Little work done. Most is speculative
Transport and communication
commercial services (insurance)
Both are expending and extremely important - employment goes up by a half, 44% of GDP to 58% GDP
Briatain is exeptional in that most GDP in generated from the tertiary sector.
These services are quite productive. Labour productivity is higher than manufacturing
TFE did not have Edwardian decline in services (as it did in manufacture).
Britain had a 10th of world as her empire. Because it wanted to capture markets.
Empire was not in the interest of economy. It is a gentlemenly capitalism. Growth of empire occurs before industrialisation - one can link ti to the growth of services. Gentlemenry had in common the dislike to industry. It means to industry that industry needs are becoming second to city in terms of government policy. They said that provincial stock exchanges could provide for industry, so it is alright. Industrialists were desperate for protectionism, but government resisted that.
Bank on england founded in 1694. Brittain had a complex bank strukture. There were many small private banks. Joint stock banks were allowed in 1824 and banks started to get larger, especially when limited liability was allowed. By 1914 there are 3 big banks that controlled most of the banking. More Amalgamation and consolidation
Banking ethos was that you should get your money back immediately. Butbankers were local and gave overdrafts to local industrialists. In 1850s banks move away from the industry. By the Edwardian period banks were abstaining from the industry altogether as banks head offices were in London and were inflexible. However the short overdrafts helped to finance working capital.
Peopel were taking money out of industry as well, and new industries were not allowed to rely on these sources as well.
1. Stock exchange
Before 1880 ther were very few public companies. After they appeared to spread risk, but also so that the owners could take the money out. So not much new investment.
Industrial shares were less than 1% in 1880 and by 1913 only 13%
Smaller firms were difficult to get floated because:
1. Firms only floated million pluss firms
2. commision was 6%, minimum 20 000
3. Medium size firms were expected to offer were very high
4. But there were provintial stock exchanges as well. But they were not very effective. They channeled lots of money to london.
There was inefficiency and bias in the economy.
Loks at chemical and ellectircal enginering
In 1882 many floatations in the stock exchange. In five years they are defunded. After thhat britain very anti electric. There was poor information. No way the shareholders could monitor the manegent.
City was not trying enough to find out the information about the companies.
Edelstain points out that the electricity supply is damped by the existing gas companies etc. So electricity was not much supplied.
Chemical factories largely merged in 1882. Theywere wedded to outdated technology and smaller firms were able to squeeze the company out of market.
Professional promoters, who were involved in marketing, were mamaging launces initially. Most of the money went to promoters or initial owners. So industrial launch was very risky business.
Same gap was not happening in Germany
Investment banks were established in germany
1. Much closely related
2. Act as financial advisers, helped running firms
3. Overcame informational assymetires, because they had technical expertise.
4. Banks are informed about the firms more. They have long relationships with them, Banks were the only lender. It did put interest up.
5. Banks launce the firms on the stock market themselves. Gives some insurnance to investors.
6. So banks put their own people to the board of directors
Same things happen to USA as well
1. Investment banks aree not dominating the financial sector. They only have 25% of the assets
2. Most investment was going into railways. Investment banks were not involved. Done by government and private.
3. By 1913 80% is not in joint stock companies. Most is in small firms. Even in the big companies much was coming from the internal sources.
4. Invesment banks should cause mergers. Actually investment banks only got involved in when the merger started occuring. They were not causing it.
5. Investment banks were detremental, because they were able to offer lower interest and thus economy was going to much towards heavy industry, away from the light industry. This was a cost to the German economy..
6. There was no demand for investment banks in England. Potentially British firms could go and borrow from the foreign investment banks, but they did not
7. Banks were in protected areas, because they were then more profitable. britain did not haveprotection