Chemical Industry and D.P. MORGAN Scudder. Stevens & Clark, 1 Wall Street, New York, N. Y.
T
HE contributions of the chemical industry to the satisfaction of man’s material needs are so impressive and numerous that the importance of the industry is no longer questioned. Its great size and relative importance financially are indicated in the following official figures. According to the latest statement of the Treasury Department, in 1935, manufacturers of chemicals and allied products reported sales totaling the colossal sum of $7,418,000,000, or 15.55 per cent of the grand total of $47,700,000,000 given for all manufacturing industries. The only two groups whose volume of business exceeded that of the chemical industry were “metals and metal products,” a broad classification including iron, steel, and nonferrous metals and their manufactures, and “foods and kindred products,” another huge composite of all manufactured foods. From the viewpoint of net income these three leading groups fall in the same order, but on the basis of total assets the chemical industry advances to second place; as might be expected, it has a considerably greater proportion of assets per dollar of sales or net income than foods and kindred products. Granting the size of the chemical industry, a considerable degree of importance follows as a matter of course, but the real significance of the industry cannot be measured precisely by statistics. The industry is certainly as important as may be implied by the aggregate sum in dollars and cents that the consumer is willing to pay for its products. Yet, that this does not tell the whole story is plain, for, while the economic significance of many chemicals is adequately measured by dollar values, the importance of others to the standard of living of the community is entirely out of proportion to their comparatively small cost. For example, the use of a few hundred thousand dollars worth of chlorine annually in water purification has reduced the typhoid death rate from 23.4 to 3.3 per hundred thousand ( 5 ) . Again, the application of a relatively small proportion by weight of antioxidants in the manufacture of rubber has saved the nation billions of dollars by trebling the life of automobile tires (6). It is doubtful if many people who own cars today could afford to operate them were the life span of a tire no longer than it was before the discovery of antioxidants. Other cases AXD ENGIdescribed in articles appearing in INDUSTRIAL NEERING CHEMISTRY (4) provide many striking instances where new products or processes developed by chemical research have opened up channels for production and consumption that never existed before and which would never have come into existence otherwise (8). To mention a few cases, consider the use of tetraethyllead in antiknock gasoline, of dichlorodifluoromethane in refrigerators, and of sulfanilamide in medicine, which illustrate how comparatively small amounts of chemicals may exert profound effects on the economic progress of the community as a whole. In fact, many of the products of the chemical ’ndustry exert an influence on the national economy analogous to the action of the enzymes, vitamins, and hormones which play such important roles in the vital economy of the human body. The chemical industry, therefore, is important as well as large, and its importance to the community, could it be 934
measured, would greatly exceed the dollar and cent value of its products. That the industry is growing rapidIy in size, and presumably even more so in value, is shown clearly by statistics; nor is the chemical industry falling behind domestic industry as a whole ( I ) . Treasury Department figures show that the proportionate gross income reported by manufacturers of chemical and allied products advanced in the period 1925 to 1935 from 11.62 to 15.55 per cent of the total gross income reported by all manufacturers. Furthermore, the chemical industry was the only one of the whole group that showed an actual gain in business volume during this period when aggregate sales fell off over 20 per cent. Net income had fallen off sharply, but so had the profits of all manufacturing industries and for the same reason-namely that 1935 happened to be a generally less profitable year than 1925. That cyclical disturbances had not deterred the chemical industry from expanding plant facilities, however, is convincingly shown by the fact that from 1925 to 1935 total assets for the industry had advanced 50.2 per cent, from $7,404,000,000 to $11,120,139,000, or from 15.04 to 21.12 per cent of the total for all manufacturing industries. Even more striking is the fact that the gain of $3,716,000,000 (50.2per cent) in the assets of the chemical industry over the period in question was more than three times as great as the corresponding figure for any other industry, and was substantially equivalent dollarwise to the net gain reported for the total of all manufacturing industries, a figure that includes chemicals. I n fact, had the gain in assets of the chemical industry been eliminated, the net change in the total for all manufacturing industries would have become a loss of approximately $300,000,000. As far as these figures go, then, the chemical industry in 1935 evidently was more than holding its own relative to other manufacturing industries in general. To determine how well this record has been maintained in recent years, particularly with respect to the economic progress made by other leading industries, is the object of the present study. Economic progress has been defined as progress in the satisfaction of man’s material needs. Assuming that the “man” whose needs are to be satisfied is a mixture comprising part laborer, part capitalist, and part consumer, then economic progress implies (a) improvement in employment, pay rolls, and hourly and weekly wages for labor; (b) increases in profits for capital; and (c) advances in the volume of consumption, in the balance of exports, and in price reductions for the consumer. That the chemical industry ranks surprisingly high in all these respects, and leads the field in some, is shown in the following analysis.
