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Spending the inheritance : undifferentiated production and the competitive dynamics of the post-war forest… Kennedy, Graham E. 1992

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SPENDING THE INHERITANCE:Undifferentiated Production and the Competitive Dynamics of the Post-War Forest Industry: The Case of British Columbia Forest Products and MacMillan Bloedel 1945 - 1979byGRAHAM E. KENNEDYB.A., The University of British Columbia, 1986A THESIS SUBMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENTS FOR THE DEGREE OFMASTER OF ARTSinTHE FACULTY OF GRADUATE STUDIESDepartment of HistoryWe accept this thesis as conforming__to the required standardUNIVERSITY OF BRITISH COLUMBIADecember 1991© Graham E. Kennedy, 1991In presenting this thesis in partial fulfilment of the requirements for an advanceddegree at the University of British Columbia, I agree that the Library shall make itfreely available for reference and study. I further agree that permission for extensivecopying of this thesis for scholarly purposes may be granted by the head of mydepartment or by his or her representatives. It is understood that copying orpublication of this thesis for financial gain shall not be allowed without my writtenpermission.(Signature)Department of  Ni.5 1- 0 yThe University of British ColumbiaVancouver, CanadaDate /0. 0/ • 9 2DE-6 (2/88)AbstractThe continued production of undifferentiated products in the B.C. forestindustry has fascinated and divided provincial historians. The causes of thisorientation of production are varied and complex. The provincial government andBritish Columbia's forest companies have each played a role in determining theorientation of production. The undifferentiated end products of these firms werethe consequence of conscious government and business decisions made in BritishColumbia in the post-war period (1945 - 1979).B.C. forest resources were (and remain) owned and administrated by thegovernment. Private access to these assets was (and is) determined by provincialstatute. The government was instrumental in orienting the undifferentiatedproduction undertaken by MacMillan Bloedel and B.C.F.P. in two fashions: bysystematically subtracting value from the resource in order to attract capitalto the industry; and, by adopting a variety of other policy initiatives thatpromoted the establishment of large-scale enterprises.Professor Michael E. Porter, in his book, The Competitive Advantage ofNations, argues that a firm's end products are the result of its competitiveadvantages and disadvantages. The two firms examined in this essay possessedtwo competitive advantages that promoted undifferentiated production: a highdegree of productive integration from supply through to marketing: and large-scale production. Competitive disadvantages can allow a firm's products tobecome less advanced over time, or can preclude the advance to moredifferentiated production.Four competitive disadvantages prevented the development ofdifferentiated products by Macmillan Bloedel and B.C.F.P. First, asuperabundance of timber perpetuated undifferentiated production. With thecontinued supply of excellent quality timber protected by the government,iiicompetitive supply pressures were eliminated, and the resource was not evaluatedor utilized to its maximum potential. Second, the integration of downstreamsupply networks by M.B. and B.C.F.P. impoverished lower levels of the industry.While this provided cost advantages to the producers, it limited the number ofsuppliers. Third, managerial incompetence at MacMillan Bloedel , and a narrownessof focus at B.C.F.P., limited the productive opportunities of these two firms.Finally, the collaboration of the two firms in marketing their undifferentiatedproducts also diminished competitive pressures needed to promote differentiatedproduction. Thus, contrary to some previous analytic approaches, the productionorientation of these two firms can be explained with an historical analysis oftheir competitive advantages and disadvantages in the post-war period.ivCONTESTSABSTRACT 	 iiACKNOWLEDGMENTS 	 ivChapterI. INTRODUCTION 	 1II. THE B.C. GOVERNMENT AND THE ORIENTATION OF PRODUCTION 	 10III. SOURCES OF COMPETITIVE SUCCESS: THE INTEGRATION OF PRODUCTIONAND THE ACHIEVEMENT OF ECONOMIES OF SCALE 	 34IV. THE SOURCES OF COMPETITIVE DISADVANTAGE 	 80V. CONCLUSION	 107ANNOTATED END-NOTES 	 111BIBLIOGRAPHY  	 123APPENDIX A: TABLESFigure A-1: B.C.F.P. Production Tables (1959-1969)	 128Figure A-2: MacMillan Bloedel Production Tables (1959-1969)	 129AcknowledgmentsI would like to thank my advisor, Professor Robert McDonald, of theUniversity of British Columbia History Department, for his patience and soundadvice throughout the process of completing the thesis. I would also like topay tribute to the Riddington Room Main Library staff for their assistance inhelping me locate various relevant business sources. The staff of SpecialCollections was also helpful in locating primary sources. Finally, I would liketo thank my mother, Isabel Kennedy, for her help in typing my thesis.Chapter IIntroductionHistorical accounts of the B.C. forest industry have examined theperpetuation of undifferentiated production in the post-war period. Anundifferentiated product is one that lacks any differentiating characteristicor benefit which would add value for buyers.' Undifferentiated productsgenerally have a lower market value compared to differentiated products.Professor Michael E. Porter defines the process of product differentiation asfollows: "Differentiation allows a firm to command a premium price, to sell moreof its product at a given price, or to gain equivalent benefit such as greaterbuyer loyalty during cyclical or seasonal downturns."' According to ProfessorPorter, a product can be differentiated by a special feature that gives itsuperior quality; the degree of service associated with it; the technologyemployed in manufacturing it; the quality of inputs used in producing it; themanufacturing procedures used to produce, design, market, or deliver it; thequality of personnel associated with it; and the inter-relationships betweenthe seller and the buyer that make it more attractive.'Large-scale integrated forest companies operating in British Columbiain the post-war period did not manufacture many differentiated products. Withthe exception of some specialty packaging and paper products, the largeintegrated forest product companies manufactured largely undifferentiatedproducts, including lumber, plywood, wood products (residuals, shakes andshingles), newsprint, pulp, paper and corrugated paper products. Most of theseproducts were subject to wide cyclical variations in demand and did not commandspecial buyer loyalty during downturns in the business cycle. They possessedfew of the differentiated qualities of value suggested by Porter. Without these2qualities, undifferentiated forest product manufacturers depended on theirability to create relatively basic products as cost-effectively as possible.They-depended on preferential access to superb resources at low-cost and soughtto increase economies of scale by integrating productive units. Few resourceswere devoted to the research and development of new, differentiated products.The forest companies concentrated instead on process refinements and a reductionof overhead costs.Why did large-scale forest product firms not advance to moredifferentiated production in the post-war period despite the obviousopportunities to do so presented by the potential of the resources? Thefollowing thesis is concerned with this question, and offers an explanation basedupon the competitiveness paradigm presented in Michael E. Porter's book, TheCompetitive Advantage of Nations. It seeks to offer a new, holistic approachto this historic and present-day problem.The most comprehensive analysis of the post-war forest industry isprovided in Professor Patricia Marchak's book, Green Gold: The Forest Industryin. British Columbia, which is highly critical of the productive orientation offorest companies operating in B.C. While Professor Marchak provides aninteresting thesis concerning the industry's lack of advancement to moredifferentiated production, it does not offer a micro-economic analysis of thedynamics of the firms themselves, or of how these dynamics precluded anadvancement to differentiated production.Professor Marchak argues that undifferentiated production is a naturalconsequence of exploitative capitalist dynamics between central and peripheralregions.' According to Marchak, B.C. was (and remains) a peripheral region thatsupplies raw materials for manufacturing enterprises elsewhere, principally inthe United States. In Marchak's view, large productive enterprises in the U.S.used the peripheries as supplier networks for their own differentiated production3in the post-war period. The peripheral regions gradually became denuded andimpoverished over time, despite the fact that a select few derived a reasonablyhigh standard of living from the industry.'Derived from the 'staples' theory of Canadianhistory (Canadian economicdevelopment being a consequence of raw material exploitation), Marchak's ideasdepend on the assumptions of comparative advantage trade theory. Post-warundifferentiated production was a consequence of demand, and the orientation ofproduction was determined by market needs. B.C. had an inherent advantage inthe quality of its resources, and manufacturers elsewhere demanded them as inputsessential to their value-added products. B.C.-based forest product companieswere thus formed to take advantage of these external trade demands. Theproduction of undifferentiated products was the consequence of inequalities inthe trade patterns between wealthy and poor countries (or between a value-addedproducer and a resource supplier).Marchak deemed a dynamic analysis of the forest businesses operatingin B.C. to be of minor importance in determining their production orientation.The businesses were facilitating productive processes based elsewhere. Theirinternal dynamics were irrelevant due to their entrapment in macro-economicforces that were beyond their control. The forest businesses in B.C. had fewerand fewer options due to declining resource bases from which to draw upon, aswealth was gradually stripped from the peripheries towards the manufacturingcentres. The forest company's business policies were strictly oriented towardsshort-term consumption and not towards longer-term value-added production. Thus,product decisions were the consequence of the natural evolution of the laws ofcomparative advantage, and had very little to do with the micro-economicdecisions made within forest companies themselves.This analysis is deficient in several respects, however. First, it istoo deterministic. It is true that productive decisions are highly influenced4by market forces, but it is not correct to assert that such forces predeterminethem. Marchak's interpretation offers no explanation for the productiondecisions made within these two firms. Market forces in and of themselves donot explain adequately the historical evolution of the two firms or theirproducts in the post-war period. Second, it is not accurate to argue that wealthgenerated in B.C. was syphoned off to the peripheries. MacMillan Bloedel wasowned by residents of B.C., and most of the wealth created in the provinceremained there. B.C.F.P. was owned by Toronto-based interests, but Ontario wasnot a central market for the firm. Thus, one would be hard pressed to argue thatresources were being used in the manufacture of more value-added production inOntario. Also, much of the wealth generated by B.C.F.P. was re-invested in B.C.Third, there is an economic deficiency in the analysis. It assumes that marketscreate products. The U.S.-based manufacturers, in short, needed raw materialsand sought suppliers to fill their needs. Wealth was thus created through thefulfillment of a pre-existing market need. However, it is more likely thatproducts create markets and not the other way around. The logging industry inB.C. predated the development of large-scale industrial enterprises at themanufacturing centre. Wood products existed before they were used as inputs invalue-added production in the U.S. It is products (both differentiated andundifferentiated) that create wealth and markets, and not the markets that createproducts. Thus, production decisions are much more important as a determinantof end product than this argument accounts for.From a Canadian historical perspective the argument also tends to bea bit presumptive. It assumes that Canadian business history is nothing morethan an adjunct of industrial development in the United States. Businessdecisions merely reflected the need to satisfy U.S. market demand for woodproducts. It denies the history of the two firms, and the history of theirlocalized dynamics. Companies derive much of their success as a consequence of5their exploitation of localized competitive advantages, which are best explainedwithin a micro-economic framework, and not in terms of an elaborate trade theory.Business history is best written from the production centre out, not from themarketplace in. A more localized production orientation is needed to fullyexplain why an advance to more differentiated production was not made by thesetwo firms.In his book, The Competitive Advantage of Nations, Professor MichaelE. Porter, argues that a firm's end products are a consequence of its competitivedynamics. Within these competitive dynamics there are competitive anduncompetitive characteristics. Uncompetitive characteristics can destroycompetitive advantages or inhibit their growth. They can also determine theorientation of production. Porter argues that the end product is a directreflection of the level of competitiveness exhibited in four key areas ofbusiness activity: managerial competence; market competitiveness; thecompetitiveness of suppliers; and the quality of production inputs (labour,raw resources, scientific research, and educational infrastructure). 6 All fourfactors must be competitive if the firm is to achieve the most sophisticated formof product differentiation.'The model is a good one in that it argues plausibly that differentiatedproduction results from symbiotic pressures from these four aspects of thebusiness. Competition is a driving force for advancement to differentiatedproduction. As the firms encounter greater measures of competition, they puttogether more specialized competitive advantages necessary to produce the mostadvanced end products. Porter is primarily concerned with the erosion ofcompetitive advantages in developed nations and in firms that specialize in theproduction of mature, sophisticated products. But the paradigm, because of itsability to identify the competitive disadvantages that inhibit productdevelopment, may also be used to demonstrate why firms do not progress to higher6value, differentiated products. Porter's model is relevant for British ColumbiaForest Products and Macmillan Bloedel because both firms had opportunities toprogress to more advanced forms of production. The inherent value in B.C.'s woodresources offered opportunities for the manufacture of rayon products, disposableproducts (such as babies diapers), synthetic fuels, cosmetics, medicines, andcomposite materials. B.C.'s wood resources could also have been used as inputsfor secondary manufactures such as furnishings, airframes, and prefabricatedconstructs, to name a few. These opportunities existed, but B.C.F.P. andMacMillan Bloedel were prevented from advancing to them by their competitivedisadvantages, which are exposed through the application of Porter's model.Government is peripheral to Porter's dynamic. According to Porter,government should adopt policies which encourage the development of highlysophisticated industries.' Once these industries have become self-supporting,the government should not artificially create competitive advantages for them.'But, in B.C., the government played an important role in orienting the form ofundifferentiated production undertaken by the two firms examined in this study.It accomplished this in two fashions: by adopting policies that systematicallysubtracted value from the timber resources in order to attract capital to theindustry, and by reinforcing these policies with a number of other initiativesthat were designed to foster the growth of large-scale, undifferentiated forestproduct manufacturers in British Columbia.The forestry sector constituted the most important segment of theeconomy and generated government interest and involvement in attempting to derivevalue from the resources. Yet, paradoxically, little government and businesseffort was made towards the development of more differentiated wood products.Few secondary manufacturing competitors existed to challenge for access to theforest resources. The potential of new product development was thus definedexclusively by firms that produced undifferentiated resource products. Yet,7despite the opportunity to advance to differentiated production, no forestproduct firms operating in B.C. in the post-war period chose to exercise thisoption. Firms in B.C. were able to achieve large-scale global marketcompetitiveness for undifferentiated products. They were integrated fully intoNorth American and other world markets by successfully controlling theirmanufacturing and distribution costs. They were familiar with their markets andsuccessful in exploiting market opportunities. The forest product companiesbenefitted from B.C.'s 'open' economy, with its unrestricted trade in goods,services and people across provincial boundaries. The forestry firms faced fewtariffs on their products and were able to achieve economies of scale byexporting their products to outside markets. They achieved the large economyof scale production necessary to generate the money needed for significantresearch into the development of new products. The firms also had access to alarge market that would defray the costs of research and development. Yet,despite all of these advantages, which also included access to some of the mostdesirable timber resources on the North American continent, the firms (includingthe two studied here) made no effort to move to more sophisticated wood productsin the post-war period. The historical question remains: why?In order to answer this question, the two largest undifferentiatedforest products firms operating in B.C. in the post-war period, British ColumbiaForest Products and MacMillan Bloedel, will be analyzed. These two firms werebest placed to undertake the necessary risks associated with the development ofnew products (in that they could absorb costs and possible losses associated withthe development, production and distribution of new products). They were themost successful at establishing economies of scale in the manufacture ofundifferentiated forest products. They had access to the best timberlands, andpossessed sophisticated management, production and marketing knowledge. In post-war British Columbia MacMillan Bloedel was the forest products industry leader8with world-wide marketing connections, and as such, it cannot be ignored in anyhistorical analysis. Both B.C.F.P. and M.B. had world-scale production unitsand collaborated in penetrating the continental marketplace. Both firms wereCanadian-owned and determined their production priorities without having toanswer to a foreign parent company. If any firms were in a position to move tomore differentiated production in the post-war period, it was these two. Also,as the largest firms, it is possible to accumulate the necessary historical datato draw conclusions on their productive dynamics. Both primary and secondaryhistorical sources can be examined within Porter's demanding competitivenessparadigm. These two firms were the most important forestry companies operatingin B.C. in the post-war period, and among the largest operating in any sectorof the provincial economy. They best reflected the industrial structure of theforestry sector: both in terms of its strengths and of its limitations.British Columbia Forest Products and MacMillan Bloedel moved throughoutthe post-war period to capitalize on government policy initiatives byestablishing some competitive advantages of their own. The two firms were ableto achieve the production of undifferentiated end products by doing two things:by integrating their supply, production and distribution functions, and byestablishing large-scale productive enterprises.This production orientation led to some competitive disadvantages,however, which prevented them from advancing to differentiated production.First, timber superabundance led to lethargic business practices and an over-dependence on natural resources for business success. Second, the integrationof supplier networks further devalued the resource and served to eliminate somecompetitive pressures on the firm. Third, the two firms suffered from managerialdifficulties: incompetence at MacMillan Bloedel and a narrowness of focus atB.C.F.P. Fourth, collaborative marketing arrangements also served to diminishcompetitive pressures. These four factors combined to perpetuate9undifferentiated production at the two firms. By applying Porter's competitivedynamic, which outlines the competitive advantages needed to progress todifferentiated production, we are able to identify the four central factors thatinhibited this process in the two principal forest industry firms of BritishColumbia after the Second World War.Thus, the thesis will postulate the following: the government ofBritish Columbia adopted policies that fostered undifferentiated production inthe post-war period. B.C.F.P. and MacMillan Bloedel capitalized on thesepolicies by exploiting two competitive advantages associated withundifferentiated production: the integration of production, and the possibilityof large economies of scale. However, by applying Professor Porter's dynamicwe are able to identify four principal competitive disadvantages: managerialincompetence and narrowness of focus; marketing collaboration; supplierintegration, and, timber superabundance. These disadvantages destroyed thedynamic process of symbiotic competition and precluded an advance todifferentiated production by B.C.F.P. and M.B. after the Second World War.1 0Chapter IIThe B.C. Government and the Orientation of ProductionThe government of British Columbia assumed a series of important forestsector responsibilities in the post-war period. As owner, administrator andbenefactor of the forest resources, the government had an important role increating conditions that oriented the business strategies of forest companiesoperating in B.C. The government's administration of access to the resource hadan influence on the competitiveness of the two firms examined here. Governmentsensitivity to business competitiveness contributed to the evolution of forestpolicies that were designed to subtract value from the timber resource in orderto attract capital investment to the province. Secondly, these policies werealso designed to promote the development of large economy of scale forestcompanies.The question of economically exploiting the resources was never indoubt. The B.C. government sought through its policies to codify its ownershipof the forests and to determine cultivation patterns; to secure its share ofthe revenues; and to promote the development of private enterprises which couldexploit the full economic potential of the forest. The evolution of moresophisticated forestry practices including resource management, replenishment,and more effective use of uneconomic stands only complemented the government'scommitment to full use of these natural resources for the generation of wealth.But the government's commitment to the realization of these objectivesproduced a series of problems. It had to ensure that companies transferredeconomic rent to the public treasury in return for the privilege of cultivatingpublic resources. But this transfer did not (and was not designed to) compromisethe industry's profitability. The government also had an interest in ensuring11that the most sophisticated value-added products were manufactured from theforest. By contrast, business was interested in maximizing short-term profits.The government also had to examine the possible long-term alternate uses for theforest resources, such as public parks, recreation areas, wildlife preserves andso forth.The wealth generated by British Columbia's forest sector has been, andremains, considerable. By any measure, the forest resources of British Columbiahave been rich with economic potential. Fully 134 million of the 234 millionacre provincial land base is comprised of merchantable forest resources." Themagnitude of these resources was both a blessing and a curse. It was a blessingin that it offered the prospect of sustaining many large-scale wood productsenterprises. Throughout the post-war period (1945 - 1979) the provincial economywas relatively small, so the prosperity of these enterprises was dependent onaccess costs, manufacturing costs, transportation costs, exchange duties, andthe desirability of their products in world markets. The open labour andinvestment markets also ensured that a positive climate existed for thedevelopment of forest product firms in B.C. But, the superabundance of naturalresources also engendered an over-reliance on these products for provincialprosperity. The firms and the government became dependent to an unhealthy degreeon the availability of cheap and plentiful timber. Even two years after theperiod examined in detail (1945-1979), the forest industry still contributeddisproportionately to the B.C. economy: "In 1981, the industry directlyaccounted for 6.7% of provincial employment, 11.7% of the expenditures on capitaland repairs, 53% of the province's exports through Canadian ports, and 42% ofprovincial manufacturing shipments.' This dependence has drawn criticism froma variety of sources.Patricia Marchak has largely attributed blame for this resourcedependence to the government of B.C. In her sociological analysis of the forest12industry, Green Gold: The Forest Industry in British Columbia, Marchak arguesthat B.C.'s unbalanced economic structure is a consequence of the forestcompanies providing relatively unsophisticated products to more developed marketsabroad. Professor Marchak argues that manufacturing centres (more developedeconomies), especially the United States, exploited B.C.'s resource wealth inthe post-war period by purchasing raw materials (especially timber and pulp) forthe manufacture of more differentiated products outside of the province. Fewsophisticated forms of production took place in B.C. because these developmentswould have been considered potential impediments to the continued supply of rawmaterials to the centre. In Marchak's view, the government of B.C. has been awilling partner in this business.' Eager for resource rents and short-sightedin its resource policies, the government has fostered the development ofbusinesses that facilitated differentiated forms of production in the UnitedStates." Thus, B.C. forest companies were unwilling or unable to move to moreadvanced production due to their subordination to U.S. industrial needs.While Professor Marchak offers an interesting hypothesis concerning therelationship between the government, undervalued resources, and the absence ofmore sophisticated manufacturers in B.C., there are important deficiencies inher analysis. It presumes that the movement to more differentiated forms ofmanufacture is dependent on government policy initiatives. The absence ofgovernment-led diversification will thus result in the creation of a resource-oriented business dynamic. Based on historical evidence it is demonstrablyverifiable to argue that the B.C. government pursued policies designed to promotethe development of large-scale economic enterprises based upon the subtractionof value from the resource. It is also true that these policies helped topromote the large-scale manufacture of undifferentiated products. What is lessclear is the direct connection between government policy and differentiatedproduction. Is it sufficient to argue that an absence of government policy13initiatives designed to promote differentiated production has resulted in anabsence of differentiated production? Marchak's argument assumes that thegovernment has been entirely responsible for the orientation of production inthe post-war period. Is it reasonable to argue that government policy alonecould have orchestrated sophisticated production, fostered appropriate managerialstrategies, promoted the establishment of competitive suppliers, captured marketshare, and ensured a continuous supply of quality inputs of production?Professor Porter attaches significant importance to the consciousdecisions of individual businessmen as a determinant of their type of production.In order to succeed, the businessmen must realise that the prosperity andproductivity of the businesses will be determined by their commitment toexcellence and to the upgrading of their product lines." Businesses mustautonomously make the decisions necessary to advance to the most sophisticateddifferentiated production possible. For Porter, the government's role shouldbe supportive of business autonomy, rather than as an administrator of theiraffairs or as a shelter for their failures. Porter is critical of governmentsthat artificially create competitive advantages.' Hence, he would be scepticalof the government of B.C. exercising exclusive control over the allocation ofnatural resources. The government, in this case, has to evaluate marketpressures and ensure that it preserves the competitive advantages for the firms.Thus, the government's degree of participation in the economic affairs of thefirms is important in that it orients business decisions. For Porter, theprevalence of government intervention is usually an indication of unhealthy andunsustainable enterprises in the long-term. Porter argues that the most advancedform of differentiated production is the result of the symbolic inter-action ofcompetitive factor inputs of production, managerial excellence, vibrant supplierindustries, and a dynamic and demanding marketplace for the product."Governments alone cannot possibly create all of these elements, and if they try14to do so by merely subtracting value from inputs of production, the businessesmay become dependent on this competitive advantage for much of their success.This is precisely what happened in the forest sector in B.C. The sheer abundanceof forest resources coupled with the government of B.C.'s timber access policiesforestalled competitive pressures to upgrade to more differentiated production.Subtracting value from the timber resources was the key component of thisbusiness orientation. Prior to investigating how this was accomplished, a briefhistorical analysis of the B.C. government's timber access policies is required.Forest Tenure Policy - Terms of Access The policy of granting timber access to forest companies withoutconferring title on the land was instituted with the passage of the 1865 LandOrdinance Act. The colonial government, and then the provincial government,instituted three types of early tenure arrangements between 1865 and 1907. Thesewere the Timber Leases, the Timber License and Pulp Licenses. All three ofthese categories were grouped together in the post-war period and are nowreferred to as Old Temporary Tenures. The original Timber Leases did notrestrict the size of the stand, duration of the holdings, or provide for chargesto the lessee. In 1888, the provincial government initiated a new Timber Leasewhich exacted a royalty fee of $0.50 per thousand board feet and a rent of $0.10an acre on condition that the lessee construct and maintain a sawmill of aspecified productive capacity." In 1892, the government devised a competitivebidding process for the Timber Leases, the highest bidder to be the one accepted.At the same time, the government decreed that the Leases were to be extended for21 year periods only, and, in 1901, all Leases were brought under the 21 yearprovision. To accommodate independent loggers, the Timber License was institutedin 1888. The size of the area of the Timber License was limited to 1,000 acres.The rights of these Timber Licenses were transferable to others and were15renewable for periods varying from as little as 1 year to 21 years." The finalOld Temporary Tenure was the Pulp Lease, introduced for pulp mills in 1901. Theroyalty for pulpwood was $0.25 per cord of pulpwood, and this Pulp Lease wasdiscontinued after 1903, but, by then, 354,000 acres had been alienated for arenewable period of 21 years." Thirty-three of these Pulp Leases were still inoperation in 1976.In the 19th century the government also provided land grants to privatesector companies that were building railways. These lands could then beliberally exploited for their timber resources. One of the most prominent wasthe E.