Growth of the American Chemical Industry - Industrial & Engineering

Growth of the

merican Chemical

Industry ROBERT S. ARIES AND RUDOLF M.CZINER R. S. ARIES & ASSOCIATES, 400 MADISON AVE., NEW YORK 17, N. Y.

T h e American chemical industry has expanded its industrial frontiers beyond the wildest dreams of the early chemical pioneers. At this time, when the United States has established itself as the leader in world trade and industry, the chemical industry generally is recognized as one of the prime factors of the nation's development. The growth of the industry has been so rapid and recent that its importance to the country had been unappreciated by most people. Only within the past decade has the vital nature of the industry to our over-all economy been adequately recognized. In order to clarify the position of the chemical industry in our manufacturing society and in order to determine the trends of its development, tho industry in the following three aspects will be investigated : a very generalized, historical survey of the absolute growth of the industry; a comparison of the rate of growth of important factors of the industry with ether industries; and an examination of some of the structural changes within the industry.

I

N 1635, in the City of Boston, Master John Winthrop cstab-

lished the first chemical "plant" in the New World. This enlarged pharmacy and alchemist laboratory, located among the primitive trading shops of the Colony, produced batches of alum for tanning and saltpeter for gunpowder. Before this inauspicious start the simple handiworks of tanning, the evaporation of brine for salt, t h r burning of wood for soap had been carried on mostly in the homes of the settlers. It is true that salt and wood ashes had been made in Plymouth and Jamestown and mine in Virginia before 1635. but nowhere had there been established a plant for producing chemicals. Master Winthrop was the true pioneer in the chemical field (17 ) . Slowly others entered this virgin field. Throughout the 18th century little progress was made. However, early in the nrxt century, a number of chemical works blossomed in the new republic. With the elimination of colonial trade barriers, venturesome individuals formed partnerships and erected small plants for the manufacture of a few basic chemicals. In 1802, the DII Pont empire wab founded on a very modest scale ( 1 , 1 6 ) . Thirtyseven years later, Eugene Grasselli built a sulfuric acid plant in Cincinnati ( 1 7 ) . More and more firms were established. They generally imported most chemicals from Europe, producing only a few basic ones themselves. These combination importingand-producing firms usually were family undertakings, for t h a t was the contemporary type of American business ownership. This slow development continued through the greater part of the last century. The Mallinckrodt brothers started fine cheniical production right after the Civil War. Herbert H. Dow formed a partnership for the extraction of bromine from the rich brine in Midland, Mich. (17). The emphasis remained on basic chemicals. Partnerships prevailed. The Industrial Revolution, which began in England late in the 18th century, did not catch up with the American chemical industry until the last decade of the 19th century. It was then t h a t new, more continuous processes started to replace the old, small-quantity batch methods; t h a t technical know-how wa8 employed for more uniform products; t h a t large scale produc-

tion was inaugurated. These modern plants required substantial outlays in capital. The solution was the corporate form of enterprise. Along with other industries, the chemical firms incorporated. Small businesses were merged with and absorbed by competitors. The larger firms, a t the same time, diversified their output. As a result, t h r solid foundation of the L4nirrican chemical industry was laid. Yet, when the first World War interrupted this COUllT,l.!.'P t,rade with Europe, the Unitrd %ate8 found itself in a precariouz position with respect t'o its chemical supplies. Although this nation was well established in acids and alkalies, exported naval stores, and produced large quantities of wood distillation products, the chemical industry was weak and unprepared in so far as organic chemicals, drugs, arid nitrogen fertilizers were roncerned. With the pressure of war, new and vital segments of the chemical industry v-ere established hurriedly. American chrmists and engineers encountered niany failures, but with determination and ingenuity the organic chemical branch of the industqwas founded from this emergency ( 1 6 ) . After World War I, the industry still consisted largely oC a collection of individual basic chemical producers. I n order t o maintain and nourish the infant organic chemical industry, consolidation and integration hR,d to be undertaken. The 1920's comprised tke period of t)he larger companies. Through stork transfers and other means, small companies were merged a n d others were absorbed by larger competitors. These moves were thought necessary to ward off encroachments on the American markets by the well organized European chemical trusts, especially the German ones. The answer to such encroachment seenied to lie in the relativelr good financial position of large corporxtions-through their easier access t o larger funds, they usually are in a better position to effect, large-scale plant constructions than are the smaller, single-line chemicd producers. The large corporations, therefore, generally became forerunners in the promotion of higher plant efficiency, in reducing the prices of most chemicals, and in the propagation and int,roduction of coordinated research and product development. During t'he next dec-adr, the 1930's, the chemical indiwtry shifted into new fields of exploitation. Large-scale research in tjhe utilization of oil, natural gas, coal, and agricultural raw materials developed entirely new hranches of production in thc chemical industry. The impact of this research has resulted in the current tremendous expansion of the synthetic chemical division and the establishment o f the important petrochemical branch of the industry ( 4 , 7 ) . When the second World War broke out, the chemical industry x a s well equipped t o meet the emergency. Without excessive new construction, the industry wa8 able to open up its unused capacity, supply most of the needs of the nation, and perforin its part in the war effort with distinction. The output of t,he chemical industry in this country at; sho\m by the index was modest, up to the beginning of this century. The companies were relat,ively small and each firm limited its production t o a few lines of chemicals. I n 1900, not one chemical company was listed among t,he 25 largest manufacturing corporntions (based on reported total assetsj. Forty-nine years later, 13 chemica,l and petroleum concerns appear on the list ( 2 , 3 ) . In 1949, D u Pont becamp x hillioii-dollxr-sales concern. The luCics

1112

INDUSTRIAL AND ENGINEERING CHEMISTRY

August 1951

’4

lnder

3

300

2

200

1 9

I00

a 7

6 50

5

4

30

3

P

/

PO SiOPh A

n

1

9

8-

! !

’

/ I // /f

10

I 5

A

1 1880

1890

1900

1910

1920

1930

1940

1950

Index of Chemical Mineral Production from 1880 to 1949 Exponential trend lines fitted to data (1939-39 = 100)

of Chemical Production (issued by the Federal Reserve Board) was 241 points in 1949, while the total industrial production index was down to 175 (1935-39 = 100). I n the last quarter of 1950, the index of total industrial production stood a t 217, while the chemical production index rose to 283. The American chemical industry has become so strong and promising that the stocks of chemical firms have become favored investment papers. A good picture of the production record of the industry since 1880 can be obtained by the index of production of chemical minerals (18). Since data for the industry as a whole are spotty and generally unavailable to any usable extent before the 1920’9, only the physical output of the minerals can be employed for a long-range appreciation of the chemical industry as a whole. The chemical minerals are the basis for innumerable processes and chemical products. As long as undeveloped resources are available and are not threatened by exhaustion (true up to the present, except for deficiency of native sulfur along the Gulf Coast), the output of these minerals generally reflects the manufacturing activity of the chemical industry as a whole. Only after 1935, when there occurred a decrease in the importance of minerals upon which this index is based’, does this index underestimate chemical production to any sizable degree. 9semilogarithmic chart is used to emphasize the changes in the rate of growth. For added clarity and in order t o secure a statistical measure of the rate of growth, an exponential curve is fitted to each of the three distinct growth stages in the data. The logarithmic trend lines reveal that chemical production has had a nearly constant rate of increase for the 70 years studied.

’ The component aeries of chemical minerals included i n the

index are: aisenious oxide, barite, borates, bromine, calcium-magnesium chloride, fluorspar, magnesium compounds, phosphate rock, potash, pyrites, sodium cliloride, sodium carbonates, sodliini siilfates, and sulfur.

