Jewish fortunes cut from a one-of-a-kind cloth

July 2, 2004

As the Anglo-American Conference of Historians gathers, we offer three takes on its theme, wealth and poverty.

The archetype of successful immigrant entrepreneurs was built on the rise of the rag trade, says Andrew Godley.

Ethnic entrepreneurship is seen by policy-makers as one way of overcoming the seemingly intractable ethnic-minority poverty trap. Research in this field, most of it from America, has produced several clear findings - above all that successful ethnic entrepreneurship is strongly related to ethnic minority advantages on arrival, especially with regard to education and income.

Consider the experiences of the two principal Asian ethnic minorities in Britain. Those of Indian descent tend to be more educated and wealthier on arrival than those of Pakistani descent, and they have enjoyed relative economic success and largely moved into middle-class status. Those of Pakistani descent typically remain relatively poor. The model is clear and, for policy-makers at least, somewhat depressing. Quality of input determines quality of output.

There is, however, a big exception: East European Jews. Between 1880 and 1914, more than 2.5 million Jews left Eastern Europe. Almost 2 million settled in the US and about 150,000 came to Britain. They were the poorest of all arrivals, yet today the average Jewish household in the US and in the UK enjoys a top decile income, partly because half of the employed Jews there today are professionals earning professional salaries.

But the professionalisation of American and British Jewry is only relatively recent - a third-generation phenomenon. What was truly remarkable about first and second-generation Jewish immigrants in the West was just how many were entrepreneurs. Between 15 and 20 per cent of Jewish male workers were entrepreneurs in the 1880s, rising to between 40 and 45 per cent in the US during the 1920s to 1940s, compared with almost 30 per cent in Britain by the 1920s, which then rose to 40 per cent by the 1950s.

Jews in other societies had even higher rates of self-employment, but these were typically the by-product of anti-Semitic restrictions on occupational choice, and self-employment under these conditions almost never led to material success. Despite suffering sometimes appalling racial abuse, the Jews could and did work wherever they wanted, and they could and did enjoy the fruits of their economic success.

And such economic success across an entire population is without precedent.

It is no surprise that Jewish immigrant entrepreneurial success has become the classic stereotype that lies behind so much academic and policy focus on entrepreneurship as a vehicle for social mobility among ethnic minorities.

But the East European Jewish immigrants possessed no obvious advantage on arrival in the years before 1914. Many contemporaries saw how they had been forced out of "useful" trades and barred from owning land in anti-Semitic Eastern Europe and concluded that they were the most unlikely of all immigrant arrivals to succeed in their new homes in New York, London and elsewhere. With no major advantage in income or education, the Jews don't fit the model.

How can we explain their success? Some people have cited the importance of Jewish culture, or religion, or anti-Semitism, or any apparently unique attribute of Western Jewry that might possibly explain such exceptional success. One vitally important factor that emerges from any serious study of Jewish economic history is almost always overlooked, however. Luck.

As is well known, the Jewish immigrants more or less took over the garment industries in the US and the UK. But historians of sweatshops have missed a major point; for while it was true that Jewish entrepreneurs were largely dominant in the clothing industry of the 1900s, especially women's clothing, their very good fortune was that the demand for women's wear changed. From the beginning of the 20th century, fashion became ever more important, and as the fashion content rose, so did the profit margins.

Until the 1960s, Jewish entrepreneurs ran the most profitable segment of the garment trade in Britain and America, enjoying industry returns seen neither before nor since. The coincidence of arrival and entry into the garment trade just at the moment of fashion-related structural change presented those early immigrant entrepreneurs with something close to windfall gains.

These gains were locked in after August 1914, when war in Europe closed the borders and restricted the possibility of any future immigrants bidding their profits down. And these gains were reinvested in second and third-generation education to secure middle-class status and income later in the century.

So policy-makers take note: the story of Jewish entrepreneurial success is not quite what it first seems. Drawing conclusions for overcoming ethnic-minority exclusion today might lead to some very different solutions.

Andrew Godley is a reader in business history and director of the Centre for International Business History at Reading University. This article draws on his forthcoming book, The Emergence of Ethnic Entrepreneurship , to be published by Princeton University Press.

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