The Dynamic Evolution of the North American Pulp and Paper Industry, 1860-1960
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Munich Personal RePEc Archive Learning and Corporate Strategy: The Dynamic Evolution of the North American Pulp and Paper Industry, 1860-1960 Toivanen, Hannes Georgia Institute of Technology 28 April 2004 Online at https://mpra.ub.uni-muenchen.de/16415/ MPRA Paper No. 16415, posted 23 Jul 2009 06:05 UTC LEARNING AND CORPORATE STRATEGY: THE DYNAMIC EVOLUTION OF THE NORTH AMERICAN PULP AND PAPER INDUSTRY, 1860-1960 A Dissertation Presented to The Academic Faculty By Hannes Toivanen In Partial Fulfillment Of the Requirements for the Degree Doctor of Philosophy in History and Sociology of Technology and Science Georgia Institute of Technology April, 2004 Copyright © Hannes Toivanen 2004 LEARNING AND CORPORATE STRATEGY: THE DYNAMIC EVOLUTION OF THE NORTH AMERICAN PULP AND PAPER INDUSTRY, 1860-1960 Approved: Steven Usselman, Chair August Giebelhaus John Krige William Winders Stuart Graham Date Approved: 16 April, 2004 ACKNOWLEDGEMENTS This work has benefited from the help, encouragement, and advice of many people over a period of more than five years. Their count is too great to be exhausted here, and I apologize for those omitted from here. Kalle Michelsen helped me to secure a Fulbright Fellowship that enabled me to begin graduate studies at the Georgia Tech in 2000. His encouragement and example have prompted me to develop my understanding of history and technology, and his continued support and friendship have been important. Steve Usselman and Gus Giebelhaus offered me a great opportunity to participate in their research project on the historical evolution of the North American pulp and paper industry. I remain indebted for them for advice, help, financial support, and friendship. Steve was a good advisor. He helped me when writing and studying was difficult, and demonstrated with his own example how to think harder. The other members of my dissertation committee, Gus Giebelhaus, John Krige, Bill Winders, and Stuart Graham, clarified my own thinking and provided guidance for future writing. I thank Ken Knoespel and Steve Vallas for advice and encouragement, too. When I presented my very first ideas at the Business History Conference, Richard Rosenbloom and David Hounshell provided kind and helpful comments. Other parts of the thesis have been presented at the annual meetings of the Society for the History of Technology, History of Science Society, and the Fall Technical Conference of Technical Association of the Pulp and Paper Industry. iii I have also benefitted from discussions with many of my fellow graduate students at Tech, and, more importantly, from their friendship. It was wonderful to think and relax with Leslie Sharp, Raul Necochea, Ben Shackleford, Prakash Kumar, Tim Stoneman, Haven Hawley, and many others. My fellow Finn at Tech, Lauri Lehtonen, shared generously his knowledge of forestry and papermaking. Karen Smith’s help at the library of the Institute of Paper Science and Technology at Georgia Tech was important. I also wish to thank the staff at the archives of Cornell University, Wisconsin State Historical Society, and University of Maine at Bangor. The Center for Paper Business and Industry Studies provided financial support. Moreover, it was a place where I could learn about the industry, and I thank Tom McDonough, Jim McNutt, and Pat McCarthy. I thank for financial support also the ASLA- Fulbright Fellowship, American Scandinavian Foundation, Helsingin Sanomat Centennial Foundation, Finnish Cultural Foundation, and the Printing Industry Center at the Rochester Institute of Technology. iv TABLE OF CONTENTS ACKNOWLEDGEMENTS iii LIST OF TABLES vii LIST OF FIGURES ix SUMMARY x CHAPTER 1. INTRODUCTION 1 CHAPTER 2. TECHNOLOGICAL LEARNING IN THE GROUNDWOOD AND SULPHITE PULP AND PAPER INDUSTRY, 1860-1920 11 Early Development of Wood Pulp Technologies 13 Decline in the Availability of Technological Alternatives 23 Process of Monopolization 27 Horizontal Combination and Innovation 36 Relocation of Newsprint to Canada and Product Diversification in the U.S Paper Industry 45 Conclusions 47 CHAPTER 3. SPECIALIZATION, INNOVATION, AND CARTELS 50 Dynamics of Cartelization in the Absence of Intellectual Property Rights 52 Role of Patents for the Evolution from Specialty Production into Mass Production 62 Conclusions 74 CHAPTER 4. CO-EVOLUTION OF TECHNOLOGICAL LEARNING AND ORGANIZATION IN THE PAPER CONTAINER INDUSTRY, 1870-1960 76 Dynamics of Innovation in the Early U.S. Corrugated Paper Industry 77 Standardized Innovation: The Creation of Markets 82 Technology Cartels, Antitrust, and Innovation 90 Emergence of Strategies of Scale and Scope 96 Product Innovation and Evolution of Technological Learning 106 Conclusions 119 CHAPTER 5. DIFFUSION OF INNOVATION AND THE EVOLUTION OF THE SULPHATE PULP AND PAPER INDUSTRY, 1850-1960 121 Early Development of Sulphate Wood Pulp Technology 124 Regional Learning in the Kraft Process, 1910-1927 137 v Emergence of Southern Mass Production and Industrial