Research Korner: Shipbuilding Industry

THE EFFECT OF ABSENTEEISM ON COMPANY'S PRODUCTIVITY: CHAPTER 1-3

Chapter 1: Introduction   Background of the study No account of the imperial system would be complete without some discussion of maritime activity. Voyages of discovery played a crucial role in the foundation of the Spanish, Portuguese, French, and Dutch empires, whilst a combination of the search for a northern passage to the Orient and organized piracy created the early momentum for the British Empire. Before the Industrial Revolution the maritime sector was instrumental in developing a consumer society in Europe, based on the conspicuous consumption of imported luxuries, whilst later on during the years of the scramble for Africa, for example It brought the raw materials to feed the heavy industries of Europe (Cohen & O’Connor 2004). Instead of having a few shipping companies with substantial fleets, each ship was typically organized as a separate company in order to control the financial risks involved. It neutralized the domino effect which the loss of one ship could have on the finances of other ships in the owners' fleet. Ships have always been amongst the largest, most indivisible, and most risky assets in which people can invest. Merchant ships are floating containers, and economies of scale encourage them to be built as large as possible compatible with access to port facilities. Financial risks are great not only because of the risks of loss at sea, but because charter rates are highly volatile on account of the durable nature of the fleet and sensitivity of international trade to the state of business confidence, particularly where raw material shipments are concerned (Schröter & Wilkins, 1998).   With many small shipping companies, each owning a single vessel, it became quite common for the owners of a ship to vest the management of it with an agent. The agent, for example, could arrange to charter out the ship on their behalf. The agent would be rewarded by some combination of salary and commission. The agent had to enjoy a good reputation for competence and integrity, however, because he personally carried only a very small proportion of the financial risks associated with the vessel's operations (Jamieson & Starkey 1998). To make efficient use of a specialized ship agent's time, it was necessary for an agent to manage several ships. This, of course, allowed agents to accumulate enormous expertise. To capitalize on this, to exploit the economies of scope afforded by their general knowledge of the shipping trade-they could take on junior partners to expand their agency. This provided an inducement for reputable agents to promote the building of ships, incorporating a new company for each additional ship, and inviting wealthy speculators to subscribe equity. The intelligence gathered by the captains of these ships would inform the managing agents of business opportunities overseas. Individual shipping routes tended to be highly competitive because, unless they were controlled by a charter monopoly that was effectively policed, vessels could easily be switched onto routes where existing operators were enjoying profits higher than elsewhere. Vertical integration into the procurement of export cargoes made little sense, therefore, when the arrival of ships to collect the cargoes could not be accurately predicted, where the export products were difficult to store. It was far better to ship the exports on the first available ship than to try to coordinate production and sailings within the constraints of using only vessels from a particular owner's fleet (Johnman & Murphy 2002). Shipping companies require their personnel to be productive and efficient. This paper will take a look at how absenteeism affects White star line’s productivity.   Rationale for the Chosen Topic Presence is valued, held up, invested with power, and so can be said to have a pervasive quality. Presence, it appears, constructs, connects, and holds together. Within this contrived order of things presence is the determining feature of being, subjectivity, ideology, textuality, systems of speech and writing, presentation and representation the list is boundless. Such is the construction of presence, even absence, its taxonomic opposite, is seen as a formation and formulation of it (Ukens 2001). To have presence is also to have the capacity for absence. The force of this relational schema has led to the conceptual figuring of absence and absences only because there is presence, or a register of presence, to begin with. Absence is seen to be derived from a state of presence, as it is seen as the denial of presence. One way of figuring absences outside of this way of thinking is to specify two forms of absence: primary absences and secondary absences. These categories are necessarily broad and cannot be seen as ascribing a complete agenda to the issues. In this sense it is important to acknowledge the flexibility of the concepts to recognise the chains of signification which determine not resolution and meaning, but the interplay of the discourses themselves. Absence can be a status measured against other orders (Fuery 1995).   Something is absent because it is not present, but the significant detail is that the absent something is figured as potentially present, that is, held-in-readiness. The absences are secondary because they establish forms of quasi-presences to fill the gaps, the holes and blanks, the simulacra, complex orders of signs which point and indicate until the absences themselves are denied. Bits of the missing presence are fleshed out, embellished, or signifiers are constructed to provide a presence. All the time these secondary absences are sub forms of a presence because they have a referential system; in doing so they often suggest an originary position. To divide the idea of absence into primary and secondary forms is not to establish distinct types an important feature is that secondary absences provide a connection between the operations of the presence and all forms of absence. Although this does not provide a continuum between pure presence, that is a presentness, and primary absence, it does permit a reading of absence in terms of a relational context of presence, which, in turn, allows the continuation of a primary mode of absence, independent of any sense of presence. The dynamics of primary and secondary absences mean that there are constant qualifying notions of the absent. (Klaas, Mahony & Wheeler 2004). Essentially, primary absences are determining principles and signifying practices in which absence is the defining feature and constant point of reference (Murray & Richardson 2002). The main aim of the study is to evaluate and investigate the performance of employees of White Star Line in accordance to the current efforts of the company towards absenteeism, training and development (Murray & Richardson 2002). This study attempts to review and analyze the effect of absenteeism and type of training provided for the employees. In the recent studies of employee training and employee motivation, human resource is the greatest source of the improvement of a business. Here, it exposes the positive as well as the negative treatment accorded to the employees as a result of an effective/ineffective implementation of an employee training program which also causes absenteeism.   Statement of the Problem It is the motivational basis of job design that gives the topic its essential identity and focus. Although not every approach to job design deals with motivation, motivation is nevertheless one of the most common outcome variables studied in relation to jobs. Moreover, even perspectives that do not explicitly include motivation often consider performance, satisfaction, effort, and absenteeism, all of which can be linked with motivation. The goal of some approaches has been to learn how to design jobs so as to improve motivation. In other instances, the presumed relationship has been more indirect and the focus has been on improving related phenomena such as job satisfaction or organizational commitment (Brett & Drasgow 2002). Regardless of how it is cloaked, the basic thrust of most job design theory and research has rested on the premise that job design and motivation are linked. The implicit belief that has guided this work has been that the design of jobs can be altered so as to motivate job incumbents to work harder, do higher quality work, do more work, and be more satisfied as a result of having worked. In many organizational settings, absenteeism is often interpreted as an indirect indicator of more serious managerial problems. Quite understandably, many published studies, as well as internal technical reports, describe interventions aimed at managing absenteeism (Greenberg 1994).   Understanding and defining absenteeism in a precise and agreed upon manner, however, often receives only passing attention in these more intervention based studies. Simultaneously occurring with the intervention-based and measurement-oriented studies, there have been efforts at theorizing about absenteeism. Unfortunately, these theoretical efforts have been quite different and do not represent a clear accumulation of knowledge (Vardi & Weitz 2004). Work attitudes, like job satisfaction and organizational commitment, and events, like absenteeism and turnover, develop and occur over time. Employees attitude and performance levels are changed by various thins and situation in the environment. As a result, many scholars have made calls for more longitudinal research aimed at capturing these dynamic processes. These calls, however, tend to be methodologically, as opposed to theoretically, based. Of course, the reverse should hold. The passage of time should be a substantive part of our withdrawal theories. Correspondingly, the duration of measurement for any relevant constructs could then be determined by theory, rather than the researcher's convenience. In some cases, job attitudes and withdrawal behaviors occur smoothly, gradually, and monotonically; in other cases, distinctive stimuli punctuate these occurrences. Any substantive withdrawal theory must deal directly with how these processes unfold over time. Moreover, a theory should address how contexts and employees change over time, with some changes being systematic and others being random (Vardi & Weitz 2004).   From the organization's perspective, if apathetic employees left voluntarily such turnover would be functional, especially if they were replaced by individuals who belonged to the other cells. Concerning absenteeism, apathetic employees were expected to take maximal advantage of any company policy that did not penalize the practice. However, whether their lack of attachment resulted in high rates of absenteeism or turnover depended on the constraints on each behavior, for example, labor market conditions that limited job opportunities (Cohen 2003). Absenteeism is due to varying causes, most of which can be distracting to personnel. If someone is always absent he/she might miss out on things and might have many unfinished activities. The researcher needs to find out the effect of absenteeism to the productivity of White Star Line employees. The researcher wants to find out how absenteeism affects someone’s professional life and his/her participation in work activities. The researcher finds the necessity for a study that specifically tackles the current status of absenteeism practices among employees in White Star Line in UK. Specifically, this study intends to explore the significant impact of the absenteeism, training and motivation approaches provided by the White Star Line in UK. It will present the performance of the White Star Line by identifying weaknesses and inefficiencies and recommending solutions.   Research objectives  Likewise, it is essential to study the existing practices in company development and training that are supposed to contribute to the improvement of the skills of employees and lessening the cases of absenteeism. For this reason the following objectives are formulated: <li class="MsoNormal" style="text-align: justify">To review the existing literature that is available on employee absenteeism, employee motivation, employee training and employee performance.</li> <li class="MsoNormal" style="text-align: justify">To investigate the impact of employee absences in White Star Line’s business performance. </li> <li class="MsoNormal" style="text-align: justify">To analyze the performance of employees of White Star Line and determine if absence changes their performance. </li> <li class="MsoNormal" style="text-align: justify">To determine the usual cause of absence for the White Star line employees and the usual excuse of the employees for their absence. </li> <li class="MsoNormal" style="text-align: justify">To provide recommendation for other shipping companies of similar nature and size to help them build programs that will increase employee performance and lessen absenteeism and therefore productivity.</li> <li class="MsoNormal" style="text-align: justify"> </li> Outlook of methodology Methodologies are equipments combined with ideas to acquire information needed in a study. Methodology combines theoretical and practical things to acquire the idea needed for a study (Coles 2006). Determining a methodology requires one to decide well because any error in choosing the methodology would result in the failure of the whole research endeavor. The researcher needs to make sure that the methodology he/she chooses will be based on careful analysis and it will make proper use of decision making skills. In selecting a methodology for a research different things are considered, it includes the time that will be spent for the research, the finances available, the complexity of a theory and the ease of data (Roberts & Yeager 2006). Descriptive approach to research will be used. The descriptive approach to research will be chosen since it entails description of ideas and information, the character of a dataset and the meaning of a data to the study. The descriptive approach focuses on determining how a data can affect validity of a study. The descriptive approach can be used to check some issues and analyze any relation between information which may pertain to independent variables as efficiency, productivity, absenteeism, performance and participation. The descriptive approach will make sure that the researchers will have a proper understanding of how the data acquired is related to the study and its goals. The research will use of surveys in gathering data and surveys belong to quantitative methods thus the study will be based on quantitative principles. This survey intends to be confined only within the White Star Line due to cost and time limitations. Some respondents would be the HRM officials, some would be personnel. Acquired data will be analyzed through descriptive statistics. The information in such method would be best explained by the use of tables and graphs. In analyzing the collected data, the paper will be divided into two parts these are: the response of the officials and the response of the personnel. In each part the demographic information of the respondents will be added. Employees and HRM officials of White Star Line are surveyed to understand the impact of absenteeism to the productivity of the company. If surveying the Employees and HRM officials is possible the survey that they will fill out will be left on the HRM desk where they can fill it out and return it to a drop box in a closed envelope without a name or other identifying information. The questions for the Auditors are created after a thorough review of literature. For documentation that refers to secondary information about employee motivation, training, business performance and absenteeism, such considerations have been taken to reduce concerns as they would otherwise pertain to bias or the reliability and validity of the findings. Documentation specifically includes company reports and records, or books and journal articles discussing employee motivation, training, business performance and absenteeism in White Star Line. To determine the perceptions of the employees and HRM official pertaining to employee motivation, training, business performance and absenteeism in White Star Line, the researcher prepare a set of a questionnaire. A non-threatening questionnaire in nature that can be completed within 30 minutes are considered   Outline of the study   Chapter 1: Introduction Chapter one introduced the study. In this chapter the main ideas and the primary objectives were narrated. This chapter featured the background to the research, and narration of what will happen to the study and the purpose and aims of the dissertation.   