Profiting the Crown: Canada’s Polymer Corporation, 1942-1990

Published by EH.NET (February 2007)

Matthew J. Bellamy, Profiting the Crown: Canada’s Polymer Corporation, 1942-1990. Kingston and Montreal: McGill-Queen’s University Press, 2005. xxiv + 304 pp. $65 (cloth), ISBN: 0-7735-2815-6; $30 (paper), ISBN: 0-7735-3201-3

Reviewed for EH.NET by Heather Nelson, Department of History, McMaster University.

Canadian historians have long been fascinated by the crown corporation, with failures featuring prominently in the historiography. This led Matthew Bellamy, a lecturer at Carleton University in Ottawa, to ask: can a crown corporation ever overcome its initial political purpose and become a successful business venture? The short answer for Bellamy is yes. _Profiting the Crown_, winner of Canada’s prestigious National Business Book Award in 2006, traces the history of the Canada’s Polymer Corporation from its inception as a Second World War company to its eventual sale to A.G. Bayer in 1990. For Bellamy, previous interpretations of the crown corporation overlooked key instances of successful government involvement in business. The history of the Polymer Corporation, according to Bellamy, demonstrates that government can be involved in business without limiting growth or meddling in the day-to-day operations. He argues that autonomy from government interference allowed the company the flexibility it needed to successfully operate as a profit-oriented corporation. It was only in times of increased government involvement that Polymer appeared to struggle. Poorly timed government decisions throughout the later part of the period ultimately led to its takeover by a foreign corporation.

Bellamy breaks his study down into seven chapters which chronologically track the history of the corporation. He starts his study with a broad overview of the history of synthetic rubber, providing a detailed explanation for its growth and development. One of the problems for Canada as it entered the Second World War was its heavy reliance on international sources of both natural and synthetic rubber. This, he argues, would be the impetus for developing a government-run corporation. The Polymer Corporation emerged as a result of a national, war-time demand for rubber and brought together academics and a variety of industries in Canada. He attributes the ability of the company to compete successfully in the post World War Two period to C.D. Howe, head of the Department of Munitions and Supply, and his quick, pragmatic and well-informed decision making. The Polymer Corporation of the 1940s, however, was not unique. Like many of its war-time companions, the focus was on “quantity over quality.” Bellamy describes Polymer as created for a “public purpose in times of national duress” (p. 55). While this would sustain the corporation through the war, it does not account for its postwar successes.

In the postwar period, the Polymer Corporation was faced with three significant problems. According to Bellamy, it lacked “a natural market for much of its output,” “a corporate strategy for postwar survival,” and an “organizational structure for successful operation in a consumer-oriented economy” (p. 60). Additionally, the company lost its competitive advantage in the domestic market when the government removed its controls on rubber consumption in 1947, which opened the market to competition. C.D. Howe believed the company should “profit or perish.” Bellamy argues the company survived this period of transition by establishing a strong research and development department, in addition to locating and nurturing an international market for synthetic rubber. In spite of some useful innovations, like a synthetic rubber that tolerated cold weather, the company suffered domestically. It would be its capacity to serve European reconstruction efforts and its decision to supply other companies that would provide a useful foundation for the company as it entered the 1950s. He also suggests that the creation of a strong strategy for the company led to relative autonomy from government control. This established, according to Bellamy, the government policy which allowed crown corporations to demonstrate their utility through the bottom line instead of by filling an ongoing public policy need.

Also important was reforming the organizational structure of the company. Starting in 1951, Polymer terminated its association with a number of the operating companies that had allowed for the company’s start during the war. Bellamy suggests that this change allowed Polymer to become “a free-standing public industrial enterprise” (p. 92). More importantly, Polymer’s connection to the government changed. While the government had initially owned the plant and its assets, in 1952 these assets “were transferred to Polymer” in exchange for stock in the company, which equaled the value of the assets (p. 93). This shift was crucial to the ongoing success of the company because the move effectively sheltered the company from future potentially damaging changes in Canada’s political leadership. This was particularly important in an era that saw opposing political parties attacking Howe’s position on crown corporations. Bellamy takes the opportunity to explore changing social, technological, managerial and market changes that contributed to Polymer’s success during the 1950s in chapter four. One of the most interesting elements of this chapter is his examination of Polymer’s role in “repatriating” technology following the end of the Second World War that ultimately contributed to advances in cold rubber. These innovations, which were considered crucial to insuring Polymer’s position in the rubber market, made the company competitive by increasing its share in the automobile market in both North America and Europe. Bellamy argues that Polymer was executing “innovation in pursuit of profit,” unlike many of its American counterparts which were bound by the American government’s research funding agreement to share any innovations. This quest for profit required the company to carefully pursue research that was otherwise overlooked by companies that could not profit from similar innovations.