& N. Railway grant, which was measured in the 1910 Fulton Report at 375,000acres with an estimated timber stand of 5,380,000,000 cunits." A few of theseinitial railway grants were still legally binding in the late 1970's, and if thelands were "acquired prior to April 7, 1887 and Crown granted before March 13,1906, the timber was exempt from royalty and logs were exportable withoutpermit". 21 (In the post-war period, the government increasingly encouragedsustainable yield forestry on these lands by granting adjacent lands if thecompanies included their old grants in newer Tree Farm Licenses). The old grants(of which only a very few now exist in the coastal region) were highly prizedby companies due to their liberal access terms and low rent payments. In 1883-1884 the provincial government also granted the federal government land to buildthe transcontinental railway on the mainland. The federal government then grantedtimber rights for royalties and stipulated that the lessee construct and operatea sawmill. These lands were classified as Timber Berths. The provincialgovernment honoured the conditions of these Titransferred to their jurisdiction in 1930.The increasing complexity of timber accgovernment to adopt more sophisticated managementaccepted the recommendations of the 1910 Fultontuber Berths after they wereess arrangements forced thetechniques. The governmentReport that called for the16establishment of a forest service, and one was established in 1912 under theForest Act." The province's forest resources were to be cruised and classifiedby the forest service, and rates and rents were to be based on professionalassessment. Lands were also re-classified for distribution under a new form oflicense: the Timber Sale License. The T.S.L. was developed in order to moreaccurately gauge the economic potential of the stands. Capital expendituresneeded sophisticated feasibility studies which were provided by B.C. ForestService data. Yet, despite the improvement in data accumulation and resourcemanagement, serious problems were in evidence by the late 1940's. The bulk ofthe timber in the province was being harvested under the Old Temporary Tenures,but these old arrangements were not designed for the long-term prosperity of theindustry. Few conditions had been placed on the harvesting and reforestationof the resource. There was concern in government about the possibility ofresource communities exhausting their resources due to the short-term orientationof forest policy." Clearly, a more modern set of policies was needed to ensureB.C.'s economic prosperity in the post-war period.In 1943, the Liberal/Conservative government of John Hart establisheda Royal Commission under the direction of the Honourable G. McG. Sloan toundertake a series of recommendations to reform forest policy. The end resultwas the adoption of an amendment to the Forest Act in 1947 of a sustained yieldforest management policy in British Columbia: "He [Sloan] had concluded thatthe public interest required such a policy in order to gain maximum advantagefrom the province's forest resources, and to provide stability to the industryand communities which depended upon them. Forest land, he proposed, should bemanaged in perpetuity. "24 The Commissioner recommended the creation of twoSustained Yield Units which he termed as "Private Working Circles" and "PublicWorking Circles". 25 The "Private Working Circles" were subsequently named ForestManagement Licenses, and then later renamed Tree Farm Licenses (T.F.L.'s).17"Public Working Circles" were renamed Public Sustained Yield Units.The Tree Farm License was designed to entice private forest land holdersof Old Temporary Tenures and Crown Grants to combine their land with newlyapportioned lands into sustained yield forest management units.' Initially, inthe late 1940's, the T.F.L. was granted for a 'perpetual' period (later revisedto 21 years) under which the licensee held responsibility for the cultivationand management of the land as well as "...the option of bearing the full costsof growing timber, in return for which he would be charged only a fraction ofthe stumpage value.' Companies wishing to bid for T.F.L.'s made an applicationto the Forest Ministry and final discretion concerning the acceptability of thetendered bid was given to the Forest Minister. The government also sub-classified the land under the T.F.L. The land contributed by the lessee wasclassified as Schedule 'A' land, while the land that the government added wasclassified as Schedule 'B' land. Schedule 'A' land was given special propertytax provisions under the Taxation Act. Schedule 'B' land was separatelyevaluated by the Forest Service for stumpage fees, while Schedule 'A' land wasaccessed according to the original provisions of the O.T.T. or Crown Grant.The measure was popular, and, by 1956, 43 T.F.L.'s had been granted, 16 of whichhad perpetual terms!'The licensee had to fulfil specific forest management obligations underthe terms of the T.F.L. The license holder had to provide a five-year sustainedyield forest plan which had to be approved by the Forest Service: "These planscovered operations on all tenures within the license, and included reforestationprograms, inventory data, allowable cut calculations, and general developmentpriorities for the areas covered."' It is important to note as well that theenterprises that derived financial benefit from the cultivation of the resourceswere primarily responsible for the qualitative assessment of the economic valueof resources under their jurisdiction. They were also responsible for18implementing proper forestry practices only within the constraints of operatinga profitable business enterprise. Critics argued that this constituted a blatantconflict of interest and an abrogation of government responsibility for themanagement of the province's resources.In his second report commissioned in 1956, Judge Sloan proposed changesto the T.F.L. arrangements which were adopted by statute in 1958. All licenseeswere required from 1958 to pay full appraised stumpage but were compensated fortheir forestry costs." The T.F.L.'s that were awarded ranged in size from19,000 acres to 6.6 million acres" and were clearly designed to ensure acontinuous supply of wood to large-scale, integrated forestry complexes. TheT.F.L.'s were affiliated with a large-scale production unit and could not betransferred or sold separately from the unit unless the company received theconsent of the Forest Minister." Companies that failed to meet the T.F.L.provisions could have their license stripped.In the 1950's the government also introduced a new license that wouldbecome the most prevalent means of allocating land without alienating title inBritish Columbia: the Public Working Circle (later renamed as the PublicSustained Yield Unit). Between 1950 and 1973 approximately 60% of B.C.'s forestland was allocated in this fashion. The P.S.Y.U. was a modified form of theold Timber Sale License. This new license could extend for a period of up to30 years and was "...designed to provide licensees with sufficient continuityof timber supply to encourage them to construct costly road systems into remoteareas.' According to Professor Peter Pearse, the government introduced the newP.S.Y.U. system for two reasons: to ensure that responsible levels of forestrymanagement were introduced, and, to reduce the overall number of licenses beingissued."The purpose of these controls was to rationalize the government'slicensing system and provide for greater administrative control. Initially,19those who held the P.S.Y.U.'s were designated 'quotas' of timber that they wereentitled to cut. These quotas were assessed according to a combination ofcalculations based on the last 3 years of cuts; the permitted annual cut; theForest Services' calculation of an 'acceptable cut; and the size of theproduction unit." More important than this, however, was the new long-termorientation of the bidding procedures for obtaining P.S.Y.U.'s. Up to 1960bidding procedures for new licenses were relatively open. Outside bidders werepermitted to counter the bid of the license holder at an auction where oral bidswere accepted.' In 1961 the practice of oral bids was scrapped in favour of asealed bid process." The holder of the license was entitled to make a sealedbid whereas other bidders made a more public bid. License holders were giventhe privilege of matching any competitive bid. The government made the prospectof an outside bidder securing the license even more remote in 1964, when it beganto charge an application fee to new bidders. Professor Pearse in his RoyalCommission Report argues that this non-refundable fee ($0.50 cunit of harvestablewood) was a very successful means of discouraging competition for lands that werepreviously committed to established operators."The large-scale expansion of the forest industry into the interiorprecipitated the development of a new series of access terms. The most prominentof these, the Pulpwood Harvesting Area Agreements (P.H.A.A.), eventually becamepart of the P.S.Y.U. system. The government had to reconcile P.H.A.A.'s witharrangements that had already been made for sawmills operating in the interior,however. The first P.H.A.A. was issued in 1962 for a pulp mill in the PrinceGeorge area, and, by 1967, three other licenses had been established forKamloops, Quesnel and Prince George." A few stipulations were associated withthe P.H.A.A.: the license was for a period of 21 years and timber cuts had toremain within the authorized limit for the mill; the timber rates were fixedin the low 'pulpwood' class; the pulp mills had to purchase their chips from20sawmills in their area; and, the pulpwood mill owners were encouraged to practiseclose utilization standard forestry."The close utilization standard was introduced in the 1960's to replacethe intermediate utilization standard which merely obligated the licensee toremove all timber in their stand suitable for lumber production." The closeutilization standard was implemented in response to two business trends:technology was improving the ability of mill owners to remove previously marginaltimber at a profit; 42 and the government wished to maximize rent and usetimberland responsibly. To ensure the adoption of this standard, the governmentoffered incentives for industry to upgrade its productive capacity. In 1966the government also increased the lumber quotas by one third for pulp mills andsawmills that shifted to the new close utilization standard." As the amount oftimber harvested under close utilization standards grew, it became necessary todevise a new form of licensing system: Third Band Licenses.The Third Band License was the result of increased investment inproductive technology which outstripped quotas set under close utilizationstandards. Third Band Licenses were granted when mill owners could demonstratethat they 'needed' the timber. They had to operate their production units ata prescribed rate of "440 shifts per year for sawmills and 660 shifts per yearfor pulpwood and veneer plants; n44 cut their allotments at 80% of closeutilization standards; and procure their chips from sawmills operating in theirPulpwood Harvesting Area." By 1975, "...they [Third Band Licenses] accountedfor over half the harvest in some interior regions, while on the coast with itslarger timber and larger 'quota' increases, their contribution was almostThe new P.S.Y.U. system and the close utilization standard transformedthe licensing system. Owners of T.F.L.'s sought to capitalize on governmentsubsidies designed to promote close utilization standards. As a result of the21adoption of new close utilization standards by T.F.L. holders, cutting rightsin B.C. increased by up to 500% "47 (between 1960-1974). The government alsosought to phase out poorly planned aspects of the Timber Sale License by creatinga new category of license: the Timber Sale Harvesting License (T.S.H.L.). TheT.S.H.L. permitted the licensee to cut an annual rate of timber rather than allthe timber in a specific area." The timber allotment was reclassified as amanagement unit and cutting permits had to be issued for all 'chart areas' inthe unit." The new arrangements had advantages for mill owners: "The newtenures enabled licensees to consolidate operations previously scattered amongseveral short-term Timber Sale Licenses in a Public Sustained Yield Unit and toplan their harvesting to meet mill requirements over a longer period.' Thestumpage paid on T.S.H.L. lands was appraised by the Forest Service, and renewalof the license was a mere formality as the license was designed to ensure thelong-term utilization of the stand by the large-scale mill owner. The T.S.H.L.became the most important form of timber access license in the P.S.Y.U. categorywith 60% of the P.S.Y.U. harvest and a total of 30% of the provincial cut by1976." 51The government also initiated one other form of license in the post-war period: the Mill License. Only four of these licenses had been issued by1976. Under the terms of the Mill License the licensee was obligated toconstruct and operate a mill." The license was for a period of 21 years butunlike other licenses there were no rights to any fixed stand of timber. TheForestry Minister offered only letter assurances that he would direct'appropriate' resources to the mill. These licenses were first granted in 1969,the first being for a pulp mill in the East Kootenays after the Pulpwood AreaHarvesting Agreement for the region was cancelled.'The British Columbia government's timber access policies clearly evolvedin favour of large-scale enterprises in the post-war period. Large allocations22of timber for large-scale production, the gradual elimination of competitivebidding processes, and the introduction of more sophisticated forestry techniques(which only the large firms could afford) promoted economy of scale development.But, the most important consequence of government tenure access policies thatMacMillan Bloedel and B.C.F.P. exploited in the post-war period was thesystematic subtraction of value from the timber resource.The Subtraction of Value: The Means of Orienting the Development of theCompetitive DynamicAt the end of the 1970's, a large-scale forest company operating inB.C. faced a wide variety of access costs. These costs included royalties,stumpage, forest fire costs, road building costs, and taxes on inputs, incomeand logging. Royalties were charged according to statute on Schedule A landtenures. Stumpage was charged on timber sales derived from harvesting licenseson all Schedule A & B lands" but was not charged to Timber Leases and Licenses,Pulp Licenses and Leases, and Dominion Timber Berths (or O.T.T. 's) . Another formof rent was charged on 0.T.T.'s: "from $0.25 an acre for pulp licenses; $0.50per acre (Timber Licenses, Dominion Timber Berths, or timber sales other thanpulp. Timber Sale Harvesting Licenses were assessed at $0.04 per c.c.f, and TreeFarm Licenses (B) at $6.40 per square mile"." Those firms that owned 0.T.T.'son lands acquired prior to April 7, 1877, paid the following costs: noroyalties; forest fire protection $0.12 per acre; and provincial property taxesof 1.1/2% on 'timberland', 3% if the land was classified as 'Wildland', or 1%assessment on Tree Farm land." A logging tax of 15% was charged on loggingprofits in excess of $10,000.00 and school taxes were also applied in conjunctionwith the assessment of the local board." Lands that were acquired or grantedbetween April 7, 1887 and March 2, 1914 paid all charges according to theirstatutes." Forest companies also had to pay forest fire protection assessments23of 12%, logging taxes of 15% of values in excess of $10,000.00, provincial taxes(as above), and applicable school taxes on these lands."Although these taxes and rental fees were low for the relatively smallamounts of timber that they applied to, by far the most important provincialgovernment mechanism for devaluing the resource was the stumpage appraisalsystem. The process of stumpage appraisal, introduced in 1912, was and continuesto be the most contentious issue surrounding the forestry business in B.C. Forsome, the monetary price of gaining access to B.C.'s forest resources has beentoo low, resulting in poor allocation of forest resources, higher than normalprofits and wages for industry and workers, lower revenues for government, plantinefficiencies (i.e. larger economy of scale plants than the normal operationof the market mechanisms would have permitted), and wasteful forestry practicesin general. For others, the stumpage system has fairly appraised the 'fairmarket value' of the timber: very closely approximating a free market mechanismbringing together willing buyers and willing sellers of the resource. In theeyes of industry, the evaluation of timber should have been (and was) assessedas follows: "Standing timber derives its commercial value from its convertibilityinto saleable products at a profit. The value of standing timber is thedifference between the sales value of the marketable end products, and the costof investment.' Aside from the philosophical difficulty of acceptingindustry's valuation of timber, critics have pointed out that there werestructural deficiencies with a timber assessment system that accepted theindustry's view of the value of the timber. The system was flawed in two keyrespects: by the increasingly small number of buyers and sellers who wereparticipating in the marketplace, and by geographical constraints that limitedcompetitive pressures. According to critics, the government's orchestration oftimber assessments around privately owned processing centres in designatedgeographic areas led to the undervaluation of timber resources in B.C.24The first geographically based stumpage appraisal system was establishedfor coastal forestry. Logs were assessed as 'end products' on the Vancouver LogMarket. As forestry moved into the interior of the province, a new system forthe assessment of logs became essential. As the transport of logs was expensive(even for smaller interior species), it was difficult to establish a log marketfor the more geographically dispersed interior forest industry. Here timberappraisal became concentrated around 'zonal' productive processing centres, and'lumber' was used as the end product measure, not 'logs'. As on the coast,appraisal was based on the 'quality', 'type' and 'quantity' of end product.Allowances were made for appraisals between timber harvested according to closeand intermediate utilization standards. In calculating the stumpage rate, thegovernment included all manufacturing and marketing costs, and the sales valueof the end products (allowing for an acceptable level of profit).The end products (logs and lumber) were graded by quality (1,2,3 andculls), and according to their species (cedar, spruce, fir, cypress, pine,hemlock, cottonwood)." Each log was evaluated in 32 foot sections by timbercruisers who worked for the companies concerned. The Forest Service monitoredthe cruiser process. When there was a mixed degree of forest resources on thestand, the company paid for each species proportionately. The industry arguedthat this system was unfair in so far as it added to the cost of evaluating thestand." (Payment of stumpage was assessed against each end product accordingto its identification by a set of 'minimum' or 'above' value standards)."Billing for the timber was made through the scaling process. The B.C.Forest Service sold timber on a 'pay-as-cut' basis. Each buyer paid stumpageas the logs were scaled at the processing or zonal centre. In the coastallogging area, for example, seven zones existed by the 1970's and pulp and sawlogswere appraised at each of seven regionally based centres." It is important tonote, however, that the market values assessed at one coastal centre were not25different from the others. The industry complained about this method, arguingin favour of a plant-specific appraisal system, but the government refused toalter the process, arguing that the cost of administering such a system wouldhave been prohibitive.The government has also been sensitive to permitting the deduction ofprofit and risk allowances in the stumpage assessments as a percentage ofoperating costs.' The profit and risk allowances were directly tied to thesales prices of the end products, as well as to general economic conditions.J.J. Juhasz reflects the complexity of the government's rebates in a 1976 essayentitled "Methods of Crown Timber Appraisal in B.C.": "The British ColumbiaForest Service system allows a basic return (on operating costs plus stumpage)of 10%, plus variable risk allowances as follows: market risk 0-3%; defect andbreakage risk 0-2%; risk of chance 0-4%; pioneering risk 0-2%; investment 0-2%, northcoast factor 0-2%"" These factors were integrated into thegovernment's stumpage appraisals on a case-by-case basis determined by the salesvalue of the end products.The sales value of the end products was determined by the B.C. ForestService using actual pulp mill and sawmill transaction data provided by the B.C.Forest Resources Council. Assessments were based on species and volume cut asdetermined by the firm's cutting permit. The government divided the end productsinto three categories: Sawlog number 1; Sawlog number 2; and puiplog, andassessed each accordingly." Until 1974 no assessment value was placed on chipsthat were manufactured by sawmills and used in the production of pulp.Critics argued that this stumpage system with its complex deductionsled to a systematic devaluation of timber resources. Their arguments includedthe following points. First, there was no end product value assessment for chipsor other residual wood products until the passage of the 1974 Timber ProductsStabilization Act. Secondly, the companies performed essential cruising26assessments leading to a conflict of interest as companies had a significantinput in determining their own taxation rates to government. Thirdly, theallowances for profit, costs, recovery factors, and the sales values of endproducts were too lenient, as all were designed to promote industrial growth atthe expense of potential government revenues and efficient forest management.Fourthly, little consideration was ever given to an alternative evaluation offorest resources (e.g. other uses for parks, tourism and enhancing the qualityof life). Finally, the trading and assessment of end products by only onesupplier (the government), a few select sellers, and few buyers provided anuncompetitive marketplace for timber resources, the most blatant example of whichwas the Vancouver Log Market (V.L.M.).The Vancouver Log Market has steadily declined in importance in thepost-war period due to the rise of large-scale forestry enterprises in B.C.Prior to World War II, the V.L.M. was an important exchange between independentsuppliers and manufacturers. However, after the war, the market degenerated intonothing more than an uncompetitive exchange of convenience between largecorporations reciprocally buying and selling specialized grades to keep theirproduction lines functioning: "These sales are frequently made subject to anexplicit or implied condition that the purchaser will later make available tothe seller other logs more suitable to his needs on a reciprocal basis, at themarket price prevailing at the time of the subsequent transaction." 66 Smallerfirms were gradually eliminated from these trading arrangements, and a lack ofaccess to timber on the V.L.M. gradually reduced the number of independentmanufacturers to the point in the 1970's where they could not depend on theV.L.M. for supplies. Independent firms were forced either to depend on theirown timber rights to continue their production or to sell out altogether.In theory, the purpose of the V.L.M. was to ensure the availability ofa variety of species, sizes, and specialized purpose grades to the largest number27of buyers. In reality, it became a specialized grades purchasing centre forlarge-scale enterprises. The 'cosy club' atmosphere of the V.L.M. reflected thedeterioration of market mechanisms designed to facilitate the competitivetransfer of supplies to buyers. However, the deterioration of the V.L.M. wasonly the most significant manifestation of the government's policies, whichsupported large-scale production through the consignment of vast amounts oftimber under various licensing agreements. Smaller-scale firms were starved ofinformation on timber availability, on timber sales on the V.L.M., on pricescharged on the V.L.M., and on grades, quality and the availability of speciesin general.There was no log market in the interior. Transport costs and a lackof infrastructure resulted in geographically based markets centred aroundproduction units (either sawmills or pulp mills). Professor Pearse notes in hisreport, however, that limited log trading did occur "...between companies forspecial types of logs, and [there was also] sales of private timber by farmersand ranchers."' The apportionment of timber to large-scale units, especiallyunder Third Band licensing agreements, precluded the evolution of free marketcompetition for resources. Large-scale enterprises were also reluctant to puttheir excess resources up for sale for fear of exceeding their 'needs' under theterms of their access agreements, and, as a consequence, having their quotasreduced."The trade in residual products was also seriously constrained. In theinterior transport costs and contractual obligations directing the flow of chipsto the nearest pulp mill served to preclude the evolution of an open market.There were more pulp mills and sawmills on the coast, so the trade in chips wasless directed and slightly more competitive. But it is important to note thatin both regions, the cost of chips as inputs for pulp production was artificiallylow. This was due to the fact that pulp chips were not taxed as end products.28Under the terms of the 1974 Timber Products Stabilization Act (which was enactedto transfer some of the residual value of the chips to a stagnant sawmillindustry and not to trap revenue for the government), chip prices were set atminimum standardized rates. The government also made no attempt to tax or toencourage marketing arrangements for other residual products including sawdustand shavings.Finally, the government used the stumpage system to reduce the heavycapital costs associated with the building of logging roads. The cost ofbuilding roads (temporary, permanent or intermediate) was a key expenditure forthe forest companies. Forest companies could write-down the cost of their roadbuilding over time through government concessions on stumpage charges. For roadsconstructed in the interior, the process was slightly different. No stumpagewas due until all of the approved costs of construction had been recouped.'Maintenance costs were treated in all stumpage appraisals as current operatingcosts. The government's road stumpage concessions depended on the degree ofdifficulty in building and maintaining the road, the duration of time that theroad was in operation to extract timber, and the possible alternate uses of theroad by the province.Thus, the government contributed to the evolution of large-scaleenterprises in three major fashions: by granting special concessions in termsof timber allocation; by subtracting value from the resource; and, by distortingthe competitive bidding process for timber. Large tracts of superb timberlandwere assigned to the forest companies in return for the construction of enormousprocessing centres. (This was especially the case for MacMillan Bloedel atNanaimo-Port Alberni and for B.C.F.P. at MacKenzie). In order to attract capitalinvestment, the rents charged by the government for timber access were notdesigned to capture the full market value of the resource. Timber licenses weregranted for extended periods, which allowed for continuity in production, and29provisions were also enacted to ensure that it became difficult for competitorsto bid against the existing industrial arrangements. Competitors had todemonstrate that they would have been capable of sustaining or exceedingproductivity levels of existing plants before they were eligible for licensing.Technological transformations also had a significant impact on thegovernment's land tenure agreements. Changing harvest, process and transporttechnology opened up opportunities for the cultivation of more and more species.This change was most evident in the interior of the province where new cuttingtechniques made it possible to cut smaller species more economically, and newlicenses were designed for this purpose (Pulpwood Harvesting Agreements). Newclose utilization standards were introduced in order to ensure that allharvestable timber was efficiently consumed. Sawmills were given extra cutquotas in order to encourage the production of chips for the pulp mills. Theseconcessions were offered in addition to the large timber allocation that wasgiven to the pulp mill itself. Ever greater efficiencies in the forest and inproduction served to support the need for enormous allocations of timberresources.The provincial government undertook two further measures (one inconjunction with the federal government) that served to promote large-scaleforest enterprise development: the use of taxation arrangements to provideinternal funds for the financing of major projects, and the passage of a seriesof reforestation initiatives that were only affordable to the largest firms.The provincial and federal governments were generous in the provisionof depreciation and depletion allowances. The governments considered taxdeferments as a means of promoting regional development in the hinterlandthroughout the post-war period. Due to space restrictions it is impossible todiscuss the complexities of these arrangements, but an analysis of general impactis possible. Throughout the post-war period, the two governments allowed30MacMillan Bloedel and B.C.F.P. to claim capital cost allowances in excess ofdepreciation for many of their major projects. Both firms were adept at taxdeferments through transfers and tax reclassification. (In 1960, for example,B.C.F.P. transferred its total accumulated deferred tax allowances of $4,835,000to its 'earned surplus' category, in order to pay its taxes on a 'currentlypayable' basis. 