From rags to birches

Surprising as it may seem, paper is a relatively recent phenomenon, at least in terms of its diffusion and use in Europe. Paper production in Britain did not really start until the end of the 17th century, despite having been known about for centuries before that. For such a recent industry it has been the subject of very rapid technological change. Part of the drive to improve efficiency came from the fact that the raw material historically dominated costs of production - reducing costs therefore meant searching for cheaper sources of fibre, although improvements in paper-making machinery were also sought.

Gary Bryan Magee documents these changes for the Victorian and Edwardian era in a most impressive addition to the new Cambridge Studies in Modern Economic History. Magee combines modern economic analysis with quantitative and qualitative assessment as he traces the history of the industry over this period. In Britain it is the history of an industry that fails to adapt to competition, perhaps because of entrepreneurial failures, perhaps because the relentless search for cheaper raw materials ended up with wood pulp, thus favouring those countries better endowed than Britain with forest resources. The use of wood pulp commenced around 1870, had an equal market share with esparto and rag by the 1890s and completed its dominance of the British market by 1915. In the meantime the United States industry was making major strides and overtook Britain in technological sophistication. Magee identifies the civil war as a major factor explaining this superiority: the war produced a shortage of rag which necessitated the search for solutions to the problems of using wood pulp. Labour productivity in the US was twice that of Britain by the end of the 19th century. Other factors were at work to undermine British industry: a free trade policy not shared by others and which therefore resulted in import penetration and export difficulties, high labour costs in the US, which stimulated capital intensive growth, and entrepreneurial failure, the last being perhaps the least convincingly explained by Magee. Magee's work is an important contribution to the modern perspective on economic history in which economic theory combines with maximum feasible quantification. It is beautifully written. Few university doctorates make elegant reading; this one does and it is to be very highly recommended.

Maureen Smith continues the story of rapid change in the paper industry but her perspective is current and, in this case, the driving forces for change are environmental. Few industries are so vulnerable to environmental arguments as paper. Very few of the forests used to manufacture paper can be described as "sustainable" if in that definition is included some qualitative concern for the biological diversity embodied in forests. Thus, those forests that are managed with sustainable rotations - replanting equalling or exceeding the harvest - are also those that tend to be criticised for being uniform, homogeneous and largely devoid of ecological variety. On the other hand, tropical hardwoods are rarely used for paper manufacture so, at the moment, the industry is not implicated in the debate about tropical deforestation. But paper making is polluting and only modern technology can reduce effluents. It is also energy intensive, so that concerns ranging from local air pollution to global warming through carbon dioxide emissions, all point a critical finger at paper making. But there are technological solutions, for example, closed system water recycling, while the use of recycled fibre continues the fascinating story of changes in the source material set out by Magee in his book.

But these "technical fixes" are not good enough for Smith. She wants more or less fundamental restructuring of the industry to meet the objectives of sustainable economic development. She openly admits to not being able to define sustainable development precisely, which is unfortunate since studies in European environmental economics work would have helped her not just to define it but to establish the conditions for its achievement. While Smith is right to point beyond the industry to the wider context of, for example, the high levels of paper consumption in the US, her concern to gaze too far tends to reduce her conclusions to a combination of the practical and wishful thinking. She wants to revise established economic principles "from an ecological perspective". In so far as this means pricing the environmental services used by the paper industry for free (or for nearly free), this is a correct prescription across the board and not just for paper. That is a message perhaps more familiar in policy terms in Europe than it is in the US, but there is a groundswell of movement on issues like environmental taxation and charging for the use of the environment. Smith prefers "environmentally grounded sectoral analysis". This suggests a focus on supplying local not international markets (there are shades of old-fashioned protectionist arguments for self-sufficiency here), and on consumers "buying local" rather than globally. It suggests, if possible, new economic indicators so that success is not measured by profit and output but by those indicators modified for environmental impact. Here Smith's expectations about changing measures of things are too high. We do already have experience of "green" output measures and the lesson is that unless the environmental impacts are "internalised" by making environmental damages a real cost to the company, eg through taxes or liability measures, then little will happen. Changing the way we account for things will not, of itself, change minds and hearts. Where information does matter is when company environmental performance is quantitatively indicated to the local community and to pressure groups. Smith rightly highlights the Toxic Releases Inventory in the US: it has had a significant effect in getting companies to change their behaviour for fear of alienating the local community or activists.

As a portrait of the modern US paper-making industry Smith's book is a reasonable one and, in many respects, it has a similar theme to Magee's: the role that technological and other changes are having on the redirection of an important industry. But whereas Magee acts out the role of objective historian, Smith has an advocate's role as an interested observer concerned to change things not just here and there, but in terms of the whole system of values that pervades modern society. To be fair, whereas most commentators sharing these concerns resort to vague generalisations, Smith has some practical suggestions to make. The problem is that some of them repeat fashionable but misguided ideas about "localising" industry and economic activity - making it responsive to and dependent on the near community rather than the arena of international trade. But there really are no local communities any more: information technology has seen to that. It seems better therefore to do the best we can to tame globalisation rather than wastefully trying to turn back the tide of events.

David Pearce is professor of environmental economics, University College London.