, English shipping industry, p. 8i. 51 Imlah, Economic elements, pp. 94-6, 205-6 using the years I796 and i856. See Crafts, Economic

growth, p. I31 for comparisons with national output. 52 Jackson, 'The ports' (i983), pp. i86-7; Schumpeter, Overseas trade; Mitchell and Deane, Abstract,

p. 282. 53 Davis, Industrial revolution, p. 86 has calculated that exports (including re-exports) grew from ?I7.2

million in I784-6 to ?I23.5 million in i854-6 while imports rose from ?22.8 million to ?I5I.6 million. He notes that his figures 'differ only moderately from Imlah's': ibid., p. 8o.

54 Manufactures were responsible for 75 per cent of exports in I750 and 8i per cent in i850. The composition of manufactures naturally changed, with the proportion of cotton goods rising from i to 40 per cent and woollen goods declining from 47 to I4 per cent: Crafts, Economic growth, p. I43. Raw materials and foodstuffs continued to predominate among imports with the share of raw cotton and corn growing most rapidly: Davis, Industrial revolution, pp. ii0-I, I24-5.

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SPECIALIZATION IN ENGLISH SHIPOWNING 7II

expansion of most long hauls.55 A recent study found a growing proportion of British shipping between the i820s and i840s deployed in the long hauls, reflecting a relative decline of European voyages and an increase in journeys to Africa, the United States, South America, Asia, and Australasia.56 On a micro level, Henley's shifted vessels out of coasting and the near European trades into longer hauls including the West Indies, Honduras, and Canada which necessitated an expansion of their fleet.57

While coasting also experienced sustained growth, this failed to keep up with the surge in overseas trade. Estimates of the demand for coastal shipping are even less clear than those for international shipping given the lack of customs returns. Increased competition from inland transport may have caused a relative shift out of coasting. The largest coastal flow was in coal: total shipments from the north-east ports expanded three- to fourfold between the mid I780s and the mid i85os as did London consumption figures for coastal coal. Coal imports into London from all ports, however, grew at a similar rate to overseas trade.58 Given the increased demand for coal with industrialization and the suitability of that bulky commodity for sea carriage, other coastal routes may have expanded more slowly. Figures for coasting as a whole suggest slower growth than in the overseas trades.59

The growth of British trade induced a sustained expansion of the shipping industry. UK-registered tonnage grew by 250 per cent from I.38 million in 1790 to 3.57 million in i850,60 which was slower than the expansion of trade due to productivity gains in shipbuilding techniques, harbour facilities, loading methods, manning ratios, commercial and navigational information, and a reduction in the need to lay up in slack seasons.6' Increased penetration of British trades by foreign shipping is an unlikely explanation of why the shipping industry expanded less swiftly than trade. The threat from American sailing packets on the North Atlantic route was more than offset by British vessels penetrating foreign cross trades.

V

The notion that increased demand induced not only an expansion of shipping but also a change in its organizational structure requires some refinement. Previous periods of expansion, such as in the third quarter of the seventeenth century, produced no organizational changes. Instead more

55 The reduction of Asian and West Indian trade was probably of little consequence because most cargoes were of the low volume, high value type.

56 Palmer, Politics, shipping, p. 7. 57 Ville, 'Deployment'. 58 Flinn, Coal industry, pp. 2I7-8; Mitchell, Economic development, pp. i6-7; Church, Coal industry,

pp. 20-2. 59 Palmer, Politics, shipping, p. 5 shows a slower growth rate for coasting than for overseas trade

between the i820s and i840S. Of the i0 leading ports in the coastwise trade in I780, 4 had at least 90 per cent of their tonnage in coasting. In i84i none of the i0 leading coasting ports were so placed. At the 2 consistently large coastwise trade ports, Newcastle and Sunderland, the proportion of tonnage in coasting declined significantly: Armstrong and Bagwell, 'Coastal shipping', pp. I5I, I53.

60 Mitchell, European historical statistics, p. 347. 61 Davis, 'Maritime history', pp. I78-8i; North, 'Productivity change'; Shepherd and Walton,

Shipping, p. 73; Ville, 'Total factor productivity'; Harley, 'Ocean freight rates'.