72 By changing the provisions under which the company deferredits taxes, it was able to reduce the amount of deferred taxes payable to thegovernments by $562,000.)" It is obvious that the two governments encouragedthis process through the passage of tax legislation designed to permit thereclassification of deferred taxes.There were also a number of other quite permissive tax concessions.Both levels of government permitted concessions on the depreciation on buildings,machinery, equipment and write-downs on their road building costs. Almostincredibly, the rationalization expenditures of the two firms were also factoredinto tax concessions. The 1971 rationalization of B.C.F.P., ordered by Norandaafter its 1969 purchase, was a case-in-point. B.C.F.P. managers amalgamatedB.C.F.P.'s 24 subsidiaries together at public expense in 1969 (the number ofsubsidiaries reflected Argus' requirement that the liability for losses beisolated as much as possible from the holding company as the following quotationtaken from the 1971 annual report indicates): "In the consolidation, the assetsof all subsidiaries are revalued to reflect the cost of acquiring the shares andthe excess over book value has been allocated principally to timber cuttingrights, logging facilities and manufacturing plants and equipment. The adjustedvalues are being written off against earnings by appropriate charges fordepletion and depreciation."'" In short, B.C.F.P.'s rationalizationexpenditures were either absorbed against timber access provisions for publicresources or written off as deferred taxes. Thus, it is possible to make a casethat to some degree the private rationalizations of this company came at public31expense with regard to foregone taxation revenues.The two governments offered reasons for this generosity. Depreciationallowances were calculated to account for the demanding nature of the forestbusiness. Weather, wood conditions and the use and abuse of machinery all tooka toll on plant and equipment. Depletion allowances were offered by bothgovernments to compensate for the cutting of irreplaceable timber resources bythe two firms. Both firms relied on the internally generated funds providedthrough deferred taxes (earnings minus taxes currently payable) as part of theirgrowth strategies. Both firms defended their privileges by arguing that on thewhole the industry was already very highly taxed, and that the tax defermentprovisions were a miserly concession to an industry that was gradually beingtaxed into uncompetitiveness. By the end of the period under investigation(1945 - 1979), these tax advantages were being eliminated by inflationarypressures and by rising costs that were undermining economies of scale. Theintegrity of the accounting system also was being seriously compromised by theseinflationary cycles. In the mid-1970's the depreciation and depletionprovisions, which were an integral part of generating internal cash flow, werenot adequately compensating for inflation. B.C.F.P., for example, estimated thedamage inflation was doing to its returns in the 1976 annual report: "Forexample, the company's market pulp manufacturing facilities at MacKenzie, BritishColumbia were completed in the fall of 1972 at a cost of 65 million dollars or$112,000 per installed daily ton. It is estimated that it now would cost 150million dollars, or $258,000 per installed daily ton to replace the same marketpulp facilities. Reported earnings include income taxes and depreciation basedon historical cost of assets rather than current values. As a result, currentand past cash flows do not permit the funds to replace facilities at the end oftheir economic life."" Thus, many of the tax advantages which B.C.F.P. and M.B.had used to foster their productive expansion were being eroded by inflationary32pressures in the mid-1970's.The government's reforestation policies also encouraged the emergenceof large companies in the post-war period. Following the publication of theSloan Royal Commission Report on forestry in B.C., the government adoptedEuropean sustained yield cultivation practices. Its sustained yield policiesinvolved a complex series of governmental and private business responsibilities.Sustained yield forests made significant advances after 1945. Earlierreforestation attempts involved patch logging and seed tree systems in the1930's, and an initial foray into thinning practices was made in the 1940's.But planning and preparation of sites (slash disposal), research into treespecies and their economic potential, survival potential and growth rates,optimal spacing arrangements, thinning practices, and fertilization programmeswere all transformed significantly in the post-war years. Assessments were nowmade of soils, tree cutting techniques, stand maintenance practices,technologies, and chemicals in order to determine optimal yields at the lowestpotential cost (both in monetary and environmental terms). While government wasconcerned with the replenishment of public resources, industry was interestedprimarily in assuring constant supply for its productive investment, and indeducting their silvicultural costs for tax purposes.Perhaps the most significant development of the post-war period wasthe widespread philosophical acceptance of the principles of sustained yieldforestry. Sloan's policies were implemented, and in the multinational segmentof the forest business, corporate directors gradually accepted that silviculturewas a necessary cost of staying in business. Business argued with governmentover silviculture, taxation arrangements, cutting regulations, post-logging cleanup, site preparation for logging, reforestation, environmental and alternate useconcerns, and stumpage payments, but generally corporations accepted the needfor significant reforestation efforts. In 1945, production was set around33resources that were perceived to be endlessly profitable, but by 1979 forestcompany executives recognized that production was going to have to be moreflexibly orchestrated around sustained yield growth. As part of assuming greatercare for the forest resources, private firms also had to assume increasingresponsibilities for the prevention and suppression of insects and fire. Theelimination of pests increasingly became subject to environmental pressures asa result of sensitivities to the indiscriminate use of chemical pesticides.Changes to cutting regulations, especially the introduction of close utilizationstandards, altered forestry practice resulting in higher cuts and declines inresidual waste.The one obvious drawback to this policy was that only the largest firmscould afford to implement it. Only the largest firms could afford thesilvicultural research, harvesting, processing, and distribution of the resourceproducts, as well as the replacement of timber resources. The reforestationeffort associated with sustained yield forestry served to eliminate many of thesmaller firms as well as act as a barrier to new firms that had to calculatethese measures as part of their costs of doing business. Yet, the measures didensure that some prohibitions were placed on the indiscriminate consumption ofprovincial resources.Thus, with a large measure of certainty, it can be argued that thegovernment pursued policies that promoted the establishment of competitive large-scale enterprises in the post-war period. These policies fostered an orientationtowards mass produced, undifferentiated products. The two firms examined in thisessay successfully developed this form of production. As we shall demonstrate,they achieved mixed success. B.C.F.P. and M.B. secured the competitiveadvantages necessary to undifferentiated production but, due to their competitivedisadvantages, they failed to establish a business dynamic promoting thedevelopment of highly differentiated, value-added products.34Chapter IIISources of Competitive Success:The Integration of Production & the Achievement of Economies of ScaleThe government's policies were successful in leading business to createlarge economy of scale enterprises. The devaluation of the timber resourceinduced large-scale investment into the industry by offering the prospect ofreduced timber input costs towards the manufacture of undifferentiated products.Lower input costs could then be converted into competitive prices for forestproducts (provided that costs could be controlled over time and that productiveeconomies of scale could be realized). Thus, two factors are most important tothe production of undifferentiated products: controlled input costs and thegeneration of a capacity for large-scale output. The government's policiesoriented business strategy towards capitalizing on both of these objectives.MacMillan Bloedel and British Columbia Forest Products used two particularstrategies to achieve competitive success in their businesses. The first wasto pursue an active growth policy of acquisition and merger of smaller-scale woodproduct enterprises, followed by undifferentiated wood product diversificationand geographic expansion. The second was to develop large economies of scaleproduction in undifferentiated forest products. These dynamic competitiveadvantages were sufficient to bring both of the firms a measure of success, butthey also produced some competitive disadvantages (chapter IV) which preventedthe firms from moving to more differentiated production. In this chapter, thesecompetitive advantages will be examined within the separate post-war historiesof both companies.The post-war period was significant for the number of mergers,'35acquisitions and joint projects in the forest sector. The merger strategiespursued by both MacMillan Bloedel and B.C.F.P. allowed for the realization offully integrated capacity utilization. By integrating with smaller firms,B.C.F.P. and MacMillan Bloedel could offer transport and supplier cost savingsto their buyers that could not be matched by companies of more limited scale.As these two big corporations began to invest in infrastructure to increase thescale of production, their costs of manufacturing undifferentiated wood productsbegan to fall, creating prices that could not be matched by the increasinglyuneconomic small forest product companies. Many of the smaller firms had tenureaccess to some of the finest timber in B.C. but did not have the productiveinfrastructure to exploit its potential. In many cases, B.C.F.P. and MacMillanBloedel purchased smaller productive units only to consolidate their timberholdings. They were frequently less interested in upgrading their newly acquiredindustrial plant.B.C.F.P. was fashioned through the amalgamation of various uneconomicassets. E.P. Taylor, a Toronto-based beer magnate, made his reputation andearned considerable financial benefit by combining and rationalizing theproductive and distributive capacity of industries throughout Canada. He useda holding company, the Argus Corporation, to acquire industrial assets in manyprimary resource sectors (see complete company histories below). B.C.F.P.constituted Argus' principal forestry holdings. B.C.F.P. continued the processof merger, acquisition and joint project administration throughout our period.MacMillan Bloedel was an even more spectacular example of complementary woodproduct industrial mergers. H.R. MacMillan began his enterprise in the shippingof specialty wood products (railway ties) and sawmill equipment, but integratedbackward into production in a major fashion in the post-war period by procuringthe assets of J.H. Bloedel in 1951. Bloedel's sawmill assets had reached theirproductive limits (as a direct result of unambitious management) and were36procured to be part of a larger integrated complex. In 1959 MacMillan & Bloedelmerged with the Powell River Company in order to capitalize on pulp and paperproduction. The American management of the Powell River Company had not beencommitting the necessary financial resources to upgrade the productive capacityof the firm. Through a variety of clever manipulations, the management of whatwould eventually become MacMillan Bloedel was able to systematically subordinateand then eliminate the influence of the Powell River Company's management, whoseskills were procured as part of the merger. This was the only instance wherea merger produced a power struggle in MacMillan Bloedel.While integrated production offered some cost savings, it was the low-cost production of wood products at high volume that produced the key to theirsuccess. In his earlier book, Competitive Advantage: Creating and SustainingSuperior Performance, Michael Porter defines the characteristics of these firmsas follows: "Low-cost producers typically sell a standard or no frills productand place considerable emphasis on reaping scale or absolute cost advantages fromall sources.' Moving to capitalize on economies of scale in production wasthe most significant industrial strategy employed by the two firms. Porterdefines economies of scale as follows: "Economies of scale arise from theability to perform activities differently and more efficiently at large volume,or from the ability to amortize the cost of intangibles such as advertising andR & D over a greater sales volume. Economies of scale can result fromefficiencies in the actual operation of an activity at higher scale as well asfrom less than proportional increases in the infrastructure or overhead neededto support an activity as it grows."" Thus, economies of scale can come out ofa more efficient organization of the movement of goods and services in and outof the production unit as well as from "...machining, packaging, assembly,equipment maintenance, testing, printing, and facility operations.' Theeffective organization of higher volume output, from the acquisition of inputs37to low-cost production and efficient distribution of output ("...warehousing,materials handling, delivery vehicle operation, order processing, andscheduling...")," provided opportunities to realize supply, production anddelivery cost savings which could be passed on to buyers in the form ofcompetitive prices. It also offered opportunities for greater aggregate profitsderived from higher volume outputs.In the post-war period both MacMillan Bloedel and B.C.F.P. were ableto achieve extraordinary production gains from their investment in economies ofscale. The enormous size of their forestry products complexes at MacKenzie andCrofton (B.C.F.P.), and Powell River, Nanaimo and Port Alberni (M.B.), attestedto the achievement of large-scale economies in the production of undifferentiatedwood products. These large-scale integrated production units offered severalopportunities for economies of scale.What then were some of the economies achieved? The largest was realizedin the integration of pulp production and paper-making. The cost of transportingpulp was very expensive. By integrating pulp facilities with paper-makingfacilities through interconnected chutes and other transport devices, theeconomic manufacture of both pulp and paper could take place at (B.C.F.P's)Crofton, (M.B.'s) Port Alberni, Nanaimo and Powell River, and the (B.C.F.P's)MacKenzie complexes. Integration avoided having to dry, package and transportthe water-laden commodity to a processing centre. Integrating the two functionsalso provided opportunities in fuel savings in so far as large hog fuel burningpower complexes could be constructed to serve the energy needs of both types ofproduct manufacture. Costs were also reduced with the full integration ofproduction with transport mechanisms. Maintenance of the two facilities was alsoeasier due to the possibility of allowing staff to perform specialized technicalfunctions for the entire integrated plant.The companies also realized a whole series of scale economies by38locating the pulp and paper facilities closer together. Containerboardmanufacture was sub-divided into corrugated and fibrous materials.' Bothcompanies also capitalized on manufacturing linerboard at their kraft pulp mills.The costs of producing and transporting linerboard were quite high, and, as aresult, a large plant was necessary to produce this commodity at economies ofscale. The efficient integration of wood residuals into production also yieldedsignificant scale economies as the following indicates: "Manufacture of lumbercreates waste in the form of sawdust, edging, slabs, bark and on occasion,defective logs. Sawdust, edging, slabs, and defective wood can go intoparticleboard. After being peeled for plywood, nearly 50% of the log remains,which can be sewn into studs and/or chipped for pulp. The possible combinationsare many."' Thus, several potential scale economies could be reaped throughintegrated production.The economies of scale were somewhat less impressive in lumbering andsawmilling. Technological advances such as more efficient and specializedcutting tools (tree sheers), power saws, and new forms of moving the raw resourcein the woods by grapple yarders, helicopter logging and trucks increased outputat lower cost. Mechanization in the woods assisted the development of economiesof scale. Cost-cutting measures in logging operations coupled with theirintegration into large-scale companies helped reduce the average cost-per-production unit as the size of the plants increased. Production methods inB.C.F.P. and M.B. sawmills were quite efficient. The firms upgraded performanceby introducing highly sophisticated cutting and processing technologies. Themost significant development came with the introduction of the Kerf circular saw,which could cut much smaller logs at high speed. This technological advancecombined with the introduction of close utilization standards revolutionized thesawmilling industry. The added bonus of selling wood product residuals alsoadded to the capacity to achieve significant economies of scale production. But39it is important to note that these scale advantages were less spectacular thanthose attached to the transport and manufacture of integrated pulp and paperproduction.The plywood and veneer industry offered even fewer opportunities forthe realization of scale economies. The main constraint on plywood productionwas not an absence of new technologies, but, rather, the lack of access to theU.S. market. By the mid-1970's shipments of plywood were blocked by a U.S.tariff of 20%." Cutting technologies also made it possible for these industriesto exploit new species in the B.C. interior, but the barrier to the U.S. marketsignificantly reduced the prospects of this product throughout the post-warperiod.To achieve economies of scale production both companies undertook thedecisions to construct large-scale integrated forest complexes. Both companieswere involved in pulp and paper production, lumbering (sawmills), plywood,packaging products, special residual products (e.g. particleboard), and veneerproducts. The firm's managers made an analysis of whether or not to invest ineach prospective business in order to maximize their profits. The assessmentof projected returns was set against prospective costs. Local cultivation costsassociated with the slope of the terrain, climatic conditions, and projectedlogging, falling, yarding, and transport expenses all had to be included. Thelong-term supply curves of cultivable timber also had to be assessed usingvariables on quality, height, weight, species, and location relative to theprocessing centre. Managers also had to anticipate markets, taxation rates, andthe government's attitude to the investment in general, as well as the risingmaterial and administrative costs of doing business (repairs and fees). Inaddition to this, managers had to evaluate the quality and cost of labour andundertake training expenses. Finally, managers also had to factor in the generalbusiness conditions based on past history (e.g. cyclical demand patterns and40supply discontinuities over time).Despite having to analyze all of these variables, MacMillan Bloedel andB.C.F.P. were able to overcome the difficulties associated with establishingenterprises. The firms performed all the necessary economy of scale tasks oforchestrating undifferentiated product production, analyzing and exploitingmarket opportunities, successfully managing distribution networks, andcapitalizing on local advantages.British Columbia Forest Products: British Columbia Forest Products was established in 1946 through theArgus Corporation, described in a 1977 study as a "closed-end investmentcorporation.' Argus owed much to the creativity and business acumen of itsfounder, E.P.Taylor. The Argus business empire became one of the largest inCanada with holdings in "Canadian Breweries Limited, Massey-Ferguson Limited,Dominion Stores, St. Lawrence Corporation, Dominion Tar & Chemical Company,Canadian Equity & Development, Standard Broadcasting Company, and BritishColumbia Forest Products.'The founder of Argus, E.P. Taylor, shrewdly capitalized on rationalizingindustries through the holding company mechanism." During the 1930's and1940's, he gained valuable experience by consolidating the Ontario brewingindustry. He acquired 17 smaller units of production and combined them into sixproduction centres. By 1940 the beer brands of this new Canadian BreweriesLimited were reduced from two hundred to nine." Taylor judiciously used hiscapital to expand the small-scale family company, Brading Breweries, into aformidable brewing concern and in the process realized that significantopportunities existed in rationalizing Canadian business. To this end, followingthe completion of his work for the government of Canada in the Second World War,E.P. Taylor established the Argus Corporation. The first major Argus purchases41included Canadian Industrial Investments Limited and Ivasco Limited, and evenat this early stage H.R. MacMillan was a significant shareholder in ArgusCorporation.The personal connection between H.R. MacMillan and E.P. Taylor was toprove mutually beneficial throughout the post-war years. The two men had becomeacquainted as a result of their $1.00 a year service to the Canadian war effort.At MacMillan's inducement, E.P. Taylor became involved in the west-coast lumberindustry by procuring the Victoria Lumber Company on MacMillan's behalf (theowner was personally opposed to selling to H.R. MacMillan) through Ivasco Ltd.in 1945. Realizing the opportunity for rationalizing the lumber industry, andanticipating a significant demand due to war damage reconstruction, Taylor becamemore deeply involved in the B.C. forest products sector early in 1946. OnJanuary 31, 1946, Taylor purchased the assets of Vancouver Cedar & Spruce Ltd.,which was subsequently renamed British Columbia Forest Products. Immediatelyfollowing this acquisition B.C.F.P. procured the assets of the Sitka SpruceLumber Company Limited for $280,609." At this point, B.C.F.P. began its movetowards integrating production by incorporating many smaller and inefficientcompanies into a larger-scale firm. Argus procured the assets of severalcompanies including: "Hammond Cedar Company Limited, Industrial Timber MillsLimited, Cameron Investment and Securities Company Limited, Cameron BrothersTimber Company Limited, Cameron Lumber Company Limited, Hemmingsen-CameronCompany Limited, Osborne Bay Timber Buyers Limited, Renfrew Holdings Limited,and Realty Holdings Limited.'" These companies' assets were transferred toB.C.F.P. control from Argus for a cash sum of $8,988.462." To finance thepurchase B.C.F.P. issued 1.5 million public common shares at $5.00 each, $3.5million of 4% bonds at par, and 2.5 million or $600,000 worth of privately issuedbonds (2.3/4%) which were sold to E.P. Taylor and his associates." Argus'initial investment in the company was 100,000 shares, which it procured on May4231, 1946. Argus eventually increased its holdings to 500,000 shares or 13.4%of B.C.F.P., but it never held more than 20% of B.C.F.P. (1954) in the entirehistory of its stewardship."The provision of capital to procure mainly smaller-scale assets createdmany advantages for Argus. By combining a variety of wood products firms, Arguscould rationalize management, and prices and gain greater control over output.E.P. Taylor was unapologetic about his role in eliminating uneconomic forestenterprises in B.C. In an interview cited by Sue Baptie, he inferred thatmanagerial and scale inefficiencies would have eventually destroyed these firmsover time. Small firms lacked the focus necessary for growth strategies becausethey were merely concerned with survival and not productive economic growth:"Most of these small companies are family owned things and some of them are verymarginal, you know. These small family companies usually become available,eventually. They are worried a bit about death taxes too, and now about capitalgains. But that's typical. That's the trend in almost every business. Thelittle ones either don't succeed, or if they do succeed, when the time comes theywant to get all or part of their money out.""B.C.F.P. had solid financial support for acquisitions and could obtainadvice on the organization of scale economies, but it had a serious problemsecuring a continuous supply of timber for its industrial plant. In order toalleviate this problem Argus authorized (beginning in 1946) the purchase of avariety of timber companies with favourable access to timber. These companiesincluded: "Blackstock Logging, Forest Investment Company, Hexon Timber Company,Jervis Inlet Timber Company, Oscar-Nemi Company, Malahat Logging Company, andSan Juan Bay Lumber Company.' These major timber acquisitions wereconcentrated around Pitt Lake, Jervis Inlet and Port Renfrew. Although B.C.F.P.secured access to timber, and had procured a sufficient number of productionfacilities, many problems still remained. B.C.F.P's random purchase of companies43only available on the market in the mid-1940's meant that company assets weregeographically spread out, and, as a consequence, the company had to enduregreater distribution costs than some other firms.The company complemented its policy of acquiring smaller-scaleproduction with a program of investing in new physical plant. The first majorproduction investment of the early 1950's was the Victoria plywood complex. TheVictoria plywood mill was a joint venture between what would later becomeMacMillan Bloedel (then the H.R. MacMillan Export Co.) and B.C.F.P. In orderto supply veneer to the Victoria plywood mill, a new B.C.F.P. sawmill wasconstructed at Youbou. B.C.F.P. issued $5 million (5.1/2%) sinking funddebentures to pay for this major capital expenditure and the Victoria plywoodplant began operations in 1951. Thus, a pattern was emerging: it was obviousthat Argus was determined to ensure that the firms in its corporate portfoliowere financially self-sustaining. Argus was committed to obtaining profitsderived from its holdings, not in absorbing the risks associated with earningthem. Argus' commitment to industrial expansion was conditional on continuedprofit growth.The next expansion project of the 1950's was a pres-to-log plant builtnear the Victoria plywood plant in 1953. Pres-to-log wood board used woodresiduals generated by the plywood plant, helping to capture the full economicvalue of the log. Locating a new product plant adjacent to the plywood plantdemonstrated the measure of B.C.F.P.'s commitment to integrated expansion.Situating productive units together reduced transport, energy and productioncosts.Thus, even at the earliest stages of its development, B.C.F.P. soughtto achieve economies of scale by pursuing a policy of constantly merging andintegrating facilities to reduce costs and increase productivity, and throughthe construction of large-scale production units. Capital expenditures for whole44log barkers for sawmills and new production facilities at the new Hammond sawmillfor more specialized shake production were among the earliest scale commitmentsundertaken by the firm. A new veneer plant was constructed and integrated withthe Cowichan sawmill. Chipping facilities were installed at all of the sawmillsto provide for hog fuel. The firm also embarked on a machinery acquisitionprogram for its logging operations. The chief technical advance in the woodswas the introduction of trucks into logging sites to replace the railroad.Managers ensured that B.C.F.P. facilities were using the latest availabletechnology and were being integrated to take full advantage of timber resources.Timber recovery and maximum use of the resource were top production priorities,and the log barkers that were introduced in the early 1950's were necessary tocut the logs properly to recover pulp chips.Integrated wood products production allowed for the full-scaleproduction of pulp and paper. The company sought to use chips from the sawmillsand hemlock logs for the production of pulp, and, in 1955, announced itsintention to construct a pulp facility at Crofton with a rated capacity of 425tons of kraft pulp per day." It had always been E.P. Taylor's intention tobecome involved in the lucrative pulp and paper market. From 1951 significantefforts were devoted to securing a Forest Management License (later T.F.L.) fora pulp mill at Crofton, but the firm was not successful in its applications until1955 (F.M.L.