Urban Renaissance Institute

Lawrence Solomon
The Next City
September 21, 1997

Discussion

IN 1986, CONRAD BLACK WAS DOWN ON HIS LUCK. The Canadian Imperial Bank of Commerce — on whose board he sat — was treating him like some kind of deadbeat by calling in a $40 million loan to Dominion Stores, his foundering grocery store chain; the courts had ordered Hollinger, a Black-owned company, to return some $60 million to Dominion’s pension funds; and rumors swirled of his imminent bankruptcy. Black was still smarting from a 1983 police investigation into his financial affairs and from being rebuffed — due to the controversy that surrounded him — in his 1985 bid to buy into the genteel publishing company, Southam, one of Canada’s most prized newspaper properties.

But Black fought back; restored his financing by selling off assets, including a company jet; savaged opponents who libelled him; and then, soured with his native land, in 1989 he moved to the United Kingdom. But Black did not abandon his dream of establishing a Canadian newspaper empire. He waited until opportunity knocked, as it soon would, letting him return triumphant as a power in Canadian publishing. And selflessly helping him fulfil his desires, as is so often the case with men of substance, was a good woman. That woman is Maude Barlow.

Barlow is the feisty nationalist who chairs the Council of Canadians, the group spearheading the nationalists’ attack on globalization, free trade, and foreign ownership over our cultural industries. More than any other Canadian, Barlow is responsible for the public’s reluctance to allow a foreign newspaper baron like Australia’s Rupert Murdoch or worse, an American newspaper chain, from buying into Canada. More than any other Canadian, she cleared the way for Conrad Black to dominate Canadian newspaper publishing. Black has much to thank her for, but so do thousands of other affluent investors in Hollinger and Southam, the companies in Black’s Canadian publishing empire. While Barlow and other nationalists succeeded in keeping his competitors at bay, the shareholders could relax, knowing that their investments were in good hands.

Barlow helped create Black’s Canadian publishing empire in two ways. Taking foreigners out of the game meant eliminating virtually all potential buyers of Canadian newspapers, making it a buyer’s market for anyone Canadian with capital and newspaper ambitions. Black pounced on these fire sale conditions, scooping up the enterprises as opportunities appeared. As her voice became stronger, so did the independent papers’ despair at realizing fair value for their assets, and so did Black’s grip over Canadian publishing. In the last few years, while the Council of Canadians’ membership exploded to 60,000, Black’s holdings soared with her. Last year, he purchased seven Atlantic Canada papers after bagging all four Saskatchewan dailies. From the small independent Burgoyne Group, he picked up the St. Catharines Standard, the Cobourg Daily Star, and the Port Hope Evening Guide. Black now owns 59 of Canada’s 105 daily papers, plus smaller papers of all descriptions.

But his biggest acquisition by far was Southam — the plum he had long sought. In 1992 and 1993, he made his first big moves, acquiring, in league with Paul Desmarais of Power Group, a major stake in the publisher and its 17 papers at distress prices: “We had bought half a loaf for the price of a quarter of a loaf,” he boasted in his memoirs. In 1996, he purchased Desmarais’s portion, giving him effective control.

But the foreign ownership rules that let Black buy cheap also had another, equally insidious effect: They disempowered struggling papers that otherwise might have prospered. Banks and other financiers knew that the ownership restrictions made Canadian newspapers illiquid and poor credit risks, and jacked up their borrowing rates accordingly. With the financing that the independent newspapers badly needed to modernize beyond their reach, small independent papers threw in the towel. Big ones decided to sell while the selling was good. Big or small, Black greeted them all with open arms.

Barlow helped cheapen Southam and other Canadian newspaper companies, helping to deliver them into Black’s embrace. Barlow has many commendable qualities: She is sincere, articulate, passionate, and well meaning. She is also Black’s dupe.

BLACK IS NO SLOUCH IN THE NEWSPAPER WORLD. He purchased the failing Daily Telegraph in London, perhaps the world’s toughest newspaper market, and, to the surprise of the British establishment, turned the money-losing paper around by cutting dead weight administrators and investing heavily in the best editorial staff that money can buy. He purchased the Chicago Sun-Times, the no. 2 daily in the United States’ third largest market, and quickly boosted its profitability. But mostly, Black’s cunning has come from understanding monopoly markets. Most of his 400-odd papers in the United States have no direct print competitors. None of his Canadian dailies have direct print competition. The man understands the benefit of controlling the show.