Chapter 2: Literature Review The review of literature part will gather information related to the topic: the effect of absenteeism on White Star Line's productivity. Information will come from books and other helpful sources.   Chapter 3:  Research Methodology The methodology part will narrate the methods or instruments needed to get the information. The methodology chapter will give an idea of what were used to gather the needed information to complete the study.   Chapter 4: Data Analysis Chapter four will give the meaning of the acquired data. It will aim to present and then explain the data that has been collected. The fourth chapter intends to sum up the study.   Chapter 5: Future, Limitation, Conclusions and Implications The fifth chapter will give the conclusion on the effect of absenteeism on White Star Line's productivity as well as its implications. This chapter will highlight the various important findings from this study that would be beneficial for further study and the strategies that can be used to improve the performance and productivity of the workers of White Star Lines.  This chapter will highlight the most important benefit of productivity to the firm. Moreover the fifth chapter will provide the limitations to the conducted study. Chapter 2: Literature Review   Productivity and organizations Productivity is an important part of White Star Line since the more productive a firm is the higher profit rates it will have. Skills that will be the most important for knowledge organizations are those that are associated with the intellect of the individual. Presently, these skills are hard to teach and harder to assess. The challenge that institutions of higher learning worldwide will face will be their ability to equip their pupils with these creativity skills. Those universities around the world that will succeed in devising and revising curricula emphasizing these skills will be able to take over the leadership of the education for the twenty-first century and beyond (Burkett 2006). Employees possessing these creativity skills will enable knowledge organizations to engage in ingenious actions to bring about innovation and productivity. Knowledge organization managers will have to learn the rules and operate by them. In order to evolve a work relationship that will unleash the minds of Generations X and Y for innovation and productivity gains for the organization. The operational measures of productivity, effectivity and quality are subordinate to the results concept. Many working environment studies, intended to show the benefit of measures implemented, report on side issues alone, that is, productivity, effectivity and quality, omitting how profits have been improved through measures taken (Glyn 2006).   One thing that helps in initiating productivity is management development. Management development is concerned with de specialization and with focusing on the generalist role as well as with training in specific management skills. Many programs attempt, in addition to stressing the importance of increasing management competencies, to bring managerial styles into conformance with a desired organizational culture. In most programs one or the other of these is dominant. But in no case can either one be ignored completely. Whether the goal is improved quality, increased productivity, or the integration of individual and group needs, management development can be used in a systematic way to create and shape change in an organization (Barrett 2006). Productivity varies due to differences in production technology, differences in the efficiency of the production process, and differences in the environment in which production occurs. The ability to include efficiency change as a component of productivity change depends on the data one has to work with, and the assumptions one is willing to make. Data can be either a single time series or a panel, and can consist of quantities only or quantities and prices. Assumptions can be strong or weak. With sufficiently strong assumptions it is possible to use a single time series on quantity data only to tell a story about the contribution of efficiency change to productivity change. For employees to be empowered, the company must provide means for employees to participate both at the shop or office floor and at higher levels in the organization. Investment induces productivity growth by installing new technologies and by positive externalities. These common characteristics imply a second important feature (Sawyer 2006).    The long-run growth rate is path-dependent for activities of former generations influence the productivity of present and future capital accumulation. Concerning the technical progress function, this statement manifests itself in the relation between the flow of investment and the technical dynamism of an economy. The more technical dynamism an economy has acquired in the past, the more productivity growth is induced by a given growth rate of investment. The robustness of an economy or a business is a complex function of many variables. Especially important among those variables, however, is the efficiency with which goods and services are produced. When it costs more to produce goods and services domestically than to import them, the balance of trade suffers and the growth of the local economy is slowed. Human factors research aimed at increasing productivity is obviously relevant to this problem. Moreover, productivity can influence standard of living in various ways. When the productivity of one country increases relative to that of others that country's products become more competitive on world markets; increases in worldwide productivity mean more goods and services available generally for the same cost (Stedt 2006). Productivity is one of those words that most people probably believe they understand until they have occasion to try to say precisely what it means. As applied to the production of material goods, productivity is usually expressed as a ratio, for which the numerator is some measure of output or what is produced or the value of same, and the denominator is some measure of input or what is used up in the production process or the cost of same. In theory, the same ratio may pertain when what is produced is a service or other intangible good, but in practice, quantification can be very difficult because of uncertainty about what exactly gets consumed in the production process or about what the product is really worth. Finding ways to increase the productivity of individuals, systems, corporations, or other entities is an appropriate concern for human factors researchers and an objective that the human factors community is in a position to help attain (Gong & Semmler 2006).   Performance and organization Knowledge management is part of a broader and more integrated effort to manage and develop human capability for business performance. Managers will assess the gaps in their workforce and direct interventions. At the same time, individual workers will have the opportunity to take control of their learning, which, in turn, moves the organization to be able to achieve its goals and objectives (Phillips 2005). Organizations are nothing more than an extension of human thought and action, which makes human capital the only active capital. Financial and physical resources are important, but they cannot be transformed without the lever of human capital. The input of human capital grows in value and is becoming the differentiator for organizations. Therefore, enterprises must recalibrate to see how that input operates and bring it into balance with all of the other elements, including long-term basic strategy, positioning in the market, and the alignment of culture and systems to achieve exceptional outcomes. However, this is not a static situation. There is a power shift. As people begin to be better able to autonomously gather information, achieve mobility, and initiate connectivity, they are redefining the role and value of their human capital. As a result, they are making new demands on management for more satisfying kinds of relationships, working conditions, and compensation (Druskat, Mount, & Sala 2006).   Management has to, in a sense, catch up with its workforce and responds with increasing flexibility to obtain the kinds of capabilities and commitments it needs to succeed. This is a major reversal for management, which is used to being able to dictate the terms of employment. Regardless, it is a necessity. Enterprise leadership must come to know better what human capital it needs, not just for today, but also for tomorrow and the day after. It must understand how to rapidly acquire, compensate, grow, and retain it so that it can positively affect its business performance and operating objectives. The corollary is that it must change its orientation and its basic systems to be at the lead of the knowledge-based enterprise reality (Nicholls 2006). Managing the human capital for continuous learning, sharing, and connecting as human beings; while giving people space to think and rewarding them for their performance and contributions needs to be part of the daily practice of everyone; from leadership to the frontline of the enterprise. If it is an add-on or special program, it will fall significantly short of its promise or fail. An organization may not need perfect values alignment, but it will need values alignment appropriate to its ends. These values must be the authentic values held by the enterprise and its people. Values provide a set of common reference points that can be used as criteria for decision making and serve as enablers for deployment. The trust that comes from shared values breeds viable, long-term relationships throughout the network of customers and suppliers as well. When there is a divergence from the values framework, the enterprise becomes vulnerable as its channels begin to corrode. Incompatible or token values, like wallpaper pasted over a fractured wall, do not work when there is the least amount of stress (Kramer & Messick 2005).   Human capital management is a broader and more integrated effort to manage and develop human capabilities to achieve significantly higher levels of business performance. Moving to develop and deploy knowledge and people in the most effective way and to facilitate the flow of knowledge across organizations requires not just technology. It also involves building capabilities in strategy and leadership development, changing organizational design and structure, nurturing a host of informal organizations, and shaping a set of management, financial, and quality processes that are in concert and able to constantly adjust to new conditions. This means moving toward organizations that are capable of systematic transformation. Value is the potential for future economic performance rather than a reiteration of past performance. In the organizational world, past performance is not necessarily the best predictor of future performance. Leaders can quickly lose their pre-eminent position (Avolio 2005). This flies in the face of approaches that are built on past performance being the best predictor of the future. Past performance may, in fact, bear little or no relation to future success in emerging or declining areas. Furthermore, in this information-based world, concepts of value creation need to expand to reflect the central role of the workforce. While value can be readily calculated as the discounted sum of future cash flows, in emerging areas it is highly uncertain because the terminal value for this calculation dominates the total. Further compounding the uncertainty is the discount rate, which must reflect the uncertainties inherent in growing businesses. With this in mind, approaches to estimating value creation need to build on the concept of the value created by each individual, magnified by networking and connecting and consolidated for the whole organization. This differs from the traditional view of the workforce as a cost to be minimized, instead viewing it as a resource to be developed and maximized (Lucas 2006). The performance of a firm will depend on how it acquires knowledge and motivates the personnel so they will reduce the number of absences they make in a week or month.   Employee absenteeism Absence refers to the non-attendance of employees for scheduled work when they are expected to attend. The different ways in which absence is calculated has made inter-company comparison difficult and international comparison impossible. The issue is also something of a taboo in organizations for different, but related, reasons. First, it may be that organizations are just too embarrassed to address this issue internally let alone discuss it publicly in management journals. Thus, for a company to admit that it has an absence problem is perhaps to admit to being perceived as being a bad employer. Second, managers may treat absenteeism as an act of God that has to be endured, rather than as an organizational problem that is capable of being solved (Tyson 2006). Even if they believe that something can be done about it, there is surprisingly little up-to-date information on absence causes and controls available in a form that can be directly used by management. As well as definitional issues, there is a serious issue of people’s ability to attend. Family responsibilities, transportation problems, illness and accidents all have a role to play. But what is perhaps noticeable about the plethora of studies in this area is the neglect of individual differences. Critics of absenteeism measures have observed that they are frequently loaded with error variance and are therefore contaminated because a person can be off the job for a variety of reasons (Hitt & Smith 2005).   