Opportunism and long-term contracting: Transactions in broken hill zinc concentrates in the 1930s

Business History

Volumn 42, Issue 3, 2000, Pages 71-88

  Burn, Peter ^a  

^a UNIVERSITY OF QUEENSLAND   (Australia)

Author keywords

[No Author keywords available]

Indexed keywords

HISTORICAL GEOGRAPHY; MINING INDUSTRY; TWENTIETH CENTURY; ZINC;

AUSTRALIA;

EID: 0033869730     PISSN: 00076791     EISSN: None     Source Type: Journal    
DOI: 10.1080/00076790000000267     Document Type: Article

References (44)

1. B.R. Lyons, 'Empirical Relevance of Efficient Contract Theory: Inter-Firm Contracts', Oxford Review of Economic Policy, Vol.12 (1996), pp.27-52; and H.A. Shelanski and P.G. Klein, 'Empirical Research in Transaction Cost Economics: A Review and Assessment', Journal of Law, Economics and Organization, Vol.11 (1995), pp.335-61.
2. B.R. Lyons, 'Empirical Relevance of Efficient Contract Theory: Inter-Firm Contracts', Oxford Review of Economic Policy, Vol.12 (1996), pp.27-52; and H.A. Shelanski and P.G. Klein, 'Empirical Research in Transaction Cost Economics: A Review and Assessment', Journal of Law, Economics and Organization, Vol.11 (1995), pp.335-61.
3. O.E. Williamson, 'Economic Organization: The Case for Candor', Academy of Management Review, Vol.21 (1996), p.55.
4. S. Ghoshal and P. Moran, 'Bad for Practice: A Critique of Transaction Cost Theory', Academy of Management Review, Vol.21 (1996), pp.13-47; and P. Moran and S. Ghoshal, 'Theories of Economic Organisation: The Case for Realism and Balance', Academy of Management Review, Vol.21 (1996), pp.58-72.
5. S. Ghoshal and P. Moran, 'Bad for Practice: A Critique of Transaction Cost Theory', Academy of Management Review, Vol.21 (1996), pp.13-47; and P. Moran and S. Ghoshal, 'Theories of Economic Organisation: The Case for Realism and Balance', Academy of Management Review, Vol.21 (1996), pp.58-72.
6. B. Klein, R.G. Crawford and A.A. Alchian, 'Vertical Integration, Appropriable Rents and the Competitive Contracting Process', Journal of Law and Economy, Vol.21 (1978), pp.297-326; O.E. Williamson, The Economic Institutions of Capitalism (New York, 1985), pp.44-50.
7. B. Klein, R.G. Crawford and A.A. Alchian, 'Vertical Integration, Appropriable Rents and the Competitive Contracting Process', Journal of Law and Economy, Vol.21 (1978), pp.297-326; O.E. Williamson, The Economic Institutions of Capitalism (New York, 1985), pp.44-50.
8. Shelanski and Klein, 'Empirical Research', pp.336-8.
9. O.E. Williamson, 'The Economics of Governance: Framework and Implications', in R.N. Langlois (ed.), Economics as a Process (New York, 1986), pp.173-5.
10. O.E. Williamson, 'Transaction-Cost Economics: The Governance of Contractual Relations', Journal of Law and Economics, Vol.22 (1979), p.241.
11. Ibid., pp.189-92.
12. Ghoshal and Moran, 'Bad for Practice', pp.13-47.
13. Williamson, 'Economic Organization', p.49.
14. This section summarises the key elements of a more detailed presentation in Burn, thesis, chapter 2.
15. There minor exceptions to this as Sulphide Corporation treated its own concentrates in Britain and BHP operated a small zinc plant at Port Pirie in South Australia.
16. The most extreme example of the ties of kinship and intermarriage is provided by Clive Baillieu, who somehow managed to be W.L. Baillieu's son; the son-in-law of Lionel Robinson's stockbroking partner William Clark; L.B. Robinson's brother-in-law; and an uncle to W.S. Robinson's grandchildren.
17. Derived from C.J. Schmitz, World Non-Ferrous Metal Production and Prices, 1700-1976 (New York, 1979), pp.185, 188.
18. G. Blainey, The Rush that Never Ended (Melbourne 1978), p.280.
19. Derived from Schmitz, World Non-Ferrous Metal, pp.189, 194.
20. W.S. Robinson, If I Remember Rightly: The Memoirs of W.S. Robinson, 1867-1963 (Melbourne 1967), pp.39-40.
21. P. Richardson, 'The Origins and Development of the Collins House Group, 1915-1951', Australian Economic History Review, Vol.27 (1987), p.18.
22. Draft Heads of Agreement, 24 April 1930, File: Sectary's File No.138 (1) Zinc Concentrate Contract, Box: Secretary's Files No.132-8 (2), North Broken Hill Collection (NBHC), University of Melbourne Archives (UMA).
23. An indication of the size of the investment in smelting facilities can be taken from the fact thai in 1920 W.L. Baillieu attempted to refinance EZ through the largest float attempted up to that time in Australia (J.R. Poynter, 'William Lawrence Baillieu', in B. Nairn and G. Serle (eds.), Australian Dictionary of Biography, Vol.7 (Melbourne, 1979), p.142). At the time of the formation of the ISC, its smelting assets were valued at over £1.9 million. Chairman's Address to NSC Annual General Meeting, 1929, 1/255/100, Fraser Papers, Broken Hill Associated Smelters Collection (BHASC), UMA.