Relocation, 1925-1931 153 Technology of Coordination: Standardization of Kraft Paper, 1929-1935 178 Standardization and Diffusion of the Chemical Recovery Technology, 1934-1940 188 Technology and Strategies of Growth in the Sulphate Pulp and Paper Industry, 1940-1960 198 Conclusions 213 CHAPTER 6. VERTICAL LINKAGES OF LEARNING: THE DEVELOPMENT OF MACHINE COATED PAPER, 1930-1960 216 Technological Relationships between the Printing, Publishing, and Allied Industries 220 Promise of Revolutionary Printing Technology: Need for New Paper 228 Innovation in the Magazine Business: Demand for New Printing and Paper Technology 238 Controlling Innovation in the Magazine and Catalogue Paper Industry 252 Reluctant Vertical Integration: User-Supplier Relationships during the Great Depression 267 Innovation in the War Economy, 1942-1947 272 Demise of Patent Control: Expansion and Segmentation of the Machine Coated Paper Industry, 1945-1960 287 Conclusions 301 CHAPTER 7. CONCLUSIONS 303 Early Evolution of the Sulphite Pulp and Paper Industry 305 Technology and Cartels 309 Evolution of the Paper Container Industry 311 Evolution of the Sulphate Pulp and Paper industry 313 Evolution of the Magazine and Machine Coated Paper Industries 317 The Dynamic Evolution of the North American Pulp and Paper Industry 320 BIBLIOGRAPHY 322 vi LIST OF TABLES Table 2-1 Table 1. Production of Selected Paper Grades in the U.S.,1899-1909. (Tons of 2,000 lbs.). 12 Table 2-2 Table 2. Number of Sulphite Mills, Digester and Annual Production of Sulphite Pulp in the United States, 1897-1907 (Tons of 2,000 lbs.) 34 Table 2-3 Table 3. Wood Pulp Made for Sale or For Use in Establishment Other Than Those in Which Produced in the United States (Tons of 2,000 lbs.) 35 Table 2-4 Table 4 Wood Pulp Produced Including That Used in Mills Which Manufactured in the United States (Tons of 2,000 lbs.) 35 Table 2-5 Table 5. Year End Quoted Bid/Asked U.S. prices For Sulphite Pulp in U.S. Cents, 1889-1909 39 Table 3-1 Table 6. Production of Board by Grade in the U.S., 1899-1919 (Tons of 2,000 lbs.) 57 Table 5-1 Table 7. Wood Pulp Production in the United States by Grade, 1909-1959 (Thousand tons of 2,000 lbs.) 122 Table 5-2 Table 8. Number of Sulphate Digesters, Average Digester Capacity, and Total Digester Capacity (Tons of 2,000 lbs.) in the United States, 1919-1954 145 Table 5-3 Table 9. Production of Kraft Wrapping Paper in the United States, 1909-1931 (Tons of 2000 lbs.) 155 Table 5-4 Per Cent of Major Manufacturing Regions From the Total U.S. Kraft Paper Production, and Total National Capacity Utilization, 1926-1931 (Tons of 2,000 lbs.) 168 Table 5-5 Table 11. Standard Qualities and Prices of Jute, Cylinder Kraft, and Fourdrinier Kraft Paperboard in 1929 179 Table 5-6 Table 12. Production of Bleached Sulphate Pulp in the U.S., 1931-1958 (Tons of 2,000 lbs.) 201 Table 5-7 Table 13. U.S. Production of Sulphate Pulp by Grade in 1958 and Total Production of Wood Pulp (Tons of 2,000 Lbs.) 203 vii Table 6-1 Table 14. U.S. Patents on Coating of Paper, 1930-1959 254 Table 6-2 Table 15. Estimated Consumption of Book Paper by Magazines in the United States, 1925-1944 (Tons of 2,000 lbs.) 274 Table 6-3 Table 16. Annual Value and Production of Machine Coated Paper Production in the U.S., 1947-1963 (Thousands of dollars and tons of 2,000 lbs.) 300 viii LIST OF FIGURES Figure 4-1. Paperboard container production, 1916-1939 91 Figure 4-2. Most of these Hinde and Dauch Paper Company corrugated paper products were patented. 111 Figure 5-1. Technological structure of the sulphate pulping process cycle. 134 Figure 5-2. ver-capacity and the despair of industry leaders. 162 Figure 5-3. Benefits of coordination and vertical integration. 163 ix SUMMARY This study analyzes the long-term evolution of the North American pulp and paper industry, and offers a new synthesis of the dynamic forces that spearheaded the expansion and transformation of this large manufacturing industry. The evolution of the North American pulp and paper industry between 1860 and 1960 was driven by successive waves of technological learning that spawned structural change. Such waves transformed and expanded the sulphite and sulphate pulp, envelope, paper container, paper bag, magazine and printing paper, coated paper, board, and many other pulp and paper industries between 1860 and 1960. These waves repeated a pattern of co-evolution of technology and industrial organization that enveloped dynamic forces of change, such as innovation, corporate strategies, industrial relocation, and policy. As distinct branches of the pulp and paper industry passed from the early nascent phase to full maturity, the sources of innovation, nature of technological change, strategy and structure of leading firms, and industrial organization underwent throughout transformation. As these waves of industrial change passed from a nascent phase to maturity, the reciprocal dynamics between organization, corporate strategy, policy, and technological learning co-evolved, and established the evolutionary path of the North American pulp and paper industry.