Projects

Policy, innovation: Historical Perspectives

Background

The pulp and paper industry is currently undergoing fundamental changes in its organization and technology. A new wave of consolidation has swept through the industry. In its wake, firms must seek to integrate diverse sources of supply and plants of various capacities and characteristics capable of producing a wide array of products for various market segments. This reshaping must occur within a complex regulatory environment involving multiple jurisdictions and agencies pursuing aims that often conflict. Consequently, it must involve both independent creative entrepreneurial behavior on the part of managers at individual firms and creative cooperation through institutions that reach across the industry.

Our research seeks to provide perspective on this situation by examining similar episodes of transition from earlier in the history of the industry. Since the late nineteenth century, the pulp and paper industry has undergone recurrent bouts of organizational change (Stevenson, 1940; Ohanian, 1993). Typically, these episodes have come in response to external shocks in the form of shifts in demand, often triggered by political action such as war or new economic policies (Ellis, 1948 and 1960). On occasion, they have resulted from disruptions in the sources of supply. Regardless of the impetus for change, these shocks have compelled industry leaders to rethink the boundaries among firms and between the industry and various regulatory agencies such as the Federal Trade Commission and the Environmental Protection Agency.

Adjustments in organization and industry relations have typically focused upon matters of costs and pricing (Stevenson, 1940; Ellis, 1948 and 1960; Whitney, 1958; Lamoreaux, 1985). One would hardly expect otherwise in an industry where much activity involves high-volume, capital-intensive manufacturing of a largely undifferentiated product using stable processes that are improved incrementally. In such circumstances, marginal costs acquire heightened importance. It is not surprising, then, that most American anti-trust activity during the first half of the twentieth century focused upon pricing arrangements among firms. Nor is it difficult to comprehend why tariffs have often figured prominently in episodes of reorganization (Ellis, 1948). Even a small adjustment in duties can exert a profound impact upon the competitiveness of paper mills in a given nation. The same is true for environmental regulations (Norberg-Bohm and Rossi, 1998). With margins so tight and productive efficiencies so critical, plants cannot easily absorb the costs of environmental compliance and remain competitive.

Much of the best recent research into the history of the pulp and paper industry has sought to comprehend this interplay among policy, industry structure, and incremental process improvement. Avi J. Cohen, for instance, has documented incremental improvements occurring in the American industry between the two world wars (Cohen, 1984 and 1987). He attributes rapid increases in productive efficiency during the 1920s to a booming market for newsprint that supported rapid investment in electrification and facilitated ready cooperation through the newly created Technical Association of the Pulp and Paper Industry. Gary Bryan Magee takes the story further back in time, from 1860 to 1914, and offers a useful comparative dimension between Britain and the United States (Magee, 1997a and 1997b). Magee is especially concerned with how American firms developed productive efficiencies more fully than their British counterparts. He attributes the divergence to several elements, including market demand, resource endowments that encouraged alternative labor systems, differences in the abilities of the industries to learn collectively, and tariff policies. Two other recent studies move forward in time and look at incremental improvements introduced in response to environmental regulation since the nineteen seventies (Collins, 1994 and Norberg-Bohm and Rossi, 1998).

While these works and several older studies (Boyce, 1933; Stevenson, 1940; Ellis, 1948; OEEC, 1951; UNESCO, 1954: Ellis, 1960) lay a valuable foundation, they leave open several lines of inquiry of particular relevance to the contemporary pulp and paper industry. Some obvious holes remain in temporal coverage. No study has examined developments since World War I with anything approaching the thoroughness of Magee. Cohen fills in some of the gaps for the period up to 1940, but in his desire to comprehend process innovation, he leaves unexamined several important developments in the area of product innovation during the teens and twenties, including new filtering papers, absorbent products for hygiene and medicine, and building products (Grummer, 1991 and Smith, 1991). These efforts to diversify across product lines, largely obscured by the FTC's overriding concern during the interwar years with price-fixing in newsprint, bear a close resemblance to more recent developments in the industry.

By treating the industry in a largely undifferentiated manner, Cohen also failed to comprehend important regional differences. The pulp and paper industry underwent significant geographic shifts between the wars (Ohanian, 1993). Movements into new areas involved vital learning processes in horticulture and chemical processing, as firms struggled to adapt established production technology to new raw materials (Burke, 1993). Even the seemingly undifferentiated newsprint sector thus experienced technical change of considerable complexity and variety. Such variation posed complicated challenges for firms and trade associations alike.

Regional variations likely acquired heightened significance during the post-war period (Birch, n.d.). The pace of geographic relocation accelerated, while emergent environmental concerns at the state and local level introduced a new element into the complex regional dynamic. Labor conditions, which also varied widely by state and region, complicated the situation still further. The recent pioneering studies of William Boyd have only begun to suggest just how profoundly local conditions such as these influenced the course of change in pulp and paper during the post-war decades (Boyd, 2001).

Nor did regional differences diminish in importance with the emergence of national environmental and occupational safety legislation during the late sixties and early seventies. For rather than homogenizing conditions at the local and regional level, these national measures superimposed another layer of jurisdiction upon the old (Harrigan, 1995). Those national measures, moreover, necessarily had significant implications for the competitiveness of firms in what had always been a global industry. Pulp and paper companies now faced an extraordinarily daunting situation in which they needed to operate in numerous local arenas while competing in global markets shaped in considerable measure by national policies (Eaton and Kriesky, 1998). All the while, they needed to adust to changing technologies affecting both process and product (Stier and Bengston, 1992; Oforiamoah, 1993). The circumstances called for some of the most creative boundary-drawing in the history of the industry (David, et. al., 1992; Mater, 1997).

We seek through our research to examine this evolving interplay among technical innovation, industry organization, and government policy at the local, regional, and national levels since 1914. In part, this will entail a macro-level assessment of policy and practice across the American industry, with some comparison to developments in Scandinavia and other areas of Europe. Our larger aim, however, is to probe key moments of transition in greater detail by documenting events at the level of the firm and the plant. By tracing the responses of particular managers to specific circumstances, we can better appreciate how local and regional conditions interacted with national and international ones. A case study approach also promises to reveal precisely how firms interacted with one another across the industry. We seek to comprehend how business strategies at various moments in time involved elements of both cooperation and competition.

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