Black’s central insight came from recognizing that in monopoly markets, newspapers tend to become complacent. They take on too much overhead, let three people do the work of two, and deliver too little service to their customers. In this uninspired, uncompetitive setting, papers often drift toward unprofitability and even bankruptcy.

Black learned his lesson as an impressionable youth, when at the age of 23 he and two others purchased the Sherbrooke Record for $18,000 and rescued it from bankruptcy. Through other acquisitions of small papers, he soon realized that daily papers could be profitable at a circulation of 4,000, far below the 10,000 that was the industry’s rule of thumb. On this basis, he quietly set about acquiring small papers. A little ad placed in a U.S. trade publication —”Newspapers wanted: Well-respected, growing Canadian daily newspaper with cash seeks to purchase smaller newspapers (5,000-10,000 circulation)”— turned up 34 small town papers. Now Black owns over 100 dailies and another 300 biweeklies and shopping guides in the U.S. But his significance is far more profound.

By halving the circulation needed for profitability, Black has opened up hundreds of new markets for aspiring small town and other niche publishers, who, spurred by his benchmark of 4,000, have been emboldened to invest in new ventures. He has also rewarded existing small town publishers by increasing the value of their assets — the whole publishing world, not just Black, now recognizes the little goldmines that well-run small papers represent. The young journalists working in new start-up operations may not know that they owe their job opportunities to the notorious Conrad Black, but without the small circulation revolution his discovery set in motion, prospects for Canadian publishing — until recently viewed by the investment community with disdain — would have been bleak, with fewer small town, community, ethnic, and other specialty publications serving as training grounds for big city, big circulation papers.

But Black’s shake-up of Canadian publishing has done more than spur the development of small papers. Thanks to Black, quality is also making a comeback in Canada’s moribund big city monopolies, where even Ottawa, the nation’s capital, had become a newspaper backwater. Following the same formula that turned the Daily Telegraph‘s prospects around, he cut overhead at the Ottawa Citizen and stocked the paper with some of the country’s best editorial talent, within a year transforming it into a dynamic paper.

Black’s most bitter foray was into Saskatchewan last year, where, after buying the Saskatoon StarPhoenix and Regina Leader-Post, 170 staffers lost their jobs in a bloodletting known as Black Saturday. His many detractors expressed outrage; others noted that little had changed: Before the takeovers as afterward, Saskatoon and Regina would be one-paper monopoly towns.

Not quite. Six months after Black Saturday, former StarPhoenix employees announced the birth of two new biweeklies, Regina Free Press and Saskatoon Free Press, to meet community needs that the established papers had long ignored.

“That’s the mark of a monopoly,” the upstarts’ new publisher said of the previous status quo. “The papers have been doing what pleased them and not their customers.” One year later, the biweeklies’ prospects are good — the company has expanded to Prince Arthur — another one-daily-paper town in Saskatchewan — and has shown it can attract new money. To the benefit of the province’s readers, Saskatchewan’s once-sleepy newspaper industry is the liveliest it’s been in memory.

BARLOW DEPLORES BLACK’S ASCENT, fearing he will use his papers to spread right-wing propaganda. Tom Kent, chair of the former Royal Commission on Newspapers, shares her concern, saying “he will milk many of his papers to the sacrifice of their quality and spend on some of the more important in order to bend them to his ideology.” But Black is no idealogue where business is concerned. When visiting his new employees after purchasing the Sun-Times in Democratic Chicago, to signal he would not be demanding ideological obeisance, he pointedly wore FDR cuff links. “You can’t use franchises [to promote pet causes] in a serious country without paying a heavy price,” he told Maclean‘s last year. “When Tiny Rowland got hold of [the Observer in London] and used it as a flying carpet for all his vendettas, the circulation steadily declined.”

Business trumps ideology at Black’s Saturday Night, too. Its publisher, Maureen Cavan, serves as the chair of the Canadian Magazine Publishers Association’s political affairs committee, joining Barlow as one of the country’s most powerful lobbyists for protectionism. Pushing the same hot nationalist buttons as Barlow, Cavan is in the thick of government strategizing to devise direct or indirect handouts, legislation, regulation — anything — that will pass the smell-tests set up by the World Trade Organization and keep foreigners out of Conrad Black’s Canada. Cavan’s predecessor at Saturday Night, Jeffrey Shearer, held the same lobbying post with the magazine association, and served Black with distinction as a Canadian cultural protectionist par excellence.

