The story of Liverpool

Beatles, Everton FC, Lusitania and River Mersey; they are all hallmarks of Liverpool and made it once famous. But the question is whether or not Liverpool connects to and fits into the world of new economic geography and if so, then how. Furthermore, can Liverpool be one of the famous textbook examples of agglomeration forces and trade like Chicago? Concerning these questions, I will do my best to show that the story of Liverpool is far more intriguing than one thinks at first and it is worth to be taught since it has strong links to theory.

Once upon a time, the place of Liverpool was a muddy, fishermen’s village, until all of a sudden King John decided to make a new borough with a new port on it to trade with Ireland. The port was a kind of agglomeration force; a couple of settlers arrived and settled down. Thus the village grew but after some time it reached a steady state and stayed unimportant compared to the nearby centre, Chester. The economy has been in a stable equilibrium for centuries with a population around 1000 people.

Then an accident happened again, the location of Liverpool became more valuable when trade evolved with the 13 British Colonies of America. To preserve this preciousness the first commercial wet port was built here, which allowed the ships to be unloaded and uploaded anytime of the day regardless of the tide. Of course, this invention attracted more and more ships, which is a good example of cumulative causation: the wet port was established in Liverpool because there were many ships as a result of trade with the colonies and more and more ships arrived to Liverpool because the wet port was there. Later, a large amount of profit was realised by the local merchants due to slave trade in the 18^th century. The slave trade line was in fact a triangle connecting Liverpool, Africa, and America. In spite of its success, the business with the colonies was suddenly terminated when the American War of Independence broke out. Interestingly, this shock – that is losing one of the most important trade partners – could have led to the end of the golden days of the city, yet, it did not happen. Liverpool also kept its major position even when the slave trade was abolished, as the trade of tobacco, cotton, sugar, and other goods easily substituted it.

Steam ships were invented in the 19^th century and eventually became common on the seas. The docks of Liverpool – since they were not deep enough – were not appropriate for these ships. In answer to this, the city quickly overcame the technological shock by establishing new ports to be able to serve steam ships. From this time on, hundreds of people travelled to North America from Ireland and Eastern Europe via Liverpool, which was at this time the second largest port in the country.

In the First World War Liverpool docks were very busy building ships, and the city itself was still very vivid. In contrast, between the two world wars, world trade declined and so did Liverpool. A few years later, in the Second World War, the location of the city became favourable again: troops, food and weapons arrived from the USA to Liverpool. Unfortunately, its importance made the city a major target of the German air force, which bombed it several times.

After the war, Liverpool never recovered. Containerisation was then the new wave in shipping and there was not any dock where these containerships could port until the 1970s so the city soon found itself on the margin. Furthermore, United Kingdom enhanced trade with the European Union, joining it in 1973, thus ports on the Southern and Eastern coast of the country benefitted, and for the first time, Liverpool was on the wrong side of the country. The companies, once located near Liverpool moved closer to the centre of the EU thus the agglomeration force in the city declined. Since that time, the economy of Liverpool reached an equilibrium again, but at a lower level, with a population of 435 000 people.

Focusing on the future: will the story be a fairytale? Certainly, nothing can be declared, but the Objective One Merseyside program of the European Union between 1994 and 2008 probably enforced the agglomeration forces of the city with its projects. Moreover, a new container dock is planned for extra huge containerships. However, it is still doubtful whether these projects can offset the handicap of being far from most of the EU members.

To give you an overview of the last centuries, here states a graph of the population of Liverpool.

Source: Liverpool Core Strategy Preferred Options 2010

All in all, location matters. What seemed to be a perfect position for centuries can become a disadvantage after all, due to some accidents of history, just as in the case of Liverpool. Some events do not even have an effect, but some affect the economy very intensively and move it to a new equilibrium. And if the agglomeration forces deteriorate, the size of the particular city will decrease. Good luck, Liverpool.

Andrea Kiss

Resources:

Lambert, T. (2012). A Brief History of Liverpool.