1713

Except for the decade and a half after the first World War, when the rate of increase dropped sharply, the slopes for the trend lines h and C are practically identical. Slope A, which covers the period up to the end of the first World War, is a little less than 970, while in the years after the 1930 depression, the slope of the normal annual rate of growth is just above 8%2. I n the intervening years, the 192O’s, the slope decreased to less than two per cent. Since the data start just before the Industrial Revolution caught up with the chemical industry, the first period covers the years in which reorganization in management and innovations in the plant helped to put the chemical industry on the map of the nation. This rate of change reflects the advances made by the basic chemicals. During this period, inorganic chemicals, especially alkalies and acids, established themselves so firmly that to this day they have remained the “bread and butter’’ backbone of the industry. The 1921 recession interrupted the rate of growth of chemical production. Together with the recovery of foreign competition, especially German, from wartime disruptions, the recession was a factor in the American chemical industry’s inability to maintain its growth rate. The five years after 1924 exhibit the characteristic 8 to 9% rate of growth, but combined with the drastic drops in output in 1931 and 1932, the average annual rate of growth for the third decade of this century is less than 2%. The industry displayed a high degree of resiliency in its recovery from the depth of the depression. Immediately after hitting rock bottom in 1932, the output of chemical minerals started to grow a t its accustomed rate of increase of over 8%. Yet the data reflect only a small pertion of the new activity which invaded the chemical industry. The late 1930’s, the war of the 1940’s, and the postwar period witnessed the phenomenal growth of petrochemicals, plastics, insecticides, and other products. Some of this development naturally is reflected in the chemical mineral’s output, since heavy chemicals are needed in their production. However, it is obvious that the data of this series cannot picture the peak wartime production rates of the industry nor reveal the extent to which chemical activity remained close to the wartime high. Whereas the Federal Reserve Board’s Index of Chemical Production (also 1935-1939 = 100) went to 284 in 1945, chemical minerals reached only 191 during the same year. RELATIVE GROWTH OF THE INDUSTRY The rise of the chemical industry was not unique to the American scene but occurred in conjunction with the over-all development of the economy. It is possible to argue that the chemical industry provided the impetus and momentum which permitted our economic civilization to expand or, conversely, that the growth of American industries created new markets which nourished our chemical production. It seems clear that neither the economy as a whole nor the chemical industry as a unit thereof could have attained its present high level of accomplishment without the other. A proper perspective of the rate of growth of the chemical industry can be obtained by comparing its achievements with the activity of other facets of the American economy. The industry’s behavior must be examined side by side with the conduct of other industries. I n this manner the significance and, in a large measure, the real contribution of the chemical industry to economic progrem can be evaluated. The history of the past two decades is of paramount interest. This period is not only recent history but includes a time of prosperity (1925-29), the great depression (193&34), the era of recovery (1935-39), the super-production years of the war (1940-

*

The exponential equations are:

YA

=

12.412 (l.0S67)x; 0 yea1 is 1899

YB = 65.443 (l.0160)x; 0 year is 1926 Y o = 137.06 (1.0824)*; 0 year is 1941 where X is one year.


1714

Gov. Expenditures Bank Deposits Chemical Production Electric Power Prod Gross National Producr Department Store Sales Industrial Production Farm Production Building Bctivity Freight Carloadings Progress ltidex 4

Table I .

1925-29 1935-39 million dollarsQ Bank del>osits, billion doliars

CIiEhIICAL

:

1945-9/1925-9

PRODUCTlOh

1935-9 = 1 0 0 c 1Clectric power production, billion kw.-hr.d Gross National Produrt. billion dollars5 Ilepartment st,ore sales, 1935-9 = loof Industrial production, 193539 = l00C I’arm production, 1936-9 =

1945 49

A

F3

C

302

698

4090

1364

230

$88

2,4

8.8

10.4

808

367

220

133 233

-, a-

100

263

337

9 4

21.3

318

22;

84.2

234.0

236

2711

100

269

236

2B9

I86

190

186

100

137 1000 Hidding aotivi ty, million sq. ft. areah 3%38 64.8 lQ2 89 Vreight carloading, inillion cars z 2.8 121 79 3.4 Moritlily averages of expeiiditiirc f o r I‘cdcral Government reported b y Treasury Department. . E n d of year totals reported by Hoxrd of Governors for Federal R e s c r ~ c 100

I a7

138

Banks

C Index of industrial production reported by Vederal Reserve Board. d Monthly average of energy produced by electric utilities a n d othcr orartnizations producing for public w c , coinpiled h y Federal Power Commission. e Reported in Suruey of Current B u s i n e s s by L k p t , of Commerce. I $ompiled by Federal Reserve Board. g Volume of F a r m Production, compiled by Bureau of Agriciiltiii.81 b:conomics, Dept. of Agriculture, indexes phyaical volume of livestock ani1 crops sold t o consumers a n d c o n s u n i ~ do n farms, less seed a n d feed. h Floor area of nonresidential and residential buildings of c o n t r n c t s a i y r d e d in 37 states east of the Rookies. 1 Monthly average for class I i%ilroa:ls corripiled b y the Cai, ScrT-icc Ilivision of Am. Rail\vay . ~ P P O ( ~ . ~~

Progress I ridex H : 1935-9/1925-9

102

186 137

Progress Index C : 1945-9/1935-9 Figure 1,

Progress Indexes of Factors of Broad Significance to the National Economy 5-1e a irerdges ____ -.Progress In&\

Govcrniiic>iii, expenditrirrc,

Hank Deposits Government Expenditurw Electric Power Production Chemical Production Industrial Production Farm Production Department Store Sales Gross National Product Freight Carloading Building Activitj

Government Expenditures Gross National Product Department Stole Sales Chemical Production Electric Power Production Bank Deposits Building Activity Industrial Production Farm Production Freight Carloading

Vol. 43, No. 8

Comparison of Factors of Broad Significance to the National Economy (Table I)

that all the favtors in the natioiial economy selected for wniparieon undergo similar husiness fluc:tuat>ions. This assumption is reasonably valid because of thc nationwide! cffect of the 1930 ticpression and World War 11. The three progress indcxcs iised in this study are: l’rogress Index .Li: 1945- 1949 avc:rage/l925-2a average Progress Tndex B: 1935-1939 a v Progress Index C : 1945-1040 avrragc/1935-39 averagc Ihese indexes were selected hecausc they possess a number of advantages. The extreme depth of the deprexsion is by-passed and influences the measurements only so far as the depression left a lasting effect upon a partirular industry. In t,he same manner, the extremes of the last war are not. reflected either. Five-year avcragcs were select,ed because the length of t,hese periods eliminate most of the minor fluctuations which occur during any part of a long-range c’j.cle. It must be remembered that theec indexes are very general measures. TVit,hout furthcr investigation?, the factors which influeiice the results cannot be revealed. Presenting only an over-all picature, they will not indirate the leaders or the retarders within an industry. For examplc, while progress index C for chemical production is 253 (Table I), the output (as measured by sales) for Du Pont Co. shon-ed ail index of 315, Dow Chemical recorded a phenomenal increase with a 600 index result during the same period. (The n u Pont ant3 Dow ratios were calculated from annual company reports.) The progress index is used in this discussion rather than t h e conventional indexes of the types compiled by the Federal Rcserrc I h a r d , the Bureau of Labor Statistics, and other groups. These indext:~determine a base year or period (1926 = 100 or 1935-39 = 100) and compare all subsequent, periods with these bases. In effect, the progress indexes used iii this article are of similar nnturc. Thc same idea of the “base period” is used. There arc, however, two major differences. In the analysis below, two different base periods are employrd to accentuate what happciied during two different decades. The timc periods compared with the bases, furthermore, arc of five-)-car duration. As was CYplained above, the use of longer time ititcrvals eliminatw cIKrirntly most short-term phrnomeiln. I ,