7I2 SIMON VILLE

groups of small investors and vertically integrated firms entered the industry.62 The special circumstances prevailing after I750 included the rate of long-term growth, the absolute size of the industry, its increased localization, and the greater range of trade commodities and routes. The cumulative effect of these four features was to encourage the growth of public goods and external economies in shipping, both of which were central to organizational change in the industry. External economies facilitated specialist shipowning by providing transaction cost economies without the need to internalize such functions as freight broking and port agency. The provision of public goods helped to eliminate the information asymmetries suffered by the shipowner relative to vertically integrated enterprises.63

Ancillary services emerged for which the sustained expansion offered a long-term livelihood while the shipping industry had become large enough for many processes to be 'sufficiently important to be turned over to specialists'.64 Thus, the industry began to benefit from external economies and simultaneously developed its own public goods particularly in the form of clubs of interested parties. Industrial development, population expansion, and improved hinterland transport facilities in the eighteenth century all encouraged increased concentration on a few major ports which offered further incentives for external economies and public goods.65 The major ports benefited additionally from their general emphasis upon foreign trading which was growing more rapidly than coasting. While the rationale for vertical integration had been marginalized by the presence of public goods and external economies, the wide range of overseas routes and commodities at these ports presented new opportunities for a horizontal structure of enterprise employing fleets of general purpose vessels not tied to any particular trade.66

One also needs to take account of the changing political economy of the eighteenth century. Expanding British overseas influence reduced the strategic political role of the chartered trading companies. In addition, vessels voyaging to, say, the East Indies had less need to be large and well armed. Thus, vertical integration as a means of ensuring continuity of supply of a specific type of shipping became less important. The value of a strong mercantile marine as a naval support ensured that incentives were

62 Davis, English shipping industry, pp. II-2I. 63 Quasi public goods might be a more accurate description. Undesirability and impossibility of

exclusion are the two principal properties of public goods. While it was undesirable to exclude anyone since marginal costs were zero, it was possible to exclude them where the good was provided by a club. In other cases, such as published information and physical navigational aids (e.g. lighthouses), it was very difficult to exclude. Public goods are often provided by the state but can also be organized by private cooperatives of interested parties. These issues are discussed in Stiglitz, Public sector, pp. 87- I05.

64 Stigler, 'Division of labour', p. i90. 65 By I772, i0 per cent of ports accounted for 82 per cent of English foreign-going tonnage which

appears to represent a considerable concentration compared with the preceding two centuries. The discrepancy between the major and minor ports widened in the nineteenth century: Jackson, 'The ports' (i983), pp. i82-3, i88-9; idem, 'The ports' (i988), p. 2I9.

6 The value of general-purpose carriers can be seen from the manner of the publicity of vessels for sale: e.g., General Clarke, for sale at Lloyd's in December I790, was said to be 'fit for the West India trade, the American, Baltic or any trade where a fast sailing burthensome vessel is required', National Maritime Museum, Greenwich, Henley Collection (hereafter N.M.M., H.C.), HNL 24/5.




SPECIALIZATION IN ENGLISH SHIPOWNING 7I3

given to the industry by the provision of public goods such as improved protection and navigational information. Governmental activities also created positive externalities for shipping such as the opportunities presented by naval policy, transport work, and the availability of cheap prize vessels.

A major reason for the establishment of vertically integrated companies was to improve the flow and reduce the cost of information which would mitigate the high level of uncertainty in maritime activity.67 This created a situation of asymmetric information with individual shipping investors in an industry where information was notoriously imperfect. Some of the problems encountered can be illustrated. Vessels often spent many months overseas, leaving the owners with only occasional correspondence from the master. Inadequate information about freight markets made it difficult to calculate the relative profitability of different routes, particularly in the distant commodity trades where correspondence took longer and vessels had to set sail without knowing the state of the harvest. Unfamiliarity with a particular route presented navigational problems in less well charted waters.68 Technical information about the commodity was important to achieve its most effective stowage and thereby maximize capacity and minimize potential loss by evaporation, adulteration, or other mishap. Increased legal knowledge was also required to cope with the growing body of statute law governing the shipping industry and the increased complexity of freight contracts and other aspects of commercial law. Vertically integrated companies built up expertise about a particular trade including a knowledge of navigation, stowage, local conditions affecting output, contractual details, and other areas of uncertainty.69 They frequently appointed representatives in foreign ports to ensure the rapid collection of accurate, current information. Significantly, examples exist of pioneer shipowners and passive shipping investors bankrupted by their insufficient knowledge of the terms of charter- parties or cargo stowage requirements in an unfamiliar trade.70