Procedure In general, in determining the progress of an industry it is customary to analyze its statistical trends over a relatively long span of years. By considering a sufficiently long period the transitory effects of fluctuations in the levd of general business activity may be eliminated. Ordinarily a period embracing several business cycles would be covered if adequate data were available.
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INDUSTRIAL AND ENGINEERING CHEMISTRY
935
year periods; then the average for the later period divided by that for the earlier one provides a rough measure of advance or decline which, for want of a better term, has been called a “progress ratio.” Such progress ratios for a series of different industries may be compared directly, or, when the progress ratio for the whole group is known, the percentage ratios for each subdivision may be related to this over-all average by adjusting so as to make the latter equal 100. While these progress ratios have little if any real significance in themselves, the comparisons that may be made between a number of different ratios determined for a series of industries under corresponding conditions afford a convenient, if rough, measure of relative performance. However, since the earlier five-year period in this instance U.S.COVT.WPEND. CHBlIC.41. PROD” includes some of the best years in the business history of the ELEC. P O W W PROD” country, it is clear that this ratio method constitutes a stiff DHEUIICAI. PROFITS 100.2 test. Any industry, therefore, whose 1933-37 average has U.S. POPUUTION 100.0 forged ahead of its average in 1925-29 undoubtedly has made TNVL PROD” PRB an enviable record of achievement. Such extreme progress, UTILITY PROFITS 73.2 however, is comparatively rare except for the chemical inNATIONAL INCOUZ 63.3 INDIL C O W . PROFIT 59.8 dustry. CAR LOADINGS The two five-year base periods have been selected in such DOW-JONES IND‘LS 58.3 a way as to eliminate as far as possible the element of reBANI( DEBITS covery from the bottom of the depression as a factor in eco32.2 FXPORT BALANCE nomic progress. Also, the method was devised with the inM I L R O A D PROFITS 16.9 tention that the broad basis supplied by the two five-year FIGURE 1. GESERALPROGRESS RATIOS OF 1933-37 AVERAGES periods would eliminate the minor year-to-year fluctuations TO 1925-29 AVERAGES that occur during the booms and depressions in the long-term cycles of business activity. It is impossible to determine underlying long-term trends To illustrate the method, Table I and Figure 1 show cerfor, during the fifteen years for which statistics are available, the nation’s business has undergone the most violent fluctuations in the history of the country. Although dependable TABLEI. GENERAL PROGRESS RATIOS values for absolute trends cannot be determined, it is possible Progress to show the relative standing of the chemical industry by RLtio, Relative --5-Year Av.-1933-37/ Progress comparing its records of performance with those of other in1925-29 1933-37 1925-29 RatioQ dustries over the same period. This comparative method inE. S . Govt. expenditures, volves the assumption that all the industries under examina$4,286 hundred thousandsb $7,960 185.5 171.6 Chemical production tion were subjected equally to the same cyclical disturbances ; 100.0 144.4 composite0 144.4 133.7 but this assumption seems justifiable, in view of the nationElectrrc power roduction. hundreathousand wide scope and profound penetration of the fluctuations that 6,751 kw-hr.d 8,509 126.1 116.6 Chemical profits index6 73 79 108.2 100.2 occurred in general business conditions during the period in U. S. population, thou118,197 sandsf 127,573 108.0 question. 