44), aiid the post,war recoilversion (1YG-49). Although these classifications are arbitrary arid very general, t,hey do describc t,he major movements of the economy during the past 25 years. The great, intensity of the cydical and war upheavals covered by this period presents a scverc test, t o the dyiiamic behavior of any iitdustry. The evaluation of the chemical industry during these dccadcs will cover the following phases: (a)general comparison with factors of broad significa.nce to the nat,ional economy, and ( b ) coniparison with other industries, iiivcstigating contributions to thc ecqonomy as a whole, contributions to labor, conti.ibutions to tho consumer, aiid cont,ributions t o management. This investigation of t.he progress and growth of the clieniical iiidustry during the past 25 years uscs t,he progress index as its measuring stick. This i d e s was first applied to the chemical industry hy D. I-’. Morgan in the late 1930’s (19). The progresR index in this case is the rat,io of t’wo five-year averages. Thus, the arithmetic mean of the five annual monthly averages of electric power output for tlic years 1945 t o 1949 is divided hy the average of the five annual n~onthlyaverages output for the years 1925 to 1929, inclusive (Table I). It follows that if the electric power output averaged the same for the two periods, the progress index would be 100. I\ctually, the output more than tripled, to give a progress index of 318. A decrease in the average output’ n-ould have made the index less than 100. The progress index alone is of little significance. Compared with other indexep, however, it reveals the relative performance of an indust,ry in relation to other t,irne periods and in relation to other industries. In using t~hescindexes, the assumption is m a d r

August 1951


Chemicals Paper Food All Manufacturers Rubber Petroleum & Coal Iron & Steel Non-Ferrous Metals Total National Income Lumber & Timber Leather Tobacco

355 333

133

Progress Index A : 1945-9/1925-9 Food Paper Chemicals Total National Income Non-Ferrous Metals All Manufactures Tobacco Leather Iron & Steel Petroleum & Coal Rubber Lumber & Timber

100 100

5-Year Averagesa Billion Dollars ’ 192%- 1935194529 39 49 Chemicals a n d allied products Paper and allied products Food and kindred products All manufactures Rubber products Petroleum and coal products Iron a n d steel and their products Nonferrous metals and their products Total national income Lumber and timber Leather and leather products Tobacco products

Progress I n d c

A

B

c

1.1 0.6 2.2 22.0 0.4 1. O

1.0 0.6 2.2 16.3 0.2 0.5

3.9 2.0 5.9 58.1 1.0 2.5

355 333 268 264 250 250

100 100 74 50 50

91

390 333 268 356 500 500

3.0

2.0

7.4

247

67

370

0.8 87.4 0.9 0.6 0.3

0.6 67.4 0.4 0.4 0.2

1.9 200.4 1.7 1.1 0.4

238 229 189 183 133

75 77 44 67 67

317 297 425 275 200

a National Income estimated by Department of Commerce, published in

Business. 1925-1929 average consists of 1929 total only; d a t a not available for years before 1929. Survey of Current

67 67 50

Progress Index B : 1935-9/1925-9 Rubber Petroleum & Coal Lumber & Timber Chemicals Iron & Steel All Manufactures Paper Non-Ferrous Metals Total National Income Leather Food Tobacco

Table 11. Progress Indexes of National Income Originating in Various Industries

2L7

189 183

1715

317 29 7 275

26% 200

Progress Index C : 1945-9/1935-9 Figure 2. Progress Index of Income of Various Industries (Table 11) The General Comparison. Four of the nine factors of general significance t o the national economy with which chemical production (physical output) is compared are measured in monetary units. These are: government expenditures, bank deposits, gross national product, and department store sales. Naturally, all four are seriously affected by the fluctuation of the value of the dollar and present, therefore, exaggerated advances and increases. Despite this fact, the chemical industry can be recognized as a leader, if not in fact the leading factor, in the twodecade expansion of our economy. For the 25 years covered by index A, the chemical industry exhibited a progress index greater than that of any other physical activity. Only electric power output kept pace a t 318. This is in extreme contrast with the reduction in building activity and freight car loadings. Total industrial production gained only 90%, where chemicals increased 237%. Chemical production is topped only by government expenditures and bank deposits. If both were properly deflated to correct for the decreased dollar value, they probably would not have reached their phenomenal progress indexes of 1354 and 808, respectively. Government expenditures, naturally, were enlarged by the expanded social and administrative activities of the Federal Government, the increased interest payments on the national debt, and the foreign and military expenditures of the “cold war.”

The 23770 increase in chemical production was accomplished mainly during the last 10 years. Index B is only 133, while C chalks up a 253 mark (Figure 1). During the 1925-39 period, electric power production edged chemical production by a 7Y0 greater increase. This fact is understandable, since during the 1930’s the New Deal underwrote rural electrification and large irrigation projects which provided new, inexpensive sources of electric power. Also, during this period, radio and electric refrigeration passed from the luxury class to necessities for the average American family. Chemical production showed no lasting effects of the depression. With four of the 10 categories reporting losses and two others-total industrial and farm production-listing practically no change, t h e 33 % ’ increase of chemicals receives added importance. Along with d l other factors compared, chemical production increased greatly during the last decade. The chemical index C again is ahead of all other physical activity categories T h e three progress indexes which gained more are all expressed in dollar units. With proper deflation, probably only government expenditures actually would exceed the physical output of the chemical industry. It is obvious t h a t the chemical industry contributed a large share to the progress of the American economy. Comparison with Other Industries. Although every one of the subjects yet t o be discussed affect the American economy as a whole, i t was deemed proper to classifv five of them according t o that part of the population t o which they are most significant. The remaining three subjects are here discussed. They are the proqress indexes of national income, production, and exDort. Detailed statistics on the national income are published annually by the Department of Commerce (19). By definition, this national income is “the aggregate earnings of labor and property which arise from the current production of goods and services by the nation’s economy.” These total statistics, broken down into their industrial origin, are the figures used in Table 11. (About one third of the total national income originates from all manufacturing industries combined a t the present time. ) Since these data were not compiled prior t o 1929, the 1925-29 arithmetic averages are simply represented by the 1929 figures. There is a distinct pattern to these progress indexes. All the industries compared gain during the 20 years of index A . I n the 1930’s, with the evception of food and paper, all lost ground, a loss which they all more than made up during the last decade. The evceptions cited above experienced no change a t all (Figure 2). The chemical industry is the leading performer. With a progress index A of 355, i t leads all other industries. While the total national income more than doubled since the Commerce Department started to compile this series (129%), all the manufacturing industries combined contributed more than their share to the rapid rise of the aggregate earnings of the nation. They chalked up a 164oJ, gain in index A. Chemicals thus become a n outstanding performer in a distinguished troupe.

INDUSTRIAL AND E N G I N E E R I N G CHEMISTRY

1716

Table 111. Progress Indexes of Production .%11 data from Federal Reserve Board’s Index of Industrial Production1935-1939 = 100) 5-Year Averages 1925- 1935- 194529 39 49 CHEMICALS Petroleum and coal products Rubber products

Pulp

Total industrial production Tobacco products Manufactured foods Iron and steel Nonferrous metals, smelting, and refining Cement Leather tanning Lumber