As soon as a company attempts to measure absences, reliability may be threatened because it is difficult for the record of absence to be certain of the true cause and hence the correct classification of failure to attend. Any systematic approach to the problem of absenteeism has to acknowledge the myriad of discrete and interdependent factors which may underlie it. Reasons for non-attendance at work are often situation and organization specific, so much so that individual difference factors are ‘washed out’ by these more powerful factors. There is a surprising paucity of conceptual frameworks for integrating the research findings of employee absenteeism. Yet, in understanding the reasons why it occurs, it is essential that the major sets of variables should be identified and fitted together in a systematic fashion (Inkpen & Ramaswamy 2006). Absenteeism, sickness, complaints, requirements to resign, commendations and numbers of arrests are nearly always too low in frequency to be of a great deal of use. They may also vary between busy urban and rural areas. Promotion is not a good measure either because a good officer will not necessarily be promoted or seek promotion. Although personality factors have been shown to play a part in absenteeism, these are frequently ‘washed out’ by powerful organizational factors that are the primary determinant of absenteeism. A variety of sociological and organizational factors combined to affect absenteeism levels. While personality factors do play a small part, these probably only operate in very loose or un rule-bound organizations. Alas, however, the fact that individual difference factors seem less important has meant that there has been comparatively little research in this area (Arthur 2006).   It seems, then, that the main effect of personality traits on absenteeism is relatively small, and less powerful than demographic variables. However, when in interaction with organizational factors, they can account for major proportions of the variance in predicting absenteeism behaviour. Simultaneously occurring with the intervention-based and measurement-oriented studies, there have been efforts at theorizing about absenteeism. Unfortunately, these theoretical efforts have been quite different and do not represent a clear accumulation of knowledge. Work attitudes, like job satisfaction and organizational commitment, and events, like absenteeism and turnover, develop and occur over time. Correspondingly, the duration of measurement for any relevant constructs could then be determined by theory, rather than the researcher's convenience (Strack 2006). In some cases, job attitudes and withdrawal behaviors occur smoothly, gradually, and monotonically; in other cases, distinctive stimuli punctuate these occurrences. Any substantive withdrawal theory must deal directly with how these processes unfold over time. Moreover, a theory should address how contexts and employees change over time, with some changes being systematic and others being random. The reward value for coming to work on a given day decreases as the number of consecutive days an employee has already come to work increases, until some base level is eventually reached. Simultaneously, the magnitude for the motivational forces to attend to the non work alternatives increases over time, particularly when there has been little or no opportunity to attend to these non work activities. At some point, the attraction to attend to non work activities may exceed the attraction to attend work, and absenteeism occurs. In turn, when the attraction to attend work exceeds the attraction to attend to non work activities, the absence spell ends. Furthermore, the more dissatisfying the job, the more attractive non work activities should be. As a result, the strength of an attendance spell should decrease with time (Sinclair 2007).Absenteeism reduces the performance of personnel and makes a firm lose productivity.   Employee motivation and absenteeism Motivation is the art of helping people to focus their minds and energies on doing their work as effectively as possible. In the real world, motivation is the art of creating conditions that allow everyone to get his work done at his own peak level of efficiency. Individuals, companies, and countries that can do that consistently acquire enormous advantages over their competitors. Real motivation is much more than mere entertainment. It's more than antics on a lecture platform, more than bellowing into a microphone (Lamb & Mckee 2005). Real motivation is the serious, never-ending task of creating conditions to which the natural response of ordinary people is to accomplish extraordinary things. If simple motivation formulas work only part of the time, why are they so popular? Precisely because they are simple. What makes them so attractive is that it's a tough world out there, full of people who march to different drumbeats. Some managers find that diversity scary, so they cuddle up to a recipe that is at least understandable, no matter how drastically it oversimplifies the truth. Real motivators are not dismayed by differences between individuals, or by inconsistencies in the same individual. They thrive on it. They would rather give their minds a good workout than a good rest. making sure that the bargain was kept. This is where economics and psychology get all tangled up with each other (Burke & Cooper 2005).   Economic theory assumes that people act rationally in their own self-interest. Of course, most economists know enough about psychology to realize that this is a proposition that isn’t necessarily so. But trying to factor human irrationality in all its varied forms into an already complicated theory would make it too horrendously convoluted. Instead, economists assume that the effects of irrationality will come out in the wash. Most people are not irrational about money, but their logic is subtler than the logic of economists. Of course, most people wouldn't mind receiving more money, as long as they don't have to pay much for it in time, effort, risk, or forgone pleasures. That's why lotteries and other forms of cheap entertainment are so popular. But there's a limit to how much people are willing to give up just to make more money. That's especially true if the extra money comes in relatively small amounts (Gilley 2005). To motivate people with money, someone has to offer them a very good deal. Lots of extra money for a small increase in effort should do the trick. But that, of course, would be uneconomical for the motivator. And there lies the paradox. The great irony in trying to use money as a motivator is that it is by far the most expensive and inefficient of all motivators. It takes a lot of money to buy a little extra effort. The limit on one’s ability to motivate with money is financial, not psychological. Money motivation just costs too damned much. It's as simple as that. Money is a wonderful communicator, a great attention-getter, and an excellent recruiter. And, alas, it's an all-too-effective corrupter. But a great motivator it is not, and that's chiefly because of its cost. Good motivators tend to be well paid. But that's only one of the ways to motivate them, and it's rarely the most important (McGee 2005).   The truth is that motivation is a bit of a mystery. Most people, even if they're being totally candid, can't give a clear or convincing account of what they're up to, or why they've done what they've done. Instead one has to infer the reasons for behavior from behavior itself. So when one sees someone repeatedly acting in ways that usually lead to a certain result, he/she draw the common-sense conclusion that this result is what that person really wants. And that's all people really mean by a motive. It's a psychologist's way of saying that most people, most of the time, probably get what they want. Not necessarily what they deserve, or what's good for them, but what they want. Bosses are sometimes unnecessary. For example, if the subordinates are well-trained and reliable. It is also true if the boss's contribution to their work consists largely of decisions that the subordinates could make, or learn to make, for themselves (Kossek & Lambert 2005). No matter how genial and inoffensive the superfluous supervisor might be, the very existence of his job carries an onerous implication. It suggests that the workers aren't bright enough, or mature enough, to do their work without someone to tell them what to do. This is why one can sometimes change a bad job into a motivating job just by cutting back drastically on the amount of supervision, or even by eliminating it altogether. One can achieve major motivational gains this way but only if they can handle the backlash from an unexpected source. Simply fixing a bad job in this way is relatively easy. The really tough part is dealing with the political effect of lots of switched-on, highly motivated people. Fixing bad jobs raises the question of whether one really wants motivation as much as they claim they do. That's because motivation, comes with a price tag attached to it. And that price is something that people is much more sensitive about than mere money. It's the comfort and peace of mind that comes with knowing that the person is in control and that nothing is going to happen unless he/she makes it happen (Kermally 2005). Motivation is important so that people will reduce the number of absences. Motivation helps individuals perform at their most effective form.   Employee training and absenteeism A force driving change in the field today is the growing dissatisfaction with training activities and the lack of results from training. Several factors drive this growing dissatisfaction. First, management's interest in workforce development results in considerably more financial resources being expended. In the United States alone, over sixty billion dollars in direct costs were being spent each year by business organizations. Second, while training costs continue to rise, there has been little or no discernible improvement in the results from training (Flynn 2006). Most of the investment in organizational training and development has been wasted because much of the knowledge and many of the skills gained in training well over 80 percent by some estimates is not being fully applied by those employees on the job. Finally, line managers in most organizations see the training function as an expense rather than added value. In addition, those in the training community have been unable to demonstrate clear value because the results of training activities have had little impact on job behavior. These major forces have prompted the innovators within the training community to shift to a focus on performance improvement. This shift goes far beyond improvement in the technology of training (Tayeb 2005).   The most dramatic change associated with the shift to performance has been the manner in which trainers now often called performance consultants work with line managers. Previously, trainers had operated either as experts, or as pairs of hands. The expert approach resulted in training functions determining what courses they would offer, the content of those courses, and how the courses would be delivered. As pairs of hands, trainers implemented requests from management for specific topics and courses, whether or not training was really needed. Now, however, trainers operate as performance consultants. They initiate and develop relationships with the key managers within the organization over a period of time. The consultants become knowledgeable about the business of the business and, when interfacing with management, use business language (Bannock 2005). Performance consultants are quick to respond to requests, and they alert management when training alone is not appropriate. Effective performance consultants spend 18 percent of their time forming, building, and maintaining relationships with key managers within their organizations. Previously, both the training function and line managers saw training as a nice to have. For example, managers might feel that interpersonal communications training would enhance the way people worked together, but they would expect little or no impact on business results. However, performance consultants use a performance improvement approach. They first clarify the business need and how management measures the achievement of that need. Once trainers determine that a shift is required and clarify what a performance approach would look like, then the question becomes how to make the transition (Drori Hwang & Meyer 2006).   Within the training and development field, there are two parallel, but separate, paths for making the shift one as an individual contributor and the other as a performance department. As an individual contributor, the consultant reports directly to line management and usually operates independently of a training department. Many business services are obviously supplied in a satisfactory way by the market. At one extreme, banking, accounting and legal services, as well as training facilities for IT and other specialized skills such as languages, are widely used by SMEs, and there is again ample supply and demand. At the other extreme, for commercial information, the main focus of public provision, paid services are much less widely used. There are problems identified in economic theory affecting both supply and demand for these services (Watson 2005). For training, the economic case for imperfections in the market has some similarities to that for information and advice, though it is simpler. It is essentially that the demand for external training courses from small firms is bound to be lower than for large firms. This is because the proportionate cost and disruption of sending an employee, or the owner-manager, on a training course is obviously higher for a firm with just one owner-manager and a few employees than for a large firm with many employees and several layers of management. It will be cheaper for the small firm, at least as far as employees are concerned, to hire someone in the labor market who is already trained. Intervention here is justified by the argument that the social benefits of training exceed the private benefits to the small firm, since both individuals and the economy benefit from the training. It is also argued that because they face greater uncertainty, small firms adopt shorter timescales that lead to underinvestment in training compared with large firms. Finally, because every small firm is unique in some sense there will inevitably be a deficiency in the supply of certain types of training suited to their particular needs. The case for specific intervention for small firm training is again buttressed by numerous survey findings (McConnell 2005). Training will make sure that absentee employees will maintain their productivity and efficiency so that the performance of the firm will remain the same.   