#22). 96 B.C.F.P. embarked on the Crofton project in 1955 for thefollowing reasons: The timing was propitious in so far as wage rates in theconstruction industry was in a low cycle; and, the productivity projections forCrofton were positive. The mill was also superbly located to capitalize on cheaptimber sources. In addition, the Crofton mill was well situated to capitalizeon the efficient transport and sorting of logs in the water at low-cost. Theport facilities were ideal for the storage and movement of goods to American andoffshore markets."45B.C.F.P. immediately sought out joint investors and marketing agentsfor the Crofton project, and, to that end, the Scott Paper Company was inducedto purchase shares in the firm. Scott agreed to take a 29% interest inB.C.F.P., "and B.C.F.P. secured the funds necessary for Crofton expansion without recourseto significant borrowing. It also gained access to Scott marketing networks forselect Crofton mill products. Scott entered into a profitable corporaterelationship with B.C.F.P. in order to secure access to pulp supplies for itsmanufactured products. Argus' influence on B.C.F.P. was diluted but it stillwas a significant shareholder in the company. B.C.F.P. managers also contractedwith the Mead Corporation in 1957 to provide marketing arrangements in the UnitedStates and elsewhere for pulp not committed to Scott Paper Company. B.C.F.P.could set prices and control outputs at the production source, but markets wouldbe serviced by Mead and Scott Paper Company sales outlets. B.C.F.P. gainedaccess to valuable marketing and pulp manufacture skills through thesearrangements.The first bleached pulp production from the Crofton mill began in 1958but between 1955-1958 B.C.F.P. had suffered some setbacks. The president ofB.C.F.P., H.G. Munro, died unexpectedly. The Crofton mill construction costsran $10 million over budget for a total of $38.4 million due to increasedmaterials and labour costs." B.C.F.P.'s professional reputation was alsosullied by a scandal involving the B.C. Forest Minister concerning improprietiesalleged in securing F.M.L.22 for the Crofton mill. The company was found notguilty of three charges and the fourth was stayed."' B.C.F.P. returned to amore stable footing by purchasing 15,669 acres of timberland adjacent to F.M. L. 22in 1959. The Kapor Sawmills Limited company was also thrown in for good measure,but the physical plant was of less consequence than the excellent timberresources of the coastal region. The timber purchase created room for expansionof productive pulp capacity at Crofton, and a decision was undertaken to expand46to 600 tons per day in 1959."' The expansion was assisted by the purchase of15,669 acres of timber from Kapor Sawmills Limited. 102 Thus, securing access totimber assets as well as integrating them with supplier networks was an importantcomponent in the productive expansion of these large-scale units.In 1961 T.N. Beaupre was appointed to the presidency of the companyand continued the policy of integrated acquisitions and mergers as the principalgrowth strategy. In 1963 B.C.F.P. purchased the Moore-Whittington Lumber Companywhich came with 13,000 acres of timberland at Parksville. The company was alsosuccessful in securing its second F.M.L. #27 at Nitinat Lake. But the mostimportant decision of 1963 concerned the company's expansion into the PeaceRiver district in the interior. The decision to engage in a co-operative venturein the interior with Wenner-Gren (a Swedish industrialist) had a major impacton the development of the company.Wenner-Gren approached B.C.F.P. through the Argus Corporation in 1963in order to conduct a feasibility study on exploiting the resources of the RockyMountain Trench in the north central interior. It was clear that Argus favouredthe proposal as it directed B.C.F.P. management to consider a joint venture, andwas an active shareholder in the subsidiary (Alexandra Forest Industries) setup for the purpose of establishing an integrated forest products complex in whatwould later be the town of MacKenzie. B.C.F.P. was also induced to participatein the MacKenzie venture by the government's generous Timber Sale HarvestingLicense. Cheap power for MacKenzie was to be provided by the Peace River Damproject. The government also ensured the construction of a B.C. Railway lineto the project and promised assistance for the construction of an integrated roadnetwork. Wenner-Gren, Argus, Mead, B.C.F.P. and Scott Paper Company allparticipated in the new venture. A new corporate structure, Alexandra ForestHoldings, was established with one subsidiary, Alexandra Forest Industries, todevelop the project. B.C.F.P. would later assume complete control of Alexandra47Forest Holdings by buying out the Argus, Mead Corporation, Scott Paper Company,and Wenner-Gren holdings in January 1967. 103 MacKenzie project was the mostambitious project undertaken by B.C.F.P. The company's corporate overlords andthe government gave it several favourable inducements to participate. B.C.F.P.would later construct at this site one of the largest integrated forest productcomplexes in the province.The benefits of fully integrated scale production were evident earlyin the 1960's. The downturn in the plywood market in 1960 was offset by thefull-scale operating capacities of the three sawmills (Youbou, Hammond, Victoria)and of the Crofton pulp mill. The company continued its policy of buying timberresources and began operating its new log barge to transport chips to the pulpmill. In 1961, the company expanded vertically at Crofton, establishing a 350ton per day newsprint mill for an estimated cost of $25,000,000. 104 Thenewsprint expansion required a pulp mill expansion of 30,000 short tons per yearto be completed in 1964. 105 The newsprint capacity was to be mostly dependenton company-supplied Crofton pulp and B.C.F.P. groundwood for its prosperity.This new industrial capacity promoted the construction of new roads and theacquisition of new logging equipment totalling $3.4 million in 1962. 106 Thecompany also expanded its production of building products manufacturing withnew panelling capacity at the Victoria sawmill as well as combined lumber, sidingboards, and shingles and shakes production from the Victoria, Hammond and Youboumills.Although much of the company's attention was being devoted to theestablishing of a pulp and paper capacity, B.C.F.P. continued to invest heavilyin its sawmill production. New purchases of machines for cutting and debarking,materials handling equipment, cranes, dock materials, and barges were also beingundertaken in the early 1960's. The company was also one of the first toimplement dry land sorting areas in the early sixties. Dry sorting areas avoided48the costs associated with desalinating the logs and the spoilage and loss oflogs that floated away while being sorted. By 1963, production records werebeing established on an annual basis as a result of these innovations:653,400,000 square feet of plywood on a 1/16 inch basis and 195,000 short tonsof kraft pulp were produced."' Increased production was accompanied by thepurchase of timber near the production centres. Once these large complexes wereestablished, the company had to process large amounts of timber in order tocontinue to run the multi-product integrated complexes. Thus, once committedto massive production in a particular location, the complex had to have an everincreasing volume of timber from lands adjacent to the mill.The 1960's was a period of enormous productive growth for B.C.F.P.The introduction of new machinery, a kamyr digester and a second recovery boiler,were helpful in boosting production. In 1964 B.C.F.P. phased in its newnewsprint mill. The years 1964 and 1965 marked the beginning of a new productiveenterprise for the firm at MacKenzie. The firm was cautious in the upper PeaceRiver, deciding to secure very advantageous cutting rights before embarking onthe construction of its sawmill. Nothing posed a greater challenge than theconstruction of plant in an undeveloped part of the province. In order to besuccessful at MacKenzie, the company had to make something of a wilderness. Costfactors associated with this new northern location could not be extrapolated fromcoastal operations. Production could not be guaranteed due to more hostileclimatic conditions. There were also no amenities to attract workers. Managerswere also uneasy about the costs of integrating MacKenzie production into thecompany's distribution networks. If the managers were initially faint of heartat the thought of this risky venture, perhaps it was the declining productionadvantages on the coast that induced them to invest. Production had peakedsomewhat from the phenomenal rise of the early sixties, taxes on the operationswere increasing, log costs were skyrocketing, and sales and administrative costs49were rising, as were labour costs.The first MacKenzie sawmill production came on line in 1967. This bitof good news helped to offset depressing news on rising sales and administrativecosts, higher labour costs, and higher wood costs. MacKenzie was becoming oneof the firm's most important production centres. Its sawmill contributionsboosted production to 477 million board feet."' The company also installed newequipment to process its wood product residuals more efficiently, includingsawdust collection facilities at Cowichan and Port Ellice, a new boiler and achipper at Cowichan, and new wood products packaging facilities at Hammondmill."' B.C.F.P. introduced the packaging facilities in order to provide'bundles' of materials to customers. Packaging smaller lots into bundles mademarketing more flexible and filled a product need. The company's pulpperformance was less impressive due to price reductions caused by oversupply.Yet, despite the short-term performance of the pulp arm, the company acquiredSwiftsure Towing to assist with water transport of its pulp and paper products.The final year of the sixties brought the last large-scale B.C.F.P.project of our period: the decision to construct a 500 ton per day kraft pulpmill, and a plywood and veneer mill with a capacity of 350 million square feetof plywood and 455 million square feet of veneer 1/16 inch base, at MacKenzie.'This integrated unit was designed to capitalize on the wood resources of the areaand followed the successful introduction of the sawmill. Down on the coast, thecompany was making every effort to cut costs by fully mechanizing logging,plywood and sawmilling operations. Despite the positive commitment to the futureof the B.C. wood products industry, coastal production figures were stagnant.To achieve maximum levels of productivity, the company continued to upgrade itsindustrial plant by introducing a new barker unit at Victoria, a new drying unitat Cowichan, and a residual collection system for sawdust at Port Ellice.Crofton production had almost reached its full capacity, producing 272,000 short50tons of market pulp and 222,600 short tons of newsprint by 1969. 111B.C.F.P. also continued to make small-scale productive acquisitionsthroughout the 1960's with the purchase of significant timber assets such asFourmax Logging Company with T.F.L.#4 on Thurlow Island and the F.& R. LoggingCompany (in 1964) with T.F.L.#36 at Phillips Arm & Frederick Arms (in 1965). 112B.C.F.P. wanted to integrate these timber assets with larger-scale units ofproduction. Two further timber license acquisitions were also made in 1967:T.F.L.#17 at Knight Inlet from Evans Forest Products Limited, and T.F.L.#4, whichwas incorporated into the already purchasedT.F.L.#36 at Frederick Arm & PhillipsArm.'" It is clear that the government's timber licensing arrangements wereconsidered extremely valuable commodities in the market. The company paid forthese acquisitions in the mid-sixties by issuing common shares, preferred sharesand sinking fund debentures. In accordance with Argus' desires, the companycontinued to exercise fiscal prudence which made it attractive to prospectivebuyers.In 1969, the Mead Corporation in conjunction with Noranda Mines Limitedmade a successful bid for control of B.C.F.P. shares. Argus Corporation andScott Paper Company opposed the hostile takeover bid but were defeated in theirattempt to retain control of the firm. While holding company control offeredArgus significant profit advantages, diluting control among partners to avoidthe risks associated with ownership proved to be Argus' undoing. Partnersbrought in for their specialized marketing, production and management skillsproved to be successful rivals for control of the company. These firmssignificantly controlled B.C.F.P's marketing arrangements. They were moresensitive to, and more cognizant of, changing market conditions. Argus had builtand rationalized the firm; made significant contributions to the developmentof B.C.F.P. production and management; and undertaken to assure continuous andadvantageous supply of production inputs (energy, wood, transport mechanisms)51but had left out investing in marketing. Argus had invited in partners to handlemarketing, and thus control its costs, so that it could derive maximum profitsand limit its own risk. But, this strategy was detrimental to Argus itself,which lost control of the firm to its marketing partners. (Argus wouldeventually withdraw completely from participation in B.C.F.P. on July 5th, 1976with the sale of its remaining 500,000 share interest for approximately $220.00per share) .11"After the take-over the new controlling interest, Noranda Mines Limited,held 1,074,699 common shares, or 28.9% of the total. Mead held 574,000 shares,74,000 shares more than Argus."' The Brunswick Paper Company (Argus-Scott-Mead Joint Venture) held the remaining 1,000,000 common shares."' Norandaessentially left the B.C.F.P. executive officers intact, only appointing aChairman (Alfred Powis) to replace Argus' man T.N. Beaupre, who elected not toremain with the firm. Noranda quickly ordered rationalizations in the corporatestructure and, in 1971, 24 subsidiaries were combined into product divisionunits. B.C.F.P.'s complex subsidiary structure was a direct reflection of thecomplex risk-controlling measures imposed by the imperatives of the Argus holdingcompany. In order to pay for MacKenzie project expenditures, Noranda advisedB.C.F.P. to assume a short-term line of credit of $60 million. Twenty milliondollars of new financing in debentures was also issued to expedite the expansionof integrated productive capacity and to extinguish some pre-existing B.C.F.P.debt arrangements for the project. It is important to note, however, thatNoranda also permitted B.C.F.P. managers significant autonomy in day-to-dayadministration of the firm. Noranda was also involved separately in a largepulp mill venture in the Prince George region and brought its own managerialexperience to the wood products industry in British Columbia.The first year of the 1970's was a difficult one for the firm. Theindustry was beset by labour disputes and poor production. Crofton production52was especially poor due to labour disruptions. Market conditions were also poorand the company simply cut production and laid-off workers. Capital expenditureswere significantly reduced and the only major expenditures were a veneer dryerfor Cowichan and logging road expenditures and maintenance costs. Costs as apercentage of sales exploded from the consistently upper sixties and lowseventies of the 1960's to a dangerous 81.4% in 1970. 117 Poor demand and highcosts were cutting into the productive health of the firm. Present costs werecompromising the firm's ability to set aside money for new investments for futureproductivity.The company responded in 1971 by rationalizing administrative costs andamalgamating most of its subsidiaries, including the newly acquired Cathermole-TrethewayGroup Holdings (for timber and sawmills), into a central administrativeunit. B.C.F.P. pressed for a full mechanization of logging operations,introducing snorkel grapple yarders, mobile grapple yarders, and night shiftoperations on the coast to load and unload products 24 hours per day."' Thecompany also invested in sophisticated mechanized materials handling capabilitiesat MacKenzie. To allow for winter sorting compressed air pipes were put intothe lake at MacKenzie to warm the water. Sophisticated logging techniques(mechanical fallers and shearers) were also introduced to cut down on labourcosts. Despite this optimistic commitment, B.C.F.P. was experiencing technicaldifficulties. The company could not get its MacKenzie stud mill (processor ofsmall logs to close utilization standards) up and running, and pulp productionwas also sluggish at 220,800 short tons (75% of rated capacity)."' Productionwas held back by a glut of pulp capacity and a recovery boiler explosion atCrofton. The explosion shut down the plant for a full set of inspections fora considerable period of time.At the beginning of the 1970's the company also became heavilyinterested in exploiting new opportunities in specialized paper production at53Crofton. The move to more specialized production of quality papers for magazinesand of coloured papers was an important product advance for the firm, andconstituted one of the very few differentiated products it manufactured. Thecompany also expanded into a groundwood product used in newsprint from sawdustby employing large stone grinders. In order to control its own administrativecosts for these and other projects, B.C.F.P. formed internal working units tosupervise the MacKenzie project rather than go with outside consultants. Whilethis had a beneficial cost-cutting effect for the company, it inhibited thegrowth of specialized technical consultants and engineering companies that wouldhave benefited through sub-contracting of B.C.F.P. projects.Rising costs, inflationary pressures and a general lack of availablecapital forced the company to make constant adjustments and rationalizations.B.C.F.P. purchased a 50% interest in Pinette and Therien Mills of Williams Lake,which had an excellent short log capability, and closed down the Nalos Lakelogging operations due to cost. 120 The buildings were dismantled, and machinerywas sold and the site was cleared. Fully integrated production between the coastand the interior raised B.C.F.P. 's productivity figures, but the firm experienceddifficulties with its plywood production. The downturn in production waspartially attributable to the burning down of the Douglas Plywood mill but wasgenerally the result of declining competitiveness. Declines in sales were alsothe result of increased U.S. competition in Canadian markets (U.S. plywoodmanufacturers had lower costs). As well, the volatile housing market causedincreasing inflation. Even with these downward trends, the company purchasedthe Canadian Plywood Corporation in 1972, establishing its Delta Plywood Divisionlocated in New Westminster.Increasingly, environmental concerns added a new cost to pulp and paperproduction. From 1972 forward, increasing concern over the ecological damagecaused by pulp mills precipitated investment and research into 'environmentally54friendly' production. The two levels of government and environmental groups wereinstrumental in ensuring that more ecologically sensitive practices were adopted.Thirteen and one half million dollars were spent at the older Crofton mill onchemical boilers, a high efficiency precipitator, a black liquor oxidationsystem, and kiln scrubbers to cut down on the distinctive smell produced in thekraft pulping process."' The company embarked on this program encouraged by thenews that the costs of products sold had dropped for the second consecutive yearsince the shocking disaster of 1970, to only 73.8% of sales revenues."'The mid-seventies was the most extraordinary period for the firm. Aweakening Canadian dollar, production interruptions, energy shocks, andinflationary expansions caused serious production problems. The company did nothave the financial means to build new industrial plant. Little revenues weredevoted to new production as money was being spent on upgrading productionfacilities to meet new environmental standards at the Victoria, Cowichan andHammond sawmills, and inflationary cycles were eating up the rest. The 1974 billfor bunker fuels for Crofton jumped nearly $3 million between 1973 and 1974alone."'In response to rising costs the company devoted extensive resources tomodernizing its existing plant including the Crofton pulp mill. New digesters,screening systems, chipper handling machines, green and black liquor evaporators,green liquor clarifiers, brown stock washers, and bleach control systems had tobe installed to keep the company operating within new stricter guidelines. Thecompany was also compelled to introduce sophisticated fly-ash control systemsat its sawmills, especially at Victoria and Hammond, and even emission controlmeasures had to be undertaken at MacKenzie's small log mill. But their heavyupgrading commitments came with a price. By 1974 alone, approximately $28million of the $44 million capital expenditures budget was being devoted toupgrading of older facilities, road building and maintenance, and the replacement55of equipment.' Only $16,620,000 was being devoted to the construction of newphysical plant, and that was for a new sawmill facility at Crofton.' Theabsence of a commitment to new facilities was evident in the 1975 annual report,which described capital expenditure projects as "...limited to safety projects,improvements to working conditions, major anti-pollution programs and essentialexpenditures necessary to maintain operating efficiency. Intensified effortswere also continued to lower costs and keep working capital requirements to aminimum."' The industry was not growing, but merely undertaking investmentsto remain at the current production levels. The company was increasingly besetby production interruptions. Labour disputes, the interruption in productionwhile anti-pollution devices were installed, disputes with native peoples overthe cultivation of forest resources (especially at Williams Lake), and increasedcosts for parts and chemicals were taking their toll. The company continued tointroduce environmentally friendly systems including flash systems at Youbou andCowichan mills. Filtration devices were also introduced at the Hammond andVictoria sawmills. These improvements did not substantially increaseproductivity, however, but merely removed some of the undesirable side-effectsof the business. Production of pulp at Crofton and MacKenzie was reaching fullpotential at a combined 355,851 short tons in 1975. 127 The company was stilldevoting energies to increased environmental pressures, introducing a new kilngas scrubbing system, a chlorine dioxide tail gas scrubber system for Crofton,and a new brown stock washing capacity at MacKenzie.'"Even when the company's production was solid, B.C.F.P. increasinglyfaced supply problems. The company lost market shares in 1976 due to a B.C. Railstrike, which boosted company inventories.'" Interruptions in the flow of goodsand services between plants forced many different types of accommodations: wholelog chipping, independent freight car rental, and extra shipping by sea andtruck. These supply discontinuities were compounded by production start-up56problems at Crofton as the pulp mill was having some difficulties in adaptingits machinery to the new production sizes of 30 pound rolls of newsprint insteadof 32 pound rolls.In the mid-seventies, B.C.F.P. made a major strategic decision to expandbeyond British Columbia by participating with a Quebec-based firm (DonohueCompany Limited) in the construction of a major integrated forest productscomplex at St. Felicien, Quebec. B.C.F.P. also purchased a specialty gradespaper plant and waferboard producer in America, the Blandin Paper Products firmin Grand Rapids, Minnesota. By investing outside its productive base, B.C.F.P.was following in the footsteps of many other geographic scale economy expansions.Geographic expansion occurs when many of the localized scale productionadvantages begin to decline. When the company had exhausted opportunities onthe coast, it advanced into the interior of the province, but by the mid-70'ssome limits on continued growth in B.C. were being felt. By 1976, much of thebest timberland in B.C. had already been claimed, and there were increasingconcerns over the future growth prospects of an undifferentiated product industryso heavily dependent on cheap and abundant timber. The resource which manybelieved was inexhaustible enough to keep costs down forever was increasinglyshowing signs of limitations. One of the most eloquent statements on risingcosts in the industry had come earlier, in the 1968 annual report: "Ourcustomers are not interested in our costs, or in the fact that we pay the highestwages, and are one of the highest taxed forest industries in the world. Theyare only interested in our price, quality, delivery and service. They are buyingour products, not our problems, and they will not buy from us if they can obtainequivalent products at lower prices...Increases, whether they be in the form oftaxes, or wages, must be related to productivity."'" The remarkable resourcesthat had sustained undifferentiated product scale development of the industrywere starting to show their natural limits by the 1970's. Quality timber57production inputs were being used to supply revenues for three groups: workersin the industry and others who provided goods and services to them, thegovernment, and the corporations. By the late 1970's, the declining qualityand quantity of resources was contributing to a diminishing measure of prosperityfor all concerned.The company planned for the 1980's by gradually introducing thermalpower generation (to cut down on oil costs) at MacKenzie and Crofton and newcomputerized log scanning sawmill equipment at all major sawmills (Victoria,Hammond, and MacKenzie), and by continuing the program of introducingenvironmentally friendly boilers, scrubbers, filtration systems, and collectionsystems. The firm converted its lumber sorting facilities to dry land sortingat the Victoria and Hammond sawmills and at MacKenzie after the successfulintroduction of this technique at the Youbou mill. Production graduallyincreased, but it was clear that peak production from B.C. operations was at handwith 835 million board feet of lumber."' Pulp production was below ratedcapacity, some 50,000 short tons at Crofton alone, and newsprint productionseemed to have peaked at the 250 short ton range. 13` Demand for newsprint wasclearly mature due to the changing nature of news collection and consumption.But the picture of stagnating prosperity was not all black. The company wasplanning geographic expansion into Alberta (two sawmills and a pulp mill) andnew ventures in pile-driving and building materials. It also established aforest management consultant firm called Croftech.Thus, B.C.F.P. successfully created economies of scale from large-scale, undifferentiated production in the post-war period. The infrastructurewas built and investment in production and technology undertaken. Managers movedto lower costs in order to realize higher returns. In the 1950's and 1960's,investment was devoted to expanding productive capabilities while upgrading andchanging to improve its business prospects. However, by the seventies, the58company's ability to expand its production was being undermined by the increasedcosts of labour, natural resources, and energy; by inflation; and by changesto government regulations requiring environmental standards of production. Thedesire to upgrade to new levels of undifferentiated production was certainlythere, but the ability to achieve it was clearly diminished by expendituresneeded to retain past and present production advantages.MacMILLAN BLOEDEL:MacMillan Bloedel became the largest integrated forest products companyin British Columbia in the post-war period. The firm's development was morevaried than that of B.C.F.P. MacMillan Bloedel had a three-phased developmentpattern. The company completed a series of major mergers and acquisitions inthe 1950's; began a program of geographic expansion in the 1960's; and embarkedon a policy of limited product and service diversification in the 1970's, whichwas unfortunately halted due to serious shipping losses in 1975 - 1976. Theseshipping losses were so serious that two of the most senior executives weredismissed for their poor business judgement. In a 1977 study on MacMillanBloedel for the Royal Commission on Corporate Concentration, Professor R.Schwindt was somewhat critical of M.B.'s corporate development: "The firmexpanded primarily within the forest products industries, it is no conglomerate.The movement backwards from marketing to sawmilling, to logging, and to resourcemanagement, and forward to plywood, pulp, paper and packaging manufactureconstitutes a very weak degree of diversification."'" To its credit, however,MacMillan Bloedel did attempt more diversification towards differentiatedproduction than the holding company controlled B.C.F.P.The history of MacMillan Bloedel is really the history of three separatecompanies, each with roots that predate the Second World War. MacMillan Bloedelwas a merged combination of the H.R. MacMillan Export Company, Bloedel, Stewart59& Welch, and the Powell River Company. A brief pre-Second World War historicalcontext is required for this firm.J.H. Bloedel first entered into the British Columbia lumber industryin July 1911. He established a logging company at Jervis Inlet and won accessto prime coastal timberland. By 1920, his company (Bloedel, Stewart & Welch)owned two sets of logging facilities at Myrtle Point in B.C. In 1924 Bloedeladvanced into the production of wood shakes when he purchased a bankrupted shakesmill (Shull Lumber)."' The company's business strategy was rudimentary;procure timber, exhaust the stand, and then move on. This happened to thecompany's Myrtle Point holdings which were exhausted within 15 years ofestablishing the logging enterprise in 1925 - 1926. In 1927 the same patterntook place at the company's other major enterprise at Union Bay where loggingoperations were wound up due to timber exhaustion. Returns on the loggingoperations were modest, hitting a pre-depression high of $636,000 in 1929. 