Progress Index A B C

75 81 88 72 98 90 91 117

100 100 100 100 100 100 100 100

253 206 212 167 186 156 156 185

337 254 241 232 180 173 171 158

133 123 114 139 102 111 110 85

253 206 212 167 186 156 166 185

136 158 106 158

100 100 100 100

175

129 103 103 77

74 63 94 63

175 163 109 121

163 109 121

Vol. 43, No. 8

Chemicals Petroleum & Coal Rubber Pulp Total Industrial Production Tobacco Mfg. Foods Iron & Steel Non-Ferrous Metals Cement Leather Tanning Lumber Progress Index A: 2945-911925-9

f

Pulp Tobacco Rubber Petroleum & Coal Chemicals

Although the rubber, lumber, and petroleum industries’ income expanded rapidly during World War I1 (progress index C), their high sensitivity to the depression and its lingering effect upon them acted to offset their wartime gains to a large degree. I n effect, their excellent showing in index C, in which they gain more than the chemical industry, does not help them enough in the 20 years of index A. Their losses during the depression, which amounted t o 50% or more, prevent them from attaining the combined manufacturing gain of 164% The stability of chemicals during the 1930’s and their advances during the 1940’s (91 and 390, respectively) combined t o make this industry a leading contributor t o the aggregate productive earnings of America. Another phase of the investigation of factors contributing t o the national economy, besides the analysis of the aggregate earnings of the nation, is the examination of the amount of physical products contributed t o the country by a n industry. For this purpose, the Index of Industrial Production compiled by the Federal Reserve Board is used. This index reflects the “activity” of American industrial enterprises. With the exception of some distortions during the war years, the index is relatively accurate. Ten industries, besides the chemical industry and the combined manufacturing index, are investigated (Table 111). Again chemical production leads the way. With a 337 progress index A, chemicals outclass the nearest rival industry by 83 points. I t s rate of output during the two decades rose 147% more than the combined manufacturing output (Figure 3). The breakdown of t h e two decades, indexes B and C, shows similar results. Since the end of the war, the chemical index consistently registered a higher production activity than the total index. I n 1949, while t h e total manufacturing output index was 176, the chemicals sped ahead at 241 points (1935-39 = 100). A third factor of concern t o the economy as a whole is the value of roducts exported by this country. The Bureau of Foreign anfDomestio Commerce, and more recently the Bureau of the Census, issues annual dollar exports for a few of the industries t h a t have so far been examined. With a regularity that may seem monotonous, chemicals again lead all other industries in rate of growth. The rate of increase in exporting chemicals is revealed by a progress index of 497 since the “golden twenties.” From a n average of about $11 million, the monthly average has hit over $60 million during the past few years. I n contrast, total United States exports have increased only 144% (index A in Table IV and Figure 4). Even the depression of the 1930’s hardly affected chemical exports. This is in contrast t o most of the other industries

Table IV.

Progress Indexes of Exports

( D a t a to April 1941 from Bureau of Foreign and Domestic Commerce thereafter from Bureau of Census, Department of Commerce) 5-Year Averages, Million Dollars 19451925 193549 29 39 CHEMICALS

AND RELATED PRODUCTS 11.1 Iron and steel and mill products 14.3 Total non-agricultural exports 251.4 Total exports 408.0 Petroleum and products 43.4 Copper and its products 13.4

1 1L

Mfg. Foods Total Industrial Production Leather Tanning 55 Iron & Steel 71 Xon-Ferrous Metals 61 Cement 63 Lumber Progress Index B : 1935-9 1923-9

Chemicals Rubber Petroleum & Coal Total Industrial Production Iron & Steel Non-Ferrous Metals Pulp Cement Tobacco Mfg. Foods Lumber Leather TanningProgress Index 6: 1995-911935-9 Figure 3.

Production Product Index (Table 111)

Chemicals Iron & Steel Total Non-Agricultural Exp. Total Exports Petroleum

J

^,

~

,c;

1 ‘GI

I 2

Iron & Steel Chemicals Petroleum Total Non-Agr. Exp. Total Exports Copper

2;3

115

d

I. 5 75

11”

v-

Progress Index B : 1935-9/1925-9 Progress Index A B C

10.8

55.3

498

97

512

15 3

51.9

363

107

339

153.4 235.7

705.4 977.3

281 239

61 58

460 415

27.8 6.3

SO.8 6.4

115 48

64 47

183 102

Chemicals Total Non-Agricultural Exp. Total Exports Iron & Steel l?? Petroleum Copper Progress Index C : X945-911935-9 Figure 4.

Progress Index of Exports (Table IV)

August

F3


1951 Chemicals Non-Ferrous Metals Total Industries Petroleum Refining Paper and Pulp Rubber Iron & Steel Lumber Leather Food Tobacco

1“

103

65

Chemicals Petroleum Refining 97 Paper & Pulp Iron & Steel Leather Total Industries 94 Non-Ferrous Metals 82 Rubber 73 Food 72 Tobacco 67 Lumber Progress Index B: 193.5-9/1925-9

CHEMICALS fionferious metals and products Total industries Petroleum refining Pa. er and pulp Ru%ber roducts Iron anBsteelC Luniberd Leather and its products Food and kindred products Tobacco

59 a

70

193

327

119

276

235’ 8086

220 7880 78 132 116 392 312 336

396 12355 109 189 202 482 551 359

169 153 151 151 142 128 117 109

94 97 108 106 82 104 67 102

180 157 140 143 174 123 177 107

1:; 142 376 469 328

142 73 1181 103 11466 832 90 72 86 65 133 96 a Average of 1925 and 1929 only. Average of 1926, 1927, and 1929 only. C Called “blast furnaces, steel works, and rolling mi1ls”under “iron and steel and their products.” d Called “lymber, sawmill” under “lumber and its products.”

r276

Paper & Pulp 147 Food 1LO Petroleum Refining 123 Iron & Steel 107 Leather Tobacco 90 Progress Index C: 1945-9/1935-9

Figure 5. Employment Progress Index (Table V) (index B). The chemical progress index C of 512 points is outstanding. In national income,. production, and exports, the dynamic performance of the chemical industries during the 1930’s and 1940’s surpassed anything that has been examined. It has in every case the largest progress index A. Here, in the q o s t dramatic fashion, the extent of the contributions of the industry to the American capitalistic system has been established. Its growth cannot be exaggerated. I t s effect on the economy is evident. The rate of expansion of the industry in every respect can be called “pace-setting.”

\

Progress Indexes of Employment

(All data from Bureau of Labor Statistics Department of Labor: Estimated Number of Produot?lon Workers)

128

Progress Index A : 1945-9/1925-9

Non-Ferrous Total Rubber Lumber Chemicals Industries Metals

Table V.

1717

CONTRIBUTIONS TO LABOR. There are three aspects of interest in the economy which are basic t o labor. These are: ( a ) number of people employed, ( b ) length of the work week, and ( c ) the rate of pay. Although the worker is concerned also with the cost of living and other similar factors, this report does not deal with these aspects. Working conditions beyond hours worked are hard t o measure and express in tangible, comparable units and must of necessity be omitted. There were 227% more production workers employed in the chemical industry during the last half of the 1940’s than during a comparable time in the 1920’s. This fact is revealed by the data compiled by the Bureau of Labor Statistics of the Department of Labor (Table V). Again, the chemical industry has the largest progress indexes. Indexes A, B, and C all outclass the other industries reported (Figure 5 ) . It must be remembered, however, that the total number of production workers employed by the chemical industry is relatively small when compared with the labor force of the other industries. With only 55,000 workers in 1925, its manpower is the smallest of all industries compared.

By 1949, however, four of these industries (pulp and paper, rubber products, petroleum refining, and tobacco) employed fewer workers. Historically, the chemical industry has always prided itself upon its compact production force. As a manufacturing industry, its continuous processes have always required a minimum of manual handling. The large rise in the chemical labor force, therefore, is another indication of the expansion of chemical capacity and production. When discussing hours per week (Table VI), two viewpoints must enter into these discussions. On one side, organized labor bargains for a shorter work week. On the other hand, the depression forced curtailment of work. Many plants, as a consequence, reduced the hours of work per worker per week. The dynamic trends in this case, thus, are the resultants of these two forces. The progress index A of 72 (a reduction of 28% in the hours worked per week) for the chemical industry is such a resultant. The pattern is definite. Every industry studied reduced the work week drastically during the 1930’s. All the progress indexes are less than 100. In contrast, every index C is above 100 during the forties. The product of the two periods, progress index A, remains below 100. This means that the work reduction effected during the depression and recovery period has not been offset by the longer hours induced by war production and carried over into the post war period (Figure 6). Since labor generally understands a shorter work week t o mean better working conditions, these progress indexes have been assembled in increasing order (Figure 7). For the two decades, the chemical industry has the second best record. From ti 52hour week in 1925, the average hours have been reduced to less than 40 in 1948. The National Industrial Conference Board compiled data on average hourly wages for production workers. (The NICB data were used despite the lack of 1949 figures. This discontinued series published comparable data back through the 1920’s, a fact which is riot true for the BLS series.) These wages are analyzed in Table VII. With the average hourly wage of chemical production workers in 1925 recorded a t a little over 53 cents, the wage rose t o $1.50 in 1948. The progress index A for the chemical industry is 235. This is exceeded only by the 244-point mark of the lumber industry. I n general, the ranges of all the progress indexes are very small. Thus, the progress indexes A differ by only 32 points. Indexes B have a range of only 18 points (Figure 7). I n effect, the second position occupied by the chemical industry with index A is of little significance. As can be seen in Table VII, all the changes in production worker wages differ insignificantly. The worker, in effect, has fared well in the chemical plant.