Chapter 3 Methodology Descriptive perspective The researcher needs to balance time and finances thus he/she needs to use theories that will consider both aspects. The researcher needs to make sure that the tools and theories will not give much complications and difficulties so that proper data can be acquired at the planned length of study. The fourth chapter intends to narrate the different methods, strategies and procedures used in the study; this chapter will discuss the research perspective. The researcher used a descriptive approach. The descriptive research was used because it can describe a data, its characteristics and how it relates to the research. The descriptive approach focuses on determining how a data can affect validity of a study. The descriptive approach is different from the other four in that only one variable is considered at a time so that no comparisons or relationships are made. Of course, the descriptive approach does not meet any of the other criteria, such as random assignment of participants to groups. Most research studies include some descriptive questions at least to describe the sample, but most do not stop there. In fact, it is rare these days for published quantitative research to be purely descriptive.    Most research books use a considerably broader definition for descriptive research. For example, some experimental design books use the term descriptive research to include all research that is not randomized experimental or quasi-experimental. Others do not have a clear definition and use the word descriptive almost as a synonym for exploratory or sometimes co relational research. Most experts believe that it is clearer and less confusing to restrict the term descriptive research to questions and studies that use only descriptive statistics, such as averages, percentages, histograms, and frequency distributions that are not tested for statistical significance with inferential statistics.   Complex descriptive statistics could be tested for significance with inferential statistics; if they were so tested they would no longer be considered descriptive. Most qualitative or constructivist researchers ask complex descriptive questions because they consider more than one variable or concept at a time, but they seldom use inferential or hypothesis testing statistics. Furthermore, complex descriptive statistics are used to check reliability and to reduce the number of variables. The descriptive approach is mostly used in statistical calculations that involve frequencies and averages. Researchers conduct a descriptive approach by making use of systematic observations under conditions in a controlled environment. After observation the researcher records the description of what he/she observes. In such approach no theories or hypothesis are tested thus there would be lesser need for interpretation. What is needed is the statement that gives a description of the observation and the specific conditions that triggered the observation. Descriptive approach provides for some basis of speculation that can result to the creation of theories or hypothesis that can be tested in a different approach.    Qualitative and Quantitative Methods Qualitative and quantitative methods would be used. Holistic researchers tend not to think of qualitative and quantitative research as separate disciplines. Holistic researchers recognize the power of the rigorous statistical analysis of quantitative data, but they also see merit, on occasion, in analyzing quantitative data in a qualitative way. Similarly, the holistic researcher understands the benefits, where appropriate, of not only examining qualitative data in a thematic way, but also subjecting the evidence to a more quantitatively orientated analysis. Many research projects have a range of purposes incorporating several research questions. These questions may be primarily quantitative, primarily qualitative, or include both qualitative and quantitative elements. Questions that are either openly or implicitly about quantity, about how much or how many, or measuring one thing against another, are going to require quantitative analysis. Questions about meanings require qualitative analysis. Any combination or sequence of methods or approaches can be used, provided it can be justified by the research purpose and the different components are adequately articulated and integrated. This includes being clear about what each approach brings to the study, and their limitations. This design occurs when the findings of the qualitative research are used to develop the quantitative phase of the research. This is a common approach to mixing methods, but one that is sometimes misunderstood. Some primarily quantitative researchers see a limited role for using qualitative research in an exploratory capacity, but always followed by quantitative research. Mixed qualitative and quantitative designs do not always have to be interdependent to the extent described above. Sometimes quantitative and qualitative components of a study are carried out independently and the conduct of one does not depend on the other. In this case it does not matter whether they are conducted concurrently, sequentially or in any particular order. Different methods may be used to address the same research question, as in a classic triangulation, or relate to different aspects of the research. The purposes of a mixed-method study of this type would generally be triangulation, complementarity or expansion, or some combination of these.   Sampling design Sampling is used to determine the number of individuals that convinced to participate in the survey. Many forms of sampling design are available one of which is quota sampling. Quota or Non probability sampling involves the researcher first obtaining up-to-date information about the population under investigation. Quotas to reflect the characteristics of the target universe are then set (Jaisingh 2006). One form of non probability sampling is judgment sampling.  The researchers are going to collect information from some groups namely adults aged over 18 who have been working in the White Star Line for more than 4 years. The best sampling method that can be used in such situation is the judgment sampling. In judgment sampling the respondents will be selected according to a certain criteria created by the researcher. The criteria may include their status in life or their rank in the organization. Another criteria can be the job responsibilities they possess or the specific business process that they must master (Coles 2006).   Data collection method When items are organized into instruments, there are also issues of instrument format to consider. An important dimension of instrument design is the uniformity of the formats within the instrument. An instrument can consist entirely of one item format, such as is typical in many standardized achievement tests where all are usually multiple-choice items, and in many surveys, where Likert-type items are mostly used although sometimes with different response categories for different sections of the survey (Wilson 2005).  Data will be collected through the use of questionnaires/survey.  The survey will be confined only to the White Star Line due to limitations in finances and time. Some respondents would be the HR officials while some would be personnel. The respondents would have a total of 100 individuals; the respondents would be divided in equal parts. Personally administered questionnaires will be given to White Star Line or will be sent to the company via email.   Data analysis Acquired data will be analyzed through descriptive statistics. Descriptive statistics are simply summary scores for sets of data and as such characterize various aspects of the units studied. There are different ways in which descriptive analysis is conducted and presented: tabular, graphical and statistical. Tabular analysis involves presenting the results of analysis in tables. Frequently the information contained in a table can be presented as a graph. For simple analysis a graph might display patterns more readily than a table might. Statistics provide summary measures of information contained in a set of cases. These descriptive statistics are frequently a single number and do not contain as much information as a table or graph but they can provide an easily understood snapshot of a set of cases (Croon, Sijtsma and Van Der Ark 2005). Data analysis is not just a technical matter. Researchers have ethical responsibilities to analyze data properly and report it fairly. Inappropriate analysis may not be deliberate but may mislead nonetheless. Ignorance of appropriate methodology-or at least the representation of greater expertise than one possesses-is just as unethical as falsification of results (Kanbur and Venables 2005).n this study, the researchers will apply descriptive to compare data among the variables. In analyzing the collected data, the paper will be divided into two categories these are: the results and findings of the survey with the officials and the results and findings of the survey with the personnel.   References Arthur, D 2006, Recruiting, interviewing, selecting and orienting new employees, AMACOM, New York. Avolio, BJ 2005, Leadership development in balance: Made/born, Lawrence Erlbaum Associates, Mahwah, NJ. Bannock, G 2005, The economics and management of small business: An international perspective, Routledge, New York. Barrett, R 2006, Building a values-driven organization: A whole system approach to cultural transformation, Butterworth- Heinemann, Boston. Brett, JM & Drasgow, F (eds.) 2002, The psychology of work: Theoretically based empirical research, Lawrence Erlbaum Associates, Mahwah, NJ. Burke, RJ & Cooper, CL (eds.) 2005, Reinventing human resources management: Challenges and new directions, Routledge, London. Burkett, JP 2006, Microeconomics: Optimization, experiments, and behavior, Oxford University Press, New York. Cohen, A 2003, Multiple commitments in the workplace: An integrative approach, Lawrence Erlbaum Associates, Mahwah, NJ. Cohen, D & O'Connor, M 2004, Comparison and history: Europe in cross-national perspective, Routledge, New York. Coles, P 2006, From cosmos to chaos: The science of unpredictability, Oxford University Press, New York. Croon, MA, Sijtsma, K & Van Der Ark, L (eds.) 2005, New developments in categorical data analysis for the social and behavioral sciences, Lawrence Erlbaum Associates, Mahwah, NJ. Drori, GS, Hwang, H & Meyer, JW 2006, Globalization and organization: World society and organizational change, Oxford University Press, New York. Druskat, V, Mount, G & Sala, F 2006, Linking emotional intelligence and performance at work: Current research evidence with individuals and groups, Lawrence Erlbaum Associates, Mahwah, NJ. Flynn, N 2006, Blog rules: A business guide to managing policy, Public Relations, and Legal Issues, AMACOM, New York. Fuery, P 1995, The theory of absence: Subjectivity signification and desire, Greenwood Press, Westport, CT. Gilley, A 2005, The manager as change leader, Praeger, Westport, CT. Glyn, A 2006, Capitalism unleashed: Finance globalization and welfare, Oxford University Press, New York. Gong, G & Semmler, W 2006, Stochastic dynamic macroeconomics: Theory and empirical evidence, Oxford University Press, New York. Greenberg, J 1994, Organizational behavior: The state of the science, Lawrence Erlbaum Associates, Hillsdale, NJ. Hitt, MA & Smith, KG (eds.) 2005, Great minds in management: The process of theory development, Oxford University Press, Oxford, England. Inkpen, A & Ramaswamy, K 2006, Global strategy: Creating and sustaining advantage across borders, Oxford University Press, New York. Jaisingh, L.R. (2006). Statistics for the utterly confused, McGraw-Hill, New York. Jamieson, AG & Starkey, DJ 1998, Exploiting the sea: Aspects of Britain's maritime economy since 1870, University of Exeter Press, Exeter, England. Johnman, L & Murphy, H 2002, British shipbuilding and the state since 1918: A political economy of decline, University of Exeter Press, Exeter, England. Kanbur, R & Venables, AJ 2005, Spatial inequality and Development, Oxford University Press, Oxford, England. Kermally, S 2005, Gurus on managing people, Thorogood, London. Klaas, BS, Mahony, DM & Wheeler, HN 2004, Workplace justice without unions, W.E. Upjohn Institute for Employment Research, Kalamazoo, MI. Kossek, E & Lambert, SJ 2005, Work and life integration: Organizational, cultural, and individual perspectives, Lawrence Erlbaum Associates, Mahwah, NJ. Kramer, RM & Messick, DM (ed.) 2005, The psychology of leadership: New perspectives and research, Lawrence Erlbaum Associates, Mahwah, NJ. Lamb, LF & Mckee, K 2005, Applied public relations: Cases in stakeholder management, Lawrence Erlbaum Associates, Mahwah, NJ Lucas, JR 2006, Broaden the vision and narrow the focus: Managing in a world of paradox, Praeger, Westport, CT. McConnell, JH 2005, How to develop essential HR policies and procedures, AMACOM, New York. McGee, M 2005, Self-help, Inc: Makeover culture in American life, Oxford University Press, New York. Murray, EJ & Richardson, PR 2002, Fast forward: Organizational change in 100 days, Oxford University Press, New York. Nicholls, A (eds.) 2006, Social entrepreneurship: New models of sustainable social change, Oxford University Press, New York. Phillips, JJ 2005, Investing in your company's human capital: Strategies to avoid spending too little--or too much, AMACOM, New York. Sawyer, RK 2006, Explaining creativity: The science of human innovation, Oxford University Press, New York. Schröter, H & Wilkins, M (eds.) 1998, The free-standing company in the world economy, 1830-1996, Oxford University, Oxford. Sinclair, A 2007, Leadership for the disillusioned: Moving beyond myths and heroes to leading that liberates, Allen & Unwin, Crows Nest, N.S.W. Stedt, J 2006, Talent balancing: Staffing your company for long- term success, Praeger, Westport, CT. Strack, S (ed.) 2006, Differentiating normal and abnormal personality, Springer, New York. Tayeb, MH 2005, International human resource management: A multinational company perspective, Oxford University Press, Oxford, England. Tyson, S 2006, Essentials of human resource management, Butterworth-Heinemann, Oxford, England. Ukens, LL (eds.) 2001, What smart trainers know: The secrets of success from the world's foremost experts, Jossey-Bass/Pfeiffer, San Francisco. Vardi, Y & Weitz, E 2004, Misbehavior in organizations: Theory, research, and management, Lawrence Erlbaum Associates, Mahwah, NJ. Watson, CE 2005, How honesty pays: Restoring integrity to the workplace, Praeger, Westport, CT. Wilson, M 2005, Constructing measures: An item response modeling approach, Lawrence Erlbaum Associates, Mahwah, NJ.

