Carsten Burhop

A Compromise Estimate of German Net National Product, 1851 1913, and its Implications for Growth and Business Cycles

We develop a compromise estimate of the German Net National Product for the years 1851–1913 based on four estimates from Hoffmann (1965) and Hoffmann and Muller (1959) by recalculating industrial production, investment, home and foreign capital income. Because differences remain during the early decades, we compute a weighted average compromise series. Economic activity is shown to be higher than the older estimates suggest. The average growth rate is lower. The average business cycle lasted five years, with high volatility in the early decades. The typical Grunderzeit pattern of boom then prolonged recession after 1873 can not be confirmed.

Comparative Productivity in British and German Manufacturing Before World War II: Reconciling Direct Benchmark Estimates and Time Series Projections

This article provides a new benchmark estimate of comparative Germany/U.K. labor productivity in manufacturing for circa 1907, and experiments with alternative German manufacturing production indices for time series projection from a circa 1935 benchmark. A consistent picture of broadly similar levels of manufacturing labor productivity in Britain and Germany throughout the period 1871–1938 is established. We also show that a substantial German productivity lead had already emerged in heavy industry by 1907, but was offset by a substantial British productivity lead in light industry. For the pre-1914 period, an additional check is provided using nominal income-based estimates.

Taxation, regulation and the information efficiency of the Berlin stock exchange, 1892–1913

In this article, we investigate the information efficiency of the Berlin stock exchange using returns of a new daily stock-market index for the years 1892–1913. We focus on the impact of the 1896 stock exchange law and of the increases of the stock-market turnover tax in 1894 and 1900 on information efficiency. We fit an ARMA(0,1)-GARCH(1,1) model to the data and search for structural breaks. This approach yields no convincing evidence that the tax increases had a negative influence on weak information efficiency. In addition, the restriction of derivative trading by the 1896 stock exchange law did not result in measurable changes in the autocorrelation of daily returns.

Real Wages and Labour Productivity in Britain and Germany, 1871-1938: A Unified Approach to the International Comparison of Living Standards

Throughout the period 1871-1938, the average British worker was better off than the average German worker, but there were significant differences between major sectors. For the aggregate economy, the real wage gap was about the same as the labour productivity gap, but again there were important sectoral differences. Compared to their productivity, German industrial workers were poorly paid, whereas German agricultural and service sector employees were overpaid. This affected the competitiveness of the two countries in these sectors. There were also impor-tant differences in comparative real wages by skill level, affecting the extent of poverty.

Resolving the Anglo-German Industrial Productivity Puzzle, 1895-1935: A Response to Professor Ritschl

This paper offers a critical appraisal of the claim of Ritschl (2008) to have found a “possible resolution” to what he calls the “Anglo-German industrial productivity puzzle”. To understand the origins of this term, it is necessary to describe some recent developments in comparisons of industrial labour productivity between Britain and Germany. The Anglo-German industrial productivity puzzle really arose as the result of a new industrial production index produced by Ritschl (2004), which differed very substantially from the widely used index of Hoffmann (1965). Broadberry and Burhop (2007) pointed out that if the Ritschl (2004) index is combined with an index of German employment from Hoffmann (1965) and time series of UK output and employment from Feinstein (1972), it implies an implausibly high German labour productivity lead over Britain in 1907, when projected back from a widely accepted Germany/UK labour productivity benchmark for 1935/36.

The Transfer of Patents in Imperial Germany

We describe the transfer of patents in late 19th- and early 20th- century Germany using a new and comprehensive database containing information on about 20,000 transactions. The number of transactions shows an upward trend, in total numbers and as a share of patents in force. In total, about eight percent of patents were transferred at least once during their existence. Many transactions involved the transfer of patents with an above-average quality from individual inventors to firms and to newly-created – ‘entrepreneurial’ – firms. In addition, valuable patents were transferred between firms. About two-thirds of all transfers occurred during the first three years of a patents’ existence, giving the new owner potentially a long period of patent protection.