ScouseTimes (2011, February 13). Special Lost Dock ofLiverpool

LiverpoolCore Strategy Preferred Options 2010. (n.d.) p. 32.

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America and the mass migration in the late 19th century

In secondary school one of my favorite topics in history was the age of the European mass migration. It must have been so wonderful to sit on a huge steamship and cross the ocean to a country, where even a peasant could reach his dreams and where it was so easy to  buy land and start a whole new life. In the late 19^th century millions of Europeans made the journey to the New World, and it was possible exactly because of the steamships.

Compared to the early days of transatlantic trade, the travel costs sunk incredibly thanks to the appearance of steamships by the end of the 19^th century.  The price of a ticket to the States became cheaper relative to the European wages, but more importantly, the travel time declined from five to less than two weeks and besides, the steamships offered a safer voyage than any sail ship before them. The decline in the travel costs (both money and time) caused another phenomenon, which was that not all the immigrants stayed forever in the US, but more and more European returned to the Old World after some years of migration. This type of movement was very rear before the steamship became the most important vehicle between the two continents. Another important change was that at the end of the 19^th century, the bulk of the migrants were unskilled young people, so they had no superfluous knowledge, which on the one hand was useless in the US, and on the other hand took a lot of time and money to acquire in the home country. In other words the new migrants did not invest unnecessarily in their human capital, so it was easier for them to find suitable jobs in the New World.

Graph - Gross intercontitnental emigration from Europe, 1846-1939, annual averages; source: Chiswick & Hatton

If we put on the glasses of economics, the story of the mass migration to America may be more interesting. Looking through the lenses of geographical economics, we can say that the decline in the travel costs (both time and money) is actually a decline in transportation costs, and by the way the lack of knowledge on the side of the new immigrants can be considered as such too. This latter reduction, however, was possible before the time of the steamship, but come to a major role only from the end of the 19^th century.

On the first place, the decrease in transport costs meant that the economic competition between America and Europe could increase, which actually happened because the prices started to equalize between the continents. We can also put the steamships and their consequences on the migration in the context of the New Economic Geography. According to this theory there are two possible equilibria for an economy with two regions. Spreading is the one, when there are equal activities in both regions and agglomeration is the other, when all the activities are concentrated in one of the two regions. The most important factor which determines the equilibrium is the transportation cost. In case the transport costs are high, the spreading equilibrium will hold, because it is easier to produce in both regions instead of trading between them. We can say that this was the situation before the steamships: there was some migration, but the travel costs were so high, that even the higher wages of America were not big enough to attract more immigrants and to reach agglomeration. As steamships appeared and became able to cross the ocean, the agglomeration force grew stronger; the number of immigrants to the States soared. The smaller transportation cost meant that the wage differential between the New and the Old world became larger; therefore it was more tempting to travel to the US and work there. However, no total agglomeration could happen, because as the transportation costs declined, the prices started to equalize, which was also true for wages. The equalization of wages weakened the emerging agglomeration forces, which means that although the migration to America was huge at the end of the 19^th century, it could not approach the total agglomeration, because at the same time the force for spreading started to work.

All in all, we can claim, that the prediction of the New Economic Geography (that the decline in transport costs leads to agglomeration) was sort of true here, for a short period, but we have to treat this conclusion with suspicion. It is questionable if we can treat North-America and Europe as to regions, because it is highly unlikely that total agglomeration can ever happen in any of them. To find the truth behind the New Economic Geography in the time of the mass migration, we should rather focus on smaller parts of the receiver and sender areas. However, this is a tale for another post.

Fruzsina Mayer

Literature

Chiswick, B. R. & Hatton, T. J. (2005.) International Migration and the Integration of Labor Markets. In Globalization in Historic Perspective, edited by M. D. Bordo, A. M. Taylor and J. G. Williamson. 65-12. p. Chicago: University of Chicago Press

O'Rourke, K.H. & Williamson, J.G. (1999.) The Heckscher-Ohlin Model Between 1400 and 2000: When it Explained Factor Price Convergence, Ehen it Did not, and Why. Papers 99/25, College Dublin, Department of Political Economy.

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