William G. Roy Socializing Capital (1997)

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.Although the companyclaimed that its $55 million authorized capital included no water, it ad-mitted at the time of formation that at least $20 million represented good-will.For the paper men who sold out to the firm, their profits would comefrom selling the company s securities along with any dividends the com-pany might pay before the stock was sold.The company admitted that sev-eral of the mills had been grossly undercapitalized, especially older plantsthat had not updated their books to reflect new investment.Many proprie-tors at that time did no capital accounting, calculating their profit rate onlyrelative to revenues and current expenses.Each manufacturer now receivedIPC securities in payment for his property; he no longer received the profitsfrom his individual plant, but did gain the dividends from the entire IPC,which, because of its control of the market and its negotiating power withcustomers, was able to increase the profit rate for the aggregate.When hesold the securities, he received the considerable profits from that, almostcertainly more than the cash value of his plant.Thus the largest source ofprofit would be from the securities market, not the direct profit of makingand selling paper.Of course, at the same time, he lost the other privileges ofownership, especially the authority to make strategic decisions.Only if hestayed on to manage the plant that he formerly owned would he retain anyauthority at all.244 C H A P T E R E I G H TWhile Chandler points to the paper industry as an example of the way inwhich the number of customers influences the propensity to consolidate, acomparison between newsprint paper and writing paper challenges such ageneralization.Newsprint was sold to newspapers, and writing paper toindividuals.In contrast to newspaper, writing paper did not fit the model ofthe low-quality, mass-produced product.It was the most craftsman-likebranch of the industry, requiring greater quality control and greater skillfor cutting and fine engraving.But writing paper had the social conditionsfor consolidation.It was geographically concentrated, with 60 percent ofproduction in the state of Massachusetts, notably in the Holyoke region,and had a long history of industrywide governance (Paper Trade Journal1893).Writing paper manufacturers had cooperated closely since the de-pression of the 1870s, setting prices and controlling production levels, butthe introduction of engine-sized mass-produced writing paper during the1893 depression ended the unanimity of interest (Lamoreaux 1985).Buteven then this section of the industry was able to respond to the depressionby maintaining prices and reducing output, unlike the newspaper manufac-turers, who maintained production while reducing prices (Scranton 1989).According to efficiency theory, writing paper s actions should have reducedits need to consolidate.Nonetheless, in 1899, thirty-three manufacturersformed the American Writing Paper Company, capitalized at $25 millionand controlling three-quarters of the national market (U.S.House of Repre-sentatives 1909).They originally used a Providence, Rhode Island, bank tofinance the consolidation, but found the arrangement unsatisfactory andturned to Lee, Higginson & Company, an investment banker more experi-enced in consolidations.These matters were best administered within theorganizational structure already in place.Thus a part of the industry evenless economically suited than newspaper spawned a major corporationbased on social cohesion, taking advantage of a maturing institutionalstructure of corporate capital.One of the smaller branches of the paper industry was box board or pulpboard.It had no new productive technologies, no expanding market, nospecial economies of scale none of the factors that under efficiency consid-erations would warrant consolidation.But it did have trouble governing itsindustry, and the corporate form offered what was becoming considered tobe an effective form of governance.Pulp board makers dissatisfaction withtheir inability to govern the industry had provoked attempts to integrate asearly as 1895, when the leading companies created the National Pulp BoardCompany, which controlled 90 percent of the national output and was theorganization which has regulated the market for pulp board (Oct.15,1898, 27:735).It was more of an association than a company, and its rolewas to regulate rather than to make profits.The Paper Trade Journal re-ported the consolidation attempts as a mundane matter, telling a story, notof efficiency or technology, but of control.In 1898 a dozen makers of boxboard all members of the National Pulp Board Company met in NewA M E R I C A N I N D U S T R Y I N C O R P O R A T E S 245York to discuss forming a company along the lines of the InternationalPaper Company, to control the pulp board interests of the country (Oct.15, 1898, 27:735).The monopoly ideology suggested a means to satisfac-torily govern the industry.In contrast to descriptions of the newspaperindustry, the Journal reported that [t]he pulp board market is in a veryunsatisfactory state, and some of the manufacturers have come to the con-clusion that the only way to properly regulate the manufacture and sales ofpulp board in this country is to form a big company and buy the plantsoutright (Oct.15, 1898, 27:735).As discourse within the industry, thePaper Trade Journal would have no need for euphemisms to rationalize thecompany s purposes [ Pobierz całość w formacie PDF ]

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