The eighteenth century witnessed the large-scale growth of maritime information as a public good of the shipping industry. In I734 Lloyd's List was published for the first time. This was a weekly news-sheet of commercial information which included details of shipping movements, casualties, and marine weather reports. It formalized and made more accessible an exchange of information which took place within the congenial atmosphere of the London coffee houses. Correspondents in many ports sent regular lists of sailings, arrivals, and casualties. Through the later eighteenth and early nineteenth centuries the scope and regularity of information improved. In I774 a more formally organized Lloyd's moved from the Lombard Street coffee house into premises in the Royal Exchange. In I8I I an agency system was established giving Lloyd's formal representation at many ports and in i837 the List became a daily publication. A typical i834 issue printed

67 Carlos and Nicholas, 'Giants', pp. 407-9. 68 In coasting, though, dog-leg navigation was frequently practised. 69 Or several trades closely related by nature of the commodities or geographical proximity. 70 N.M.M., H.C., HNL I5/27, Joseph Henley to James Kirton, gives the example of Ward, a

London mastmaker and shipowner, who was sued for ?25,000 when a cargo of cotton was ruined as a result of defects in his vessel, Queen.




7I4 SIMON VILLE

around 650 shipping movements in go ports including 38 foreign ones.7' The list gave owners a clearer notion of the progress of their vessels and enabled them to plan future deployment more effectively.72

Several other commercial news-sheets appeared: The Shipping and Mercan- tile Gazette began publication in i838 and provided details of many aspects of the industry including law and freight market reports. Newspapers played an increasingly important role. The Sunderland Herald in I833 printed details of local shipping movements at the port, of vessels launched, of the number and tonnage of ships owned locally, of freights available, and of the level of commodity prices. It also publicized the formation of a new local marine insurance association and reported widely and favourably on the need for new wet docks. Shipping periodicals began to appear: The Nautical Magazine was first published in March i832. Publications not only provided valuable information for pioneering shipowners but also served as an important mouthpiece by coordinating and publicizing grievances.

Inaccessibility to technical information regarding ship handling, navigation, and cargo stowage was a major constraint on shipowners switching their vessels between trades. By the eighteenth century, however, such information was becoming more widely available in published form. Charles Molloy's De jure maritimo et navali: or, a treaty of affaires maritime and of commerce, published in London in i676, was one of the earliest such guides. Its popularity is evident from the fact that it had reached its ninth edition by I769. David Steel's The ship-masters' assistant and owners' manual, which was first published in I788 and had reached its twentieth edition by the I830s, was 'the exemplar of the many guides and handbooks which were to flood the market'.73 George Harrison's Freighter's guide and corn merchants assistant included calculations of the relative volume occupied by different cargoes while Robert Stevens's On the stowage of ships offered practical advice on the handling and stowage of a wide range of cargoes.74

Information about navigation was one of several areas where the state provided public goods. In I795 the Admiralty established a hydrographic department. It began to print a series of valuable coastal charts from i8oi. In i829 Beaufort became the hydrographer and greatly expanded the department's survey work, concentrating on new areas of British trade such as South America, Africa, the China Seas, Canada, Australia, and New Zealand. Among other important reforms was the adoption of his windscale in i830.75 Protection in wartime became more effective as convoys became larger, more regular, better organized, and vessels were escorted over longer

71 Cameron and Farndon, Scenes, p. I4. 72 The example of Lloyd's seems to tie in with the theory of clubs which sees the formation of such

groups as designed to exploit economies of scale, to share the costs of providing an indivisible commodity, or to satisfy a taste for association with similar individuals. Various tests of the optimality of clubs have been undertaken including their most effective size, although there is an absence of historical applications: Sandler and Tschirhart, 'Clubs'.

73 Craig, 'Printed guides', p. 25. Much of the information contained in this paragraph and the previous one is taken from Craig's article.