1718 72

[=g


29

90 92

Iron & Steel Chemicals Paint & Varnish Combined ( 2 5 ) Industries Lumber Paper & Pulp Rubber Meat Packing Silk & Rayons Leather

Progress Index A : 1945-9/1925-9

Lumber 8: Mill Work Chemicals Leather Tanning Meat Packing Iron & Steel Combined ( 2 5 ) Industries Paint & Varnish Silk & Rayon Paper & Pulp Rubber Progress Index A: 1945-9 1923-9

Vol. 43, No. 8 The labor force has expanded to an extent greater than in other industries. The hours per n eek have decieased in a pattern similar t o the other industries, 1% hile the wages have advanced along 11ith the other industries‘ labor eupenditures. COSTRIBUTIONS

co~--~ L L I E R The .

TO

THE

index of wholesale commodity prices Iron &. Steel 61 125 hIeat Packing compiled and issued by the Silk & Rayon 125 Rubber Bureau of Labor Statistics Rubber Chemicals of the Department of Labor Chemicals Paint & Varnish Combined ( 2 5 ) Industries is used t o record price Iron & Steel Paper &- Pulp changes. In this discussion, Lumber & Mill K o r k Paint & Varnish the consumer who is afCombined (25) Industries Meat Packing fected by theseprice changes Leather Tanning Leather Paper & Pulp gmerally is the industrial Lumber Silk & Rayon and wholesale consumer. These use or/and resell the Progress Index B : 1935-9/1925-9 Progress Index B : 1935-9/1925-9 purchased products. The most direct benefit any Lumber & Mill Work Chemicals consumer can reap can be Silk & Rayon Paint & Varnish measured by decreases in Leather Tanning Lumber the price of the goods Paper & Pulp Combined (25) Industries Chemicals Meat Packing bought. This mill be the Paper & Pulp 11; Combined ( 2 5 ) Industries gage in this instance. Leather 112 Iron & Steel Unfortunately, the facts Iron & Steel 113 Paint & Varnish present a dark picture for Meat Packing Rubber the consumer. All prices, Silk & Rayon 121. Rubber except rayon, have increased Progress Index C: 1945-9/1935-9 during the past two decades Progress Index C: 1945-9/1935-9 (Table VIII). Although Pigure 7. Wage Progress Index Pigure 6. Reduction Index of Average Weekly chemicals increased 20% (Table VII) Hours of Work (Table VI) during the past 25 years, this is a commendable record when compared viith other industries. The worst record-that is, the largest price increase--n.as compiled by the food industry. Progress Indexes Of Hours Worked per Week Onlv the ravon and oetroleum industries show better result3 than ( D a t a called “Aveiage Hours per Week per Production Worker,” compiled chemicals (Figure 8). Again price trends have a definite pattern, b y Sational Industrial Conference Board) A s expected, all prices decreased during the 1930’s. In the next 5-Year Averages 143914x5144:Progress Index 10 years, all rose. These postwar increases offset the depression 9 A B C decreases in all cases eucmt rayon. Chemical prices remained Iron and steel fairly stable; thus the industrial consumer \vas given a backCHEMICALS $;80 103 Paint a n d varnishes 51.3 41.2 42.3 82 handed advantage-that is, chemical prices rose less than most Total (25) industries 48.0 37.6 41.3 86 78 110 47,6 38,9 42,0 88 82 108 other industrial prices. Lumber Paper and pulp 51.6 40.7 45.5 88 79 112 SPECIFIC COMPARISON STCDYISG THE EARXISGS O F IKDGsTRIES. Rubber 45.2 33.8 40.1 89 75 119 N e a t packing 50.2 40.6 44.9 89 81 111 There is one definite measure of the benefits derived by manageSilk a n d rayon 46.6 33.8 42.0 90 73 124 46,5 37,9 42,6 92 82 112 ment and owners-profits. The Commerce Department details Leather the earnings of industries in their national income data. (Profits a Series discontinued July 1948; 1945-49 average, therefore, is the mean of 3.5 years. consist of the income of unincorporated enterprises and corporate profits after taxes, both income and excess.) Very dramatically, Table VII. Progress Indexes of Wages after the leading performance of the chemical industry in most of D a t a called “Average Hourly Earnings of Production Workers,” issued by the other subjects previously discussed, the industry becomes National Industrial Conference Board) modest in the profit picture (Table I X ) . It,s progress index A of 5-Year Averagesa 192519351945progressIndex240 is dwarfed by the 1320 points of the rubber industry (Figure 29 39 49 A B C 9). Three additional industries increased their return to the Lumber and mill work 8 0 , 5 3 9 SO. 630 $1,314 244 117 209 owners by a greater margin than chemicals. Chemical profits CHEMICALS 235 125 189 0.555 0.691 1.306 just kept pace q-ith the total profits. Leather tanning and finish224 114 197 1.185 ing 0.628 0,603 The dynamic picture of the profits during the last 10 years M e a t packing 224 125 179 0.511 0.640 1.144 1.419 221 119 186 Iron and steel 0.643 0.763 demonstrates a “modesty” not found in the other comparisons 1.265 220 117 189 Combined (25) industries 0.575 0.670 Paint a n d varnish 1.219 219 119 184 0.556 0.661 of this discuwion. While the profits of all industries, except toSilk a n d rayon 218 107 205 0.487 0.519 1.062 bacco, more than doubled during progress inde.: C, the chemical 214 112 191 0.597 1,138 Paper a n d pulp 0.533 212 125 170 0.822 1,396 Rubber 0.667 industry remained well below the increase of both the total profits a Series discontinued J u l y 1948; 5-year average, therefore, is average for and the income of all manufactures. After leading in most of the 1945-47 a n d first 6 months of 1948. factors of the economy, the chemical industry shows an additional

p;;l,ll; !::: 2;:;

;i

~

August I951


facet of its traditional stability, especially the fact that it lost only 19% of its profits in the bleak profit years of 1935-39.

Summation Briefly, the relative growth of the chemical industry can be summarized in the following generalizations: The industry expanded its production of chemicals, increased its foreign trade, and enlarged its share of the national income a t rates which not only compare favorably with any other segment of the economy, but outgrew most of them. In these factors, the chemical industry generally was affected only t o a small degree and for a short time by the depression. The labor force of the industry received benefits in similar proportions with o t h e r m a n u f a c t u r i n ggroups. Both orice and orofit increases were rklatively moderate.

