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“Better living through chemistry”: the chemical industry in the world economy

Published online by Cambridge University Press:  22 May 2009

Thomas L. Ilgen
Thomas L. Ilgen
Affiliation:
Assistant Professor of Politics at Brandeis University, Waltham, Massachusetts.
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Abstract

The chemical industry has produced a pattern of economic development and political change differing from that identified by research on the textile, steel, and automobile sectors. Its capacity for innovation and self-renewal renders inappropriate much of the logic of sectoral decline derived from theories of the product cycle. The postwar record of state-industry relations in France, Britain, West Germany, and the United States suggests that "strong" states can be helpful in bolstering the performance of the chemical industry in an expanding global economy but such states often frustrate the process of adaptation and adjustment during periods of recession. "Weak" states are particularly well suited to strong performance by the industry in both the good times and the bad.

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Articles
Information
International Organization , Volume 37 , Issue 4 , Autumn 1983 , pp. 647 - 680
Copyright
Copyright © The IO Foundation 1983

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References

I wish to thank James Kurth, Christopher Allen, Peter Katzenstein, the members of the Harvard International Political Economy Seminar, and the reviewers of this journal for helpful comments on earlier drafts of this article.

1. This argument has been developed by Kurth, James R., “The Political Consequences of the Product Cycle: Industrial History and Political Outcomes,” International Organization 33 (Winter 1979), pp. 1–34CrossRefGoogle Scholar. The logic of the product cycle was explained by Vernon, Raymond, Sovereignty at Bay (New York: Basic Books, 1971)Google Scholar. For an economic analysis of petrochemical products and their fidelity to product-cycle dynamics, see the work of Stobaugh, Robert B. Jr; for example, “The Product Life Cycle and the Development of the World Petrochemical Industry,” paper presented at the Fourth Annual Economics of Petroleum Distribution Conference, Northwestern University, 9 04 1969Google Scholar, and “The Product Life Cycle, United States Exports, and International Investment” (Ph.D. diss., Harvard University, 1968)Google Scholar.

2. See Katzenstein, Peter J., ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrialized States (Madison: University of Wisconsin Press, 1978)Google Scholar.

3. See Kurth, “Political Consequences,” and Vernon, Sovereignty at Bay.

4. Kurth, , “Political Consequences,” p. 33Google Scholar.

5. In the literature on industrial history, one finds considerable attention paid to textiles and steel and, generally, only a passing reference to chemicals. See, for example, Landes, David, The Unbound Prometheus: Technological Change, 1750 to the Present (Cambridge: Cambridge University Press, 1969)Google Scholar.

6. As J. D. Bernal put it, the chemical industry is “the central industry of modern civilization, tending, because of its control over materials, to spread into and ultimately incorporate older industries such as mining, smelting, oil-refining, textiles, rubber, and even, through its concern with fertilizers and food processing, agriculture itself.” The passage is from Bernal's Science in History and is quoted in Sherwood, Martin, “A Century in the Chemicals Industry,” New Scientist, 16 04 1981, pp. 156–57Google Scholar.

7. It is estimated that over 2 million chemical compounds exist, of which 55,000 are made in or imported into the United States. Some expect that 1,000 new chemicals per annum will be introduced by the mid-1980s.

8. The diversity of activities has always made definition of the chemical industry difficult. Some have referred to it as the “chemical and allied products industry” and, while definitions vary, the most important parts of the modern industry include basic chemicals (inorganic and organic), Pharmaceuticals, synthetic fibers, plastics, agrochemicals, synthetic rubber, paints and resins, and other specialty chemicals.

9. Kahn, Alfred E., “The Chemicals Industry,” in Adams, Walter, ed., The Structure of American Industry (New York: Macmillan, 1950)Google Scholar.

10. Concentration is not always of the usual sort. With the contemporary diversity of product lines described above, one finds high percentages of most products manufactured and marketed by small numbers of firms. However, the combination of leading producers varies widely from product to product. See Haber, L. F., The Chemical Industry in the Nineteenth Century (London: Oxford University Press, 1958), chap. 11Google Scholar, and Haber, , The Chemical Industry, 1900–1930 (London: Oxford University Press, 1971), chaps. 8–10Google Scholar.

11. In the United States, firms with sales exceeding $5 million account for 96% of total sales, 95% of employment, but less than 20% of all firms. Another measure of concentration is the average number of employees per firm. In 1978, the average was 82 in France, 285 in Germany, 76 in Japan, 154 in Britain, and 72 in the United States. In all of these countries, 80% of chemical firms had fewer than 100 employees.

12. This figure has been difficult to verify but is taken from the number of premanufacturing notifications submitted to the Environmental Protection Agency for regulatory purposes.

13. Haber, Chemical Industry in 19th Century, chap. 5.

14. This view was repeatedly advanced by spokesmen of large companies interviewed by the author.

15. The data supporting this conclusion have been compiled and presented by Eichers, Theodore, “The Pesticide Farm Industry,” U.S. Department of Agriculture Economic Report no. 461 (09 1980)Google Scholar.

