My PhD...What I Have Found So Far

As a PhD student I have had to get used to being continually asked what my topic of study is. I don’t mind this, as I have always felt that there is no point writing a 90,000 word thesis if I don’t tell anyone what the contents is, or, at the end, put the manuscript in a cupboard to gather dust. After four years (out of six) I have come to some interesting conclusions regarding the management of the London and South Western Railway (L&SWR) which I thought I would share with all here.

The first chapter of the thesis basically covers the background, describing what has been said previously in the literature. It is in the second chapter that will start to discuss my findings. As the basis for the rest of the work, this chapter is on the financial health of the L&SWR. I have concluded that while suffering from increased costs after 1870 as a result of laws on the implementation of safety devices, employees working conditions and the rates that they charged, the L&SWR’s financial results (for example their return on capital employed and operating ratio) were above the industry’s average, but not to a significant extent.

In chapter 3 I will show that the L&SWR’s management structure, where each department had a specific function, such as Way and Works, Locomotive and Traffic, emerged because when the line was initially being built the different functions of company operation were initiated at different points. As departments grew in size because of company expansion, they became institutions in their own right. This meant that within the organisation the departments became increasingly isolated and focussed on their own operations to the detriment of internal operational cohesion. Furthermore, as the departments grew in scale underneath the management of the company, decision-making and inter-departmental communications became increasingly centralised at the head of the organisation. Lastly, the management structures that were created early in the company’s history tenaciously held on until 1914.

Chapter 4 will demonstrate that within the company there developed early on two employment streams, these being the primary (or clerical) and secondary labour markets. It was from amongst the clerks in the primary labour market that almost all senior Traffic Department managers were chosen in the later nineteenth century. This meant that almost all managers had similar, if not identical, career paths, which could have potentially led to a lack of innovation within the company. The company try to improve the quality of management in the early 20th century through London-based L&SWR clerks attending the railway department of the London School of Economics, however, this would have had limited effect on the management of the L&SWR, coming too late before 1914 to make a difference.

In chapter 5 I will investigate the external business activities of the L&SWR directors, and look at how these could have affected the management of the L&SWR. Before 1880 the company’s board was dominated by directors who were involved in land and agriculture. However, between 1880 and 1900 the L&SWR directors started to attempt to gain control over companies associated with the company’s business by taking directorships on their boards. Yet, the majority of the directors appointed after 1880 had no directorships on joining the L&SWR, and as such cannot be considered to have been appointed to it because of their business links. Lastly, directors were chosen for seats because of their political activities throughout the L&SWR’s history. However, they were more likely to be chosen because of this factor when the L&SWR and the railway industry were under threat politically.

Therefore, this is the state of play in my PhD, and I am currently working on my last, highly important, chapter. The challenge of the last chapter is to link all of these conclusions together, and combined with new information provide a picture of how exactly the L&SWR made decisions between 1852 and 1914.

The Problem with the Late Victorian British Railway Industry

The declining performance of the British railway industry in the late Victorian period is something that I have referred to repeatedly in my blog, but which I have never fully explained. Indeed, this topic is central to my PhD, which will, hopefully, determine how well the London and South Western Railway was managed between 1870 and 1914. Generally, we know that across this period, while gross railway company profits continued to rise, the profit margin of the industry declined.

Probably the best way to measure this decline is through studying the industry’s the operating ratio. This shows what cost of running the railway industry was as a proportion of its total revenue. Using figures provided by Pollins in Britain’s Railways: An Industrial History, the operating ratio for the British railway industry increased as follows between 1870 and 1902:-

1870 – 48%

1874 – 55%

1878 – 53%

1882 – 52%

1886 – 52%

1890 – 54%

1894 – 56%

1898 – 58%

1902 – 62%

Thus, running Britain’s railways became progressively less profitable and more costly. Thus, historians, mostly writing in the 1960s, 70s and 80s, tried to determine why this was so. Yet, there has not been any consensus on the issue.

On the one hand, many historians have argued that the railway industry’s decreasing profitability was caused by external pressures. Ashworth argued that in the mid-1870's traffic growth occurred in low-margin sectors, such as third class passenger and short-haul bulk goods. Companies were subsequently forced into building new facilities because they were too vulnerable financially and politically to refuse carrying traffic. Further, 'pricing and service policies enforced by government and transport pressure groups,' worsened the companies’ situations after this.[1] Irving added to this, arguing that because the public and politicians saw the railways as a service, and put pressure on them to act in such ways, that the companies tried to preserve their commercial freedoms by increasing the 'quality and supply of transport.' This 'involved disproportionate increases in costs and staff.'[2] Further, in an environment where the cost of labour was rising, expensive railway technology was required by law, and there were proportionately falling charges, this meant that the companies' rates of return fell. [3]

On the other hand, the opposing view is that the railway industry became progressively poorly managed over the period 1870 to 1900. Aldcroft accepted that the industry faced the external pressures cited,[4] however, he charged railway managers with a range of failures such as excess line capacity, corporate empire building, under-utilization of fixed equipment, duplicate facilities[5], a failure to relate prices to costs[6] and poor traffic handling.[7] These factors all forced costs up. Further, Cain argued that 'managerial motives,' such as the appointment of overbearing department heads and corporate empire building, were a factor in the decline in profitability. Yet, his main point was that competition between companies increased costs, subsequently doing the greatest damage profitability.[8]

Lastly, Arnold and McCartney, while rejecting the thesis that the railways built too much infrastructure, argued that the period 1870 to 1914 was one of 'structural stasis' in the industry, where the interests of ordinary shareholders were progressively abandoned. In their opinion there was a 'tacit alliance' between railway directors and senior managers that satisfied the short term interests of 'industrial customers and the state.'[9]

Therefore, the state of play in the literature is that no comprehensive answer has been given to the question of why the railway industry declined in profitability up to 1900. Yet, in that my opinion these studies suffer a sever weakness that hampers their pursuit of an answer. None of these historians looked at what was going within the companies themselves. Rather, these historians only used the financial results of the railway industry to make conclusions about the quality of management. Therefore, in my PhD I hope to look at what was going on within one company, the London and South Western Railway, to determine how the quality of management and decision-making affected the company’s profitability. Hopefully, any answers I find can add to the debate.

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[1] Gourvish, T.R., Railways and the British Economy 1830-1914, (London, 1980) p.44

[2] R.J Irving, 'The Profitability and Performance of British Railways 1870-1914', Economic History Review, Vol.31 No.1 (Feb., 1978), pp.55

[3] Irving, 'The Profitability and Performance' , pp.65

[4] Gourvish, Railways, p.44

[5] Aldcroft, British Railways p.11

[6] Aldcroft, British Railways p.18

[7] Aldcroft, British Railways p.19

[8] Cain, P.J. 'Railways 1870-1914: the maturity of the private system', in Freedman, Michael J. and Aldcroft, Derek H. Transport in Victorian Britain, (Manchester, 1988) p.115

[9] A.J. Arnold and S. McCartney, 'Rates of return, concentration levels and strategic change in the British Railway industry 1830-1912', The Journal of Transport History, 25 (2005), pp.57