13 'The depression took a heavy toll on the firm's earnings. Protectionism precludedtimber access to the U.S. market, and U.K. purchases of lumber supplies fromRussia cut drastically into sales earnings which fell from $636,000 in 1929 to$150,000 two years later."'In 1934 the company made a major decision to construct the Somasssawmill. Some of the production equipment for the mill situated near PortAlberni on Vancouver Island was gained by scavenging the holdings of othercompanies that had suspended operations due to the depression."' The Somasssawmill had a capacity of 200,000 board feet and was one of the first mills inB.C. to make efficient use of hog fuel as a power source. Ironically, at thisphase of its development, Bloedel, Stewart & Welch was marketing its productsthrough the Seaboard Lumber Company, which had been established to compete withthe H.R. MacMillan Export Company. Many lumbermen and sawmill owners, includingBloedel, felt that MacMillan was price gouging for the transport of B.C. lumber60and forest products to foreign countries.In the late 1930's, the company began expanding the scale of itsproduction and contemplating the construction of a pulp mill at Port Alberni.In 1937 the company expanded shingle production with the construction of a newshakes mill in Vancouver. Bloedel realized that the future of the industry layin integrated production and cutting costs, and he was personally offended atthe waste of pulp chips that were needlessly being burned in beehive burners.The company was particularly interested in pulp production because of the amountof hemlock on its timberlands. Of its 52,000 acres in the Alberni Inlet andSproat Lake area, about a quarter of the wood was hemlock mixed with balsam,which was most suitable for pulp."' The company wished to construct a smallsulphite mill but initial efforts were halted due to the outbreak of the war.The pulp mill was slated to cost $2.2 million but by the time it was finishedin 1945 the price was closer to $10 million."'The company continued to integrate production by improving its accessto timber through investing in downstream logging enterprises at Sprout Lake(1944). The company also expanded its undifferentiated product line bymanufacturing a pressed particleboard known as pres-to-log. In the late 1940'sthe firm also exhibited a degree of research progressiveness by developing ahydraulic water pressure system designed to strip bark from trees. Thus, underJ.H. Bloedel and later his son Prentice, Bloedel, Stewart and Welsh wasintegrating its production units by constructing a sawmill and pulp mill, byerecting shingle mills, and by manufacturing fuel materials and pres-to-logparticleboard. The firm also participated in the Seaboard Lumber Sales marketingnetwork, organized in 1935 to offer B.C.-based firms a marketing alternative tothe H.R. MacMillan Export Company. However, this co-operation had led to theformation of two large marketing networks, with few alternatives. SeaboardLumber Sales lost a substantial customer in 1951 with the absorption of Bloedel,61Stewart & Welsh into MacMillan and Bloedel.H.R. MacMillan did not begin his business career in the production ofwood products. In the early post-World War I period H.R. MacMillan, a youngforestry graduate, realized that few regular shipping contracts existed for thetransport of B.C. wood products. The B.C. shipping market was under-served whenH.R. MacMillan moved in the second decade of the twentieth century to capturean opportunity with the founding of the H.R. MacMillan Export Company. Hispartner, London-based Montague Meyer, realized that the construction of thePanama Canal made it possible to ship higher cost/weight ratio products toEurope. The calamity of World War I offered reconstruction opportunities andnew markets for B.C. forest products in continental Europe. Later theprotectionism of the 1930's allowed MacMillan to exploit captive Commonwealthmarkets in South Africa, Great Britain, Australia, and New Zealand, but even fromthe earliest days the firm's major market was the United States.MacMillan was extremely clever in marketing the wood products on hisships. He initiated the practice of providing smaller-scale parcels of wood(10,000 ft. blocks) to the U.S. market." ° He was also able to alleviate manyof the risks associated with the transport of commodities that changed pricesvery quickly by paying the mills for the wood products only after the customerpaid him. MacMillan assumed responsibility for freight, insurance and losscharges. Upon presentation of the bill of lading and the insurance policy, thecustomer was then obliged to pay MacMillan for the wood. He then paid the mills.MacMillan was a consummate middleman, and his function was later described byone of his business associates, W.J. Van Dusen, as follows: "We solddocuments... meaning the firm was not physically involved with wood, but ratherwith such things as letters of credit arranged through a Vancouver bank againstcredit established by a foreign lumber importer."' In order to maximize hisreturn MacMillan had to ensure that freight costs were not higher than the market62value of the timber. Highly fluctuating lumber prices assured that, in orderto avoid being caught with products that had significant transport costs attachedto them, MacMillan had to be a keen observer of lumber markets.In 1925 H.R. MacMillan moved into production with the purchase of aminority interest in the Chahalis Logging Company near Harrison Lake. In thefollowing year, MacMillan purchased the Pacific Cedar Company to gain directaccess to timber supplies for his shipping contracts. MacMillan continued hisbuying of wood products in 1928, purchasing timber assets in the Nanaimo Valleyand on Malahat Mountain north of Victoria."' MacMillan used these purchases tomanufacture railway ties destined for the United Kingdom.The inter-war years were a turbulent period for the H.R. MacMillanExport Company. The collapse of the forest products market, trade protectionism,poor credit conditions, and disastrous prices for wood products served tocompromise the future prospects of the firm. In MacMillan's view, the provincialgovernment was only compounding the situation by charging too much business tax.Even at this early production stage, MacMillan complained about his taxation,labour costs and stumpage fees. In his estimation, the government was unjustlytaxing the primary resource industries in order to carry out social reform."'In addition to these problems, the Astexo group of timber companies (a co-operative manufacturers' association) decided in 1935 to challenge MacMillan'smarketing monopoly. They formed Seaboard Lumber Sales to market their productsoverseas. Astexo was extremely uncooperative with MacMillan, refusing to sharemarket information. MacMillan was forced to undertake a variety of defensivemeasures including buying timber and entering into production to assure both hissupply and his market share.MacMillan's responsiveness to his customers' needs became much moreacute as a result of Seaboard's competition. He personally assured customersof his ability to fulfil their orders. He sought alliances with other smaller63carriers serving the B.C. market and used his own production facilities to ensurethe supply of his customers. 144 He also increased his production holdings bypurchasing Dominion Mills in 1935. The competitive pressure also forcedexpansion into plywood production through the purchase of British ColumbiaPlywood Limited. The Alberni Pacific Lumber Company was purchased in 1936, andmore timberlands were also purchased. MacMillan mortgaged the Canadian White PineMill in order to purchase the coastal Timber Ash Valley stands. These timberacquisitions were defensive in nature, designed to preserve MacMillan's shippingcontracts. The formation of Seaboard Lumber Sales threatened to cut MacMillanfrom the middleman role he had so successfully exploited for 20 years. Hisproduction facilities had initially been oriented towards the exploitation ofsmall-scale markets but a threat to his marketing role forced MacMillan to enterinto large-scale, undifferentiated production.MacMillan's wartime service as a dollar-a-year man allowed him to garnervaluable knowledge about the organization and administration of large-scaleenterprises. During the war, MacMillan's company continued to purchase andintegrate production facilities and timber assets. The most significant timberpurchase was the acquisition of part of the E.& N. lands on Vancouver Island.These highly prized lands gave MacMillan favourable access to some of the mostvaluable timber assets on the coast. The H.R. MacMillan Company also embarkedon a program of purchasing smaller mills with access to excellent timber stands,and fully 80% of these superb timberlands were Crown-granted 0.T.T.'s. Thesevaluable resources were used to great advantage by the company's three sawmillsand two plywood plants.By 1945, the H.R. MacMillan Export Company owned sawmills at Vancouver,Port Alberni and Deerholme with an output of 189 million board feet of lumber(11% of B.C. exports), and two plywood mills at Port Alberni and Vancouver."'H.R. MacMillan Export Company integrated backward into production as a means of64securing access to timber and of protecting the firm's pre-eminent position inshipping. The company also possessed an integrated warehouse network atVancouver, Port Alberni, Winnipeg, Toronto and Montreal for the storage of woodproducts."' Significantly, in 1946 the company undertook to manage and marketB.C.F.P. products, giving valuable management experience as well as derivingpecuniary benefits from the marketing arrangements. The year 1946 marked thebeginning of the development of full economies of scale at the firm. The companycontrolled the Victoria Lumber & Manufacturing Company, ships, and a door factoryand installed two wood chipping facilities in anticipation of the constructionof a pulp mill.In 1946 H.R. MacMillan Export Company began studying a significantexpansion into pulp production. Before embarking on the project MacMillan hadcommissioned a careful market analysis. He had also investigated the prospectivesupply of wood chips for the mill, and personally had an input into the selectionof the site, as described in an interview cited by Donald MacKay: "The site waschosen", said MacMillan, "because it meets the requirements of the company asto fresh water and power supply, accessibility to Island communities by highwaysystem, safe approach and harbour for deep water shipping, central position forchip and wood supply, suitable foundations, and for costs of construction."'The three essential components needed for the construction of pulp mills weredisplayed here: access to timber, cheap energy and transport facilities, andaccess to water resources. The high operating costs of these plants made themvery risky ventures unless cheap energy and timber sources were available. Withthe purchase of the Kennedy Lake Logging Company (and its vast lumber resources)at Alberni Inlet in 1947, the company gave a clear indication of where it wishedto locate the facility.The site for the Harmac pulp mill was set in 1948 at the mouth of theNorthumberland Channel on Vancouver Island, and was excellently situated to take65full advantage of roads, access to power resources, and access to water forstorage. E114 The key to the success of this productive venture, and indeed thewhole industry, was revealed by the following excerpt from the 1949 annualreport: "The lumber industry resembles the mining industry in being anextractive business in which declining profits are first felt and most keenlyby those companies which lack high-grade raw material or whose costs areincreased by degree of inaccessibility of raw material. The difficulty in eachindustry is more intensified if the individual company has been unable byconstant high volume production, or by adequate and well managed mechanizationto achieve low-cost units and accomplish maximum possible recovery of values."'By the late 1940's, H.R. MacMillan Export Company had come to the conclusion thatit had to progress to scale production of undifferentiated wood products orperish.In response the 1950's was a period of scale expansion throughintegration, mergers and the construction of plant. In 1951 MacMillan mergedhis firm with Bloedel, Stewart & Welsh, thereby gaining access to two superbfacilities, a sawmill at Somass and a pulp mill at Port Alberni. The companyalso combined excellent timber holdings, principally the Hill-Wynn tracts(Bloedel, Stewart & Welsh) and the E.& N. timber access rights of MacMillan andBloedel. The merger came about amiably, and the two firms simply exchangedshares. MacMillan owned 57% of the new company, the former Bloedel, Stewart &Welsh 43%.'"Why did these firms merge? The company was clearly benefiting fromthe increased scale of production due to the similarity of the two company'sundifferentiated products. The company also gained by integrating downstreamlogging into integrated production facilities. Professor Schwindt's study notesthis advantageous connection at Alberni and Somass where the two forest complexesmerged to the point where they were contiguous.' Pulp chips from MacMillan's66sawmill at Alberni were re-routed to the Bloedel pulp mill at Port Alberni,rather than towards the Nanaimo pulp mill."' Schwindt argues that H.R.MacMillan usurped the Bloedel firm in order to assure himself of timber supplies,while Bloedel sought to gain the most advantageous terms to wind down his firm,as "...there were no male heirs and hence no assurance that the firm would carryon after his departure. Amalgamation with MacMillan promised both survival andexpansion, although, it meant a subservient position for Bloedel." 1" Economiesof scale could be realized in the new firms by orchestrating production tomaximize output and minimize costs. Having a larger firm meant that more capitalwas available for expansion and that the company could decrease its borrowingcredit risk. The company also derived some benefit from increased organizationalsophistication in the administration of larger-scale economies, and fromintegrating its production in terms of sharing technical process advantages andinformation. The company also claimed that increased resources could be devotedto product and process development. The most desirable aspect of the merger,however, was the combined total of 747,000 acres of timberland which the newcompany directly controlled. 15 `The new company (MacMillan and Bloedel) also transformed its transportmechanisms on the coast by gradually phasing out railroad transport for trucktransport to and from their processing facilities. The post-war years witnessedsignificant technological transformation, from the woods to the production unitsthrough to the marketing arrangements. In the woods, the introduction ofpowersaws and trucks revolutionized forestry practices. It also brought aboutthe need for high levels of road construction and taxation policies designed tooffset some of these costs. The new company, however, was peculiarly pessimisticabout its lumber production prospects in the early 1950's. In the 1952 annualreport, the firm complained that the sector was becoming uncompetitive due tothe closure of mills, taxes, royalties, salaries, and costs of supplies."'67Ironically, the large number of mill closures was attributable to the emergenceof larger economies of scale, including those of MacMillan and Bloedel. Thesenew large-scale mills gave price advantages which the smaller mills could notmatch. Acquisitions of smaller units to form integrated production and materialshandling units offered opportunities of internalizing costs and increasingmanagerial sophistication. Smaller-scale units, without the capital to acquirethese production, marketing and management opportunities were quicklydisappearing.In addition to MacMillan and Bloedel's economies of scale in sawmilling,the company also invested in new products especially at the firm's first pulpand forest products complex, Harmac. MacMillan and Bloedel's marketing skillsgave it important opportunities due to its sensitivity to market conditions.H.R. MacMillan paid particular attention to customer needs, and as early as 1952argued that quality control of production was important. Sawing, drying,trimming, planning, marking, grading, observance of contract, and inspection ofthe product had to receive more attention at the mill due to increased customerdemand."' The company was also planning for the future in situating itsresearch and development facilities at the plant level. The constant upgradingof process was essential to the success of the industry and of the firm.In 1955 MacMillan and Bloedel diversified into newsprint and other paperproducts by purchasing newsprint machines and kraft paperboard machines for theAlberni forest complex."' The expansion was paid for using retained earnings,but the cost of building the mill and forest products complex was a nightmarefor the company. Costs of materials, labour costs (due to shortages and poorquality), and administrative and selling costs all pushed costs up by $15 millionfor a final total in 1958 of $78,400,000. 15 "In 1959 M.B. made an important policy decision to upgrade its newsprintproduction by merging with the Powell River Company, which had a long and68distinguished history of producing paper products in B.C. By significantlyintegrating forward into newsprint, MacMillan Bloedel assured itself as a playerin the manufacture of paper products. The Powell River Company's operators, theBrooks-Scanlon family, had allowed the business to deteriorate. The deteriorationin the plant's condition made it vulnerable to production cost increases andhigher taxes. The company also was subject to market pressures generated by U.S.southern pine paper producers. Market sensitivity had deteriorated to the pointwhere the Powell River Company was merely dependent on long-term contracts forits economic prosperity. Its marketing of specialized papers and general levelof market responsiveness to new opportunities was poor, despite the company'slast minute diversification activity into other undifferentiated products(container boards, cardboard packaging) prior to the M.B. merger in 1959. R.Schwindt argues that the Powell River Company sought the merger in order tointegrate with a timber, plywood, and sawmilling forest products firm, and togain access to assured timber supplies."' MacMillan Bloedel sought the mergerto expand its newsprint manufacturing capacity, for access to the remainingPowell River Company's timber resources, and for more newsprint productioncapacity and U.S. market share."' Schwindt's contention that the merger was notthe product of the declining fortunes of the Powell River Company does not seemto be correct. As he states in his report: "Between 1965 and 1976 newsprintmachines 1,2,3,4, and 6, were shut down, number 5 was modernized and number 10was added."' Virtually the entire newsprint manufacturing capabilities had tobe modernized beginning 5 years after the initial merger in 1959-1960.After this merger, MacMillan Bloedel & Powell River became the largestintegrated forest products company in Canada with holdings in 1960 of "...sixsawmills, two newsprint mills, three pulp mills, a linerboard mill, a fine papermill, a paper bag plant, two plywood plants, two shingle mills, a door factory,five container plants, a flakeboard plant, a charcoal factory, and a plant making69fuel logs from cedar waste."' With the addition of new processing facilities,the firm began to capitalize on scale economy production. Full integrationmeant that the company could develop more sophisticated means of handlingmaterials between firms by sending chips to plants for fuels or pulping, and bytransporting materials between processing centres for inter-related production.The company by the early 1960's had established the development patternthat would sustain it in the post-war period. The large complexes at Alberniand Nanaimo (Harmac) were well on their way to full integration. The foundationshad been laid with the construction of massive forest products industrial plantson a scale unsurpassed in B.C. history. The company was also diversifying intopaper products that would become a significant contributor to revenues.MacMillan and Bloedel was also involved in specialty paper production, and themerger with the Powell River Company in 1959 gave the firm what would become twohuge, fully integrated newsprint production units at Port Alberni and PowellRiver. Three centres (Powell River, Nanaimo [Harmac], and Port Alberni) wouldproduce between them a variety of undifferentiated wood products includingnewsprint, pulp, kraft paper, linerboards, corrugated paper for boxes, lumber,plywood, and shingles and shakes. All of this undifferentiated product expansionwas achieved largely between 1950-1964. Between these years of phenomenal changea world-scale enterprise with fully integrated production had been formed throughconstruction of plant. The company was in a position to fully exploit scaleeconomies on a level unmatched in the province. Unfortunately, MacMillan Bloedeland Powell River would not match such a period of spectacular productive growthagain." 3Having achieved significant economies of scale in British Columbia bythe 1960's (but missing out on interior opportunities), the company began itspolicy of diversification abroad. This policy was adopted in direct responseto the company's limited opportunities for growth in B.C. as a result of its70decision not to participate in the expansion of forestry in the interior of theprovince. The company purchased corrugated box plants in Britain, approachedJardine & Matheson to become an Asian marketer for its forest products, andembarked on a major forest products complex at Pine Hills in Alabama.Productive expansion abroad was thus a natural consequence of the firm'sinability to fully exploit economy of scale production in the home market.The period of 1965-1968 was one of considerable expansion abroad"'into new undifferentiated products. The company purchased an Alpenite panelboardplant from the Saskatchewan government, a 36% interest in K.N.P. a Dutch pulpand paper maker, a linerboard forest products venture at Pine Hill, Alabama (ajoint venture with the United States Fruit Company), a sawmill and plywood millat Pine Hill, a lumber marketing company (Kingsway Lumber Company) in Ontario,corrugated box plants in Jersey City and Baltimore, U.S.A., Blanchard LumberCompany of Walpole, Massachusetts, dockside investments for materials handlingin Britain, and a new marketing agency in Australia (MacMillan BloedelProprietary Limited). 165 The company also invested in a Spanish paper plant,Celupal, and purchased a hard wood logging operation in the Soloman Islands forthe Asian market.Throughout the late 1960's and early 1970's the company President, J.V.Clyne, continued to move the company towards investment outside of B.C. In 1969the company invested in a New Brunswick pulp and paper complex with the co-operation of a German firm, Feldmuhle Aktrongesellshaft. (M.B. bought outcomplete control of this plant in 1973). However, the company also experiencedsome difficulties at the Pine Hill complex with the quality of its labour, whichwas significantly adding to costs. The company also had to write off $630,000for the hardwood processing investment in the Soloman Islands due to the collapseof the Japanese market."'The 1960's was also a period of systematic upgrading and full71integration of the B.C. facilities. If the 1950's and early 1960's can beconsidered as a period of expansion, the mid-to-late 1960's was a period ofrelentless consolidation for the company in B.C. Production upgrades to existingB.C. facilities was standard business practice in these years. In 1963 a new#5 newsprint machine was installed at Alberni, increasing capacity by 140,000short tons."' A fine paper mill for Powell River, logging equipment, chemicalpulping capacity, and money for logging roads and mechanized equipment were allput into place by 1964. A major effort was devoted to modernizing the PowellRiver Company holdings. MacMillan Bloedel and Powell River re-configuredproduction, putting in a #3 newsprint machine and converting two older machinesto specialty products rather than replacing them. Thus, a tendency to combineolder equipment with newer equipment was pursued by MacMillan Bloedel and PowellRiver in the post-war period. It resulted in some competitive inefficiencies,but in some ways was beneficial to the company. Older machines retained theirproductive value if they were maintained properly and could be reconvertedwithout difficulty (as was the case in 1964 when the new #5 machine broke down,two older machines being converted back to newsprint production from specialtypaper production). Secondly, during downturns, the company could absorb slackmore easily by shutting down older machines. These operating inefficienciescould be sustained due to the absence of scale competition, and due to theimmense size of the company's overall holdings. The condition of the firm'sold/new plant was a direct reflection of the dynamism of the sector generally,and demonstrated the tolerance for technological stagnation and the limits ofundifferentiated production.Throughout the post-war period the company was determined to cut downon costs by mechanizing its operations. An electrostatic precipitator and newrecovery boiler were introduced into Alberni in 1964 for a total cost of $3million, and hog fuel boilers were introduced at Powell River to cut down on72energy costs."' Portable spars and log loaders were installed at transportfacilities. To reduce labour costs, the company adopted an enlightened policyof trying to set up homes for its logging employees at Masset Inlet on the QueenCharlotte Islands and Port Hardy. MacMillan Bloedel and Powell River wasendeavouring to reduce labour turnover, which was inhibiting the formation ofa solid integrated materials handling network from the camps to the productioncentres. Orchestrating distribution between outlying areas and the three mainproduction centres was essential to company prosperity as logging operationsmoved greater distances from the processing units.In 1964 the company introduced its second major transport innovation(the first being the successful introduction of the truck). New newsprint bargeswere phased into service to cut down shipping rates. Forty percent of newsprintgoods were to be towed down the coast in the equivalent of seaborne trailertrucks."' These barges were ideal for transporting newsprint to California atreduced cost. In addition to new methods of transporting commodities, thecompany also invested in storage facilities and in materials handling capacitiesin Canada, Britain, America and Europe.Upgrading existing facilities by adding new processing machines was thecentral means of achieving higher levels of economy of scale production in thelate 1960's. New newsprint machines, woodsaws, and a groundwood mill wereinstalled in Powell River, new boilers and dryers at Harmac, and a kamyr digesterat Port Alberni. The firm also invested in new handling facilities, new dockfacilities (for B.C. coastal operations and in England), the Kingcome NavigationCompany (B.C. towboat company), and in new barges for its coastal operations.Movement into fine papers and container materials was accompanied byexpansion into specialty boards and construction materials, pile driving, polemanufacture, the introduction of K-10 product, folding milk cartons, paper bags,linerboards to suit regional demand, and new forms of newsprint grades, to name73a few of the new undifferentiated products M.B. introduced in the mid-1960's.Scale economies were being introduced in conjunction with the introduction ofnew technologies such as grapple yarders, sophisticated power saws, hydraulictree sheers, chip 'n saw log cutters, new packaging technologies, and roll-on-roll-off railcar barges. The integrated scale production of undifferentiatedproducts allowed the firm to gain maximum value for each log.The introduction of the verti-forma newsprint machine at Powell River(brought on line in 1968) was designed to allow for further flexibility in thecompany's product range. MacMillan Bloedel continued to have the flexibilityof leaving old machines in smaller-scale production, but this new machine allowedthe company to abandon this strategy as it saw fit. Flexibility in newsprintand paper production derived from the same machine was a major technologicaladvance. Flexibility was becoming more crucial in terms of allowing companymanagers to strategically deploy their resources in the most profitable mannerdepending upon a rigorous analysis of the various markets that the company wasparticipating in.Investment in new productive capacity in B.C., the verti-forma machinenotwithstanding, was becoming a rarity for the company by 1968, however. Muchof the money devoted to new production was being spent outside of B.C. inAlabama. The absence of commitment to upgrading B.C. facilities (especiallyplywood) was becoming a disturbing trend by the late sixties. The company didinvest in timber and the #10 newsprint machine for Powell River, but most of theproduction investment was committed to the major integrated forest productionat Pine Hills, Alabama (sawmill, plywood, linerboard complex).Without investing in major new productive ventures, in the late 1960'sand early 1970's, the company embarked on further cost cutting measures designedto improve scale productivity in its B.C. operations. Night logging and mobilegrapple yarders were introduced as a means of improving the efficiency of74operations. (By night logging we mean that logs felled during the day weresorted at dry land sorting areas at night.) New mechanized sorting systems wereintroduced to reduce sorting and booming costs for small log operations."' Tomaximize production the company also rescheduled the operational pace of itsmachines at its fine paper plant. Production was increased substantially atAnnacis Island (double shifts) to take advantage of the American marketopportunities that had opened up as a result of the reduction in the tariff forfine papers after 1970. The company also experimented with paper grades in orderto increase the speed and quality of production. Despite the interest in theseupgrades, investment in new production for B.C. gradually declined due to thecompany's diversification strategies and foreign expansion.As was the case with B.C.F.P., the 1970's was not a particularlyprosperous period for the firm. In may ways, M.B.'s performance was worse thanB.C.F.P. The relative neglect of its core productive base and flirtation withdiversification caused serious hardship for the firm. In neglecting its localadvantages (the foundation of its prosperity) the firm paid a price inperformance and prestige.M.B. entered the 1970's with the largest degree of scale production byfar of any of the major forestry companies. Despite its influence, it was notimmune to public and government pressure for environmental upgrading. Majorefforts in this area were necessary and contributed substantially to costs. In1970 M.B. spent $30 million on waste technology treatment, including significantwater treatment systems at Port Alberni, a secondary precipitator at Port Alberni(to remove saltcake from the gases of pulp mill recovery boilers), precipitatordevices (to reduce hydrogen sulphide and sulphur dioxide emissions at Harmac),and a setting lagoon at Chemanius (to filter solids from mill discharges). 