Cotton History and Economics

¶ … region has over another in the production of a good. The idea is rooted in the question for maximum economic efficiency from a fixed set of assets. What this means is that even if one region can produce everything better than another region, it may not be wise for it to do so, because there is opportunity cost in producing a little bit of everything. Another region, even if less efficient, can produce some of the goods and trade, thereby opening up more total productive capacity.

The United States has long been a dominant player in the global cotton market, and has either been the number one or number two producer in recent years. Within the United States, however, there are differences in cotton production. Texas is said to have a comparative advantage in cotton production over Alabama, for example. Texas is a relative newcomer to cotton production. While Alabama's cotton production began during the slave days, and relied on slave labor for the industry to flourish, Texas began cotton production in the early part of the 20th century.

One of the advantages that Texas had in cotton production from the beginning was that whereas Alabama and other states in the Deep South had smaller cotton plantations, Texas was able to set up large ones. These larger plantations allowed for several advantages, not the least of which was that the landowners were able to set up communities for their laborers, providing them with the artefacts of community, and that allowed the laborers to maintain year-round residence. In the South, cotton laborers were typically more prone to being itinerant. The nature of cotton production was such that the ability to guarantee a plantation would have steady labor allowed for competitive advantage for Texas, as there was less waste in the fields. The Texas model was able to provide better yields and greater revenue stability.

Texas was also able to innovate.. The larger farms in the state provided better access to capital for landowners. They were able to reinvest some of this money, for example to develop cloud-seeding techniques that would control the weather in their region of Texas. By contrast, the small landowners in the Deep South were typically in a cycle of heavy debt loads, where it might take several good years to pay back for a single bad one, and with the challenges of insect control there were frequent bad years. Texas had other advantages as well. The universities were willing to work at innovation, so there were government funding advantages that allowed Texas to be the leading innovator in cotton production. A lot of these advantages are attributed to Texas starting its industry from scratch, and by deliberate design, rather than inheriting a system such as Alabama had. Texas had advantages in labor, too. Being closer to Mexico, the Texas cotton industry relied heavily on Mexican labor, which it found to be more effective. Alabama's small farms were not able to tap into this source of labor.

All of these advantages are competitive -- areas were Texas had outright advantages over Alabama and its neighboring states. These aren't comparative advantages -- Texas is just outright better than Alabama at cotton production. This actually informs us about fostering competitive advantage in the 21st century. First, competitive advantage is more important than comparative -- in a global marketplace you have to be the best if you want to win the industry. Second, advantages are built in, but so are disadvantages. Texas built the cotton industry in a way that learned from the mistakes of Alabama -- there were no legacy costs. But today, Texas has legacy advantages, in particular the knowledge base, the universities, the capital, the government assistance, and all of the other attributes that will help it to continue to innovate and fend off global competition. It helps to be in a leading position in an industry, but only if you continue to innovate. Alabama lost its industry leadership because it became complacent, and resistant to change -- Texas entered the business with a disruptive model, but has continued to work hard to stay on top, and that is the only reason it continues to lead the global cotton industry.

2. The concept of the race to the bottom reflects that in an environment where a product is commoditized, price is going to be the critical factor in sales. Thus, the cost of production will inevitably be reduced. This sometimes occurs through technological change -- innovations such as the spinning jenny and the cotton gin dramatically lowered the cost of cotton, for example -- but it also results in downward pressure on labor. The core idea is that where there is some sort of bottleneck, that bottleneck will eventually be resolved. If labor costs are high to the point where they are a constraint on a firm's quest to lower its prices/costs, then eventually innovative energy will be dedicated to finding ways to reduce the amount of labor needed.

In Industrial Revolution England, this race to the bottom was reflected in a number of technological innovations that did two things. First, they dramatically lowered the cost of cotton, to the advantage of people who wanted to buy it. Second, machines replaced much of the labor-intensive work, leaving only jobs that were low-skilled. For the region, the innovations allowed these regions to become dominant players in the cotton and textile trade, because these areas had a lower cost of production than competing regions. There were times when English mills struggled to find enough cotton, for example.

For the workers, the change was not as nice. Prior to the innovations, textile-making was a domestic chore, one that was labor-intensive and done in the spare time that a family had from farming. The innovations changed that, but the trade-off is that many people found themselves without adequate work, because of similar innovations in agriculture. Labor became a commodity, and workers without skills ultimately took on poor jobs that were unsafe, and underpaid. Such jobs were only taken because people were desperate -- the job environment had changed rapidly and many were unprepared for the new environment. The race to the bottom would eventually follow the supply of low-paid labor sources, for example the move from New England to the South, where wages were significantly lower or more recently the move to China following that country's economic reforms. Workers, for their part, were only useful to the extent that they could fulfill mill owners' needs for obedient labor that was willing to work hard without complaint..