This fall, Barlow will be releasing a book about Conrad Black. It will deplore Black’s takeover of Canadian publishing, decry the fact that we Canadians won’t be able to speak to ourselves in our own voices, and call for mechanisms to protect Canada from his tentacles. Her book will highlight a genuine problem — federal policies toward the newspaper industry have failed dismally, leading to a domination by Black, which otherwise would not have occurred. In the debate that will follow, the public will be exposed to various ways of diminishing Black’s stranglehold. And the debate may take surprising turns. Canadian protectionism has been a good friend to Conrad Black, but these friends may soon part.

BLACK’S CANADIAN NEWSPAPER BUYING BINGE is at or near its end, and he will soon turn his attention to increasing the value of his Canadian newspaper properties. This he can best do by opening up newspapers to foreign ownership, increasing the number of bidders and letting his newspapers reach their full market value. Watch for people in his employ to lobby against protectionism, watch for the share value of Hollinger and Southam to rise, and watch for Maude Barlow to deplore the dark forces that have conspired to bring all this about.

Lawrence Solomon
Editor

To comment, write to LawrenceSolomon@nextcity.com

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Discussion

• Susan Schellenberg, Toronto, responds: September 26, 1997
• James Winter, Windsor, Ontario, responds: November 2, 1997
• Lawrence Solomon replies

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Susan Schellenberg, Toronto, responds: September 26, 1997

Maude Barlow received ridicule and William Greider (Mark Wegierski’s review of One World, Ready or Not: The Manic Logic of Global Capitalism) praise for their anti-globalization views in this issue of The NEXT CITY. This fact makes the question of globalization larger to me than Conrad Black, Maude Barlow, or William Grieder.

An article based on a three-way conversation between Lawrence Solomon, Maude Barlow, and Conrad Black might better reflect:
• the globe’s need for cooperation and partnership,
• a focus for readers on the complex economic questions we face as Canadians, and
• a more purposeful wit.

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James Winter, Windsor, Ontario, responds: November 2, 1997

Editor Lawrence Solomon’s column on Maude Barlow and Conrad Black is at best inaccurate speculation and at worst an ill-conceived and sycophantic cover-up for Black.

I hope no one takes this claptrap seriously.

Solomon argues that Maude Barlow is “selflessly helping [Conrad Black] fulfil his desires,” as “more than any other Canadian, she cleared the way for Conrad Black to dominate Canadian newspaper publishing.”

Solomon says “foreign ownership rules” allegedly promoted by Barlow, were responsible. “Taking foreigners out of the game meant eliminating virtually all potential buyers of Canadian newspapers, making it a buyer’s market for anyone Canadian with capital and newspaper ambitions.”

To begin with, it’s not foreign ownership rules but tax laws preventing tax deductions on ads in publications owned by foreigners that have discouraged foreign ownership.

Solomon should look to former Ottawa Journal publisher Grattan O’Leary, not Maude Barlow. O’Leary was the chair of the Royal Commission on Publishing in 1961, which advocated protection for Canadian publishers against giants like Time and Readers’ Digest. Former Liberal Senator and rainmaker Keith Davey reiterated these concerns in the 1969 Davey Report, and they were adopted by the Trudeau government in the 1970s.

But pointing the finger at O’Leary or Davey or even Trudeau would not have served Solomon’s purpose, which was to defend Conrad Black against the new book about him by Maude Barlow and myself, The Big Black Book.

Solomon makes the dubious argument that by promoting Canadian nationalism Barlow has indirectly helped to keep foreign ownership out of the newspaper industry. This, he says, has devalued Canadian daily newspapers, by reducing the number of bidders. But if Solomon is right, then it follows that Black would not own any newspapers in the United States, where there are no such provisions. This should mean U.S. sales would go to the highest global bidders, such as Rupert Murdoch.

Oooooops, it turns out that Black has far more newspapers in the U.S. than he has in Canada. Solomon himself tells us this. “Now Black owns over 100 dailies and another 300 biweeklies and shopping guides in the U.S.,” he writes.

