investment purposes” (Gerschenkron 1962: 14). Thus there was no demand for joint-stock banks
as sources of funding, associated with the heavy industry. The sole joint-stock bank was the
Bank of England (Kindleberger 1993: 92).
Germany. The German pattern of development was different because, unlike Britain, it
had a “high-cost” industrialization. The development was faster in Germany, with backward
continuity (backward linkage will be clarified below). The great spurt (first indicator of back-
wardness) was triggered by a political event: national unification (Gerschenkron 1962: 362).
In Germany, big, joint-stock companies (the second indicator) started to develop in 1851
with the passing of the joint ownership law and as a result of the state’s liberalized policy to-
wards the chartering of such companies. The particularly close relationship between large
“mixed“ banks and large-scale industry was a distinct feature of German banking (Kindleberger
1993: 129). After the unification of 1870, industrialization took the form of large-scale business
enterprise (cartels) and protectionism; heavy state involvement in the 1870-1914 period created
the “industry state“ (Tilly 1996: 112). In 1887, 80%
of the largest 100 industrial enterprises were
joint-stock. The government contributed to cartel formation after the depression of 1873
(Kindleberger 1993: 207). Cartels were complements to large corporations and contributed to
the vertical integration of corporations (350 cartels were formed until the end of the 19
th
century),
which was an impetus for diversification (Kocka 1978: 560).
Cartels were voluntary agree-
ments (usually between firms in the same branch and stage of production), which allowed con-
cerns to remain independent,
their primary aim being to set a common price policy during the
crisis and a common market policy later (Kocka 1978: 563). Cartelization was legally confirmed
by the highest court of the Reich in 1897.
Only in Germany were cartel agreements treated by
law like ordinary contracts, which encouraged vertical integration (Holborn 1969: 384).
As for the third indicator, the case of Germany shows more stress on capital or producers’
goods in its industrial output. The first phase (light industry) was missing (Stephens 1989: 1025)
and the process of industrialization started directly with heavy industry (steel, railroad building),
11
In contrast, the majority of large mergers in England were horizontal. They were single-product companies with
little integration and diversification, inspired by defensive motives, rather than by greater efficiency. For the period
1880-1918, 87% of total large mergers were horizontal (Payne 1978: 207).
12
In contrast, the organization of the English large mergers was more centralized.
13
The role of large-scale industrial enterprise was controversial because on the one hand, it restrained competition
(redistributed income from labour to capital) and on the other hand, these restraints encouraged investment and
accelerated technical growth (with cartels encouraging vertical integration back into pig-iron and coal-mining and
relying on large joint-stock banks at the same time) (Tilly 1996: 114).
19
Convention