74 Harrison's book was published in London and had reached its fifth edition by i848. One of Stevens's earliest editions was published at Plymouth in i858.

75 On this subject see Friendly, Beaufort; Day, Admiralty.





distances. By the I790S convoys were rarely attacked successfully and in I798 the Convoy Act enforced the use of convoys for most foreign trade vessels.76 The expansion of British political influence likewise improved maritime safety. Vessels voyaging to the east had less reason to be heavily armed while 'gunboat diplomacy' benefited British trade in Africa and Latin America. The increased sophistication of Admiralty law and aspects of commercial law made possible transaction cost savings. Charter-parties, for example, became more carefully specified, leaving less room for dispute and lengthy legal battles.77

The expansion of demand for transport vessels during intermittent warfare presented new shipowning opportunities. London shipowners particularly benefited from Navy and Transport Board shipping contracts.78 While merchant vessels served as transports, the government took over management of the cargoes and paid owners a fixed sum irrespective of whether the vessel was employed. This left the enterprising shipowner with time to develop a general strategy for his fleet. Full compensation was paid for transports which were damaged or captured.79 Vessels were often hired for long periods at a time.80 While this sometimes led to late payment and insufficient increases in the freight rate, it accustomed 'merchant shipowners' to acting solely as shipowners for long periods. Moreover, these vessels, which had been committed to a particular trade, now visited many ports around the world implying a new and more flexible form of ship usage.8' Shipmasters and owners found out about the navigation and trade of many more ports and established new commercial contacts. Captain Robson of the vessel Concord noted during a transport voyage to the West Indies in I794-6 that as much money could be earned from a passage home with local produce as in I2 months as a transport.82

The sustained expansion of trade encouraged the growth of specialist services, such as those provided by the ship agent, ship broker, and marine insurer, which provided external economies for specialist shipowners. Westerfield highlighted these developments over the century after I66o and attributed them to the expansion of trade.83 The east coast coal trade, for example, witnessed increased subdivision of function during its rapid growth in the seventeenth and eighteenth centuries.84 Of particular importance was the shipping agent. He arranged the loading and discharge of cargoes, paid

76 Crowhurst, Defence, p. 7I. 77 Assistance in interpreting clauses of charter-parties was provided by publications such as Goodfellow,

Universal directory. 78 Up to 6o or 70 per cent of Henley's fleet found such employment: Ville, English shipowning, p.. 56. 79 Condon, 'Transport service', p. 95. However, a limited number of transports which were hired by

the voyage on freight, rather than for longer periods, were not compensated for capture. 80 The vessel Lady Juliana was continuously employed as a transport throughout the Revolutionary

Wars (I793-i80i) and the Polly for the final io years of the Napoleonic phase (i803-I5): Ville, English shipowning, pp. I75-6. There are plenty of other examples to be found in P. R. O., Admiralty i08/I48- 67, Transport Board freight and ships' ledgers, I793-i802.

81 This was helped by the fact that the government paid for necessary alterations to vessels serving as transports.

82 N.M.M., H.C., HNL 42/5. 83 Westerfield, Middlemen, p. I28. 84 Hausman, Public policy, pp. 8-io. See also Smith's study of the London coal factor, Sea coal.

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bills, supervised repairs, and reported on local economic conditions in return for a commission or agreed fixed payment.85 Such functions were invaluable to shipowners who operated a flexible deployment policy and were therefore unfamiliar with many ports and their trades. These services were bought by the shipowner rather than internalized because the low recurrence of transactions with a particular agent under a flexible deployment policy would not justify investment in fixed capital assets. An agency owned by a shipowning firm would have to look for outside work which might cause the loss of managerial economies. Henley's hired agents in many ports, most of whom were used irregularly and were replaced if another firm offered a better or cheaper service.86 The East India Company stationed company agents in the East Indies because they had conducted highly recurrent transactions. An alleged benefit of internalization was the reduction of opportunistic activities as incentive and loyalty systems were established.87 However, the experience of the trading companies suggests the prevalence of employee opportunism: distance and poor communications provided the main obstacles to effective employee control.88 The independent agent, indeed, monitored the ship master who was an employee of the shipowner and with whom he was probably not on familiar terms.