16. Stobaugh, “The Product Life Cycle.”

17. For a good review of the status of this sector of the industry, see the OECD, The Petrochemical Industry (Paris: OECD, 1979)Google Scholar. Between 1960 and 1973, the rate of growth for total industrial production in OECD countries was 5.6% per annum; for total chemical production, 9% per annum; and for petrochemicals, it varied from 10% to 17% per annum.

18. Only with the rise in oil prices and slack demand at home have Japanese chemical firms begun to adopt a strategy of export and foreign direct investment.

19. For an excellent analysis of petrochemical prospects in the Middle East, see Turner, Louis and Bedore, James, Middle East Industrialization (London: Saxon House, 1979)Google Scholar.

20. The most dramatic investment move in the late 1970s was made by the German firm Hoechst, which funded $50 million of long-term research at the Massachusetts General Hospital in Boston.

21. For a readable account of this association, see Borkin, Joseph, The Crime and Punishment of I. G. Farben (New York: Free Press, 1978)Google Scholar.

22. Haber traces the role of labor in the late 19th and early 20th centuries and finds it to be an aggressive and disruptive force in some countries, particularly Germany: Haber, Chemical Industry, 1900–1930, chap. 13.

23. For a thorough treatment of industrial relations in German chemicals, see Allen, Christopher, “Structural and Technological Change in West Germany: Employer and Trade Union Responses in the Chemical and Automobile Sectors” (Ph.D. diss., Brandeis University, 1983).Google Scholar

24. See Adam, Lucie, “Rhône-Poulenc and the Vise of French Politics,” Fortune, 13 03 1978, pp. 115–16Google Scholar, and Kosman, William, “Tough Medicine for French CPI,” Chemical Week, 20 04 1977, pp. 54–62Google Scholar.

25. See Brickman, Ronald, Jasanoff, Sheila, and Ilgen, Thomas, Chemical Regulation and Cancer: A Cross-National Study of Policy and Politics (Springfield, Va.: National Technical Information Service, 1983), chaps. 9 and 10Google Scholar.

26. OECD, Trends in Industrial Research and Development, 1967–1975 (Paris: OECD, 1979)Google Scholar.

27. Early reports on the Iranian project indicated that the Japanese were resigned to a total loss. More recent rumors suggest a strong Iranian interest in completing the project and a growing Japanese willingness to cooperate.

28. Katzenstein, Between Power and Plenty.

29. Gerschenkron, Alexander, Economic Backwardness in Historical Perspective (Cambridge: Harvard University Press, Belknap Press, 1962)Google Scholar.

30. See especially Peter J. Katzenstein, “Conclusion,” in Katzenstein, Between Power and Plenty.

31. The other logical case would be Japan but the Japanese chemical industry is almost entirely a product of post-World War II efforts. The history of state involvement is therefore short and the existing industry remains highly protected, serving the domestic market. However, one would expect some of the lessons from the French case to be applicable to Japan. For a comprehensive industrial history of French chemicals, see Smith, John G., The Origins and Early Development of the Heavy Chemical Industry in France (New York: Oxford University Press, Clarendon Press, 1979)Google Scholar. For a brief postwar history, see Achille, Jean-Claude, “A Survey of the French Chemical Industry,” Chemistry and Industry, 18 11 1978, pp. 855–60Google Scholar, and Marthey, Louis, L'Industrie chimique en France (Paris: La Documentation Francaise, 1978)Google Scholar. See also Hohenberg, Paul, Chemicals in Western Europe, 1850–1914 (Chicago: Rand McNally, 1967)Google Scholar.

32. Achille, , “Survey of French Chemical,” p. 858Google Scholar. Hohenberg, Chemicals, also argues that the French state was a significant obstacle to the development of the French chemical industry in its early years.

33. Achille, , “Survey of French Chemical,” p. 858Google Scholar.

34. For a discussion of rationalization, see “France '78,” European Chemical News, 8 December 1974, pp. 3–46; “Chemicals,” Financial Times, 27 June 1977; and “Chemicals,” Financial Times, 4 December 1979.

35. See “More Mergers for French CPI,” Chemical Week, 13 August 1975, p. 37.

36. See “CDF Chimie and PCUK Rationalize Interlocking Business,” European Chemical News, 19 May 1978, p. 4; “French Companies Reach Agreement on Common Interest,” Chemical Marketing Reporter, 11 November 1974, p. 7; and “Rhône-Poulenc Bids for Gardinier Holdings,” Chemical Week, 21 December 1977, p. 26.

37. Adam, “Rhône-Poulenc and the Vise.”

38. Kislin, A. H., “French CPI Growth Recipe Takes on Mideast Flavor,” Chemical Week, 30 10 1974, pp. 21–24Google Scholar.

39. “Hunting for a Petrosuitor,” Economist, 16 June 1979, p. 88.