THE EFFECT OF ABSENTEEISM ON COMPANY'S PRODUCTIVITY: CHAPTER 1-3

Chapter 1: Introduction Background of the study No account of the imperial system would be complete without some discussion of marit...

AN ECONOMIC HISTORY OF MODERN EUROPE: SECTORAL DEVELOPMENTS, 1870-1914

AN ECONOMIC HISTORY OF MODERN EUROPE: SECTORAL DEVELOPMENTS, 1870-1914   I. INTRODUCTION Gross domestic product consists of a wide array of activities, and the structure of those activities has changed over time as the European economy has developed. Economists have long classified activities on the basis of a distinction between agriculture, industry and services, although there has been less than complete agreement on which occupations to include in each sector ( 1951). In this chapter we will follow the modern European convention of including forestry and fishing together with farming as “agriculture” and include mineral extraction together with manufacturing, construction and gas, electricity and water in “industry”. Services then covers all other activities, including transport and communications, distribution, finance, personal and professional services, and government. In 1870, most of Europe still had a majority of the labour force engaged in agriculture, although this was no longer the case in the most industrialised economies of northwest Europe. In particular, agriculture accounted for less than a quarter of the labour force in Britain. The share of the labour force in agriculture was considerably higher in southern Europe and in eastern and central Europe. Between 1870 and 1914, agriculture’s share of economic activity continued to shrink throughout Europe, but at varying rates. Of some importance in western Europe was the contrast between countries which protected their agriculture in the face of cheap imports from the New World, and countries where the agricultural interest lost out to the free trade lobby ( 1997). In many east European countries, however, it was the threat of grain invasion from Russia that was of more significance. Falling food prices and declining employment opportunities in farming led to worries about economic depression at the time, particularly in societies dominated by agriculture. However, it makes more sense to see the declining share of agriculture in employment as arising from the combination of a relatively low income elasticity of demand for food and a healthy pace of labour productivity growth due to technological progress and growing market integration. The flip side of the declining share of employment in agriculture was the rising share of industry and services. Much of the existing literature on national economies focuses on industry, with industrialisation seen as the key to economic development during this period ( 1969; 1985; 1981). A key theme here is the Second Industrial Revolution, with the development of modern industries based on scientific research, such as chemicals and electrical engineering, and involving the final steps towards genuine mass production (1990). The new technologies sometimes provided an opportunity for newly industrialising countries such as Germany or the Netherlands to leapfrog more established industrial countries such as Britain or Belgium (1997;  1994). A balanced account of European industry must also cover the less glamorous sectors such as textiles and food, drink and tobacco, as well as the countries that failed to make much headway in the process of industrialisation. Equally important, however, is the need to recognise that for many countries, services accounted for a larger share of economic activity than industry. Furthermore, a process of “industrialisation” of services was already underway, leading to high volumes of activity and high levels of productivity (2005b). In many ways, this process was linked to the Second Industrial Revolution, with high volume production in manufacturing only possible given the productivity improvements in transport and communications, distribution and finance ( 1977). However, it is important not to treat services as merely subservient to manufacturing. Many services are provided directly to consumers as well as to producers, and services matter for aggregate productivity not just because of their impact on industrial productivity, but because of their own productivity performance ( 1998). For an economy to have high living standards, it is necessary to have high productivity in all sectors. However, it is also clear that the structure of the economy matters, because value added per worker is higher in some sectors than in others. Since agriculture has historically tended to be the lowest value-added sector, the share of the labour force in agriculture turns out to be a very good predictor of per capita income. In general, European countries that remained heavily committed to agriculture remained poor, while those that reallocated labour to industry and services became better off ( 2005a). II. STRUCTURE OF THE ECONOMY Table 1 provides data on the sectoral distribution of the labour force between agriculture, industry and services for up to 20 countries in the three major regions of northwest Europe, southern Europe and central and eastern Europe. In the countries for which we have data in 1910, agriculture still accounted for around half of all employment. Our sample of countries for 1870 is smaller, but clearly indicates a larger share of employment in agriculture than in 1910. For the sample of 14 countries available in both years, the share of employment in agriculture declined from 51.7 per cent in 1870 to 41.4 per cent in 1913. Although on average, agriculture accounted for a larger share of the labour force in southern Europe than in northwest Europe in 1910, there was considerable variation across countries, with some south European countries such as France being less agricultural than some northwest European countries such as Finland. On the other hand, the share of the labour force accounted for by agriculture in the United Kingdom was as low as 22.2 percent in 1870, falling to just 11.8 per cent by 1910.On average, agriculture accounted for a still larger share of the labour force in central and eastern Europe than in southern Europe in 1910, but again there was considerable variation across countries, with Germany and Switzerland, for example, having agricultural shares more in line with many northwest European countries. As the share of the labour force in agriculture declined, the shares in industry and services increased, and this trend can also be seen in Table 1. For the fourteen country sample, industry expanded its share of employment from 26.9 to 32.3 per cent, while services increased their share from 21.4 to 26.3 per cent. Looking at the cross sectional variation in 1910, the share of industry was highest in northwest Europe and lowest in central and eastern Europe, with southern Europe occupying an intermediate position. However, as with agriculture, there was considerable crosscountry variation within each region. In the United Kingdom and Belgium, over 40 per cent of the labour force was engaged in industry in 1910, while in Bulgaria the figure was just 8.1 per cent. The share of the labour force in services in 1910 was highest in northwest Europe, lower in southern Europe and lower still in central and eastern Europe, but again with substantial variation across countries within each region. It is helpful at this point to note the relationship between these differences in the sectoral allocation of labour across sectors, and the prosperity of nations and regions. The point is perhaps most forcefully made with the help of Figure 1, showing the strong relationship between the level of per capita income and the share of the labour force in agriculture in 1913. It was already clear by this time that escaping from poverty required the reallocation of labour away from agriculture, so that modernising governments across Europe adopted industrialisation as a policy goal. However, the relationship between GDP per capita and the share of the labour force in industry was actually much less clear, as can be seen in Table 2. This table formalises the relationship between GDP per capita and the sectoral allocation of labour using regression analysis, and pooling cross sectional observations for a number of years between 1870 and 1992. The first column confirms the statistically significant negative relationship between living standards and the share of the labour force in agriculture, and also finds a significant positive relationship between GDP per capita and the share of the labour force in industry. However, notice that the fit of the equation, as measured by R2, is much weaker for industry than for agriculture. Note also that the fit becomes stronger once again in the regression of GDP per capita on the share of the labour force in services. III. AGRICULTURE 1. Opportunities and challenges Population growth and growing incomes increased the demand for agricultural products. Total consumption of calories per capita increased in some quite poor countries, such as Italy and, above all, demand shifted away from cereals towards more income-elastic goods such as livestock products in Southern Europe and fruit and vegetables in Northern Europe ( 2003a,  2005). The reduction in transport costs fostered trade in agricultural products, with a significant impact on relative prices, especially within agriculture. The real price of agricultural products remained constant, while the inter-sectoral terms of trade (the price of agricultural products relative to manufactures) improved in most countries or, at worst, remained constant ( 2002). Prices of crops (mainly cereals) declined relative to livestock in all European countries. Figures 2 and 3 show these trends in the inter-sectoral terms of trade and the relative price of crops to livestock for France, the United Kingdom and the United States. Industrialisation and modern economic growth offered opportunities of employment to farmers (or more precisely to their sons and daughters) and to agricultural capital, while scientific and technological progress provided new techniques, such as fertilisers. 2. The performance Conventional wisdom does not rate the performance of European agriculture during the period 1870-1913 very highly. However, as Table 3 shows, this view needs to be revised in the light of the quantitative evidence. The growth rate of gross output – i.e. the total production available for consumption within or outside agriculture - was quite high for the continent as a whole and also for the main regions. Although medium-term output trends were remarkably stable, production did nevertheless fluctuate quite a lot from one year to another, following the vagaries of the weather (1999). In particular, there is some statistical evidence of a slowdown in growth between 1873 and 1896 during the so-called Great Depression, although the severity of this has been somewhat exaggerated in the literature, leading one writer to coin the phrase “the myth of the Great Depression” (1969).   The country rankings of agricultural growth performance in Table 3 are also somewhat at odds with the conventional wisdom. In fact, the best growth performance by far was recorded by Russia, where production increased by a factor of 2.5 over 43 years, and the next highest increase was in the Habsburg empire. Clearly, these figures have to be considered with caution, but there is no doubt that Russia was a success story, as confirmed by the great increase in its agricultural exports (1960). Most countries increased agricultural production at a rate of around 1.0 to 1.5 per cent per annum, exceeding or keeping up with the increase in their population. In only four cases (Portugal, Greece, the Netherlands and the United Kingdom) did agricultural production per capita decline. Between 1870 and 1913, trade in primary products, which went almost entirely to Western Europe, increased by a factor of 3.5. This increase fed Britons and allowed other Western Europeans to improve their nutritional standards. 3. The proximate causes of growth: factor inputs and TFP The growth of factor inputs contributed very little to the growth of agricultural output, as can be seen in Table 4. Unfortunately, it is not possible to measure the total stock of land in use, because the data on pasture are scarce and hardly comparable across countries. However, the data on cropland and tree-crops are good enough, and they do not show any Europe-wide growth. They remained constant or even declined in Western Europe (with the possible exception of Spain) and rose by a few percentage points in the East. The same pattern holds true for labour. The number of agricultural workers increased by almost a half in Russia, increased slightly in Germany and Italy and declined, by about 10 per cent, only in the most developed countries of Western Europe. With the exception of Russia, all these movements remain well within the margins of statistical error. For one thing, the number of permanent workers may not be a good proxy for the input of agricultural labour in nineteenth century Europe. A lot of non-agricultural workers helped at peak time (e.g. during harvests), the quality of work differed according to the age, sex and skill of the worker, and the number of hours worked or the intensity of work differed by country. Furthermore, all these features may have changed over time. The evidence on these issues is scarce, but the least bad guess suggests that these biases, although important if taken separately, might cancel each other out. For instance, it seems likely that the contribution of nonagricultural workers declined, while the number of hours worked increased in France, Ireland and Belgium ( 2005). Capital is the most difficult factor of production to measure accurately. As a first approximation, an increase in total agricultural capital would be expected, as a result of the growing use of modern, capital-intensive techniques. However, fixed agricultural capital consists largely of land improvements and buildings, which are bound to grow slowly, if at all, in long-settled areas like Europe. Indeed, the few available series rule out rapid growth, with the exception of Russia (2005) Capital stock declined in the United Kingdom and rose at about 1 per cent per annum in other West European countries. The effect of the diffusion of modern techniques can be detected in the growth of purchases outside agriculture. A simple measure of these purchases is the ratio between value added (which excludes them) and gross output (which includes them). As  demonstrates, the ratio in 1913 shows quite substantial differences among countries, which tally well with the conventional wisdom about the level of technical development in each country. The combination of substantial production growth and relatively slow increase in inputs implies a healthy growth of total factor productivity (TFP). Indeed, without an increase in TFP somewhere in the world, the agricultural terms of trade, or price of agricultural products relative to industrial products, would have risen, and this was not the case. In a well-known paper, (1991) has estimated rates of TFP growth for many countries, ranging from 0.19 per cent per annum in the United Kingdom to 1.53 per cent in Germany. Several authors have produced alternative estimates, including  (2005). Although the results do not always coincide with van Zanden’s, the story is broadly the same. The average rate of TFP growth for ten countries was 0.7 per cent per annum, which corresponds to a cumulated 30 to 40 per cent increase over the 1870-1913 period (2005). The European performance compares quite favourably with that of the countries of Western Settlement over the same years, with TFP in agriculture growing at a rate of 0.2 to 0.5 per cent per annum in the United States. 