Rayon Petroleum Chemicals Cement Non-Ferrous Metals Iron & Steel Combined Manufactures Leather Paper & Pulp Foods

L3

11.2

1L9

7q 150

Progress Index A: 1945-9/1925-9 Rayon Petroleum Non-Ferrous Metals Leather Foods Chemicals Combined Manufactures Paper & Pulp Iron & Steel Cement

37

67

96

97

Progress Index B : 1935--9/1925-9

. Rayon Cement Iron & Steel Chemicals Petroleum Non-Ferrous Metals Combined Manufactures Paper & Pulp Leather Foods

14.7

170 162

189 INTERNAL CHANGES IN THE INDUSTRY Progress Index C : 1945-9/1935-9 Another phase of inFigure 8. Price Progress Index dustrial development con(Table VIII) cerns internal adjustments. While an industry progresses as a unit, its component make-up changes constantly. As a young and vigorous member of the economy’s productive machinery, this is especially true for the American chemical industry. Chemistry lives by change. Its manufacturing processes are distinguished from other industries by the rearrangement of the molecular structure of its raw materials. This dynamic mood is transferred to its business managers and executives, Extensive research for new commercial products has always been oarried on by most chemical producers. This work naturally induces extensive shifts within the industry. For example, about 60% of the sales by D u Pont in 1949 consisted of chemicals and products undeveloped 20 years ago (7). Thus the predominance of some chemicals has been displaced

Table VIII.

Progress Indexes of Prices

(All data from Bureau of Labor Statistics, Department of Labor, “Index of

Wliolesale Commodity Prices”-lQ26 = 100) 5-Year Averages 1945Progress Index 1925193529 39 49 A B C 30.8 Rayon 83. 7n 35.9 43 37 117 Petroleum and products 82.2 55.4 111 67 164 91.1 CHEMICALSA X D ALLIED PRODUCTS 96.3” 78.7 115.6 120 82 147 116.6 Cement 94.2O 91.1 124 97 128 125.5 Nonferrous metals 98.9 76.1 127 77 165 93.4 132.8 Iron and steel 97.0 137 96 142 134.6 Combined manufactures* 96.8 81.4 139 84 165 Leather 110.7 86.7 142 78 182 157.6 84.0 Paper and pulp 95.9 142.5 149 88 170 149.2 79.1 Foods 99.6 150 79 189 1929 data not available. 4-year average given. Called “Combined Price Index Exclusive of Farm Prices.”

*

1719

Rubber Paper Lumber & Timber Leather Chemicals ?LO Food Total Profits All Manufactures Petroleum & Coal Non-Ferrous Metals LLI, Iron & Steel Tobacco 105 Progress Index A: 1945-9/1925-9 Rubber Tobacco Food Chemicals 76 Paper Total Profit 68 Non-Ferrous Metals bo Leather All Manufactures Lumber & Timber Iron & Steel 27 Petroleum & Coal Progress Index B : 1935-9/1925-9

%

Petroleum & Coal Lumber & Timber Paper Iron & Steel Rubber Leather All Manufactures

[-EL?’ J L72

1 I

L13

377

Food Non-Ferrous Metals 125 Tobacco Progress Index C: 1945-9/1935-9 Figure 9.

Profit Progress Index (Table IX)

by new ones. Whole new subdivisions have become major members of the family which make up the chemical industry. Plasticr and synthetic fibers, for example, have established themselves firmly in recent times. The production of insecticides and peBticides has advanced by leaps and bounds since World *War 11. These two instances, however, were not unique. The changea within the industry have occurred not only in the product line but cover other phases such as raw materials employed, the geo-

Table IX. Progress Indexes of Profits (All data from Department of Commerce National Income estimates) 5-Year Averages, Million Dollars 192:19351945Progress Index 39 49 A B C 29 Rubber products 28 132 10 1320 280 472 Paper and allied products 99 75 392 76 523 396 Lumber and timber 113 49 314 43 640 278 Leather and leather products 52 31 128 246 60 413 CHEXICALSAND ALLIED 328 PRODUCTS 81 294 966 240 403 Food and kindred prod410 1174 68 346 82 286 uots 234 502 Total profits 22105 14941 51639 234 All manufaotures 54 377 4915 2658 10021 204 Petroleum and coal prod27 685 615 168 1157 ucts 188 Nonferrous metals and 218 131 their uroducts 146 319 60 244 Iron and steel and their products 742 214 1065 144 29 493 Tobacco products 127 105 134 105 83 128 a Data before 1929 not available; 1925-29 average, therefore, is total for 1929 on1.y.

1720


graphic concentration of the industry, and the ownership of tile indust,ry. This section will esainine some of these changes anci their trends. At the same time, some characteristics of the structure of the industry will be discussed. Shift in the Geographic Concentration. The early establishments of the chemical industry naturally had t o confine themselves to the northeast’ern sect’ion of the United Stat,es. Since chemicals arc needed by other industries, the markets ~ e r c located in the centers of manufacturing. In the South, fertilizer plants were the only chemical producers of consequence. Mritli the settlement of other sections of the country, some chemical works were est,ablished in the Far West and elsewhere, but the major port.ion of chemical output rcrnaincd in the industrial North East. Ordinarily, the Census of Manufactures provides dtlt.a whicl; can be analyzed. The best measure of industrial activit,). is thc “value added by nianufacturing,” but the decennial census of 1870 did not provide such data. In order, therefore, to compare the geographic concentration over a long period of time; on]?. the number of establishments iri each census area can be used. The fact that the “number of establishments” is not an exact measure of physical production, since improved technology anti the size of the individual plants are not considered, should riot distort the long-range geographic development of the industry. Besides, the components of the chemical industry have been so drastically revised that it is hard even to compare the 1947 CellEUS of Manufactures with the preceding one issued after 1939. As a result, the rougher measure-the number of establishments-can be employed with confidence in the long-range investigatiol, of the shift in industrial concentration from 1870 to 1947. The year 1870 r a s select,ed because it predates most of the industrial revolution in chemical manufacturing. By that time industrial inorganic chemicals had established themselves firmlg. However, the era of the great chemical corporations had not yet, arrived; modern chemical technology as it is known today had not yet been applied in the plants. It is, ,therefore, the time oi adolescence for the industry. The number of establishments in each section ol the country are listed in Table X . The data presented are for 1870 and 1947. It should be emphasized that t,he concept of an “establishment” has been revised drastically in the interim. I n 1870, the term included inany neighborhood “plants”-that is, small work shops) such as local candlemalrers, which supplied the surrounding arm. These logically have been eliminated since 1899. Other changes in the concept have occurred since then, so that a t the present time an establishment refers generally to a plant manufact,uring one line of products. These changes in the definition need not be of concern in this discussion. The relative shift of the industry has been so pronounced in the intervening 77 years that discrepancies fail to obscure the trends. Table X and Figure 10 clearly show that the predominance of the New England and Middle Atlantic states has been drastically reduced. Although about 1000 more establishments were reported in the Middle Atlantic states in 1947 than in 1870, percentagewise the area could not keep its share of the chemical industry. To a lesser degree, this is true of Nevi England. The reduction. in the absolute number of estahlishments in that area can be attributed to a large extent t o the revision of the concepts of the term mentioned above. However, the area’s relative loss is nearly as large as the Middle Atlantic’s. The Pacific Coast states gained the most relatively. They are followed closely by the West South Central st’ates. The industrialization of the East North Central, which is not emphasized by the percentage figures, has been pronounced. The absolute data give good indication of this fact. In the last Census of Manufactures, 1947, the Bureau of the Census changed the component make-up of its “Chemicals and Allied Products” industry. The bureau, however, also revised the 1939 data and made i t comparable. For this reason, Table XI, which details the shifts within the industry during the last decade, can use the more accurate “value added by manufacturing” figures. The results are somewhat different from the longrange analysis conducted above. The use of data which are expressed in monetary units again prohibits the use of absolute figures. The change in the value of t,he dollar prevents any accurate conclusion to be drawn from the fact that, for instance, the output of the industry as a whole increased less than the dollar figures for “value-added” did. In 1939, the value added by chemical manufacturing was 31,819 million. By 1947, the amount had increased by over 13.5 billion (Table X I ) . This is a gain of about 195%. In sharp contrast, the Federal Reserve Board’s Index of Chemical Production rose only 141% between these two years. [The FRB index in 1939 was 104; in 1947 it was 251 (1935-39 = loo).] Obviously, a

Vol. 43, No, 8

1870

n

N.E. M.A. ENC. W N C . S.A.

ESC.

WSC. Mtn.