While Polymer had experienced considerable success during the 1950s, the President and member of the Board of Directors realized that the company had two related problems by the late 1950s. First, Polymer would need to expand if it was going to remain successful and competitive in the global rubber market, prompting the establishment of a European plant. This expansion, however, raised other problems: how could a crown corporation expand into another country and how would it raise the capital necessary to build the European plant? The solution seemed obvious; Polymer needed to become a private corporation. Although Raymond O’Hurley, John Diefenbaker’s Minister of Defence Production, understood the necessity of allowing Polymer to become a private corporation and the Conservative party had been advocates of a level of privatization prior to their electoral victory in 1957, Polymer would remain a public corporation. Bellamy argues that the Conservatives feared the political fallout that would surround the sale of Polymer should the company be acquired by foreign owners or suffer significant layoffs after the sale. These issues were of particular concern because the questions surrounding Polymer came on the heels of the disastrous Avro Arrow decision that saw 15,000 Canadians laid off and a considerable portion of Canada’s R&D brain trust move to the United States. Bellamy suggests that the decision to leave the Polymer Corporation in government hands did not hinder its progress. Over the next decade it managed to remain competitive, in large part because the government ultimately approved the expansion of the company, making Polymer a competitive multinational corporation.

Bellamy views this early period as a golden era in the company’s history. The 1960s and early 1970s were clearly decades of decay. Bellamy suggests that the company’s efforts to keep pace with modern multinationals by diversifying into new, unrelated lines were disastrous. Polymer’s diversification efforts into both housing (Stressed Structures Inc.) and the high tech industry (Com-share) failed spectacularly because Polymer did not carefully research the companies, nor did the board understand the industries the company was attempting to enter. Bellamy argues that the decision to shift the focus to other lines ultimately prevented the growth of the profitable rubber lines and saw promising new R&D advances shelved. Compounding Polymer’s troubles were its association with the Canadian Development Corporation and finally problems with its European subsidiary. In the end, Bellamy views Polymer’s diversification efforts as a failure that drained money away from its core business and set the stage for Polymer’s eventual sale to foreign interests.

The problems faced by Polymer following its failed efforts at diversification needed to be addressed by the early 1980s. The result was a shift away from diversification to research and development and to the sale of its core competency: synthetic rubber. Technological advances and geographic expansion both contributed to Polymer’s success in this period. It was the ongoing problems with the parent corporation, the Canadian Development Corporation, not issues within Polymer itself that ultimately led to the sale of the Nova Corporation following a long bidding war by foreign companies. Although Nova was a Canadian company with interests in oil and gas in the Canadian west, Bob Blair, Nova’s president, had little interest in the rubber side of the Polymer corporation. It was not long before Polymer was again up for sale with the one-time Canadian icon being sold to the German chemical giant A.G. Bayer. The irony of the sale to Bayer is not lost on Bellamy who points out that it was from Bayer that Polymer acquired much of its original synthetic rubber research in the 1940s.

I found this book to be extremely readable and logically organized. Scholars unfamiliar with mid-to-late twentieth century Canadian politics, however, may find parts of Bellamy’s book difficult to follow. Non-Canadianists should not dismiss this book though. It offers an interesting contrast to the American synthetic rubber industry and does provide a solid model for exploring the role of government in corporate decision making. Scholars of Canadian business, politics and technology will enjoy this read but should be aware that parts of the book are bursting with technological detail. At times, the book is as much a study of scientific innovation and the advancement of research and development in Canada as it is about the changing fortunes of a crown corporation.

Although the book does an admirable job balancing the fortunes of Polymer with the changing government interests, at times one wonders if a Liberal government could do any wrong. In stark contrast to the treatment of C.D. Howe and the King and St. Laurent Liberal governments, Diefenbaker’s Conservative government is treated quite critically. Diefenbaker’s government comes across as inexperienced, fumbling and frequently ill-equipped to deal with the problems arising at Polymer. While the company ultimately survived this government’s decision-making, the reader is left to wonder if every failure that follows could be attributed to this period. Interestingly, the careful attention to who is in government that marks the early part of the book disappears by chapter six. This is interesting since many significant decisions surrounding Polymer were made in the 1970s.

Scholars of the crown corporation should find Bellamy’s insights useful. While there is always a temptation to focus on the social and political purpose of the crown corporations, Bellamy suggests that there is more to crown corporations than the original mandate. Although political decisions no doubt affect crown corporations, the ability to function as a profit-seeking enterprise is just as crucial for long-term sustainability. Bellamy is the first to point out that Polymer was unique in Canada. As a result, applying his wider model may be more difficult for those interested in organizations which experienced long-term government control of day-to-day operations. This should not deter those interested in crown corporations and Canadian business from reading this book. _Profiting the Crown_ is a compelling exploration of a much understudied industry in Canada and deserves the platitudes it has received.

Heather Nelson, a sessional lecturer and postdoctoral fellow in the Department of History at McMaster University, is currently working on a study of public and private automobile insurance in Canada.