24. Both EZ and the ISC were able to handle zinc concentrates from other sources. In the case of EZ, however, the site specificity implied by the otherwise remote Tasmanian location compounded the considerable specificity from other sources. The ISC, whose smelting facility was marginal at best, operated at a considerably higher level of efficiency when its mix of concentrates was dominated by the Broken Hill fine sulphides. The mining companies were less reliant on the ISC and EZ than the smelters were reliant on them. Broken Hill zinc concentrates had flowed to smelters throughout Europe before 1914 and from the mid-1920s were marketed widely by the British Metal Corporation. If EZ or the ISC had failed or had turned away from the July 1930 contract, it is very likely thai Broken Hill concentrates would simply have displaced concentrates from the more marginal mines supplying the European zinc industry. Of course, supplying the European custom smelters would have been less attractive to the mining companies than a smoothly functioning July 1930 arrangement but it is worth remembering that the CHG mining companies had grown very rich on the basis of this sort of business prior to the First World War.
25. Draft Heads of Agreement, 24 April 1930, File: Secretary's File No.138 (1) Zinc Concentrate Contract, Box: Secretary's Files No.132-8 (2), NBHC, UMA.
26. This allocation policy may have reflected the greater specificity of EZ's operations to transactions in Broken Hill concentrates.
27. ZC Memorandum, 24 July 1944, 111/12, W.S. Robinson Collection (WSRC), UMA.
28. The July 1930 contract contained a variable pricing arrangement that effectively split the total revenue from the sale of metal extracted from concentrates between the suppliers of concentrates and the smelters that processed the concentrates to the refined metal stage. Under the variable price arrangement the smelters received a more or less fixed 'returning charge' and the mining companies received whatever was left from the proceeds of metal sales.
29. Draft Heads of Agreement, 24 April 1930, File: Secretary's File No.138 (1) Zinc Concentrate Contract, Box: Secretary's Files No.132-8 (2), NBHC, UMA.
30. Ibid.
31. Williamson, 'Transaction-Cost Economics', p.241.
32. Ibid., p.242.
33. At EZ's Risdon plant in the mid-1930s per unit costs at full capacity were about 10 per cent lower than they were at 72 per cent capacity. C. Fraser to W.S. Robinson, 9 July 1931, 1/55/1/2/2, Fraser Papers, BHASC, UMA.
34. EZ Annual Report and Statement of Accounts, Year to 30 June 1933, 1/255/58, Fraser Papers, BHASC, UMA.
35. Under the terms of the Ottawa Agreement, Empire producers agreed to make their metal available at world prices. Regulation of the incidence of the tariffs, however, proved difficult when metal was traded outside the London Metal Exchange. The premium grade zinc EZ sold was generally traded privately. This situation gave rise to considerable disquiet on the part of British fabricators, who lobbied for a rethink of the protective measures.
36. BHS to C. Fraser, 31 March 1936, File: Zinc Contract Jan. 1935-June 1937, Box: Zinc Jan. 1935-June 1938, North Broken Hill Collection (NBHC), UMA.
37. It certainly appears that the July 1930 contract helped to prop up the ISC smelting operation during the 1930s. To what extent this was actually the case is difficult to assess. In particular, it is not clear whether alternative suppliers (including the ISC's own Burma Corporation mine) would have offered the ISC similar price concessions to keep it afloat in these years).
38. The new tariff was 12 shillings 6 pence (£0.625) a ton, while the ad valorem duty had been worth about 28 shillings 4 pence (£1.42) a ton at ruling prices.
39. Notes on Conference of Producers and Treaters, 6-7 Aug. 1936, 23/3 NBHC, UMA.
40. Notes of Conference, 23 April 1937, File: 23/4, Box: Zinc Jan. 1935-June 1938, NBHC, UMA.
41. The new form of protection was very complex combining a much higher basic tariff, a lower level applying to Empire metal and a system of rebates payable by the metal producers for exported manufactured goods in which zinc was a significant component. The Empire producers also agreed not to sell metal in Britain at prices higher than they charged in their domestic markets. The ISC agreed to limit its output to 60, 000 tons a year.
42. The move towards full integration was a gradual process involving the consolidation of ZC and the ISC and a drift in the direction of vertical integration by NBH and EZ. The culmination of this process in 1988 was achieved with the formation of Pasminco in which NBH and CRA combined their respective interests in the operations based on Broken Hill lead and zinc ores.
43. E.J. Cocks and B. Walters, A History of the Zinc Smelting Industry in Britain (London, 1968), p.202, and Schmitz, World Non-Ferrous Metal, pp.249, 253.
44. E.J. Cocks and B. Walters, A History of the Zinc Smelting Industry in Britain (London, 1968), p.202, and Schmitz, World Non-Ferrous Metal, pp.249, 253.