The function of the ship broker was mainly connected with securing freights. The early freight markets were informal and relied upon personal contacts. The London coffee houses served as meeting points for merchants and shipowners, and led to some degree of trade specialization, as indicated by the Jamaican coffee house and the Baltic Exchange. Once contacts were regularized, freights might be agreed by correspondence. Alternatively, they were secured en route as a ship master picked up a return cargo or voyaged to a nearby port in search of one. These methods were inefficient and best suited to shipping concentrated in particular trades, where the personal contacts were established and the local availability of freights well known. The growth of brokers and more formal freight markets gave specialists greater opportunities to assess the relative profitability of different trades and to plan the future deployment of their fleets. This reduced transaction cost advantages of vertical integration and orientation to a single trade. While general brokers already existed, the eighteenth century saw the main

85 While overseas shipping agencies had existed previously, their numbers grew rapidly in the eighteenth century. See, in particular, Davis, English shipping industry, pp. I29-30, I7I-2, 38i.

86 N.M.M., H.C., HNL I5, i6, I7 contain their correspondence with agents and indicate the services provided. James Kirton at Newcastle/Shields was the agent they used most frequently, but he remained independent: Ville, 'James Kirton'.

87 Carlos and Nicholas, 'Giants', p. 406 refers to remuneration packages, contractual agreements, and monitoring. Anderson, McCormick, and Tolleson, 'East India Company', p. 229 emphasizes a policy of decentralized property rights. Employees were granted private trading rights in relation to their own success as a means of attempting to resolve the divergence between information and incentives.

88 Most authors support the prevalence of employee opportunism. For example, on the English East India Company see Chaudhuri, 'East India Company', pp. 40-I; Willan, Russia Company, pp. 260-78; Furber, John Company, gives many examples. When Sir Archibald Campbell arrived in Madras as governor in I786 he began investigations which revealed that the company's service was riddled with corruption: Furber, John Company, pp. 200-I. See Prakash, East India Company, pp. 83-9 for a comparison. A contrary view is expressed in Carlos and Nicholas, 'Agency problems'. Elsewhere, Carlos explains why agent opportunism was more of a problem for the Royal Africa Company than for the Hudson Bay Company: 'Agent opportunism'.

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growth in the function of the ship broker. Previously, the services of ship brokers were rarely used and their functions sometimes misunderstood.89 Local directories produce further evidence of the growth of ship brokerage.90

The relative absence of marine insurance before the eighteenth century caused shipping investors to seek alternative means of risk reduction. Large- scale vertical integration meant that shipping losses were of limited importance. The chartered companies tended to self insure, except for particularly valuable cargoes and vessels, and during wartime operations.9' Fractional ownership was an alternative means of spreading risk. Thus, 'a quarter of four ships was undoubtedly a better investment than the whole of one'.92 Only with the provision of marine insurance could specialists emerge who were sole owners and who operated fleets modest enough to require cover.

Two main forms of marine insurance developed in the eighteenth century, cover by policy and by clubs. Policies were provided for individual voyages or passages either by Lloyd's underwriters or by the major insurance companies, London Assurance and Royal Exchange Assurance, which were established by charter in I720. The companies, however, charged high premiums and frequently refused to insure vessels valued at less than EI0,000.93 It was not until I824 that the privileged position of these two companies was broken and competing enterprises were established such as the Indemnity Mutual Marine (i824) and the General Maritime (i830) .

Intermittent warfare accelerated the growth of marine insurance: it provided windfall profits for insurers due to higher premiums and increased demand while also requiring a more professional approach to assess the high risks. With the growing sophistication of insurance services, including ship surveying and the establishment of Lloyd's agents in many ports, insurers were better placed to judge the risks so as to minimize fraud and offer more effective and accurate premiums. This may have reduced the real cost of insurance although the evidence is complicated by wartime premium increases.95 Freight insurance expanded in the long-haul trades where a single freight could be one or two years' earnings and represent a value similar to that of the vessel.96

Mutual insurance clubs provide further evidence of the growth of marine insurance and its falling cost. They sprang up on Tyneside in the late eighteenth century as an alternative and frequently lower-cost form of cover and shortly spread to other areas. In i809 members of the London Union Society, a mutual insurance club, paid premiums of 5 per cent. To have

89 Davis, English shipping industry, pp. i62, I65-6. Vertically integrated companies carrying their own goods required no freights.