Pac.

Figure 10. Per Cent of Total Number of Establishments, by Geographical Subdivisions of U. S . , for Chemicals and Allied Products-1870 and 1947 (Table X) N.E. = N e w England states M.A. =Middle Atlantic states ENC. = E a s t North Central states WNC. = West North Central s t a t e s S . A . = S o u t h Atlantic states

ESC. = East S o u t h Central states WSC. = West S o u t h Central states, M t n . 3 Mountainstates Pac. = Pacificstatss

Table X . Number of Establishments-Chemical and Allied Products (bource:

Compendium, Census of 1870 and 1947 Census of Manufacturing)

Geographic Division Kew England Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific Total

Establishments NO.

Per Cent of Total

1870 762 1814 791 246 404 95 G8 6 75 42Bi

1870 17.9 42.6 18.6 5.8 9.5 2.2 1.6 0.1 1.7 __ 100.0

1947 6 82 2860 2212 819 1171 437 710 151 1031 10073

change, Net

1947 6.8 28.4 22.0 8.1 11.6 4.3 7.1 1.5 10.2

Ilo0.0

% -11.1

-14.2 +3.4 +2.3 +2.1

+2.1 +5.5 +1.4 +8.5

largp part of the difference can be attributed t o the change in the value of the dollar. Because of this distortion, relative figures are used in Table X I and Figure 11. In this examination, a short-range analysis, four of the nine geographic divisions lovt ground. Not only did New England and the Middle Atlantic retreat in their share of the production, but East Korth Central and East South Central also decreased percentagewise. Only the Middlc Atlantic, however, lost a sizable share of the total output. The trend is clearly defined. The industry is shifting from the North East to the newly industrialized Gulf and Pacific States. West South Central made the largest gain. The abundance of suitable raw materials and cheap fuel in Texas and Louisiana accelerated the chemicalization of these states. Since the commercial exploitation of petroleum and natural gas in petrochemical synthesis has been established there on an economically sound basis, this movement has been pronounced ( 4 ) . One fact must be emphasized. The “losses” which are reported for the North East are only relative. The production in that area has decreased only in its share of the total national chemical output. The area’s production of chemicals is higher than ever before. After the war, new plants were established in that part of the country and its total production exceeds the recoid of 10 years ago ( 7 ) . With 30.9% of the total, the Middle Atlantic still leads all geographic subdivisions. The order of rank of the divisions by value added has changed only after the first three divisions: 1939 Middle Atlantic East North Central South Atlantic E a s t South Central West North Central S e w England Pacific West South Central Mountain

1947 Middle Atlantic East North Central South Atlantic West South Central West North Central Pacific East South Central New England Mountain

1721

I N D U S T R I A L A N D E N G I N E E R I N G CHEMISTRY

August 1951

I:

1941

nh

19391947

INOR. ORG. D&M SOAP P A I N T WOOD FERT. OILS MISC.

N.E.

M.A. ENC.

WNC.

S.A.

ESC.

WSC.

Mtn.

Figure 12. Per Cent of Total Value Added by Manufacture, by Industry Subdivisions, for Chemicals and Allied Products-1939 and 1947 (Table XII)

Pas.

Figure 1 1 . Per Cent of Total Value Added by Manufacture, by Geographic Subdivisions of U. S., for Chemicals and Allied Products-1939 and 1947 (Table XI) N.E. = N e w England states M.A. -Middle Atlantic states ENC. East North Centralstates WNC. = West N o r t h c e n t r a l states S.A. - S o u t h Atlantic states

-

-

ESC. East S o u t h Central states WSC. West S o u t h Central states Mtn. = Mountain states Pac. = Pacific states

Table XI. Value Added by Manufacturing-Chemicals and Allied Products (Source: hQ39 and 1947 Census of Manufacturing, Bureau of the Census, Department of Commerce) Value Added bv Manufacturini, ~~~~~~~1~~~ Millions of Dollars Division 1939 1947 216.5 85.5 New England 1655.4 660.7 Middle Atlantic 471,l 1356.8 East North Central 328.5 89.8 West North Central 252.2 779.1 South Atlantic 101.6 292.0 East South Central 389.3 65.3 West South Central 8.9 39.8 Mountain 83.9 307.5 Pacific 5365,2 1819.0 Total

.

Per Cent of Total

1939 4.7 36.3 25.9 4.9 13.9 5.6 3.6 0.5 4.6 100.0

1947 4.0 30.9 25.3 6.1 14.5 5.4 7.3 0.8 5.7 loo.0

Net Change,

% -0.7 -5.4 -0.6 1-1.2 $0.6 -0.2 +3.7 +0.3 +1.1

Shift in Production Output. Table XI1 lists some of the relative and absolute changes in output of the nine industrial subdivisions of the chemical industry. I n this case, as in the above short-range discussion of geographic concentration, the measuring data are again the “value added by manufacturing” The data figures published in the Census of Manufactures. are comparable since the Bureau of the Census again has reclassified its 1939 statistics to conform to the 1947 industrial classification of “Chemicald and Allied Products” (MC-28). The absolute changes are again distorted by the reduction of the value of the dollar and are exaggerated. They do not reflect the change in physical production accurately. Figure 12 and Table XI1 disclose that four of the subdivisions lost some of their share of the total output, while four others gained. It is interesting to observe that gum and wood chemicals neither gained nor lost percentagewise. Industrial inorganic chemicals took the largest relative loss. Paints and miscellaneous chemicals follow closely. The largest percentage gain was recorded by the oils. They were closely followed by organic chemicals. Again, every subdivision gained in absolute terms. The largest absolute increase occurred in organic chemicals (Table XII). Because of this fact, this subdivision ranks first in both 1939 and 1947: 1939

1947

Industrial organic chemicals Drugs and medicines Misc. ohemicals Induatrial inorganic chemicals Paints and allied products Soap and related products Vegetable and animal oils Fertilizer Gum and wood chemicals

Industrial organic chemicals Drugs and medicines Misc. chemicals Soap and related roducts Paints and alliec? products Vegetable and animal oils Industrial inorganic chemicals Fertilizer Gum and wood chemicals

INOR.

-

Industrial inorganic chemicals ORG. = Industrial organic chemicals D&M. = Drugs a n d medicine Soap a n d related prodSOAP UOtS

PAINT = Paints a n d allied products

WOOD

-

G u m and wood chemiCab FERT. = Fertiliaer OILS = Vegetable a n d anima! oils MISC. = Miscellaneous c h e m i cals

Industrial inorganic chemicals dropped from the fourth position to the seventh. The only other changes were effected by soaps and oils; the former jumped up two places from the sixth position while the latter went from seventh to sixth. Other Shifts in the Structure of the Industry. Since the industrial revolution of the chemical industry, the corporate form of business organization has predominated. The consolidations and mergers since the turn of the century have drastically reduced the individual and partnership types of enterprise in the chemical field, until around 75% of the firms in the industry are of the corporate form. Although the trend toward the corporation has slowed down measurably in the past decade or two simply because the number of firms unincorporated is small, a movement in the direction of the corporate form is still perceptible. Thus, the Bureau of the Census lists the following types of ownership in the chemical industry (8): 1939

1947

Corporations 6,832 7,525 Individual proprietorships 1,504 1,436 Partnerships 818 1,038 Othersa 58 74 .__. Tots1 enterprises 9,203 10,073 Other forma of business enterprise include cooperativea, establishments operated by estate administrators, trusteeships, receiverships, or public organizations.