100.0 Industrial production, Furthermore, before describing the detailed procedure used 110 F. R. B . indexg 100 90.9 84.1 Utility profits indexh 81 64 79.0 73.2 and the results of this study, it should be pointed out that, National income, thouowing to the great scope of the subject, it was necessary $79,114 sands 68.4 $54,073 63.3 Industrial corp. profits throughout this analysis to confine our attention to companies 51 79 index? 64.6 59.8 104 Freight car loadings indexk 67 64.4 59.6 or commodities in large groups. Individual products or conDow--Jones industrials, cerns could not be considered by themselves ; consequently price index? $200 $126 63.0 58.3 Bank debits, hundred the results have all the advantages and defects of averages thousandsh $59,888 $31,266 52.2 48.3 Export balance, all merwhich never reflect satisfactorily the good showing of the chandise, thousrtndsm $628,000 $218,000 34.7 32.2 ringleaders or the poor performance of the laggards in the Railroad profits, class I roadsn 93 17 1 8 . 3 16.9 group. The products classified as chemicals by the Treasury a Basis, Ti. S. population = 100. Department are not identical with those included under the b Source, Ann. Rept. of Secy. of Treasury on State of Finances‘ for year ending June, 30, 1937. same classification by the Department of Commerce or the c Composite of ratios for a number of chemical products weighted accord. National Industrial Conference Board, etc., and the same is ing t o value (see Table VII). d Source, U. S. Dept. Commerce, Survey of Current Business; basis, Fed. true for other industries and other bureaus. Therefore the Power Comm. data. Source, N. Y. Fed. Reserve Bank compilation of d a t a for 28 companies. results may fail to tally closely with personal experience in a f Source, World Almanac; basis, Census Dept. midyear estimates, single company. We are dealing here with broad averages. Q Source, U. S. Dept. Commerce, Survey of Current Business; basis, Fed. Reserve Board index of industrial production, unadjusted. The precision of an atomic weight determination is not prach Source, N. Y . Fed. Reserve Bank compilation of data for 68 companies (average). tical, and the conclusions will be tenable only if the differz Source, Simon Kuznets, “The National Income and Capital Formatian, ences are great. Natl. Bur. of Economic Research New York 1938. 1915-1935 f Souyce: N. Y . Fed. Reserve Bank, M o n t k y Review (kpril issues), 1368 The method of procedure adopted consists in computing companies. k Source, U . 9. Dept. Commerce, Survey of Current Business; basis, Fed. for each of several industries the degree of statistical progress Reserve Board data. achieved between two five-year base periods, one a t the 2 Source, Wall Street J. m Export balance = exports less imports: source, U. S. Dept. Commerce beginning and the other a t the end of the fifteen-year period Bur. Foreign and Domestic Commerce, Monthly Summary of Foreign Corn: merce. for which data were compiled. For any particular industry, n Source, N. Y. Fed. Reserve Bank compilation of data for 161 companies for example, employment and pay roll figures, production (average). data, and the like would be averaged for each of the two five-
I n the case of many important chemical products, however, the determination of long-term statistical trends is practically impossible because the industry is so young and has grown so fast that data virtually did not exist as recently as fifteen or twenty years ago. Also secretiveness is still an important characteristic of the chemical manufacturer, and on this account adequate data are lacking in many important and interesting branches of the field. Consequently, a survey covering the last fifteen years is about all that can be accomplished. Even then some of the most striking examples of typical mushroom growth must be omitted.