90 The Transport Board used a large number of brokers as middlemen in the hiring of merchant vessels during the French wars: Condon, 'Transport service', p. 74.

91 Spooner, Risks, pp. I43-4. 92 Jackson, Hull, p. I40. 93 Armstrong and Bagwell, 'Coastal shipping', p. i67. 94 The development of marine insurance companies in London in the first half of the nineteenth

century is discussed in detail in Palmer, 'Shipping industry', ch. 5. 95 These developments are discussed in detail in Wright and Fayle, Lloyds. 96 The vessel Oeconomy, returning from St Domingo in i8ii, was insured at ?f5,ooo and its freight

at ?3,500: N.M.M., H.C., HNL ioi/8.

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insured a collier vessel at Lloyd's for that year would have cost around 20 per cent.97 Clubs consisted of groups of shipowners, normally from the same port, who mutually insured each other's vessels by the payment of an annual premium calculated by their collective losses.98 They normally only covered vessels in a reasonably good state of repair and sometimes restricted deployment to specified areas.

VI While the development of public goods and external economies of scale

encouraged vertical disintegration of the larger mercantile firms, internal economies of scale promoted horizontal integration as owners restructured their organization, and as consolidation and concentration developed among the fractional ownership structure. The most important scale economies were managerial. Operating a fleet of ten vessels did not require ten times the effort of managing one. In negotiating freights and insurance or purchasing ship stocks and provisions, average transaction costs were lower for larger numbers. The larger shipowner was in a strong bargaining position because of the amount of business he had to offer to tradesmen and could tender for large government contracts, especially in wartime.99 The ship manager who had taken managerial responsibility for several independently operated vessels under the fractional ownership structure, perceived the advantages from a single coordinated fleet with an overall policy. This almost inevitably required a concentration of ownership to avoid delays to decisions as other investors were consulted and the interests of owners of different vessels conflicted. Prompt decisions were particularly important in the eighteenth and early nineteenth centuries when intermittent warfare meant constantly changing economic conditions in the shipping industry.

Larger shipping firms achieved other scale economies because they differed in organizational structure from smaller enterprises. In particular, they were able to develop a somewhat primitive administrative structure by the employment of clerks, which released the shipowner from some of the routine functions. With the larger number of vessels in the firm, it could be economic to retain a regular pool of ship masters and a supply of ship's stocks, thus avoiding potentially high search costs and volatile spot rates in a notoriously cyclical industry. Intermittent warfare brought the opportunity, especially for London-based firms, to buy the stores of captured and damaged vessels as well as the prizes themselves.100

While Henley's were successful pioneer specialists who benefited from such managerial economies, another London owner, John Long, illustrates the costs of failing to move sufficiently far in this direction. He shared

97 S. C. on Marine Insurance (P.P. I8Io, IV), p. 57. 98 The first club was set up at North Shields in I778. There were nine clubs on Tyneside by i8i6

and 29 in North and South Shields alone by i848: Armstrong and Bagwell, 'Coastal shipping', p. i68; Bagwell and Armstrong, 'Coastal shipping', p. 205.

99 In I794 Henley's had a contract with the Navy Office to deliver 5,000 tons of coal to the naval dockyards, the equivalent of about 20 vessel loads: N.M.M., H.C., HNL 9/2.

100 A number of London shipowners turned up at such auctions on a regular basis: Ville, English shipowning, p. 23.





ownership of a small fleet between i8I5 and i828 and possessed other business interests. His ability to exploit improved information sources, both in the City and through overseas agents, enabled him to deploy vessels flexibly across a range of trades. The size of the operation, shared ownership, and insufficient specialization proved to be sources of managerial diseconomies. Shared ownership resulted in a dispute over the disposal of a vessel. Other business interests caused distraction without yielding any notable transaction cost savings or scope economies. Small size meant the apparent absence of large freight contracts and spare stocks, and it also meant that only a few of the ships' masters were hired on a regular basis.101