1'Federal regulations on environmental pollution forced the firm to adopt morestringent measures. At Harmac a second precipitator, foam reduction devices,75cinder collection systems and salt removal systems were installed, and a programof glue and chemicals reductions was initiated."'In the mid-70's, M.B. sought to maximize all lumber markets, howeversmall, and the company experimented with a variety of special lumber grades atits new 12.6 million f.b.m. plant at Lulu Island, New Westminster."' While thetrend was towards more specialized scale production of lumber products, thecompany eliminated unsuccessful small-scale paper grades produced from its pulpand paper facilities. The rationalization of paper production continued withthe adoption of the 30 lb. newsprint weight roll, cutting transport andproduction costs.In response to this declining performance in the company's coreindustries, the 1970's was a period of significant diversification but, in thisdecade, the company moved from its traditional forestry activities into otherproduction and service sectors. The company's traditional forestry businessreturns were declining by the 1970's: "In the first five years of the 1960's,sales increased by 40% and net income by 65%." 4 Between 1965 and 1969, however,though sales increased 47%, profits rose only 5% because of a combination of highinterest rates and increased operating costs."' The company's management wasclearly in the mood for more extensive diversification. In 1970 the companyinvested $45.5 million in an Australian real estate development in Sydney in co-operation with its Asian marketing partner Jardine Matheson."'In 1974 M.B. made its most extensive move into more differentiatedproducts. The company purchased Habitant Shops of Bay City, Michigan, whichproduced fencing. It also took 30% equity in Canatan International(prefabricated buildings) and Weldwood Building Systems in Vancouver, which alsoproduced prefabricated buildings. It also purchased interests in WalpoleWoodworkers (garden furniture, furniture, fencing) and in Energe (waste woodenergy conversion systems); established a 'Ventures Group', which provided76venture seed capital to selected businesses; and purchased an interest inDominion Aircraft Corporation (S.T.O.L. aircraft) and Hawaii Hovercraft."'The company was well on the way to diversifying into higher valueproducts. Many of the new investments were into markets with which the companyhad little experience. Many of these new investments in differentiatedproduction required costly investments in specialized human skills, productionfacilities, and marketing networks. Consequently, it was unclear how production,distribution and management of these widely disparate firms would beorchestrated.The company did not have the opportunity to try. While diversifying,M.B. had also decided to re-invest in its original activity, shipping. Thecompany's principal reason for re-investing in shipping was to capture some ofthe $100 million in revenue that it apportioned for its own transport in 1973.MacMillan Bloedel was nervously watching diminishing returns on its traditionalbusiness and saw shipping as an excellent opportunity to expand its marketingactivity. This decision was a dreadful miscalculation by two of M.B's chiefmanagers, D. Timis and G. Currie. The obsession with recovering costdisadvantages was a key factor in motivating MacMillan Bloedel to invest heavilyin shipping. This short-term cost focus precluded a thoughtful examination ofthe long-term prospects for the shipping industry.Poor business judgement was compounded by bad luck and serious changesto the international business climate. The Arab-Israeli War of 1973 andsubsequent energy shocks sent inflationary spirals through the entire westerneconomic system. It resulted in an extraordinary transfer of wealth from thewest to middle eastern countries due to an increase in the price of oil.MacMillan Bloedel found itself locked into disadvantageous, fixed shippingcontracts for the transport of commodities that did not keep pace with theextraordinary rise in inflation and costs. Egypt's re-opening of the Suez Canal77cut down on the number of long-distance charters in the transport market. Thecharter shipping market collapsed in 1975 due to high costs and reduced demand,resulting in operating losses of $13 million."'The firm's problems were compounded by the commitment of the CanadianTransport Company, the shipping arm of MacMillan Bloedel, to lease/purchase moreships to add to the existing fleet of 48 vessels in a declining shippingmarket."' It seemed as though every strategy to overcome declining revenuesthat the company tried turned to dust. In the late 1960's the earnings growthrate of M.B.'s traditional businesses - wood projects and pulp and paper - haddeclined. These losses were compounded by losses in continental Europeanproduction and by the disastrous shipping performance."'MacMillan Bloedel responded to this dangerous situation with drasticmeasures. On March 26, 1976, the company fired two of its most seniorexecutives, D. Timis and G. Currie, blaming them for their inability toanticipate the downturn in shipping, and for the diversification policy that tookMacMillan Bloedel away from its traditional forest businesses. These men assumedthe risks associated with their ambitious plans in order to take the firm awayfrom the limitations associated with undifferentiated economy of scaleproduction. Regrettably, bad luck in the form of an unanticipated war andconsequent oil shocks precluded the full evolution of these strategies. Theincrease in energy costs in the mid-70's resulted in quick action by the firm.The company quickly built up oil storage facilities and purchased shares in anAlberta refinery. Chemical substitutes were obtained for some of the company'sprocesses, but the oil shocks and Middle Eastern turmoil cost the company dearly.The program to install a clarifier and salt reduction systems at Harmac was puton hold.The company retrenched and returned to its traditional enterprises.A new chief executive, C.C. Knudsen, was appointed in 1976. Knudsen had had78previous experience as an executive at Weyerhauser in the United States. Theorganization of the firm was revamped to reflect the company's undifferentiatedproducts: pulp and paper, linerboard, building materials, and raw materials."'The company cut costs wherever possible, consolidated research and development,retrenched on expansion plans, spun-off all companies not related to traditionalforestry activities, suspended dividend payments, and reduced shippingcommitments.The company also began to focus again on its neglected asset base inB.C. by planning renovations worth $450 million."' Only 25% of company spendingwas allocated outside of B.C. Pulp mill equipment was to be upgraded to reducecosts and increase efficiency. M.B. also wrote off its French and Belgian pulpand paper investment in 1977, recognizing that these units of undifferentiatedproduction were no longer functioning with appropriate economies of scale."'By 1979 the company was again on a solid footing. Its industrial organizationhad been rationalized to maximum efficiency with "seventeen logging camps, ninesawmills, three panelboard plants, two newsprint mills, three pulp mills, onefine paper mill, one paper bag and specialty plant, one panelboard plant inSaskatchewan, two panelboard plants and one corrugating medium mill in Ontario,a newsprint mill in New Brunswick (65 percent of which was owned by a Spanishgovernment agency), and one lumber mill, two panelboard plants and a linerboardmill in Alabama. Of its twenty-four corrugated container plants, seven were inCanada, eleven in the United States, and six in the United Kingdom. In total,the company employed 24,500 people, and was largely concentrated on VancouverIsland where 10,000 men and women worked."' M.B. was the largest integratedforest products company in the province, as it had been since the 1950's, withtotal assets four and one half times larger than those of B.C.F.P. 18 'In 1979 the company set aside $1.5 billion for further investmentthrough the 1980's in its B.C. operations, including a new sawmill for Port79Alberni and complete modernization of the plywood mills, and a new newsprintmachine at Port Alberni."' Upgrading projects in environmental projects, woodcollection, materials handling, road building, computerized sawmilling, andmechanized logging were also planned.80Chapter IVThe Sources of Competitive DisadvantageWhile the integration of smaller-scale units coupled with the movementto capture economies of scale did provide MacMillan Bloedel and B.C.F.P. withcompetitive advantages, many facets of the business strategies of these two firmswere uncompetitive in the post-war period. Professor Porter's business dynamicprovides a competitive paradigm of excellence against which we can examine ourtwo firms in the post-war period. Porter is interested in constructing abusiness dynamic that will allow firms to maximize their business advantages bycontinuously upgrading them. Any business disadvantage serves to limit thepotentialities of the firm, inhibiting its product growth and weakening itsprospects for continued profitability. More importantly for our purposes,however, is Porter's argument that a firm's competitive dynamics have a directinfluence on the types of production undertaken.Porter would most probably not be impressed with B.C.F.P. and M.B.'ssources of competitive advantage. These advantages included a government policythat encouraged the development of economy of scale forestry enterprises byproviding easy access to excellent timber and other measures; the integrationof uneconomic units; and the movement to undifferentiated scale production.For him, all four aspects of the competitiveness dynamic, including managerialexcellence, demanding market conditions, competitive suppliers, and qualityinputs of production should be present in order for the firm to move to value-added forms of differentiated production."' Weaknesses in any one of the fouraspects of the business would lead either to the loss of its advantages over timeor to the production of undifferentiated, lower value-added goods and services.Firms may produce undifferentiated products at high volumes to capture economies81of scale, but their long-term business prospects will be diminished as a resultof their competitive limitations.M.B. and B.C.F.P. experienced four facets of competitive disadvantagein the post-war period: timber over-abundance, which led to assured suppliesand a devaluation of the resource; the absorption of supplier networks by thelarge-scale firms for cost purposes, eliminating competition; managerialincompetence at M.B. and a managerial narrowness of focus at B.C.F.P.; andcollaborative marketing arrangements undertaken for cost purposes, which alsoserved to diminish the competitiveness of the firms. Two direct consequencesflowed from these limitations: an absence of research into new products, andan absence of spin-off businesses that could have been generated by the industry.All of these uncompetitive factors served to preclude an advancement todifferentiated production by the two firms.The quality and quantity of B.C. timber was both a blessing and a cursefor the forestry companies. It was a blessing in so far as it provided anabundance of cheap raw materials to the firms' processing plants. The governmentof B.C. ensured that the processing plants had enough low-cost timber toaccommodate their significant economic investments. The forestry regulationswere designed to encourage the development of this type of undifferentiatedproduction by large forestry enterprises. However, the timber abundance was acurse in so far as it created a mood of complacency and an assumption that theresource would last forever. The industry had a stake in assuming that it couldbe guaranteed cheap raw material inputs and continued to petition the governmentfor large timber grants. These firms became dependent on cheap, abundantresources for their productivity. The government favoured the development ofthese investments and permitted the firms to privately trade or to petition foraccess to large areas of forested land. MacMillan Bloedel accumulated thelargest quantity of these lands of any of the companies operating in B.C. The82most prized of these lands was the E.& N. land on Vancouver Island, which wasused to great advantage by the Harmac complex. B.C.F.P. also was dependent onlarge allocations of timberland adjacent to the MacKenzie complex. To beeconomically successful, the sawmill and pulp mill complex required enormousamounts of timber and cheap power as well as connections to rail and road links.Each of these necessary infrastructure conditions was assured with governmentapproval and assistance.The liberal allocation of lands had a down-side in that it fostered thedevelopment of businesses that sought to preserve these advantages rather thancreate or anticipate new ones. The businesses, therefore, turned to lobbyingthe government for the retention of the system that allowed for low-cost access.The arrangements became cosy ones, but they served to take the competitive edgeoff the businesses. Porter argues convincingly in his book that in the post-war period the most competitive businesses have been the ones that were deprivedof continuous access to raw materials. Using Japan and Germany as examples,Porter argues that greater competitive advantages are secured in a businessclimate that engenders a fear of supply discontinuities."' Firms are forced tocompete for scarce supplies that have more value attached to them, and may alsoseek to substitute one set of materials for another, promoting different formsof research and development. Assured supplies of materials leads to lessinterest in developing supply alternatives and product substitutions as long asthese materials generate profits."' Firms in this position will choose tocapitalize on existing advantages for as long as possible. The government'slegally binding contracts for timber access, which we identified earlier,perpetuated these arrangements over extended periods, ensuring that the valueof the timber remained relatively constant. The orientation towardsundifferentiated production was attributable in large measure to the devaluationof the resource. With assured supply, business created strategies that depended83on undervalued resources and resulted in less sophisticated, less value-addedforms of production.Firms gained access to timber on exceedingly advantageous terms in asecond manner: they bought access to it through the acquisition of olderfacilities and their adjacent lands. The integration of the forest industrybrought with it transformations to the industry. From the standpoint of thesetwo firms, it made sense to integrate downstream supplier logging industries tocut down on transaction costs and to ensure supply. The integration of thesesupplier firms by the large-scale companies further devalued the timberresources, however. The reduction in the value of the resource was achievedthrough three measures. First, the integration of downstream supplier firms(i.e. logging companies, independent contractors, small-scale productionfacilities) served to ensure that B.C.F.P. and M.B. had greater control over thecalibration of supplies to the plant. Firms could trap resource values bymanipulating the transfer of supplies to the processing centre and then tomarket. There were limitations to this. The buyers could exert pressures onthe firms to avoid price gouging by seeking out alternate suppliers, but thereis little doubt that in a highly volatile industry, being able to exert controlover supplies destined for production was advantageous. Secondly, the firmscould control or factor out harvesting costs by contracting out their cultivationto independent contractors. They isolated the risk to themselves associated withone of the most hazardous forestry activities. Independent contractors were usedon both B.C.F.P. and M.B. lands. When the market for wood products slumped, theindependent contractors felt the brunt of declining orders. They were releasedfrom their obligations and were subject to unemployment. The contractors alsohad to absorb the costs of mechanization (renting or purchasing their ownequipment), as well as the cost of insuring and accommodating the workforce atcamp. Diffusing downward some of the risks and costs associated with the84cultivation of timber in a cyclical industry, while retaining control over theresources for future development was a short-term strategic business tactic ofenormous importance to B.C.F.P. and M.B. But this advantage came at the costof impoverishing the supplier industries and weakening the long-term health ofthe industry by undervaluing both the resource and the labour force in the woods.Finally, both firms could artificially transfer costs and values up anddown the business chain from supplier networks to production centres and vice-versa. The profit margins of the integrated supplier networks were eliminatedin favour of cost savings at the production level. The value of the resourcewas determined at the production level and not at the source of cultivation orsupply. To preserve the integrity of cost savings at the production level, theresource was undervalued both by legislative incentives promoting developmentand by the integration of supplier networks. This strategy may have beenacceptable if it had resulted in the production of differentiated value-addedproducts, but it was a means of undervaluing resources in order to perpetratethe production of lower-value, undifferentiated products in large-scale plants.Competitiveness at M.B and B.C.F.P. was seriously affected by thequality and orientation of their managers as well. MacMillan Bloedel managementwas dominated by two figures in the post-war period: H.R. MacMillan and J.V.Clyne. Both made significant contributions to the development of MacMillanBloedel, but their management strategies were also seriously deficient. Poormanagement had an impact on the orientation of production. MacMillan Bloedelmanagers chose business strategies orchestrated around integration, scaleproduction, and geographic expansion in the production of undifferentiatedproducts. The company did attempt a move to more differentiated goods andservices in the early seventies, but retreated as a result of the oil crisis.B.C.F.P. made no effort at all in this direction. B.C.F.P. was administeredefficiently for the Argus Corporation and then for Noranda by T.N. Beaupre and85Ian Barclay, but the firm was only part of a larger enterprise that was moreconcerned with the extraction of immediate profit from undifferentiatedmanufacturing than with a longer-term commitment to expanding into moredifferentiated production. The firm was integrated as part of a resourcesportfolio of a much larger diversified conglomerate. In the eyes of the parent,there was little need for risky forms of diversification as long as the returnswere acceptable.To be fair, the managers of both of these firms took the limiteddecisions necessary to construct integrated, large-scale, undifferentiatedproduction enterprises. Through mergers and acquisitions, scale expansion abroadand across the country, and a measure of diversification (M.B. only), the twofirms were able to secure prominent positions as some of Canada's largestcorporations. Advancement into production was undertaken only after a suitablemarket had been identified. The companies were sensitive to the prospect ofhigher tariffs and declining market shares. MacMillan Bloedel, for example,expanded into Europe in order to secure market access for its undifferentiatedproducts and to integrate its production through a global network. Initialexpansion in Europe was in packaging plants (Hygrade Corrugated Cases and CooksCorrugated Cases) in Great Britain in 1963. The firm followed this up in 1964with a 36% (or $15 million) interest in a pulp and paper production plant(KoninKlyke Nederlandshe Paperfabrick) in the Netherlands. This was followedin turn by investment in G.E.C. (a pulp and paper concern) operating in Belgiumand France. Expansion also took place in the United States where the companyintegrated its new southern pine wood products firm at Pine Hill with a numberof packaging plants, which it also purchased. Canadian outputs were alsofunnelled into this production network that allowed for significant geographicand product integration, as these new container plant facilities helped to absorbthe firm's linerboard production. Subsequent investments into South America,86Asia and Australia late in 1973 were designed to capitalize on specializedproduction, new resources and markets.B.C.F.P. was much more regionally focused on B.C. production, capturingeconomies of scale almost exclusively in the province. The company made a daringmanagerial decision to move into the interior of B.C. to exploit newopportunities, although it was only involved in the project as a result of theintervention of the parent company, Argus. B.C.F.P. also relied heavily on itsmarketing partners in selling its products. While this provided cost advantagesfor the firm, it also limited the opportunities for B.C.F.P. managers to assumefull control of all aspects of the business. B.C.F.P. managers were moreproduction administrators than active managers of both production anddistribution.The company had a very narrow but relatively successful strategy forsuccess that was supervised by the parent companies, Argus and Noranda. Superbquality resources and access to cheap power and transport enabled the companyto develop successfully. Yet, the company had only a limited strategy for growthbased initially on acquisitions, mergers and accumulation of uneconomicenterprises. Following this phase, the company grew through geographicalexpansion into unexplored forest areas. As long as returns on the manufactureof undifferentiated products remained positive, few pressures were exerted onB.C.F.P. management. One of these pressures presumably would have been toupgrade to more advanced products had the opportunities to make easier money notexisted. The decision to move to more differentiated production would have comefrom the parent firm. Regrettably, no such decision was undertaken, and noinitiatives were offered or needed by the managers of B.C.F.P. in the post-warperiod.If B.C.F.P. managers were in a straight-jacket, M.B. managers hadconsiderable discretion over the direction of the firm. 	 H.R. MacMillan had87extensive influence over the firm's direction from the company's inception untilthe mid-1950's. In many ways the company reflected his personal ambitions andlimitations. In Empire of Wood, Donald MacKay chronicles the extent ofMacMillan's influence at the beginning of the 1950's: [MacMillan] "...alsobecame chairman of the new finance and policy committee which ruled on policychanges, senior appointments, capital expenditure over $100,000, and much more.MacMillan would exercise direct control of acquisition and development oftimberlands, the construction of the Harmac sulphate pulp plant, and managementof E.P. Taylor's British Columbia Forest Products."" ° The MacMillan ExportCompany managed B.C.F.P. from 1946 until 1953 when the management contract wasterminated. The two companies also collaborated in their marketing arrangements.For the four decades that we examine in this essay, H.R. MacMillan's companyprovided marketing services for many of B.C.F.P. 's products. The contact betweenthese two companies on a formal, and informal, basis was both personal andprofessional. The connection between E.P. Taylor and H.R. MacMillan served topromote the development of both companies. MacMillan used Taylor's good officesto make acquisitions and other private investments. Taylor used MacMillan'spersonal knowledge of the forest business and his marketing network to ensurethe successful start-up of British Columbia Forest Products. Yet, the forestindustry was not well served by this form of collusion. The management andmarketing collaboration of what would become the two largest forestry firmsdiminished the competitive pressures in the industry as a whole.H.R. MacMillan's control over his firm created some advantages anddisadvantages. By virtue of his forestry background and marketing business, hewas better placed than most executives to capitalize on B.C. resourceopportunities. When integrating backward from marketing into production, he hadsufficient knowledge of market conditions to plan his productive expansion.There was a major down-side, however, in having a chairman who was so intimately88involved in the day-to-day administration of the business. H.R. MacMillan'spersonal knowledge of the local business conditions precluded the developmentof more consensual management within the firm. MacMillan's penchant for coastalforestry based on a personal conviction of its superiority over interior forestrylimited the geographical diversification of the firm in B.C. H.R. MacMillanExport forfeited the possibility of interior expansion due to the chairman'spreference for coastal scale expansion.This policy was a major strategic error that cost MacMillan Bloedel verydearly. H.R. MacMillan believed that coastal advantages could not be recreatedin the interior. Water used for the transport of goods to market, and betweenthe manufacturing centres, or as log holding ponds, could not be recreated inthe interior. Secondly, the timber resources in the interior were not aslucrative as those in the coastal forest. The weather in the interior was colderin winter and hotter in summer, adding new challenges to logging practices. Theinfrastructure of roads, rails, and population centres was not as well developed,which in MacMillan's eyes made it too costly to transport the commodities tomarket. MacMillan disfavoured interior expansion so much that the company didnot exploit the prospect of integrating coastal operations with interior ones.Geographic scale economy expansion only came outside the province, and only afterH.R. MacMillan's influence had declined. New strategies and personnel wereclearly needed to advance the company beyond its coastal operations.In response to MacMillan's management, the firm in 1957 selected as hissuccessor a man with no forestry experience: J.V. Clyne. Clyne, who had beena British Columbia Supreme Court justice, hired an American managerial consultingfirm, McKinsey and Company, to provide him with ideas for managing MacMillanBloedel. The managerial method they proposed for the sprawling 57 unit firm wasadopted by Clyne. The consultants recommended that four production units(defined by their product output or production phase) be adopted: a Wood89Products Group (plywood, lumber, shingles), Pulp and Paper Group, Logging Group,and Converting Group."' Planning was to be centralized at head office with day-to-day administrative affairs being factored out to production centres. McKinseyand Company introduced the bureaucratic mechanism through which production couldbe overseen by a central office. Policy and financial decisions were to beincorporated into a company plan that MacKay describes as follows: "In 1963,the company launched its first Five Year Plan. In addition to long range goals,each year of the next five would focus on specific operational areas: marketstrategies, revenue targets, cost and expanse budgets, profit projections andcapital expenditure programs." 