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INDUSTRIAL AND ENGINEERING CHEMISTRY
tain progress ratios of broad national significance. These were computed on the basis to be used throughout this study. The actual averages are given in the first two columns of Table I and the progress ratio in the third; in the fourth column the latter ratios have been based upon the United States population as 100. This procedure of relating the progress ratios to some reference standard as a base, usually the average for all industries, is followed throughout the remaining tables and charts. By this device of determining relative progress ratios, greater emphasis is placed on the relation between different industries rather than on the doubtful significance of the absolute progress made by a single industry between the two arbitrarily selected five-year periods. Table I shows that divergences between the extent of change which has occurred are brought out nicely by the ratio method. The relative progress ratios in the last column are useful, too, as they show directly what progress has been made in relation to some reference standard, such as the growth of the population in this instance. Accordingly, the relative ratio of 171.6 for government expenditures means that they increased 1.716 times as fast as, or 71.6 per cent more than, the population of the country; a t the same time the national income declined to a relative progress ratio of 63.3, or 36.7 per cent below the corresponding rate of population growth. After having eliminated population growth as a factor in this way, it is interesting to note which ratios are greater or less than 100, indicating, respectively, progress greater than the population growth or reduction below it. Also, the broad span between the relative progress in production and in profits in corresponding cases is noteworthy. The ratios for production and profits do not correspond to the same identical group of companies, but such precision is unobtainable and the figures used suffice for a rough sketch of the whole general picture. With this general background in mind, let us apply the progress ratio method to find how the chemical industry compares with other leading industries in economic progress from the viewpoints, respectively, of labor, capital, and the consumer. From the point of view of labor this statistical analyeis will involve a comparison of the relative showing made by the chemical industry and other industries with respect to employment, pay rolls, and hourly and weekly wages. For convenience the first two and the last two of these groups of data will be discussed in pairs.
Employment and Pay Rolls In Table I1 the five-year averages and progress ratios for employment and pay rolls are shown for a number of different industries. The relative progress ratios are also shown in Figure 2. The chemical industry (chemicals alone or chemicals and allied products) stands well ahead of all the other w j o r industries which have been subjected to scrutiny in this study. No doubt, particular branches of the chemical industry have made a still better showing. Some of the larger companies, for example, have published statements indicating much greater increases in employment and pay rolls than those given in these tables and charts.
Hourly and Weekly Wages Table I11 and Figure 3 show the progress ratio analyses of wage trends for ten industries, including the chemical industry. In each instance the improvement for the latter has been greater than for the average of all industries. Only a few industries have done better than the chemical in respect to wages, and the showing made by each of the two best in-
VOL. 30, NO. 8
TABLE11. EMPLOYMENT AND PAYR O L L S ~ -5-Year 1925-29
Av.--1933-37
Progress Ratio, Relative 1933-37/ 1925-29 Progress Ratiob
EMPLOYMENT Chemicals0 Chemicals and allied productsd Foods' Meat packingf Automobilesg Leatherh Textilesi Nonferrous metalsj Paperk Compositel Iron and steelm Rubbern Electrical machinery0 Tobaccop Building msterialsq Lumberr
102.8 105.9 103.9 90.5 104.4 94.8 102.0 102.9 105.1 100.6 99.6 107.7 108.3 90.9 98.8 96.5
113.7 110.3 105.7 90.5 100.9 91.1 95.4 89.4 91.0 84.2 79.1 85.4 83.6 60.4 57.2 55.8
110.5 104.3 101.7 100.0 96.6 96.0 93.6 86.8 86.6 83.8 79.4 79.3 77.2 66.5 57.9 57.8
131.8 124.5 121.4 119.4 115.2 114.5 111.7 103.6 103.3 100.0 94.8 94.6 92.1 79.3 69.1 63.0
100.4 91.4 90.5 89.2 85.8 83.3 77.0 74.9 69.6 69.6 66.0 65.5 65.5 53.6 44 9 44.2