VII

This article has investigated the growth of specialization in English shipowning in the century after about I750. A process of vertical disintegration, particularly of trading companies and merchant firms, and horizontal integration of individually operated vessels led to these structures being superseded by specialist shipowning firms. A period of sustained growth in the demand for shipping encouraged permanent organizational changes in the industry as its scale became large enough to justify the provision of public goods and the emergence of ancillary services. Improved commercial, navigational, and stowage information all helped to reduce the need for the earlier vertically integrated structure. External economies reduced the need to internalize to achieve transaction cost savings. The diversification of British trade allowed shipowners to operate in different markets and to abandon the vertically integrated structure which was the product of the single route and sole supply source. By operating in different markets, the firm used less highly specific assets which reduced the threat of opportunistic recontracting. There were fewer identical transactions and that weakened the case for internalization in order to economize. Increased localization of the industry encouraged the growth of external economies and public goods in the larger ports. These changes must also be set within the framework of the political economy of the period. With the expansion of British overseas influence, the strategic significance of the chartered companies, with their highly specific assets, declined, and governments sought to encourage a strong mercantile marine by the provision of public goods such as improved protection and navigational information. Finally, with these manifold changes in the external environment, the foundations were laid for the development of shipowning firms able to exploit the latent internal economies of scale such as more effective management, the ability to handle larger contracts, and lower-cost stocks.

The principal general conclusion of this article, therefore, is that vertical specialization combined with horizontal integration has been a legitimate alternative path of development to vertical integration for an expanding and successful industry. Specifying the conditions under which specialization will occur is more difficult. Stigler suggested it was most likely in 'general

101 Palmer, 'John Long'.




720 SIMON VILLE

speciality' industries which are not closely attached to any one industry but are generally more sensitive to economic fluctuations. He also emphasized the importance of the industry being highly localized and based in a relatively large economy. The English shipping industry of the period was a highly localized general speciality industry based in a large economy and benefited from both internal and external economies of scale. Stigler's work, however, has been criticized for concentrating upon production and not transaction costs. This article has attempted to consider both by showing that the advantages of vertical integration were declining with the emergence of quasi-public goods and the improved opportunities for flexible deployment.

This article offers some support for the life-cycle hypothesis since specialization followed an earlier phase of vertical integration. However, for shipping, as for many other industries, the notion of a life cycle is a rather artificial one. The shipping industry dates back many centuries beyond the creation of the chartered trading companies so we cannot suggest with any certainty that vertical integration characterized the shipping industry in its earliest phases of development. Nor is it possible to speak of a twilight period where vertical integration re-emerges. There were further organizational changes after i850 associated with the growth of joint stock companies which go beyond the scope of this article. Shipping is still a major industry today and one, as Casson has noted, where vertical integration has remained the exception rather than the rule.102 It seems much more likely, as the article by Robertson and Langlois implies, that vertical integration and specialization are active alternatives open to entrepreneurs according to the prevailing characteristics of an industry at any stage of its development.

Australian National University

102 In the i980s, however, vertical integration has increased: Frankel, World shipping industry, pp. I4-6.

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East India Company', J. Econ. Behaviour & Organization, 4 (i983), pp. 22I-38. Armstrong, J. and Bagwell, P. S., 'Coastal shipping', in D. H. Aldcroft and M. Freeman, eds.,

Transport in the industrial revolution (Manchester, i983), pp. I42-76. Bagwell, P. S. and Armstrong, J., 'Coastal shipping', in M. Freeman and D. H. Aldcroft, eds.,

Transport in Victorian Britain (Manchester, i988), pp. I7I-2I7. Cameron, A. and Farndon, R., Scenes from sea and city: Lloyd's List, 1734-1984 (Colchester, i984). Carlos, A., 'Agent opportunism and the role of company culture: the Hudson's Bay and the Royal

African Companies compared', Bus. & Econ. Hist., 2nd ser., 20 (I99I), pp. I42-5I. Carlos, A. M. and Nicholas, S., "'Giants of an earlier capitalism": the chartered trading companies as

modern multinationals', Bus. Hist. Rev., 62 (i988), pp. 398-4I9.




SPECIALIZATION IN ENGLISH SHIPOWNING 72I

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The Growth of Specialisation in English Shipowning, 1750-1850

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