19P There were obvious advantages to diffusingresponsibility downwards: it created managerial dynamism at the plant leveland allowed for the development of practical business solutions to localizedproblems; it gave a sense of purpose and control to local managers and workers;it ensured that discontinuities in production at one location would not utterlydestroy the integrity of the company's overall profitability; and each unitcould orchestrate its own production and distribution within the master plan inorder to capitalize on local factors.The down-side of this plan, however, was that it created a centralpolicy and strategy unit that was somewhat detached from its businessenterprises. The head office formulated elaborate market studies, examinedproductivity flows, planned integration and the long-term strategic distributionof resources, cultivated customers, sought buyers, negotiated with governments,planned upgrading, calibrated technical efficiency, planned company goals andwork tasks, and planned diversification strategies. Yet, unless sufficientattention was given to the administration of these strategies at the plant level,the whole system threatened to cut off managers from the day-to-day realitiesof the business that they were administering. The strategy threatened toengender the accumulation of knowledge into isolated groups; one at the90production unit and the other at the head office level. The means designed tokeep the system productive was the enforcement of productivity and profitabilitygoals by the centre onto the product or process groups. Local managers were tobe pitted against each other under such a system in so far as they wereresponsible for performance goals set within the larger strategic plans imposedfrom the centre. The system diffused pressure downwards in exchange forproductivity gains from the bottom up.The policy of global-scale expansion caused some strain for MacMillanBloedel's management. We can trace the difficulty in two fashions. First, M.B.made the acquisition of managerial talents high on the list of priorities indetermining whether or not to buy or build a particular firm or plant. Theacquisition of managerial talent reflected an absence of confidence in theexisting managers at the firm. Second, the company embarked on a rather faddish'Management By Objectives' program. The uncritical acceptance of each newmanagerial philosophy proposed by McKinsey & Company reflected an absence ofintellectual discipline and the obvious lack of a managerial vision at thehighest levels of the firm. Clyne accepted McKinsey and Company's recommendationthat all managers were expected to establish their own personal objectives andthen tailor them to the company's goals.'" Emphasis was placed on harmonizingthe individual goals of employees to the goals of the firm. McKinsey and Companyalso advised Clyne to decentralize control from a single executive to atriumvirate of managers involving decisions on finance and strategic policy.'"This did not work due to the clash of personalities, and led to furtherindecisiveness at the top.Thus, by 1969, Clyne's over-dependence on McKinsey and Company forstrategic insight had led to some managerial difficulties. In the early 1960's,this managerial consultant had favoured strategic policy and administrativecentralization. In order to assure productivity increases, central management91was supposed to disassociate itself from day-to-day operations of the firm.Pressure to perform was diffused downwards through productivity quotas orprofitability ratios between companies in an autonomous product or process group.However, this policy served to create a strong willed administrative centre whichtook credit for productivity gains without having actually taken responsibilityfor the day-to-day decisions that brought them about. In particular, Clyne'spolicy of global expansion in the 1960's was partially in response to the poorjudgement of not expanding into the B.C. interior. Business conditions in thehome market were deteriorating: the best timber supplies had already beenclaimed, costs of production were beginning to cause serious concern. Thegeneral business climate in B.C. seemed to have lost its lustre due toantagonistic labour relations, the prospect of an N.D.P. government, and ameasure of complacency in the forest industry.M.B.'s decision to abandon somewhat its B.C. business advantages in thepost-war period was a conscious one. Faced with rising costs of labour, naturalresources, taxation, and energy, M.B. managers made the choice to expand beyondthe borders of B.C., the company's traditional business base. But this globalfocus came with a price. Integration of production and distribution became moredifficult. M.B. drew on the reserves of scale production in the home base toexpand, but consequently did not undertake the necessary investment in productionand process in B.C. As a result, technology stagnated and supplier industriesdeteriorated.Management at M.B. was in a constant state of turmoil in the early partof the 1970's. The commitment to reinvesting in shipping to capture transportcosts backfired miserably. The firm's managers merely extrapolated that alucrative market existed for transport for bulk dry goods, which could becombined with the cost savings associated with the shipment of their own goods.A narrow focus on capturing cost savings without seriously accessing the shipping92industry's prospects in terms of international economics and politics nearlydestroyed the firm. McKinsey and Company's committee management model producedonly internal squabbling as executives fought for resources for their owndivisions, rather than contemplating the whole. The firing of top executives,D. Timmis and G. Currie, on March 26th, 1976, marked the end of committeemanagement and the end of M.B.'s commitment to expanding its shipping capacity.The new chief executive officer, C.C. Knudsen, eliminated M.B.'s committeemanagement immediately after assuming control. As a senior executive atWeyerhauser in the United States, Knudsen revamped the organization by trimmingits divisions down along product lines: pulp and paper, linerboard, buildingmaterials and raw materials. Knudsen cancelled shipping contracts wherepossible, bought out others, and sold many vessels. The remaining years of theseventies were marked by rationalizations and a re-commitment to the forestrybusiness in B.C.Thus, the management of MacMillan Bloedel in the post-war period leftsomething to be desired. MacMillan's commitment to a coastal forest strategyprecluded the cultivation of interior resources. His influence on the companywas significant well into the late fifties and early sixties, to the point wherehe determined the firm's growth strategies. The managerial muddles continuedin the 1960's with J.V. Clyne. J.V. Clyne's reliance on outside managerialadvice resulted in constant changes to business organization and strategy. Thefirm seemed at times to be a laboratory for the latest business schooltheoretical models. The firm originally had a rigid bureaucratic structure,which was transformed into committee management, then converted back to a strongleader at the top of a bureaucratic chain. The end result was a lack ofcontinuity in authority. Authority at M.B. was invested in people but not ina solid institutional framework.With this upheaval, it was most unlikely that the firm could adapt or93endure the necessary risks associated with advancing to more differentiatedproduction. Moving to the production of new products compromises the business'scurrent prosperity through its heavy commitment to research and development, andto start-up and manufacturing costs. Yet, these short-term risks are essentialto long-term product development. Instead M.B. chose to perpetuateundifferentiated production through scale expansion. M.B. expanded abroad toperform the same manufacturing function or to protect markets; it did not moveto more advanced products. The performance of many of these ventures in Europe(e.g. Belgium, Indonesia and France) and in Asia was questionable, and wasattributable to the managerial muddles at M.B. These productive enterprises wereundertaken to protect markets for undifferentiated production rather than fortheir productive virtues. It would have been easier to protect markets if thefirm's end product had had attributes that competitors could not duplicate: inshort, new value-added products.M.B.'s lack of commitment to investing in its B.C. infrastructurecompounded these problems by allowing the source of its prosperity to decline.In order to progress to more differentiated products, M.B. needed to continueto generate revenue from its undifferentiated production. Research anddevelopment into new products required significant resources derived fromexisting production. But M.B.'s lack of commitment to at least upgrading itsexisting production facilities was compromising the firm's capacity to produceenough resources to undertake any future product development. In order toprogress to more advanced products, the firm needed at least to protect itsexisting sources of competitive advantage. The central message of Porter's bookholds that firms must upgrade their facilities, managerial talents, products andmarketing networks if they wish to progress to differentiated production. M.B.allowed its B.C. infrastructure to decline, bought into the wrong form ofmarketing network (shipping), which collapsed, made little attempt to upgrade94to more advanced products, instead limiting itself to less advanced productsmanufactured in more places, and sought managerial talent in the form oftheoretical advice from a consulting company. A litany of wasted opportunitiesand poor judgment precluded the advancement to more advanced products atMacMillan Bloedel.The marketing arrangements that were undertaken by B.C.F.P. and M.B.provided false economies for the two firms and reduced competitiveness in theindustry in general. The absence of competitive pressures further helped topreclude an advancement to more advanced forms of wood product manufacture.B.C.F.P., the second largest forest company operating in B.C. in the post-warperiod, marketed many of its products through networks that it shared with othercompanies. B.C.F.P. used MacMillan Bloedel, Mead and Scott Paper Company fora considerable proportion of its marketing needs. These arrangements did providecost savings to the firm in terms of avoiding the costs of establishing andupgrading its marketing network. By using these arrangements, however, thecompany exposed itself to three problems. First, by not competing against eachother in the marketing of their goods the two firms were able to increaseartificially the value of their products in so far as they cut out thecompetitive pressures of marketing, competitive pricing, communications withbuyers and the costs associated with the transport of their goods. Greatermarketing competition may have served to force longer-term innovations in productor process, but, instead, B.C.F.P. managers chose a shorter-term strategy ofpursuing transportation and communication cost savings. The wood products thatboth firms produced cost a lot of money to transport. By integrating theirmarketing networks, the firms could expand the geographic size of their markets,realizing greater economies of scale. They also could increase their power asjoint sellers of similar products. But, this access to a larger market wasbeing secured through collusive market arrangements designed to protect the95continuous manufacture of undifferentiated products. If both companies offeredsimilar products through the same marketing mechanisms, then fewer pressures werebeing created for competitive variations both in product and marketing approach.Fewer pressures created less need for product or process innovation, hence thelack of interest in moving to more specialized and potentially risky production.The managers of both firms most probably figured that if one of the firms movedto a more competitive stance, the result would have been a price war that wouldhave compromised their profit margins, B.C.F.P. was founded to make money aspart of a resource-based conglomerate, not to make waves as an innovator andproducer of undifferentiated wood products.The two most obvious examples of B.C.F.P.'s marketing dependenceoccurred with the signing of contracts with MacMillan Bloedel and Mead. B.C.F.P.also had smaller arrangements with Scott Paper Company. We made reference tothe fact earlier that B.C.F.P. was initially managed by the H.R. MacMillan ExportCompany during the early years of the firm. Part of the management includedsales agreements signed between the two firms to allow B.C.F.P. to have itsproducts marketed by H.R. MacMillan Export Company. This agreement continuedthroughout the period, although B.C.F.P. gradually set up its own sales officesin strategic markets. The extent of the contract was revealed in the 1967corporate report: "Under the new agreement, B.C.F.P. will continue to handlelocal sales of lumber, shingle and shakes, and in addition will sell theseproducts in all of British Columbia and the U.S. rail market.' In short, allsea-borne transport of B.C.F.P. products to outside markets, including to theeastern U.S. market, was undertaken by M.B.This was not the only marketing agreement that B.C.F.P. had. In 1957B.C.F.P. had set up a sales agreement with Mead Pulp Sales Incorporated of theUnited States for the Crofton mill: "Under this agreement, B.C.F.P. set prices,determined quantities to be sold, and approved all orders and contracts.96Subsequent to the agreement, Mead Pulp Sales established sub-agents in Italy,France, Germany, U.K., and South America to handle sales matters at the locallevel."' A substantial portion of B.C.F.P.'s pulp production was committedthrough Mead's international network. The company did have greater control overnewsprint sales, however, as newsprint sales were handled by long-term contractsfor select customers. The company established newsprint offices in twelvecountries (the Crofton Paper Company) to capitalize on the spot market. Spotmarket sales were primarily in the emerging Asia-Pacific region as well as theE.E.C. and U.S.B.C.F.P.'s collaboration with M.B., Mead and Scott Paper Companycontributed to business conditions that resulted in a general lack of marketsensitivity and a limited set of options in the marketing of B.C.F.P.'s products.B.C.F.P. relied on other companies for many of its marketing operations. Thisarrangement served to isolate the company from some of its customers and itsmarkets. The company retained control of its process technology and itsproduction, but was less sensitive to market changes than MacMillan Bloedel.It is here that a trap of undifferentiated production becomes apparent. In anattempt to cut costs and add value to its undifferentiated products, B.C.F.P.was bargaining away the possibility of gaining a competitive edge throughinnovative marketing techniques. B.C.F.P.'s desire to improve the efficiencyof its productivity by cutting costs led to a prejudice that marketing was anunnecessary expense that could add little value to the product, and would reduceprofits. The lack of interest in marketing by the second largest producer ofwood products in the province directly contributed to the development of large-scale, Vancouver-based marketing oligopolies. The large manufacturers (likeB.C.F.P.) sold softwood lumber to large forest products wholesalers, who in turnsold them to retail outlets and building contractors. By the 1970's, only threeVancouver-based major softwood marketing networks were serving the important U.S.97market: Seaboard Lumber Sales, MacMillan Bloedel, and Eacom Timber Sales."'The U.S. was essential to the prosperity of the industry and constituted thelargest market for softwood lumber sales. MacMillan's marketing origins gaveit an enormous shipping advantage to the east coast of the United States, butin other markets (namely the U.S. west coast and central regions) rail and truckplatforms were used for the transport of goods. The absence of dynamism in themarketing of the wood products was a reflection of the unsophisticated natureof the product itself. Fewer specialized production advantages meant that fewerinnovative and competitive marketing techniques were needed to sell them.The company's marketing arrangements for undifferentiated lumberproduction left only one alternative when the market collapsed: to phase downproduction. To avoid these production cycles in pulp and newsprint, B.C.F.P.turned to the long-term contract. Long-term contracts for newsprint and pulpand paper served to place restrictions on prices, however. The firm was willingto trade the prospect of harder-edged competition with the prospect of higherreturns for secure sales and lower prices. Monopoly sellers sold to monopolybuyers in a cosy arrangement that served to isolate risks to the manufacturer.When the market declined, the manufacturers chose to reduce prices gradually,but there was no evidence of competitive price wars between these two or otherfirms operating in B.C. in the post-war period.The Argus Corporation also paid a significant price by engaging in thesejoint marketing projects. In 1969 one of the marketing partners (Mead) conspiredwith Noranda to take control of the company away from Argus. Not only wasB.C.F.P.'s marketing arrangement detrimental to the development of differentiatedproduction, it was also of a destructive nature in so far as Argus' desire toreduced costs and risk caused it to lose control of B.C.F.P.MacMillan Bloedel was in a more advantageous position. As one of theselect few companies that marketed what it produced, it had a greater sensitivity98to market conditions than B.C.F.P. But its dominance of this activity (to thepoint of virtual monopoly control of some segments) was also detrimental to thecompetitiveness of the two firms. An absence of competition fostered by thecreation of the largest integrated marketing network lessened the pressuresneeded to press the firm into differentiated production.On the surface MacMillan Bloedel's post-war marketing accomplishmentsseem impressive. The companywas able to organize its activities associated withcollecting, storing and physically distributing goods.'"By acting as marketingagents for many B.C. forest products companies, M.B. was able to reduce costsand achieve economies of scale in marketing. Because they marketed basic goods,there were fewer needs for after-sales service or for quality assurance intesting and monitoring the after-sales performance of their goods. But thereis no evidence to indicate that the profits derived from the economies associatedwith basic goods was ever applied in any significant way to research for newproducts or new product marketing opportunities.M.B.'s buyers were not very dynamic, and the absence of dynamismresulted in few pressures for new products. Buyers of basic products demandedfewer sales aids and little technical support for their goods. Without upgradepressures from buyers there was little incentive to advance to moredifferentiated products. Sophisticated marketing techniques associated withmedia representation, or product positioning, or image, were not in evidence.There were fewer needs for technical literature, buyer education, or after-sales support when compared to more differentiated products. The semi-processednature of most of M.B.'s products did not foster specialized marketing skills.The absence of buyer pressures on M.B. for more differentiated products alsoinhibited the development of new marketing strategies. Thus, M.B.'s marketingdivision did not put any pressure on the production units to upgrade ordifferentiate product features.99Collaborating on marketing with other B.C. forest companies also addedsome inhibiting features to M.B.'s business. The harmonizing of productmarketing between firms served to consolidate the orientation of productionaround undifferentiated products. M.B. was less likely to experiment with newproducts, if such experimentation led to conflict in the cosy marketingarrangements with other firms. It would be logical to assume that B.C.F.P. andM.B. probably refrained from product manufacture that would have compromisedtheir marketing connections. Secondly, joint marketing arrangements meant thatproducts were evaluated by joint performance.'" Both firms had to harmonizeproduction to avoid delivery problems or excessive opportunism in the market.Without this, the firms would have been producing shortages or surpluses atdifferent times, precipitating price wars and upsetting marketing arrangements.In short, marketing collusion resulted in a loss of production autonomy andcompetition. In order to cut costs on undifferentiated products and production,M.B. and B.C.F.P. were prepared to position some of their products in a non-competitive manner (with each other) in order to protect their market share.While this ensured sales, it eliminated pressures to move to more differentiatedproduction.M.B.'s marketing network stretched back to the H.R. MacMillan ExportCompany. MacMillan's first marketing success was achieved in the United Kingdomthrough the supply of war materials and for reconstruction. The most importantmarket, however, was the United States. The significant penetration into theU.S. eastern market in the post-war period was met with a hostile price reductionby U.S. wholesalers attempting to keep MacMillan from landing his largefreighters and establishing a market share. 200 MacMillan successfully openedthis market by constructing warehouses and investing in a distribution networkdesigned to move the goods from port to retailer outlet. The company alsoinvested in a large network of warehouses and sales offices across Canada for100the marketing of its wood products, eventually, by the 1960's, having sales orwarehousing offices in all but two provinces, Newfoundland and Prince EdwardIsland. The company was so predominant by 1974 that M.B. "...handled 39 per centof all waterborne shipments which included its own production and that of BritishColumbia Forest Products and Triangle Pacific (together representing 20 per centof MacMillan Bloedel's waterborne shipments). ,.201M.B. also had an extraordinary level of business in the export of itsown pulp, supplying 7% of the regional U.S. market in 1971. 202 In terms ofnewsprint and fine paper, MacMillan Bloedel supplied its large customers throughlarge-scale, long-term contracts. The largest consumer of M.B. newsprint wasthe California market, the largest individual consumer being the Los Angeles Times newspaper. Fine papers were 'drop shipped' by rail, road or ship. 203 By1973 in the marketing of its own paper products MacMillan Bloedel "had sales of23 million representing 39.8% of the corrugated paper needs of the four westernprovinces."'" The costly means of transporting this product meant thatmarketing it was locally focused either by rail or road, but M.B.'s westernprovincial market share indicated how successful it was at overcoming thisdifficulty.The company's marketing of all these products had made it verysophisticated in the business of materials handling. Specialized truck and raildesign for the transport of forest products owed much to M.B.'s marketing skills.The configuration of their own ships to handle the full range of forest productsmade M.B. competitive in the movement of materials. The company's specializedbarges and materials handling equipment at port were among the most sophisticatedin the world.MacMillan Bloedel's markets, which were constant throughout the period,included the U.K., U.S., Japan, E.E.C, Asia Pacific region, and the BritishCommonwealth. The company viewed their post-war markets with high expectations,101anticipating new home construction, infrastructure rebuilding, and the need forfurnishings and wood products for new homes. By the end of the 1940's marketshares were shifting, with the U.S. assuming 49% of total company produce; theU.K. 30%; South Africa 8%; British Commonwealth 10%; and others 3%."' Therise in the American market meant that the company moved into much moresophisticated product sizes and grades to meet the American demand forspecialized sizes for homes; as the 1950 annual report explained: "Lumberbuyers are yearly becoming more exacting. They accept only a small proportionof rough green lumber. They demand accurate grading, sawing and trimming,perfect dry kilning and dressing."' Thus, demand pressures did induce qualitycontrol improvements, but this should not be confused with pressures to move tomore differentiated production. Customers simply wanted quality undifferentiatedproducts. To meet this need, M.B. had to make process but not product changes.In the 1950's the U.K. market slowly receded in importance except forspecialty products and rail ties. The rise in freight rates and structuralweakness in the U.K. economy served to limit market growth there. The risingfreight rates of the 1950's put considerable pressures on MacMillan and Bloedelto hold their eastern U.S. market share. Plywood shipments to Canada were alsoslightly disappointing during the mid-1950's as the economy began to slow downslightly after the enormous boom of the immediate post-war period. Throughoutthe period the U.S. lumber market fluctuated according to home buying trends,but the market remained steady. The South African and Australian trade (and theCommonwealth generally) declined, matching the post-war decline in sterling areatransactions. By the late 1950's fully 70% of company products were beingexported out of Canada, principally to the U.S."'The 1960's brought new market challenges. The Scandinavian countrieswere operating with considerable efficiency in the newly formed E.E.C., cuttinginto MacMillan Bloedel & Powell River (M.B.& P.R.) market shares in Europe and102Britain. The company was especially worried about its declining lumber,specialty products, and Kraft paper market share. 208 The company also hadconsiderable problems with the fluctuating exchange rates of the Canadian dollar.The dollar was overvalued relative to other currencies and tended to make moneytransactions between U.S. and Canada losing propositions. (The company sold itsgoods in American dollars). This was especially the case as the Americancurrency weakened due to inflation caused by the Vietnam War. On the plus sidewas the rise in the Japanese market and the integration of MacMillan Bloedel andPowell River marketing agencies, lending even more specialization in papermarketing to the company's marketing skills.By 1963 the U.S.markets consumed 42.1% of company products; Canada28.5%; the U.K. 12,7%; Japan and the Orient 6.7%; and other markets 10.8%. 209The company clearly was heavily committed to continental U.S. and Canadianmarkets. In order to broaden the company's foreign markets, M.B.& P.R. enteredinto an agreement with Jardine-Matheson and Company to promote M.B.& P.R.'sproducts in the Asian market. The joint venture offered new opportunities andkept the costs of setting up an agency in a relatively unfamiliar market to aminimum. In 1963, the purchase of the company's British marketing agent, theSpicer's Group, forced M.B.& P.R. to purchase Hygrade Corrugated Cases and CooksCorrugated Cases to gain direct access to a packaging and distribution networkin Britain. The loss of M.B.& P.R.'s marketing agent forced the firm to protectits market share for Canadian inputs in the box plants and resulted in newmarketing opportunities in Britain. The move into production was also inducedby the British government's imposition of a tariff on boxed products.By the mid-sixties the company was facing new challenges to its marketin pulp and newsprint. In newsprint, competition and changes in the manner inwhich people were receiving their news were beginning to have an effect onprices, and, as a result, the company implemented a $10.00 price reduction. The103company had been marketing its pulp through Price & Pierce in the U.K. and U.S.,but, after 1965, M.B.& P.R. opened MacMillan Bloedel Pulp and Paper SalesLimited, with offices in London and New York. The company also improved thewholesale distribution of its forest materials in the eastern U.S. market withthe purchase of Blanchard Lumber, a marketing firm. In Australia, the companypurchased MacMillan Bloedel Pty. Limited "to sell the company's newsprintdirectly to the publishers instead of through a consortium of newsprintmanufacturers as in the past."' The company continued its extensive investmentin marketing infrastructure by establishing facilities for the reception andprocessing of graded materials in the U.S., as well as investing in a portinfrastructure in England (Newport and Tilbury) "...for the reception, storageand redistribution of products. These terminals were strategically located atdocks where large bulk cargo ships could be accommodated and where plenty ofspace was available for efficient handling and storage. Product market practiceswere being adjusted to conform to the new distribution concept."' The companyalso formed a contract with Montague L. Meyer to move goods in Britain. Thus,M.B. moved extensively into the distribution and wholesaling of its products.It also formed joint contracts with other agencies in new markets in Asia andwith smaller wholesalers in Latin America.The extensive investments in marketing structures paid off withrelatively steady market shares in the 1970's. This was important due to thefluctuating economic performance of the western economies during this period.Part of the reason for continued market share was attributable to the fact thatthe company continued to upgrade its marketing facilities, putting in newdistribution warehouses in Thunder Bay, Edmonton, Moncton and in the U.S. atOdenton (Maryland). 212 The company also opened up the eastern Canadian marketfurther with a new distribution centre in Dartmouth, Nova Scotia. In order totake full advantage of the marketing opportunities given by the production centre104at Pine Hills, Alabama, the company located its building materials marketinggroup in Atlanta in 1976. 213 extensive sales network (41 sales offices inthe U.S. by 1979) 214 allowed for the contracting out of marketing services toother companies that chose not to compete directly with M.B. 