144.3 131.4 130.1 128.2 123.3 118.6 110.7 107.7 100.0 100 94.8 94.2 94.2 77.0 64.5 63.5
PAYROLLS Chemicalsc Chemicals and allied productsd Foods6 Meat packingf Leatherh Automobilesg Paperk Textilesi Compositel Nonferrous metalsi Rubbern Iron and steelm Electrical machinery0 Tobaccop Building materialsP Lumberr
110.0 109.5 105.5 98.5 98.7 106.5 111.6 102.9 103.5 105.8 111.1 102.4 110.0 89.5 99.2 98.5
110.4 100.1 95.4 87.9 84.7 88.8 85.9 77.1 72.1 73.6 73.3 67.1 72.1 48.0 44.6 43.5
I
O
a Source, Surve of Current Business: Basis, U. S. Bur. of Labor Statistics. Indexes witgout adjustment for seasonal variation, monthly average, 1923-1925 = 100. b Basis, composite = 100. A component of chemicals and allied products. Data were available only for 1925 and 1929 in the first 5-year period. Averages are for 2-year periods-1925-29 and 1933-37. d Comprises chemicals, cottonseed-oil cake and meal, druggists' pre ara tions, explosives, fertilizers, paint and varnish, rayon and allied pro8uot; soap, and petroleum refining. e Complete title is Food and Kindred Products, ,which include slaughter and meat packing, baking, beverages, butter, canning and preserving, confectionery, ice cream, beet sugar and cane sugar refining. I Complete title is Slaughter and Meat Packing; source, Natl. Indus. Conference Board statistics. Slaughter a n d Meat Packing IS also a component of Foods. 0 Component of Transportation Equipment. h Subdivision of Leather and Its Manufactures. a Actual title, Textiles a n d Their Products, comprising fabrics (car eta, cotton goods, cotton small wares, dyeing and finishing textiles, fur-felt t a t s , knit goods, silk and rayon goods, woolen and worsted,goods) a n d wearing apparel (men's and women's clothing, corsets and allied garments, men's furnishings, millinery, shirts, and collars). i Actual title, Metals, Nonferrous and Their Products, including aluminum manufacturing, brass, bronze, and copper products, and stamped and enamel ware. k Actual title, Paper and Printing, includes paper boxes, paper and pulp, printing and ublishing (book and job, newspapers, and periodicals). 2 C o m b i n e l index of ,all groups on which figures are compiled by t h e Bur. of Labor Statistics and Includes some groups not shown i n these titles. m Excludes machinery but includes b!ast furnaces, bolts, nuts, washers, cast-iron pipe, cutlery and edge tools, iron and steel forgings, hardware, plumbers' supplies, steam heating apparatus, stoves, structural metalwork, t i n cans, tools, wirework. n Actual title, Rubber Products, includes rubber boots and shoes, rubber tires and tubes and other rubber goods. o Actual tit& Electrical Machinery, Apparatus, and Supplies. Monthly &vera ea on employment and pay rolls for 1926, 1927, and 1928 were not availabe but were, estimated on basis of New Orders of Electrical Goods. P Includes,chewng and smoking tobacco a n d snuff, cigars, and cigarets. P Actual title, Stone, Clay, a n d Glass, includes brlck, tile, terra cotta, cement, glass marble, granite r Actual tiile, Lumber and Al%%%ducts, includes furniture and lumber (millwork and sawmills).
dustries was in neither case more than a few per cent better than that for the chemical industry. Examination of the actual average weekly wages paid (Table 111) reveals that two of the industries ahead of chemicals on the relative progress ratio basis-namely, meat packing and leather-were not up to it in the average amounts paid weekly. These industries apparently showed better progress ratios because they started from a lower base in each case. However, they still have some distance to go before they catch up to the chemical industry in the actual average weekly wage paid to labor.
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937 B O U R L Y
TABLE 111. HOURLYAND WEEKLYEARNINGS“ No. of
Plants
-5-Yr. 1925-29
Av.1933-37
Progress Ratio 1933-33/ 1925-29
Relative Progress Ratiob
$0,657 0.673
$0.750 0.755
114.0 112.0
110.1 108.2
0.609 0.557 0.511 0.450
0.662 0.605 0.554 0.467
108.7 108.6 108.4 103.8
104.9 104.8 104.6 100.2
0.575 0.528 0.513 0.643 0.539
0.596 0.547 0.531 0.660 0.527
103.6 103.6 103.5 102.6 97.7
100.0 100.0 99.9 99.0 94.3
$28.66 22.91 21.12
90.2 89.2 86.1
111.4 110.2 106.4
28.17 29.65 28.21 20.97
24.12 25.24 23.76 17.08
85.6 85.1 84.2 81.5
105.8 105.2 104.0 100.8
80.9 78.9 78.4 66.4
100.0 97.6 96.9 82.0
Source, National Industrial Conference Board. ingindustries = 100.
TEXTILES
25 W O . IND LEATEW PAPER
IRON k STEEL LWEB
AUTOBOBILE8
MEAT PACKINO
RUBBW Crn