Corporate Governance and Incentive Contracts: Historical Evidence from a Legal Reform

This paper proposes to exploit a reform in legal rules of corporate governance to identify contractual incentives from the correlation of executive pay and firm performance. In particular, we refer to a major shift in the legal and institutional environment, the reform of the German joint-stock companies act in 1884. We analyze a sample of executive pay for 46 firms for the years 1870 to 1911. In 1884, a law reform substantially enhanced corporate control, strengthened the monitoring incentives of shareholders, and reduced the discretionary power of executives in Germany. Pay-performance sensitivity decreased significantly after this reform. While executives received a bonus of about three to five per cent in profits before 1884, after the reform this parameter decreased to a profit share of about two per cent. At least the profit share that is eliminated by the reform must have been incentive pay before. This incentive mechanism was replaced by other elements of corporate governance.

Executive remuneration and firm performance: The case of large German banks, 1854-1910

The conflict of interest between shareholders and managers is a classic example of a principal–agent relationship. The owners of a joint-stock company (principals) delegate the management work to executives (agents). Usually, the shareholders know less about the state of the business, managerial actions and firm opportunities than the executives do. This information advantage opens the possibility for the managers to maximise their own income, instead of that of the shareholders. If the principals are aware of this problem, they might design incentive compatible remuneration schemes – e.g. rewarding a profit share – for the agents. This article addresses the question whether and how the principal– agent problem was recognised, understanded and solved by nineteenth-century principals. Especially, the paper shows that principals quickly started to close incentive-related working contracts with agents and that these contracts became more complicated during the later decades of the nineteenth century. In Germany, the first joint-stock companies with limited liability and separation of management and ownership were founded during the nineteenth century. The economic influence of joint-stock companies rose significantly during the 1850s and especially after the liberalisation of the joint-stock companies act in 1870. In the field of banking, the first joint-stock Kreditbank was the Schaaffhausensche Bankverein, founded 1848 in Cologne. During the 1850s, several banks followed, in particular the Bank für Handel und Industrie, established 1853 in Darmstadt. The large German banks of today (Deutsche Bank, Dresdner Bank, Commerzbank) were founded in the years 1870–73. No study investigating the pay–performance link has been undertaken in German business history. Some related information has been published in contemporary or modern studies of the nineteenth-century banking sector, but this is not sufficient to establish a formal link between firm performance and executive remuneration. For example, Georg Siemens, the CEO of Deutsche Bank from 1870 to 1900, received an annual basic salary of 4,500 marks (M); later, it was increased to 12,000 M. In the beginning, the profit share or performance pay element was low. His income seems very low compared with other employees at Deutsche Bank: the directors of the branch in Bremen, von der Heyde and Krüger, received an annual basic salary of 9,000 M and profit shares of 11,000 M (1878)

Cartels, managerial incentives, and productive efficiency in German coal mining, 1881-1913

In this paper, we evaluate the impact of cartelisation and managerial incentives on the productive efficiency of German coal mining corporations. We focus on coal mining in the Ruhr district, Germany’s main mining area. We use stochastic frontier analysis and an unbalanced dynamic panel data set for up to 28 firms for the years 1881-1913 to measure productive efficiency. We show that coal was mined with decreasing returns to scale. Moreover, it turns out that cartelisation did not affect productive efficiency. Controlling for corporate governance variables shows that stronger managerial incentives were significantly correlated with productive efficiency, whereas the debt-equity ratio did not influence it.

Incentives and Innovation? R&D Management in Germany's High-Tech Industries During the Second Industrial Revolution

The allocation of intellectual property rights between firms and employed researchers causes a principal-agent problem between the two parties. We investigate the working contracts of inventors employed by German chemical, pharmaceutical, and electrical engineering firms at the turn of the 20th century and show that some firms were aware of the principal-agent problem and offered performance-related compensation schemes to their scientists. However, neither a higher total compensation nor a higher share of variable compensation in total compensation is correlated with a higher innovative output. Thus, incentives techniques were already used during the early history of industrial research laboratories, but their impact on innovative output was unsystematic.