's marketing network.By the 1970's M.B. had contracts with B.C.F.P., Sooke Forest Products, AcornForest Products Limited, River Sawmills Company, Triangle Pacific Forest Productsof New Westminster, B.C., and Meadow Lake Sawmill Company of Saskatchewan."'Regrettably, however, the collaboration of B.C.F.P. and MacMillanBloedel in the marketing of their products precluded the development ofautonomous (B.C.F.P.) and more competitive marketing organizations in each ofthese two firms. This collaboration, instead of competition, eliminated someof the upgrading pressures essential to the continued success of these firms.Sadly, for these firms the meaning of the words 'orchestrating distribution'meant avoiding true competitive market pressures in one important aspect of theirbusiness. Cutting the costs of transport and marketing came at the expense ofdynamic competition between these two firms in the post-war period.Without these competitive pressures, the firms had little need to moveup to more advanced forms of differentiated production. One of the manners inwhich we can prove that there was little enthusiasm for new products is toexamine the post-war level of research and development into new products byB.C.F.P. and MacMillan Bloedel. Both firms devoted research dollars to processimprovements in order to promote cost efficiency. The companies also investedconsiderable sums of money into more environmentally friendly forms of forestproduct manufacture, but little attention was paid to research and developmentof new products. In the 1968 corporate report, B.C.F.P. made the followingstatement: "The company does not maintain a separate research and developmentorganization, but applied research is done at each plant to solve theirparticular operating problems. B.C.F.P. supports pure and applied forestry105research at the B.C. Research Council, Pulp and Paper Research Institute ofCanada and at the universities."' The emphasis on process research designedto cut the costs of manufacture is clearly evident even at this late stage inthe development of the firm. Without an interest in developing rare and valuablehuman, capital, or product innovations, B.C.F.P. was consigning itself toundifferentiated product manufacture.The case of MacMillan Bloedel is somewhat different. M.B. did devotesome resources to the development of new technologies: developing techniquesof black liquor oxidation (1955) and techniques for salt removal from logs inthe pulping process in 1975. The company was also able to apply new techniquesin the bonding process of particleboard (low solids resin process), which servedto improve the integrity of the bond at less cost. The company also introducedtwo new particleboard products: a high quality finished product and a "slipresistant waferboard for roof sheathing. "217 The company's applied researchresulted in a variety of process refinements to plywood production includingautomatic veneer clipping, an automated finishing line for its products, andsynthetic plastic patching for manufacturing defects. New plywood productsincluded self-release concrete forms and K3 particleboard. In lumbering, thecompany was among the first to install the imported "chip n'saw" sawing machinewhich was able to cut logs and filter out chips for processing. It is reasonableto assume that early implementation of these innovations resulted in economiesof scale and research benefits. But, it is quite evident throughout the periodthat M.B. devoted much of its capital towards production and processimprovements, and very little towards the development of new products. Between1972 and 1976, 73.5% (on average) of MacMillan Bloedel's research and developmentbudget was devoted to process and production, while only 8.2% (on average) ofthe budget was devoted to the research into new products."' Without asignificant research effort into new products, differentiated production was106impossible.In more general terms, the failure of B.C.'s two largest forestcompanies to develop raw wood into more sophisticated products also hadstructural implications for the economy. The absence of spin-off industriesdevoted to research, or to new products, and the lack of a diverse number ofprofessionals exchanging ideas and techniques, resulted in technologicalstagnation. Market conditions also deteriorated as local and other buyers didnot develop more complex and sophisticated relations (based upon the exchangeof information on sophisticated products). Without the largest firms in the B.C.economy devoting themselves to more complex products of higher value, greatopportunities were lost. Opportunities in the manufacture of rayon products,alternative fuel sources, other possible uses of resources in the manufactureof cosmetics or health oriented products, and new forms of packaging were allforegone by these short-sighted companies.107Chapter VConclusionProfessor Porter's model is designed to describe how an idealcompetitive business dynamic (consisting of the most beneficial combination ofcompetitive advantages) can evolve. The object of the dynamic is to foster thedevelopment of differentiated products. According to the model four mutuallysupporting business conditions serve to foster a competitive environment leadingto the creation of value-added products: factor input conditions; demandconditions; the conditions associated with the supplier network; and firmstrategy.' Through the application of Porter's four variables to two BritishColumbia forest companies in the post-war period the factors that precluded theiradvancement to more advanced production have been identified. Porter assertsthat business will not voluntarily move to more advanced forms of production.They have to be pressured by competition or by the extinction of some of theircompetitive advantages. 220 Companies are unwilling to change the orientation oftheir production voluntarily: "The reason so few firms sustain their positionis that change is extraordinarily painful and difficult for any successfulorganization. Complacency is much more natural. The past strategy becomesingrained in organizational routines. Information that would modify or challengeit is not sought or filtered out. The company strategy takes on an aura ofinvincibility and becomes rooted in company culture...Successful companies oftenseek predictability and stability. They become preoccupied with defending whatthey have, and change is tempered by the concern that there is much to lose.Supplanting or superseding old advantages to create new ones is not considereduntil the old advantages are long gone."'In British Columbia easy access to and superabundance of cheap resources108(timber, water, hydro electricity) served to eliminate some of the competitivepressures on the forest industry. M.B. and B.C.F.P. rationalized theiroperations to realize economies of scale in undifferentiated products but didnot diversify to more specialized production. The operative word thatcharacterizes the post-war business practices of these two firms is complacency.The firms shared the prejudice that the resources were virtually inexhaustible,and the government's continued granting of large tracts of timber in return forthe construction of ever larger-scale manufacturing plants did nothing to dispelthis perception. The firms then lobbied for continuous access to raw materialson advantageous terms in order to perpetuate their initial advantages. At notime during the post-war period did either of these two firms suffer due to alack of availability of timber supplies. Without discontinuities in production,the firms could not come to value the full worth of their timber resources.Managerial incompetence and narrowness of focus also contributed to theinability to move to more advanced products. MacMillan Bloedel's inability toorchestrate its managerial strategies ossified many of the firm's businessadvantages. M.B. did not make adequate investment in research and developmentof new products, nor did it upgrade its production facilities to the degreenecessary to ensure maximum efficiency. M.B. became less committed to plywoodproduction after 1964 and allowed its sawmill and pulp mill plant to become lessefficient generally. B.C.F.P.'s productivity per capita was greater than thatof M.B. for the post-war period. B.C.F.P., for its part, was efficiently butnarrowly run. The object was to maximize undifferentiated production, not tomove to more sophisticated products. B.C.F.P. was designed, in short, to pileup profits by exploiting the manufacture of low, value-added products at highvolumes in relatively secure markets in the U.S. and elsewhere.The integration of supplier networks as part of the desire to cut costs,as well as the collaborative marketing arrangements, also significantly109constrained competition. Integrating production with downstream supplier loggingindustries cut transportation costs and assured the continuous supply of timber,but at the price of undervaluing the resource and impoverishing the suppliernetworks. Timber inputs could also be more easily controlled by the producer.If the supplier logging companies had been independent, upstream producersprobably would have had to absorb greater costs in volatile markets. If demandhad suddenly declined, B.C.F.P. and M.B. may have been forced to absorb the costsof higher inventories due to fixed supply contracts. The companies avoided thisby exerting direct control over supply to the production centres. Unfortunately,eliminating competition at the supplier level also served to create anundervalued resource. Higher values on the resource may have created moredifferentiated production as independent suppliers sought to provide morereliable resources to a wider variety of producers. Instead, supplier networkswere factored into the continuous production of undifferentiated products. Costpressures were put on these suppliers either to mechanize or cut down on labourcosts. In many cases, the logging companies were absorbed and independentloggers were then subject to competition on a contract basis for the privilegeof harvesting company land. The two companies could control the costs of alabour-intensive aspect of their business by shifting responsibility for loggingdown to independent contractors. Many of the costs of mechanizing in the woodswere also factored down to independent contractors.One obvious result of this process was to stunt the growth of spin-offs of sophisticated supplier firms providing new technologies. Smaller loggingfirms had less money to invest in new technologies and purchased or leased themas needed. Consequently, in periods of downturn, they were forced to sell theirequipment or abandon their leases. The state of the forest products marketcould be measured by the number of auctions of forestry equipment by independentcontractors. The absorption of new technologies was thus more dependent on110cyclical variations than would have been the case had the logging companies beenable to derive greater levels of value from the resource. It is thus possibleto argue that greater technological innovation could have occurred in theindustry had timber values been transferred downstream through higher costs toproducers for the resource. Reducing the input costs of materials and labourwas an important competitive advantage of these two firms. The impoverishmentand absorption of the supplier businesses provided cost advantages to theupstream producers (B.C.F.P. and M.B.), but at the price of devaluing theresource in order to achieve high levels of profit in the manufacture ofundifferentiated products for the firms in the post-war period.One of two scenarios is possible for these firms. Either they will cometo realize the value of their resources through scarcity and will move to moreadvanced production, or they will continue to manufacture undifferentiatedproducts until the forests are exhausted. Only when the last of the trees isin sight will the hard productive decisions be made, but by then it may be toolate for these very fortunate, but very limited firms.Annotated End-notes1. Michael E. Porter,	 Competitive Advantage:	 Creating andSustaining Superior Performance (New York: The Free Press, 1985),p.120.2. Ibid.,	 p.120.	 The definitions offered in this earlier bookcomplement Porter's research in The Competitive Advantage of Nations.3. Ibid.,	 p.33 and pp.125-126.4. Patricia Marchak, Green Gold: The Forest Industry in British Columbia (Vancouver: University of British Columbia Press, 1983),pp.20-21.5. Ibid.,	 p.21.6. Michael Porter, The Competitive Advantage of Nations 	 (NewYork: MacMillan, 1990), p.71. Porter refers to these fourfactors as a 'diamond'. Porter believes that two other factors canhave an impact on the 'diamond': the government and chance (badluck or forces beyond the control of a particular firm or group offirms).7. Ibid.,	pp.72 -73.8. Ibid.,	 p.617.9. Ibid.,	 p.619.10. Haitley V. Lewis, "Objectives of Public Forest Policy inBritish Columbia:	 Some Economic Observations," in Timber Policy Issues in British Columbia,	 eds. William McKillop and Walter J.Mead	 (Vancouver:	 University of British Columbia Press, 1976),p 511. M.B. Percy, Forest Management and Economic Growth in British Columbia,	 Ministry of Supply and Services lOttawa:	 Queen'sPrinter, 1986),	 p.1.12. Marchak,	pp. 30-31.13. Ibid.,	 pp.30-31.14. Porter, The Competitive Advantage of Nations, p.278.15. Ibid.,	 pp.617-619.16. Ibid.,	pp.71-73.11111217. Peter H. Pearse, Timber Rights and Forest Policy in British Columbia, 2 vols. (Victoria: Queen's Printer, 1976), II, AppendixA, p.A3.18. Ibid., II, Appendix A, p.A4.19. Ibid., II, Appendix A, 	 p.A4.20. Ibid.,	 "Evolution of Forest Tenure Policy", II, Table A-1,Appendix A, p.A6.21. G.L. Ainscough, "The British Columbia Forest System", inTimber Policy Issues in British Columbia, eds. William McKillopand Walter J. Mead (Vancouver:	 University of British ColumbiaPress, 1976),	 p.34.22. Pearse, I, p.28.23. The government gradually sought to tighten the excessivelyliberal timber access provisions of the Old Temporary Tenures(O.T.T.'s). In 1965 the government adopted the principle that thelicense holder had to retain "merchantable timber in commerciallyvaluable quantities." [Pearse, II, Appendix A, p.A24] Thegovernment stipulated that the timber reserve had to be of acertain size and quality, and that the timber stand had to beeconomically viable. The government also called for the provisionof more sophisticated forestry practices by mandating thesubmission of detailed harvesting plans to the Forest Service.This provision for the filing of harvesting plans was also extendedto the Timber Berths in 1975.24. Pearse, II, Appendix A,	 p.A9.25. Ibid., II, Appendix A, p.A9.26. Ibid., I,	 p.85.27. Ibid., I, p.85.28. Ibid., II, Appendix A, p.Al2.29. Ibid., II, Appendix A, p.Al2.30. Ibid., II, Appendix A, p.A13.31. Ibid., I, p.85.32. Ibid., II, Appendix A, p.A13.33. Ibid., II, Appendix A, p.A14.34. Ibid., II, Appendix A, p.A14.35. Ibid., II, Appendix A, p.A15.11336. Ibid.,	 II, Appendix A, p.A16.37. Ibid.,	 II, Appendix A, p.A16.38. Ibid.,	 II, Appendix A, p.A15.39. Ibid.,	 II, Appendix A, p.A18.40. Ibid.,	 II, Appendix A, p.A18.41. Ibid.,	 II, Appendix A, p.A19.42. Ibid.,	 II, Appendix A, p.A19.43. Ibid.,	 II, Appendix A, p.A19.44	 Ibid.,	 II, Appendix A, p.A20.45	 Ibid.,	 II, Appendix A, p.A20.46	 Ibid.,	 II, Appendix A, p.A21.47	 Ibid.,	 II, Appendix A,	 p.A21.48	 Ibid.,	 II, Appendix A, pp.A21-A22.49	 Ibid.,	 II, Appendix A, p.A22.50	 Ibid.,	 II, Appendix A, p.A22.51	 Ibid.,	 II, Appendix A, p.A22.52. Ibid.,	 II, Appendix A, p.A23.53. Ibid.,	 II, Appendix A, p.A23.54. Ainscough, pp.46-47.55. Ibid.,	 pp.46-47.56. Tree Farms were created by virtue of an amendment to theTaxation Act in 1951. The government was endeavouring to promotesustained yield policies, but the industry was complaining thatexcessive taxation preventing this from taking place. So thegovernment established the 'Tree Farm' concept through which landusers had to: maintain a specified stock of young trees (to minimumstandards); establish a reforestation program (to minimumstandards);	 harvest the timber on a sustained yield basis;	 ormaintain a combination of any of the above. In return thegovernment adjusted municipal tax rates accordingly. [Ainscough,p.49.]57. Ainscough, p.49.11458. Ibid.,	 p.49.59. Ibid.,	 p.49.60.	 J.J. Juhasz,	 "Methods of Crown Timber Appraisal, in B.C.",In William McKillop & Walter J. Mead, eds., Timber Policy Issues in B.C.	 (Vancouver:	 U.B.C. Press, 1976), p.57.61. Ibid.,	 pp.59-60.62. "With the exception of some minor products, the old appraisalsystem used only lumber values and established the dollar value ofstands by applying the market value to lumber to the potentialoutput of the stand, which in turn was estimated on the basis ofzonal average lumber recovery factors (L.R.F.'s) for variousspecies. That the trees [in a stand] are heterogeneous ...needsno elaboration. Thus, the system rewarded operators in better thanaverage quality stands at the expense of operators in poorer thanaverage stands."	 [Juhasz, p.66.]63. Juhasz, pp.60-61.64. Ibid.,	 p.63.65. Ibid.,	 p.64.66. Ibid.,	 p.65.67. Sawlog number 1 was classified as "all species 12 inch minimumtop diameter for 16 ft. logs or large logs". Sawlog number 2 was"all species up to 11.9 inches top diameter for 16 foot logs;pulplogs were exclusively used for pulping processes."	 [Juhasz,p.67-68.]The L.R.F.lumber recovery factor system by the 1970's presumed"that 80 per cent of the net volume is recoverable in lumber andchips for large logs, and 85 per cent for smaller logs. [Juhasz,p.70.]The evolution of technology for cutting, processing andtransport has raised the L.R.F. in stumpage calculations, and wasreflected in the transformation from intermediate to closeutilization standards.68. Pearse, I, pp.167-168.69. Ibid.,	 I, p.300.70. Ibid.,	 I, pp.301-302.71. For a full discussion of roads and costs see Peter Pearse, I,Chapter 20.72. B.C.F.P. Annual Report, 1961,	 p.10.73.	 B.C.F.P. Annual Report, 1961, p.10.11574.	 B.C.F.P. Annual Report, 1971, p.19.75. B.C.F.P. Annual Report, 1976,	 p.18.76. Mergers can be either backward (to ensure supply of productioninputs) or forward (to participate in production).	 Backwardmergers are thus frequently defensive in nature, either to ensuresupplies or to cut down on transaction costs. Forward mergers, onthe other hand, are frequently undertaken as part of upgrade anddiversification strategies.	 Firms that merge forward may beseeking to secure competitive advantages associated withdifferentiated production, (e.g. more complex associations ofmanagement, production and distribution in order to produce morecomplex products with greater potential for value-added).77.	 Porter, Competitive Advantage:	 Creating and Sustaining Superior Performance. p.13.78. Ibid.,	 pp.70-71.79. Ibid.,	 p.40.80. Ibid.,	 p.40.81. R. Schwindt, The Existence and Exercise of Corporate Power:A Case Study of MacMillan Bloedel Limited, Royal Commission onCorporate Concentration, (Ottawa: Queen's Printer, March, 1977),p 11782. Ibid.,	 p.149.83. Ministry of Supply & Services Canada, Review of the Canadian Forest Products Industry, (Ottawa: Queen's Printer, 1979), p.38.84. H.T. Seymour,	Argus Corporation Limited:	 A CorporateBackground Report, Royal Commission on Corporate Concentration,(Ottawa: Queen's Printer,	 January, 1977), p.l.85. Sue Baptie, First Growth:	 The Story of British Columbia Forest Products Limited 	(Vancouver,	 J.J. Douglas Publishers,1975), p.21.86. In a brief submitted to the Royal Commission on CorporateConcentration the firm argued rather narrowly that it was not aholding company conglomerate: "Since Argus is an investmentholding company with a large but minority interest in its portfoliopositions, it could not be described as a conglomerate, which isusually defined as a corporation that has a predominate interestin a number of situations and, because of such an interest, acceptsresponsibility for their management."[Argus Corporation Brief toThe Royal Commission on Corporate Concentration, October 6, 1975.In H.T. Seymour, p.21]. It is appropriate to examine a theoreticalmodel of the holding company conglomerate in order to ascertainwhether this claim was valid, and to determine the managerial andbusiness structure that B.C.F.P. was a part of.R. Winsbury, writing in Management Today in 1969, argues thatthose who fashion conglomerates do so to achieve one simpleobjective, rationalization: "What it does is to buy upindifferently run companies, sell off uneconomic bits, rationalizemanagement, install sound business principles, possibly amalgamatesimilar companies into larger and more viable units, and then selloff part or all of the shares at a greatly enhanced price." [P.Winsbury, "Slater Walker's Non Conglomerate".(August 1969), p.82,in W. Stewart Howe, Industrial Economics: An Applied Approach(London:	 MacMillan Press Ltd., 1978), p.133.]The holding companies which control the firms may in turn becontrolled by a small number of shareholders, each of whomexercises considerable influence over the firms in the holdingcompany's portfolio. The holding company's pyramid control deviceis excellently described in the following passage: "In this case,a small group of shareholders seems a sufficient number of sharesto control a holding company which, in turn, holds sufficientshares to control a number of other companies. For example, owning25% of a floating stock could give complete control of a set ofoperating companies through control of 50% of the operatingcompanies. In the case of pyramiding, this ownership leveragecould be increased by simply adding another holding company as anintermediary between the holding company and the operatingcompanies." [Stephen D. Berkowitz et al., Enterprise Structure andCorporate Concentration: A Technical Report. Royal Commission onCorporate Concentration, Study No.17. (Toronto: Institute forPolicy Analysis, University of Toronto, August, 1976): p.38].Viewed from inside, holding company conglomerates have certainadvantages. First, firms inside the conglomerate can cut down ontransaction costs. Secondly, if they succeed in crowding out thecompetition in a particular market they can realize certainarbitrage advantages (by taking their low price market goods to ahigher price market category). The market then becomes a captiveone, paying artificially higher prices for commodities as aconsequence of conglomerate penetration of the industry. Thirdly,there are also considerable financial advantages. Holding companyconglomerates constitute private capital markets. Managers can usetheir deeper pockets to reduce prices or to buy smaller-scalebusinesses. Banks and other institutions are also more willing tolend for the long-term to a business with diversified productlines. There seems little doubt that Argus was a holding companyconglomerate. Argus was designed to reap pecuniary rewards bycombining and rationalizing the activities of a variety of resourcebased producers. B.C.F.P. was the forest products arm of theholding company.87. Seymour,	 p.8.88. Baptie, pp.321-324.89. Baptie, pp.21-24.90. Seymour, p.66.11611791. Ibid.,	 p.67.92. Ibid.,	 p.67.93. Baptie, p.27.94. Seymour, p.129.95.	 B.C.F.P. Annual Report, 1955, p.3.96. "The license combined two blocks on the west coast near Tofinowith one block in the Renfrew area and two in the Lake CowichanArea".	 Baptie, p.9.97. Baptie, p.221.98. Ibid.,	 p.9 & pp.27-29.99. Ibid.,	 P.10.100. Ibid.,	 P.10.101. B.C.F.P. Annual Report, 1959. p.3.102. Ibid.,	 p.3.103. Baptie, p.12.	 (B.C.F.P. bought out Argus by offering 62,500B.C.F.P.	 shares	 for Argus'	 Alexandra Forest	 Industries holdings).104. B.C.F.P. Annual Report, 1961, p.6.105. B.C.F.P. Annual Report, 1962, p.3.106. Ibid., p.4.107. B.C.F.P. Annual Report, 1963, p.11108. B.C.F.P. Annual Report, 1967, p.8.109. Ibid., p.8.110. B.C.F.P. Annual Report, 1969, p.2.111. Ibid., p.9.112. Baptie, p.14.113. Ibid., p.14.114. Seymour, Introduction, p.(xv).115. Ibid., p.133.116. Ibid,	 p.133.118117. B.C.F.P. Annual Report, 1970, p.18.118. B.C.F.P. Annual Report, 1971, p.5.119. Ibid.,	 p.7.120. B.C.F.P. Annual Report, 1972, p.7.121. Ibid.,	 p.9.122. Ibid.,	 p.19.123. B.C.F.P. Annual Report, 1973, p.4.124. B.C.F.P. Annual Report, 1974, p.20.125. Ibid.,	 p.20.126. B.C.F.P. Annual Report, 1975, p.2.127. Ibid.,	 p.8.128. B.C.F.P. Annual Report, 1977, pp.13-14.129. Ibid.,	 pp.9-10.130. B.C.F.P. Annual Report, 1968,	 p.4.131. B.C.F.P. Annual Report, 1978, p.6.132. Ibid.,	 p.8.133. Schwindt,	 p.19.134. Donald MacKay, Empire of Wood: The MacMillan Bloedel Story(Vancouver: Douglas & McIntyre,	 1982), p.73.135. Ibid.	 p.78.136. Ibid.,	 p.80.137. Ibid.,	 p.82.138. Ibid.,	 p.85.139. Ibid.,	 p.88.140. Ibid.,	 p.96.141. Ibid.,	 p.96.142. Ibid.,	 p.106.143.	 Ibid.,	 p.117.119144. Ibid.,	 p.125.145. H.R. MacMillan Export Company Annual Report, 1945, p.5.146. Ibid.,	 p.5.147. MacKay, p.157.148. Ibid.,	 p.157.149. H.R. MacMillan Export Company Annual Report, 1949, p.7.150. MacKay, p.170.151. Schwindt, p.13.152. Ibid.,	 p.13.153. Ibid.,	 p.14.154. MacKay, p.174.155. MacMillan & Bloedel Annual Report, 1952, p.9.156. MacMillan & Bloedel Annual Report, 1954, p.9.157. MacKay, p.177.158. MacMillan & Bloedel Annual Report, 1958, p.9.159. Schwindt,	 p.16.160. Ibid.,	 p.16.161. Ibid.,	 p.18.162. MacKay, p.230.163. Productivity Tables for the two companies show steady growthin the manufacture of undifferentiated forest products during thisperiod.	 (See Appendix A: Figures A-1, A-2).Sources:	 B.C.F.P. Annual Reports, 1960-1969;	 MacMillan BloedelAnnual Report, 1969, "Historical Review", pp.18-19.164. MacKay,	 pp.260-263.165. Ibid.,	 pp.260-263.166. Ibid.,	 p.280.167. MacMillan Bloedel & Powell River Annual Report, 1963, p.8.168. MacMillan Bloedel & Powell River Annual Report, 1964, p.10.169. MacMillan Bloedel & Powell River Annual Report, 1964, p.12.170. MacMillan Bloedel Annual Report, 1969,	 p.7.171. MacMillan Bloedel Annual Report, 1970,	 pp.16-17.172. MacMillan Bloedel Annual Report, 1972,	 p.9.173. MacMillan Bloedel Annual Report, 1973,	 p.6.174. MacKay,	 p.280.175. Ibid.,	 p.280.176. Ibid.,	 p.282.177. Ibid.,	 pp.292-293.178. Ibid.,	 p.303.179. Ibid.	 p.319.180. Ibid.	 p.321.181. It should be noted	 that federal law prohibited the sale ofunmanufactured timber, "which is interpreted to include logs, pulpchips, and certain other mill residuals. [Pearse, p.305.] It waspossible to export these restricted products if expressedpermission was granted through a permit. However, only smallamounts of these restricted products were ever exported. Most ofthe restricted products were destined for the Japanese market inthe 1970's. Small amounts of chips were also exported to U.S.markets during the post-war period.182.183.184.185.186.187.188.189.190.191.192.193.MacMillan Bloedel Annual Report,	1978,	 p.3.	1979,	 p.63.of Nations, p.136.MacKay,	 p.324.Ibid.,	 p.332.Schwindt,	 p.23.MacMillan Bloedel Annual Report,Porter,	 The Competitive AdvantageIbid.,	 pp.172-175.Ibid.,	 pp.169-170.MacKay,	 pp.160-161.Ibid.,	p.247.Ibid.,	 p.248.Ibid.,	 p.271.120121194. Ibid.,	 pp.271-273.195. British Columbia Forest Products Annual Report, 1967, p.9.196. Baptie, p.9.197. Pearse,	 I, p.292.198. Porter, Competitive Advantage:	 Creating and SustainingSuperior Performance, p.40.199. Ibid.,	 pp.337-348.200. Schwindt, p.58.201. Ibid.,	 p.58.202. Ibid.,	 pp.85-87.203. Ibid.,	 p.110.204. Ibid.,	 p.118.205. H.R. Macmillan Export Company Annual Report, 1949, p.8.206. H.R. MacMillan Export Company Annual Report, 1952, p.9.207. MacMillan and Bloedel Annual Report, 1957, p.12.208. 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The Economics of Imperfect Competition. London: MacMillan, 1969.Schwindt, Richard. The Existence and Exercise of Corporate Power: A Case Studyof MacMillan Bloedel Ltd. Royal Commission on Corporate Concentration.Ottawa: Queen's Printer, March, 1977.	 . "The Pearse Commission and the Industrial Organization of the B.C.Forest Industry." BC Studies 41 (Spring): 3-35.Seymour, H.T. Argus Corporation Limited: A Corporate Background Report. RoyalCommission on Corporate Concentration. Ottawa: Queen's Printer,January, 1977.Smith, G.H.G., and J.W. Kerr, with J. Csizmazia. "Economics of Reforestationof Douglas Fir, Western Hemlock, and Western Red Cedar in the VancouverForest District." Faculty of Forestry, U.B.C., Bull 3. Vancouver:University of B.C. Press, 1961.127Taylor, G.W. Timber: The History of the Forest Industry in B.C. Vancouver:J.J. Douglas Ltd., 1985.Waverman, L., and R. Baldwin. 	 Determinants of Interlocking Directorates.Institute for Qualitative Analysis and Social Economic Policy. Toronto:University of Toronto Press, 1973.Williamson, D. The Economics of Discretionary Behaviour: Managerial Objectivesin a Theory of the Firm. London: Kershaw, 1974.Winsbury, R. "Slater Walker's Non-Conglomerate." Management Today. August,1969. p.82.128APPENDIX 'A'Figure A - 1BCFP PRODUCTION TABLES 1960 - 1969YearLogs100 Cu.Ft.LumberM FBMShinglesSquaresPlywoodM.Sq.Ft1/16"MarketPulpAD TonsStandNewsp.Tons1960 376,500 265,000 118,600 556,000 184,4001961 339,300 286,600 80,000 593,200 179,6001962 424,000 279,800 88,100 618,800 188,4001963 469,600 310,700 126,700 653,400 195,0001964 539,300 374,000 109,000 664,000 193,000 44,6001965 607,100 380,300 132,500 655,000 240,000 99,3001966 612,200 393,000 146,400 666,700 299,200 119,2001967 733,000 476,600 151,200 663,000 283,200 117,5001968 876,600 505,000 145,400 667,900 255,900 165,5001969 884,300 486,000 110,000 684,000 272,500 222,600129APPENDIX 'A'Figure A - 2MACMILLAN BLOEDEL PRODUCTION TABLES 1960 -  1969Market	 Kraft	 FineNewsprt.	 Pulp	Paper	 PaperYear	 S.Tons	 S.Tons	 S.Tons	 S.Tons1960 656,318 327,500 115,592 1,9861961 643,576 333,932 120,971 5,1941962 681,448 343,982 134,825 8,4291963 689,296 368,152 159,635 12,0891964 790,850 483,773 159,683 14,4821965 843,968 556,135 173,018 17,8681966 896,361 586,867 174,481 20,0431967 832,361 550,245 178,382 20,8011968 813,748 546,761 239,285 23,2921969 927,868 556,468 455,654 24,331130APPENDIX 'A'Figure A - 2 (continued) MACMILLAN BLOEDEL PRODUCTION TABLES 1960-1969YearLogsM Cu.Ft.LumberM FBMPlywoodM Sq.Ft.3/8"Corr.Cont.M Sq.Ft.ShinglesSquares1960 170,603 699,463 299,335 624,897 385,8411961 171,715 707,792 347,523 606,697 413,5651962 194,519 744,024 356,974 669,523 385,4231963 206,206 804,102 372,054 665,240 449,3231964 215,512 915,206 374,036 679,291 452,0021965 238,900 1,014,757 386,457 699,881 470,9831966 273,425 1,037,806 406,271 1,057,038 430,8521967 274,677 1,139,437 416,664 1,454,032 443,8161968 310,003 1,279,284 477,728 1,473,760 469,5981969 359,924 1,244,260 534,950 1,607,996 449,837BIOGRAPHICAL INFORMATION NAME: CVZARANI E. 1ENn160)/MAILING ADDRESS:/3 r2/ kfAu...ASAte 4 V64/t.),re	C.V48 2x1.PLACE AND DATE OF BIRTH:MO/V r/reeli / oa • /i.<02EDUCATION (Colleges and Universities attended, dates, and degrees):00U GIL-AS CO L.L,E:	 $ UR,RE , B.C. , /780 -/_9e7Unnveiesiry al-' Be ITISE CoLi2,151.4 OS/ i9e6	 13.A -ON! vg. k.s. / ry	 ts/e17-IsH Coi.vA481A ) ins • /991, M.A.POSITIONS HELD:PUBLICATIONS (if necessary, use a second sheet):AWARDS:geirtsH CoLumalA Posr- StccivoARy Sclloi_Ak.rHip	 ocro8Etz,19Y6.Coi.,0 ,14B/A Pon- - se•c-osvo/i/ey Sc-H04,4R.ski)p - Augusr,Complete one biographical form for each copy of a thesis presentedto the Special Collections Division, University Library.DES

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