4. The underlying causes of growth: technical progress or market integration? Most authors attribute growth in TFP to technical progress, and there were some important technological innovations in nineteenth century European agriculture. Fallow practically disappeared from Western Europe, with the conspicuous exception of Spain, although it remained important in the East (2000)  In Russia the cropping ratio was still as low as 0.70 (i.e. about a third of land was under fallow) on the eve of World War I ( 1930). Tools improved. In the more backward countries, such as Russia, iron ploughs substituted for traditional wooden ploughs, while in more advanced areas, better design improved performance and reduced the need for draft power. Mechanisation proceeded more slowly, making a significant breakthrough only with the introduction of tractors after World War II. Machines such as the reaper were still pulled by animals, and the only “modern” machine widely used in the European countryside in the early twentieth century was the steam thresher ( 2003b). All these innovations continued the trends of the pre-1870 period. However, there was a major breakthrough with the massive adoption of chemical fertilisers. European farmers had used imported guano and nitrates since the 1830s, and the commercial production of phosphates had started in the 1840s. However, from the 1860s, the chemical industry made available new products such as ammonium sulphate and calcium-cyanamide, at lower and lower prices. In the Netherlands, for instance, the price of fertiliser relative to rye fell by 40 per cent from the 1870s to World War I ( 1994). Fertiliser consumption per hectare increased by a factor of 13 in Germany, from 3.1 kg of nutrients per hectare in 1880 to 42 in 1913 ( 2005). Not surprisingly, consumption was much higher in the Netherlands (163 kg per hectare). Perhaps more surprisingly, Italy (13.3 kg) and even Russia (6.9 kg) consumed more fertilisers per hectare than the United States (5.8 kg). Indeed fertilisers, as a land-saving innovation, were particularly suitable for a land-scarce area such as Europe. Although surely important, technical progress does not necessarily account for the whole of the growth in TFP. Productivity growth may also have been due to the more efficient allocation of resources, as a result of the growing development of markets. This process included commercialisation and market integration (price convergence). Although we know very little about the former, there is a substantial literature on market integration, at least for wheat (1986;  2005). However, the effects of this increasing market integration on agriculture are not well explored, with the exception of  (1989) for France, who focuses largely on the pre-railway age. To what extent did integration cause relative prices to change and to what extent did production adjust via local specialisation? To be sure, there is evidence of the growth of specialised production around the cities or in some wellendowed areas, such as the South Italian and Spanish vineyards. Also, there was a modest increase in the share of livestock in total gross output, from 41 to 46 per cent, consistent with the increase in its relative price (2004). However, much more detailed data would be needed to provide a comprehensive assessment of the real impact of commercialisation and globalisation. 5. The role of institutions By and large, farmers were left to themselves. Support for technical progress, although useful, was very limited and although land reform was much debated, very little action followed, except in Ireland. Even intervention in product markets was relatively modest. This statement may seem surprising, given the conventional wisdom about the protectionist backlash to the grain invasion from the United States (1997). However, three points need to be considered. First, Russia rather than the United States was the main invader in most European markets, at least for wheat. Second, the protectionist backlash developed in only a few Continental countries and the barriers to wheat imports were not that high, especially compared with the effects of market regulations since the 1930s. Third, wheat accounted for only a small part of total output – no more than 15 to 20 per cent. The rest of agriculture was affected much less by global competition, if at all, and did not trigger any comparable reaction. Indeed the aggregate Producer Subsidy Equivalent (PSE) was in the region of 5 per cent, compared with figures around 40 per cent in the heyday of the later Common Agricultural Policy of the European Economic Community (2005). Institutions loom large in the historical literature on agriculture, more often than not in the role of the villain. Most historians blame institutions for what they perceive as the disappointing performance of European agriculture. It is argued that common property of land and traditional contracts, most notably sharecropping, hindered innovation. The process of enclosing common land in Great Britain had long finished by 1870, but a similar process was going on in Continental Europe, possibly until the early twentieth century (1980). In Russia, serfdom had been abolished only in 1861, and land ownership had typically been vested in peasant communes, the obschina or mir (1983).  (1966) famously argued that the periodic redistribution of common land prevented investment and innovation, and retarded the migration of labour from the countryside to the cities. However, this interpretation has been severely criticised by (1994), who argues that communal institutions were in practice much more flexible than appears to be the case on paper. Sharecropping is often blamed for the poor performance of Mediterranean agriculture ( 1968). Landlords are said to have been more interested in accumulating land than in making productivity-increasing investments, while tenants were too poor to risk anything. The empirical evidence for this statement is, however, very thin. The failed adoption of innovations such as British “new husbandry” can be explained by environmental factors, while admittedly crude econometric tests fail to find any effect of contracts on productivity (1994) 1986) Note that in seeking to assess the importance of institutions, it is not appropriate simply to contrast the different growth rates of agricultural output in Russia and Britain, which are usually seen as the most backward and the most modern countries, respectively. First, the catching-up perspective suggests that we should expect a negative relationship between the growth rate and the starting level of productivity. Since Britain had the highest level of agricultural labour productivity in Europe in 1870, slow productivity growth was only to be expected. Similarly, the low initial level of productivity in Russia opened up the opportunity of rapid catching-up growth. Second, institutions are only one possible reason for the failure of a country to catch-up, with other factors such as land quality and economic policy also playing their part. IV. INDUSTRY 1. Europe’s industrial production, 1870-1913 Industrial production generally grew faster than GDP in Europe between 1870 and 1913, as Europe developed, and agriculture declined in relative importance. Table 5 presents data on the average annual growth rate of industrial production by countries grouped together in the main regions. The scope for rapid catching-up growth was greater in the less developed parts of Europe, which in 1870 had still not embarked upon the development of modern industry. In eastern and central Europe, Germany, Austria-Hungary and Russia all recorded rapid growth rates of industrial output as they began the process of catching-up on Britain, the most highly developed country in Europe. In northwestern Europe, the Netherlands and Sweden also began a sustained period of industrial development from around 1870. However, being backward is not sufficient for the achievement of rapid industrial growth, and many relatively poor countries, particularly in southern Europe, recorded relatively unimpressive rates of industrial output growth. It is therefore important to consider both levels and growth rates when assessing economic performance. Russia, for example, shows rapid industrial growth after 1870, but starting from an extremely low level of industrialisation. In Table 6, we thus see that despite this very rapid industrial growth after 1870, Russia had still reached only 15 per cent of the UK level of industrialisation on a per capita basis by 1900. By 1913, this had crept up only to 17.4 per cent, because the level of industrialisation was growing in Britain as well as in Russia, and part of the more rapid output growth in Russia reflected population expansion. Table 6 provides a good summary of the industrial development gradient within Europe, with the UK the most heavily industrialised country and with Belgium, France and Switzerland also substantially more heavily industrialised than Europe as a whole throughout the whole period 1860-1913. Sweden and Germany started the period with below average levels of per capita industrialisation, but ended it with significantly above average levels. Although per capita industrialisation increased in all countries, the level remained relatively low in much of Europe. European industrialisation can thus be thought of as geographically concentrated in a series of Marshallian districts. Marshall [1920] explained the spatial concentration of industrial production through external economies of scale, which he attributed to learning (knowledge spillovers between firms), matching (thick markets making it easier to match employers and employees) and sharing (giving firms better access to customers and suppliers in the presence of significant transport costs) (1994) One potential explanation for these patterns is simply geographical, with an important role for natural resource endowments. In particular, it would be difficult to understand patterns of industrial location at this time without taking into account mineral deposits. Put simply, much industrial development in the age of iron and steam took place around coal and ore fields, although this is not always particularly well captured by the boundaries of nation states (1981). However, the period after 1870 also saw the development of a new scientific approach to industry, which began a process of freeing industry from the constraints of location around natural resource deposits. This was most obvious in the development of wholly new industries such as synthetic dyestuffs, based on new chemical processes, or electrical goods, based around a new source of energy ( 1990;  1969). However, it also affected many old industries, such as brewing, where research could improve both processes and products, and iron, where research led to the utilisation of new ores and the production of better products, such as varieties of steel. Also, the development of “mass production” in engineering industries on the basis of the assembly of interchangeable parts, allowed the possibility of substituting machinery for skilled craft labour, threatening the position of established producers and creating opportunities for newly industrialising nations without a large stock of experienced workers. The “Second Industrial Revolution” thus offered countries with little previous industrial experience the opportunity to replace established producers through the more rapid development and adoption of new technology. 