40. The history of the British chemical industry is extensive. See, for example, Clow, Archibald and Clow, Nan L., The Chemical Revolution: A Contribution to Social Technology (London: Batchworth, 1952)Google Scholar; Hardie, D. W. F., A History of the Modern British Chemical Industry (Oxford: Pergamon Press, 1966)Google Scholar; Williams, T., The Chemical Industry (London: Penguin, 1953)Google Scholar; and Wolff, Klaus H., “Textile Bleaching and Birth of the Chemical Industry,” Business History Review 48 (Summer 1974), pp. 143–63CrossRefGoogle Scholar. Haber also treats Britain extensively in his two volumes. The best history of ICI is Reader, William J., Imperial Chemical Industries; A History (London: Oxford University Press, 1970)Google Scholar.

41. Investment between 1972 and 1976 totaled £2.1 billion, 14% of all U.K. investment in manufacturing. In 1976, Britain recorded a $1 billion trade surplus in chemicals, which was 26.5% of the entire U.K. trade surplus in goods. Growth in production between 1970 and 1976 was nine times the U.K. average and highest of any manufacturing sector.

42. See Haber, , Chemical Industry, 1900–1930, pp. 240–46Google Scholar.

43. For good accounts of the merger process, see Reader, ICI, chap. 19, and Haber, , Chemical Industry, 1900–1930, pp. 291–302Google Scholar.

44. For the chemical industry's reaction, see Chemical Industry Association, The Chemical Industry and the Industry Bill (London, 03 1975)Google Scholar.

45. For some, such as Secretary of Industry Eric Varley, chemicals were seen as the very heart of the industrial strategy, particularly because of the opportunities offered by North Sea oil. See Hill, Peter, “Chemical Industry: The Regeneration Game,” Times, 26 01 1978Google Scholar.

46. National Economic Development Council (NEDC), Petrochemicals Sector Working Party, “Progress Report 1980” (London, 1980), p. 1Google Scholar.

47. Ibid.

48. The difficulties of projecting ethylene demand are many. See, for example, “Chemicals Investment: Wheels within Cycles,” Economist, 19 March 1977, pp. 84–85.

49. See “CIA Slams Unrealistic Government Chemical Growth Targets,” EuropeanChemical News, 20–27 August 1976, p. 4.

50. National Economic Development Organization, Consideration of the McKinsey Report on Plastics Materials by the Petrochemicals Sector Working Party (London, 11 1978)Google Scholar.

51. NEDC, “Progress Report 1980.”

52. Ibid., p. 7.

53. Caudle, Peter, “U.K. Chemicals-Strategic Planning or Industrial Strategy,” Long Range Planning 10 (12 1977), pp. 31–39CrossRefGoogle Scholar.

54. Ibid., p. 38.

55. Haber's account of the development of the German industry in the 19th century is excellent: see Chemical Industry in 19th Century, especially pp. 128–36. For a good discussion mixing historical developments and the contemporary context see Peterson, Sandra, “Structural Continuity and Industrial Strategies: The Case of the German Chemical Industry” (Undergraduate thesis, Cornell University, 1980)Google Scholar.

56. See Borkin, Crime of I.G. Farben.

57. The role of chemical labor is treated by Allen, “Structural and Technological Change,” and by Markovits, Andrei S. and Allen, Christopher S., “Structural Change and Union Response in the Chemical Industry,” paper presented at the 1980 annual meeting of the New York State Political Science Association, Syracuse, N.Y., 11 04 1980Google Scholar.

58. For a good review of recent German chemical fortunes see “Germany '78,” European Chemical News, March 1978, pp. 3–38.

59. A Commerzbank study calculated that in the late 1970s the German employer paid $65 in social security and fringe benefits for every $100 in wages, compared to $26 in benefits paid in the United States.

60. The legitimacy of informal market-sharing was confirmed time and again in interviews with both government and industry officials.

61. Interviews with IG-Chemie representatives in Bonn, June 1980.

62. See Brickman, Jasanoff, and Ilgen, Chemical Regulation and Cancer, chap. 12.

63. Interviews at CEFIC, Brussels, January 1983.

64. The most extensive American industrial history is the six-volume history to 1939 of Haynes, William, American Chemical Industry (New York: Van Nostrand, 1954)Google Scholar. For a concise history, see Henahan, John F., “200 Years of American Chemicals,” Chemical Week, 18 02 1976, pp. 25–60Google Scholar. There also exist a number of good company histories of Du Pont, Dow, and Monsanto.

65. Henahan, “200 Years.”

66. The best-known protectionist measure was the so-called American Selling Price, a tariff imposed on organic dyes and intermediates. The tariff was determined not by the price set by foreign producers but rather by that charged by American firms. While the need for protection rapidly declined as the American industry grew and prospered, the ASP gained a political following at home and survived into the post-World War II liberal trading era. It became a source of particular irritation to the Europeans in the 1950s and 1960s and not until the Tokyo Round of trade negotiations did Washington agree to its elimination.

67. Jones, W. Bruce, “The Chemical Industries or Here Come the Oil Companies Again,” Financial Analysts Journal 32 (1976), pp. 21–37CrossRefGoogle Scholar.

68. For a discussion of the impact of health and environmental regulation on American industry, see Brickman, Jasanoff, and Ilgen, Chemical Regulation and Cancer, chap. 9.

69. “Chemicals '78,” Chemical Marketing Reporter, 2 January 1978, pp. 27–46.