-

This table shows that although both the corporate and unincorporated enterprises increased in number, the per cent of corporate firms in the chemical field increased from 74% of the total in 1939 to 75’34 eight years later. The greater predominance of the corporation in American chemistry is further emphasized in Table XIII. It shows that the 25% unincorporated business earned only 4.3% of the total earning of the industry in 1947. The difference in these two percentages can indicate that corporations, among other factors, ( a ) produced more, had larger sales per company, or ( b ) operated more profitably, or ( c ) earned more money from other investments. The fact remains that corporations received a larger share of the profits than their numerical strength indicated. Table XI11 underlines the fact that unincorporated firms lost their income share badly during the thirties. While corporate incomes increased from 1929 t o 1939, the other firms lost nearly 50% of their income. During World War 11,the unincorporated form of enterprise recovered to some extent, but the trend since 1947 has been generally downward. Obviously the smaller, unincorporated businesses were hit severely by the depression, recovered some of this ground during the war, but found the going a little tougher after the war and postwar booms had abated.

1722


Table XII. (Source:

Value Added by Manufacturing-Subgroups of Chemicals and Allied Products

1939 and 1947 Cenaua of Manufacturing, Bureau of Cenaus, De-

partment of Commerce)

Value Added by Manufacturing, Millions of Dollars ~ _ Subgroups Industrial inorganic ohemicals Industrial organic chemicals Drugs and medicines Soap and related products Paints and allied products Gum and wood chemicals Fertilizer Vegetable and animal oils Miso. chemicals Total chemicals and allied products

1939

1947

Per Cent_ of Total 1939

cE”ntpe, %

1947

234

455

12.9

8.5

-4.4

477 261

1551 749

26.2 14.3

28.9 13.9

1-2.7 -0.4

201

506

11.0

11.3

+O. 3

226

573

12.4

10.7

-1.7

21 57

63 187

1.2 3.1

1.2 3.5

$0.0 +0.4

9.0

f4.2 -1.1

87

482

4.8

256 -

699 -

14.1 __

13.0 -

1819

5365

100.0

100 I O

Table XIII. Income of Chemical and Allied Products Manufactures by Type of Business Organization (Source: National Income, Department of Commerce)

Year 1929 1939 1947 1949

Millions of Dollars Income of UnincorCorporate porrted profits Enterprises after taxes 27 14 48 34

376 416 1117 1019

Total income

Income of Unincorporated Enterprises. % of Total

403 430 1165 1053

6.7 3.3 4.3 3.2

In December 1949, the Secretary of Commerce submitted to Congress a list of 452 industrial divisions detailing the concentration of the output by the leading companies. Four companies produce over 92% of all botanical products. This is not BO extreme as it sounds, since only 13 companies are listed in the industrial division. A far higher concentration is listed under soap and glycerol, where the f i s t four companies out of 223 control nearly 80% of the output. This means that the four companies produced $858 million of the output, while the remaining 219 companies sold only 1228 million of soaps and glycerol. Since 1935, the concentration in this division has increased from 73.5’% to 79.0. Similarly, gases, synthetic fibers, printing inks, glue and gelatin, cottonseed oils, and grease and tallow increased their concentration ratios. On the other hand, the carbon black division, linseed oil, essential oils, and toilet preparations relaxed their ratios. The predominance of a few companies in so many fields can be accounted for by the high cost of plant facilities, the availability of raw materials, and the effect of patents and exclusive processes. The first cause is prevalent in the industry. Plant capitalixation usually is extensive in chemicals. Many chemical products -for example, synthetic fibers and synthetic rubber-require large capital expenditures for their plant and equipment. The required capital can be secured much more easily by a large company than by the small enterpriser. The small company cannot risk the needed capital as readily as can the large corporation. The second reason, availability of raw materials, plays a predominant role in that section of the industry which operates with medium-cost plants. Botanical products and wood distillation, for instance, are dependent upon the availability of resowces. The importance of patents, the third reason, however, is diminishing. Many large companies lease their patents and knowhow to other manufacturers after an initial period of exclusive production. The trend during the past decade toward greater congentration

Vol. 43, No. 8

in some sections of the chemical industry, however, was not csclusive t o this industry. This phenomenon has occurred in other industries and will continue. During the postwar period, marly marginal textile and leather goods producers, to cite only two examples, have closed their doors. The trend, therefore, is not unique but seems to be a contemporary pattern in the American economy. It must be emphasized, however, that throughout American industries thousands of small enterprises appear and prosper as the result of the work of large companies; thus they benefit the entire economy of the nation. I n the final analysis, this review has established statistically four trends and characteristics of the American chemical industry. Although obvious to even a casual observer of the industry, their entent has been determined. The four points are:

1. There has been a decided shift into the Southwest and West by the industry. The industrial Northeast of the country has relinquished some of its share of the total chemical production and is continuing to do so. The more recent trend has concentrated on Texas and Louisiana. 2. Industrial organic chemicals and oils have enlarged their share of total chemical sales in the last 10 years, as compared t o industrial inorganic chemicals and paints. 3. The corporate form of business ownership predominates in the industry. These corporations earn more than their numerical proportion of the industry’s income and their income has been more stable t o adverse business conditions than that of unincorporated firms. 4. The leadership of some larger firms is high in many sectors of the industry. Where comparable data have been published for 1935 and 1947, in six divisions the importance of a few firms has increased, while four cxperienced a decline. The trend in many subdivisions will be towards further expansion by the larger firms. BIBLIOGRAPHY (1) Anon.. “The History of the E. I. du Pont de Nemours Powder Company,” p. 35, Kew York, Business America, 1912. (2) Ibid., “Long-Term Growth of Industry,” monthly letter by (3) (4) (5)

(6) (7) (8)

(9) (10)

National City Bank of Kew York, p. 68, June 1949. Aries, R.S.,Chem. Eng. News, 27, 3782 ( 1 9 4 9 ) . Aries, R. S.,and Copulsky, W.,,Chem. Eng.,57, 116 ( 1 9 5 0 ) . Aries, R. S., and Copulsky, W.,‘Businessand Sales Forecasting in the Chemical Process Industries,” p. 78-91, New York, Chenionomics, Inc., 1950. Aries, R . S., and Copulsky, W.,“The Marketing of Chemical Products,” p. 5 5 , Iiew York, Chemonomics, Inc., 1950. Aries, R. S., and Spence, J. W., IND. ENG.CHEM.,42, 936 ( 1 9 5 0 ) . Bureau of the Census, “Census of Manufactures,” 1939 and 1947, Vols. I and 11,Washington, D. C., Government Printing Office, 1941 and 1948. Bureau of the Census, Compendium of the Census of 1870, Washington, D. C., Government Printing Office, 1871. Bureau of Labor Statistics, “Handbook on Labor Statistics, 1 9 4 7 , ” Washington, D. C., Government Printing Office, 1947.

( 1 1 ) Conference Board, “The Economic Almanac for 1 9 5 0 , ” p. 336-

4 7 , New York, National Industrid Conference Board, 1950. Department of Commerce, “National Income Supplement to the Survey of Current Business,” Washington, D. C., Government Printing Office, July 1947. (1 3) Department of Commerce, “Statistical Supplement to the Survey of Current Business,” Washington, D. C., Government Printing Office, 1942, 1947, 1949, and 1950. ( 1 4 ) Department of Labor, “Monthly Labor Rcview,” Washington, D. C., Government Printing Office, monthly issues, 1948-1950. ( 1 5 ) Dutton, W. S.,“Du Pont: 140 Years,” p. 35--40, New York, Scribner and Sons, 1942. (16) Haynes, Williams, “bmerican Chemical Industry,” 1’01. 111, pp. 209-352, New York, Van Nostrand Co., 1946. ( 1 7 ) Haynes, Williams, and Gordy, E. L., “Chemical Industry’s Contribution to the Nation,” supplement to Chem. Inds., pp. 5 , 12, 19, 26, 5 9 (May 1935). ( 1 8 ) Leong, Y. S., J . Am.. Stat. Assn., 45, 15 ( 1 9 5 0 ) . (19) Morgan, D. P., IKD.EKG.CHEM..3 0 , 934 ( 1 9 3 8 ) . (12)

RECEIVEDJuly 6, 1951.

Growth of the American Chemical Industry - Industrial & Engineering

Recommend Documents