2. Performance of countries and regions The United Kingdom was Europe’s most industrialised country in 1860, in terms of the absolute level of production as well as on a per capita basis. However, Britain’s position was actually more vulnerable than is often appreciated. For, as (1985) notes, Britain’s achievement during the Industrial Revolution was not so much the achievement of high productivity in industry as the redeployment of labour away from agriculture in a large but still quite labour-intensive industrial sector. Britain had a very dominant position in world export markets in a small number of products, such as cotton textiles, iron and coal. Britain’s position was most obviously challenged during the period 1870-1913 by Germany and the United States. The challenge was most successful in heavy industry, where the scientific methods of the Second Industrial Revolution were developed. However, as  (1997) notes, there has been a tendency to overstate any failings in British industry at this time, and to ignore success stories. First, comparative labour productivity in manufacturing as a whole changed little between the three major industrialised countries of Britain, the United States and Germany during the period 1870-1913. So the proximate cause of the faster industrial output growth in Germany compared with Britain was simply the faster growth of the labour input, with labour productivity in Britain and Germany remaining broadly equal. Labour productivity in manufacturing in both countries remained substantially lower than in the United States, where higher labour productivity has usually been attributed to labour scarcity and natural resource abundance, leading already by the mid-nineteenth century to the development of a machine intensive technology that was not well suited to European conditions ( 1962; 1997). Second, although Germany did very well in a number of heavy industries, such as chemicals and iron and steel, where labour productivity was higher than in Britain, and where Germany took an impressive share of world export markets by 1913, there were also lighter industries such as textiles and food, drink and tobacco, where Britain retained a substantial productivity advantage and remained strong in world export markets (2005). In the case of shipbuilding, Britain even displaced the United States to become the world’s major producer as the industry moved from wood and sail to iron and steam ( 1979). The traditional view of French industry during the late nineteenth century was that it was relatively backward and, in contrast with Germany, failed to catch up with Britain (1964; 1969;  1977). Nevertheless, this generally negative assessment of French industrial performance was tempered by the fact that the pace of industrial output growth picked up after 1895, particularly in sectors based on the new technologies of the Second Industrial Revolution, such as electrical engineering, electro-metallurgy, electro-chemicals and motor vehicles (1977, 1979;1989)  However, the revisionist views of  (1978), who claimed that levels of industrial labour productivity were higher in France than in Great Britain for most of the nineteenth century, surely went too far in rehabilitating French industrial performance. Taking both output and employment from census sources,  (2004) finds that in 1906, output per worker in French industry was just 74.1 per cent of the British level. The French may have found an alternative path to the twentieth century, based on small family firms catering to niche markets, but it was not without its costs in terms of living standards ( 1978 ;1979) Most studies of Austria-Hungary emphasise the wide variation in the levels of economic development within the imperial territories. Austria (Cisleithania) was generally more industrialised than Hungary (Transleithania), but industry was far from evenly spread even within Austria ( 1977; 1981;  1983; 1984). Thus the Alpine lands and the Czech lands were much more developed than Galicia in the north and the Italian and Slavonic provinces in the south ( 1981). Viewed as a whole, Austria-Hungary had a relatively low level of industrialisation per capita, as can be seen in Table 6, but the Empire nevertheless produced a significant share of Europe’s industrial output on account of its size. Although early quantitative research indicated a very rapid growth rate of industrial output in the Austrian part of the Empire, subsequent research has modified this picture. Whereas  (1976) suggested an industrial growth rate of 3.8 per cent per annum for the period 1870-1913, the addition of a wider range of industries and the use of improved value added weights has reduced this to 2.5 per cent ( 1983;  2000). Allowing for a faster rate of growth in Hungary, however, produces a rate of industrial growth for the Empire as a whole of 2.8 per cent per annum, reported here in  ( 2000). The downward revision of the industrial growth rate by the later researchers was concentrated particularly in the period before 1896, leading to an unfortunate resurrection of the use of the term “Great Depression” for a period when output did not fall but continued to grow (1978; 1978). The catching-up perspective leads to the expectation that Austria-Hungary should have been experiencing rapid industrial growth to catch up with the leading European industrial nations at this time. From this perspective, Austria-Hungary clearly under-performed during the period 1870-1913. We have already noted in our discussion of Table 6 that Russia was a very backward economy in the mid-nineteenth century, so the rapid rate of industrial growth exhibited by Russia during the period 1870-1913 in Table 5 conforms to the predictions of the catching-up framework. Indeed, no other European country experienced such rapid industrial growth, which was generally of the order of 5 per cent per annum, with a particularly strong spurt during the 1890s. The experience of Tsarist Russia led  (1962) to formulate a number of propositions concerning the link between backwardness and economic development. These included a greater role for the state, substituting for the lack of private entrepreneurship, a greater focus on capital goods industries to get around the lack of consumer demand, a greater role for banks in directing scarce capital into industrial projects, and a greater role for imported technology. Gerschenkron placed little weight on the role of agriculture, which he saw as almost immune to change in backward societies. Although some of Gerschenkron’s generalisations do seem to fit the Russian case well, others have not stood up so well to quantitative scrutiny. The state did play a role in fostering industrialisation, fearing that Russia would lose its great power status without reform, and up-to-date technology was imported from abroad ( 1972). However, consumer goods such as textiles and foodstuffs accounted for a large share of industrial production, and banks did not play a decisive directing role in these industries (1986). Furthermore,  (1982) data suggest that agriculture made a significant contribution to Russian development through productivity growth (1986) Even more than Austria-Hungary, Russia remained an important European producer of industrial goods despite its relatively low level of per capita industrial production, because of its large size in population and territory. The catching-up perspective suggests that we should expect a similar performance from the countries of the northern and southern peripheries of Europe. In we see that per capita levels of industrialisation in Italy and Iberia were similar to levels in Scandinavia in 1860. Industrial growth rates in Table 5, however, were much higher in the Scandinavian countries than the Mediterranean countries. In particular, Sweden stands out as having experienced a very rapid phase of industrial growth, achieving a level of industrialisation by 1913 that was on a par with the European core. This represents a notable case of leap-frogging on the basis of the technologies of the Second Industrial Revolution, drawing particularly on Sweden’s abundant supply of hydro-electric power ( 1981). All the Scandinavian economies became significant exporters of timber and wood products, and benefited from the replacement of rags by wood pulp as the major raw material in paper manufacturing (1997). The relatively slow overall rate of industrial growth in Italy and Iberia masks some regional sparks of industrial development. The most important Mediterranean growth spurt was in northern Italy from the 1890s, in a triangle between Genoa, Milan and Turin, and based again on hydro-electric power ( 1981). There were also some stirrings of industrial growth in Spain, but based largely on traditional industrial products such as cotton textiles in Catalonia and iron and steel in the Basque region (1977:) The Balkan countries remained the least industrialised throughout the period (1997) 3. Developments in particular branches Industry covers a wide range of activities, and we now dig down below the aggregates of industrial production to survey briefly a number of important sectors, highlighting the contributions of the major European producers. We begin with coal, the major source of energy in the age of steam, but which was being increasingly challenged by the rise of electricity. As noted earlier, industry was heavily concentrated around coalfields during the nineteenth century, so it is not surprising to see in Table 7 that Britain was Europe’s major coal producer throughout the period. Germany was Europe’s second most important producer of coal at this time, with production growing more rapidly than in Britain. Belgium, a very small country but an early industrialiser, was overtaken by Germany, France and Russia as these much larger countries industrialised. Although coal production also grew rapidly in Austria- Hungary, it remained behind Belgium throughout the period, despite its much greater size. Although Britain remained Europe’s largest coal producer, and increased output significantly, labour productivity stagnated, with technological and organisational changes such as the replacement of bord and pillar working by longwall working methods, the mechanisation of cutting, loading, conveying and winding, merely offsetting diminishing returns, as pits were sunk ever deeper and coal was mined further from the pithead (1990). German growth was more rapid, and driven by bank finance, but allegations of entrepreneurial failure for the British industry as a whole, rather than for individual pit-owners, are probably wide of the mark in an industry described by (1984) as being as close as it is possible to get in practice to perfect competition (1971;  1971). Although European production was still increasing, coal from the New World was already being mined in more favourable geological conditions and taking an increasing share of world production ( 1954: 107). In iron and steel, major technological developments drew on science, with wrought iron increasingly replaced by varieties of mass-produced steel, following the introduction of the Bessemer process in 1856, the Siemens-Martin (open hearth) process in 1869, and the Thomas (basic) process in 1879 (1954). The general picture of Germany leap-frogging Britain is illustrated in Table 7, which shows output of pig iron among Europe’s main producers. Allegations of entrepreneurial failure in Britain have again been overdrawn, since account must be taken of iron ore endowments and demand side factors such as protective barriers raised in the rapidly growing markets of Germany and the United States, combined with Britain’s continued free trade policy (1971;1991). The Russian growth spurt of the 1890s is also evident, with Russia overtaking France before the French forged ahead again after 1900. During the period 1895-99, around 60 per cent of Russian iron and steel production was supplied to the railways, while the French boom was more oriented towards higher grade steels (1986 ;1979)  Austria-Hungary was also a major iron and steel producer despite a low per capita level of industrialisation. Like Russia, Austria-Hungary was dependent on the large home market, with a railway construction boom providing a substantial boost to demand ( 1977). During the period 1870-1914, the chemical industry was transformed on the basis of scientific research. The production of inorganic products such as soda ash, sulphuric acid and sodium sulphate, that had been produced on an industrial scale since the early nineteenth century, was revolutionised by new processes such as the replacement of the Leblanc process by the Solvay process in soda ash, and the introduction of electricity as an important agent in chemical processes (1954)  However, of even more significance for the long run development of the industry was the synthesis of organic (carbon-based) products, such as dyestuffs, pharmaceuticals, perfumes and photographic chemicals ( 1954). Since the synthesis of organic products needed large quantities of inorganic chemicals, the production of sulphuric acid in Table 7 can be taken as an indicator of the general state of Europe’s national chemical industries ( 1954)  As in other heavy industries, Germany overtook Britain, although the scale of the German advantage towards the end of the period is understated, since Germany was much more dominant in organic products, where Switzerland was the only serious competitor. In synthetic dyestuffs, for example, Germany produced 85.1 per cent of world output in 1913 (1954:). The finding by  (1971) that Britain hung on to the Leblanc process after it was profitable to switch to the Solvay process is consistent with (1971) contention that competition generally ensured the adoption of the profit-maximising technology in pre-1914 Britain, since the soda ash industry was subject to a cartel. The chemical industry remained relatively underdeveloped in eastern Europe, with neither Russia nor Austria-Hungary featuring among the major producers. Small, relatively rich countries such as Belgium and the Netherlands were also significant producers, alongside France, while Italy showed strong growth from the 1890s. The Industrial Revolution began in cotton textiles, which continued to be an important branch of European industry until 1914. Britain remained the largest producer in the world despite some inevitable loss of market share as other countries industrialised ( 1974). The switch from mules to rings in spinning and from the powerloom to the automatic loom in weaving removed some of the skill from the production process, and enabled countries with a less skilled but cheaper labour force to compete with Britain, in line with V (1966) product cycle model. Seen from this perspective,  (1986) forceful allegations of British failure in cotton textiles are surprising, and it would seem more appropriate to ask how the British managed to hang on to such a large market share for so long ( 1987).  (2002) emphasise the importance of external economies of scale in this industry that was highly localised in Lancashire, but consisted of around 2,000 spinning and weaving firms and another 1,000 merchant companies involved in marketing. The product cycle perspective also helps to understand the high output figures achieved towards the end of the period in low-wage countries such as Russia and Austria-Hungary, with Russia almost catching-up on Germany, and with Austria- Hungary ahead of Italy and not too far behind France (1986;1977) The home market was more important for the food, drink and tobacco sector, although even here tradability was increasing with urbanisation and the emergence of a substantial urban working class demanding more processed foodstuffs. Data on beer production are available on a consistent basis in Table 7, and suggest a strong link to home market size and per capita income, with the highest levels of production and consumption in Germany and Britain, and with substantial production also in Austria- Hungary, France and Russia. Although possibilities of transporting such a heavy and perishable product were limited, a small country such as Belgium was able to export to a number of neighbouring countries. Of course, it must be borne in mind that France produced large quantities of wine for export as well as for home consumption, so that more general data on production of alcoholic drinks would show a much bigger contribution from the Mediterranean countries, including Italy, Spain and Portugal (2002). V. SERVICES 1. Europe’s service sector output, 1870-1914 Most economic histories of the period 1870-1914 pay little attention to services, apart from railways and banks, which are seen as supporting industry. The national accounting approach allows us to place the contributions of the railways and banks in the wider context of the service sector as a whole, and to bring out the contributions to consumers as well as to industrial producers. Railways moved people and agricultural produce as well as industrial goods, and it was not the sole purpose of banks to provide cheap loans to heavy industry. Furthermore, in addition to transport and communications and finance, services also comprised the important sectors of distribution, professional and personal services and government. 2. Regional developments The most highly developed service sectors were in northwest Europe, particularly in Britain and the Netherlands, where high productivity was achieved in the specialised and standardised supply of services in a highly urbanised environment. In sectors where international trade was possible, this played an important role in increasing the size of the market and allowing economies to benefit from the division of labour. High productivity required the “industrialisation” of services, involving a transition from customised, low-volume, high-margin business organised on the basis of networks, to standardised, high-volume, low-margin business with hierarchical management (2005b). In some sectors, such as shipping, and insurance, this involved the emergence of large firms in classic Chandlerian fashion, but in others, such as investment banking, it involved Marshallian external economies of scale for the financial districts of London and Amsterdam, on the basis of large numbers of small firms ( 2002; 2004) Large firms also grew in importance in a number of sectors where international trade was impractical, such as retail distribution, retail banking and the railways. Germany was a land of contrasts. Although it contained some modernised service sectors such as the railways and the universal banks, which have been highlighted in the literature, the continued importance of agriculture and the associated low levels of urban agglomeration limited the extent of the market for specialised services. Distribution remained dominated by small wholesalers and retailers, and although  (1962) focused on the role of the universal banks in directing funds into heavy industry, a balanced overview of the banking sector as a whole has to take account of the public savings banks (Sparkassen), credit co-operatives, mortgage banks and other small institutions that made up the banking sector, and which pulled down the average productivity performance of the German banking sector, with municipal control often leading to the sacrifice of profits for social objectives and the ambitions of local politicians (2002;2004) The service sector in Italy during the late nineteenth century bears a certain resemblance to its German counterpart, with the railways playing an important role in the unification of a new state that was keen to foster modernisation, and with universal banks channelling resources into heavy industry ( 1977)  However, recent research has tended to play down the contribution of these two sectors to economic growth, with (2001) pointing out that Italy’s per capita railway mileage was still only one-half that of France in 1913, and with  (1998) claiming that Italy’s universal banks tended to support large, established companies rather than provide venture capital to small, promising firms. The existing literature on services in the Habsburg Empire is also heavily oriented towards the railways and the banks. The Austro-Hungarian railway system was one of the largest in Europe, although this owed more to geography than high levels of economic development. Indeed, the railways were mostly single tracks with fewer sidings, used fewer locomotives and had a lower ratio of carried freight to the length of railways than in the rest of Europe (1977). In  (1962) work, the banks are seen as playing an important role in mobilising capital for industry and the railways. However, although there were a number of large joint-stock banks, particularly in Cisleithania, banks became less involved in financing investment in industry and the railways after the crash of 1873 ( 1976). After this date, the state and foreign capital played a greater role (1977). 3. Developments in particular sectors Table 8 provides some indicators of activity in Europe’s transport and communications sector on the eve of World War I. Railways are often seen as playing an important role in integrating national economies in the nineteenth century, and were in many cases actively promoted by governments seeking to speed up the process of industrialisation (1962). The largest railway systems were inevitably in the countries covering the largest geographical area, with central and eastern Europe claiming the three largest systems within the empires of Russia, Germany and Austria-Hungary. Western Europe was more fragmented politically, with the next largest systems being in France, the United Kingdom and Italy. To assess the economic significance of the American railways, (1964) proposed the concept of social savings. For freight traffic, this is calculated as the extra cost of transporting the quantity of freight shipped on the railways by the next best alternative. Where a good alternative existed, such as canals in the US case, the social saving was shown by Fogel to be relatively modest when expressed as a share of GNP. Fogel saw this as breaking the “axiom of indispensability” of the railways for US economic growth.  (1983) provides a survey of social savings estimates for a number of European countries, reproduced here in Table 9. A number of conclusions can be drawn from these estimates. First, the estimates conform broadly to Fogel’s pattern of relatively small social savings where a good system of inland waterways existed, such as in Belgium, England and Wales, France, Germany and Russia. However, social savings were much larger where there was no good system of inland waterways, such as in Spain, although even Spanish social savings were dwarfed by the case of Mexico, where railways do seem to have been indispensable. Second, the social savings of the railways increased over time, due to technological progress, which led to freight rates on the railways falling relative to freight rates on inland waterways. There was no scope for international competition in railways, so that relatively under-developed countries in Eastern Europe had the largest systems on account of their geographical size. In shipping, however, international competition was possible, allowing the most efficient providers to gain market share. Data on the net tonnage of the main European merchant fleets are shown in . By far the most successful nation in shipping was the United Kingdom, which operated around 35 per cent of the world merchant net tonnage throughout the period 1870-1913 ( [1914]). The next largest shipping nation was Germany, with less than 10per cent of world net tonnage, while the third largest owner of merchant tonnage was Norway. Indeed, the Scandinavian countries, despite their relatively small populations, revealed a strong comparative advantage in shipping at this time. Although Britain was being challenged by Germany and the United States in the scheduled liner business, the most industrialised part of the shipping sector, Britain’s position remained very strong in the more entrepreneurial tramping business ( 2005;  1995). Turning to telecommunications, international competition was not possible at this time, so that population and income per capita were the main determinants of the level of activity, as with the railways. The highest levels of activity, visible in were in the rich, large countries of Britain, France and Germany, but the poorer large countries such as Russia, Austria-Hungary and Italy also show large volumes of business. By 1913, telephones were becoming more common, and there is some evidence to suggest that public sector telecommunications monopolies delayed the development of the telephone system to protect their investments in the older telegraph technology. Britain’s position in telecommunications therefore looks less impressive if telephone calls are included with telegrams (1994;2005)  provides some indicators of activity in finance and distribution in 1913. Financial activity is represented by banknotes in circulation and commercial bank deposits. Since estimates for individual countries are in national currencies, it is necessary to convert them to a common currency to make international comparisons, in this case in terms of 1913 US dollars. Again population size and per capita income are important determinants of activity. However, per capita income has a negative effect on the circulation of banknotes but a positive effect on the scale of bank deposits. This means that the degree of financial intermediation increases with the level of economic development ( 1987). Hence large, backward economies such as Russia and Austria-Hungary have high levels of banknote circulation, whilst even small but highly developed economies such as Belgium have quite high commercial bank deposits. Note that the United Kingdom, with the most highly developed financial sector, had very high levels of commercial bank deposits but very low levels of banknote circulation. The City of London established a dominant position at the centre of world finance in the second half of the nineteenth century, which it retained until after World War I, despite challenges from Berlin and Paris as well as New York ( 1969; 1995). To capture levels of activity in distribution, it is necessary to turn to indirect indicators such as the level of exports and domestic consumption of agricultural and manufactured products. Table 10 provides comparative data on merchandise exports. The most successful European exporters were the United Kingdom, Germany and France, whose exports dwarfed those of the large eastern economies, Russia and Austria-Hungary. Even the small nation of Belgium had exports that were larger than Austria-Hungary’s and close to the Russian level. Furthermore, if re-exports were to be added in, the Netherlands would also feature as a major international wholesale distributor, on account of its links with Indonesia. While wholesale distribution tended to remain in the hands of entrepreneurial merchant houses, the process of industrialising services went further in retailing, which saw the emergence of large scale organisations, including co-operative societies as well as department stores and multiple (or chain) stores ( 2005; 1992; 1954). This shift towards large-scale distribution was dependent on the process of urbanisation, and therefore proceeded more rapidly in industrialised areas than in more rural societies. There is less that can be said quantitatively about personal and professional services and government, and these parts of the economy will not be discussed in detail here. However, the provision of education is discussed in the chapter on population, in the context of human capital formation, while the role of government is considered more fully in the chapter on aggregate growth. VI. CONCLUSION This chapter reminds us that GDP consists of a wide variety of activities, and that prosperity depends both on achieving high productivity in each sector and on allocating resources efficiently across sectors. In general, we find that within Europe between 1870 and 1914, achieving high productivity overall required shifting labour out of agriculture and into industry and services. Although the literature has tended to focus on industrialisation as the main way out of economic backwardness, the growth and modernisation of the service sector was of at least equal importance. Indeed, much of the process of achieving high productivity in services required a kind of “service sector industrialisation”, with provision on a high volume basis, in a standardised form, using modern technology, overseen by hierarchical management. The discussion of individual sectors is organised around the catching-up framework, with low-productivity countries at the start of the period facing opportunities to grow rapidly by borrowing technology and organisational forms from high-productivity countries. However, the mere existence of an opportunity does not guarantee that catching-up will occur, and Europe’s economic history reminds us that backwardness can persist. This can be related to institutions, and in particular to the failure of institutional reforms to enable a country to take advantage of the potential for catching-up. However, we must be careful not to use institutions simply as a device to plug gaps in our knowledge. Breaking down economic activity by sector is one way of doing this, because it also suggests other factors, such as resource endowments for differences in performance between countries. Thus, for example, there can be no doubt that not having coalfields was a serious impediment to high productivity in the coal mining industry. And since coal was a major source of power, its availability was bound to affect the performance of countries in energy intensive sectors such as steel. Hence we do not need to appeal to institutional problems to explain why, for example, Portugal was not a major force in heavy industry.

AN ECONOMIC HISTORY OF MODERN EUROPE: SECTORAL DEVELOPMENTS, 1870-1914

AN ECONOMIC HISTORY OF MODERN EUROPE: SECTORAL DEVELOPMENTS, 1870-1914 I. INTRODUCTION Gross domestic product consists of a wide...