Solomon’s theory fails the test because it is not protectionism from global bidders that has led to Black’s Canadian stranglehold, it is Black’s penchant for vampire journalism — bleeding newspapers dry for profits. Black is the highest bidder because he can squeeze out more profits than anyone else. Unfortunately, Solomon sees this as yet another one of Black’s positive attributes.

He credits Black with discovering the fact that small town, small circulation dailies can be profitable, “halving the circulation needed for profitability” — as though this were nothing more than the discovery of a mathematical equation. We’ve known that all along. What Black discovered was how to squeeze excessive profits out by inventing “the three-man newsroom and two of them sell ads,” as Black’s partner David Radler told the Kent Royal Commission.

Solomon repeats a highly dubious spin Black himself is fond of using: that Black is the savior of Canadian journalism. Along the way Solomon defends Black’s drastic staff cuts. “Black’s central insight came from recognizing that in monopoly markets, newspapers tend to become complacent. They take on too much overhead, let three people do the work of two, and deliver too little service to their customers. In this uninspired, uncompetitive setting, papers often drift toward unprofitability and even bankruptcy,” Solomon writes.

Such as? Solomon fails to cite a single example of a daily newspaper gone bankrupt, or one saved from bankruptcy by Black. I doubt that the more than two dozen papers Black bought from Ken Thomson were in any danger of going into the red.

Solomon goes on to argue that “Thanks to Black, quality is also making a comeback in Canada’s moribund big city monopolies,” but can only cite the Ottawa Citizen as an example, out of the 59 dailies owned by Black.

Not satisfied, Solomon then goes on to portray Black as the savior of journalism in Saskatchewan. Why? By taking over all five dailies there and firing 25 per cent of the journalists, he encouraged those journalists to start up some competition and enlivened Saskatchewan journalism. Black’s “many detractors expressed outrage,” Solomon writes, but “Saskatchewan’s once-sleepy newspaper industry is the liveliest it’s been in memory.”

Solomon reaches far afield, desperately grasping straws to build his defence of Black. For example, he argues that Black doesn’t let ideology interfere with profits. Why? Because Black says so, and because, “when visiting his new employees after purchasing the Sun-Times in Democratic Chicago, to signal he would not be demanding ideological obeisance, he pointedly wore FDR cuff links.”

FDR cuff links?

Solomon writes that “Barlow helped cheapen Southam and other Canadian newspaper companies, helping to deliver them into Black’s embrace. Barlow has many commendable qualities: She is sincere, articulate, passionate, and well meaning. She is also Black’s dupe.”

It’s clear from his column, however, that it is Lawrence Solomon and not Maude Barlow, who is Conrad Black’s dupe.

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Lawrence Solomon replies

What to make of Professor Winter’s imagined distinction between laws on publications owned by foreigners and foreign ownership rules? Or the Alice-in-Wonderland logic that leads him to think Conrad Black would not own any U.S. newspapers — and that people like Rupert Murdoch would own all — under his assumptions of my assumptions? Professor Winter triumphantly points to Black’s ownership of many U.S. periodicals, as if that proved anything. Would he have been half so triumphant had he realized Black would soon sell almost half of them?

In Professor Winter’s view, Conrad Black is very, very ruthless; more ruthless, in fact, than any other capitalist, allowing him and him alone to squeeze maximum profits out of newspapers and to acquire so many of them. Professor Winter’s regard for the reticence of other capitalists is misplaced. All industrialists worth their salt see their duty as maximizing profits; in this, Black is far from unique.

Professor Winter chides me for failing to cite a single example of a paper saved from bankruptcy by Black, missing my description of Black’s rescue of the Sherbrooke Record. In so doing, Professor Winter seems unaware of the tremendous decline in newspaper publishing across Canada, where two- and three-newspaper towns have become dominated by a single publisher. He invites me to cite papers other than the Ottawa Citizen which have improved in quality under Black’s ownership. I am pleased to oblige; the list includes the Vancouver Province, the Montreal Gazette, the Windsor Star, the Hamilton Spectator, the Calgary Herald, and the Edmonton Journal. Largely because of Black’s investments in the newspaper business, the entire industry is pulling up its socks, stopping Canada’s decade-long decline in newspaper readership.

Professor Winter’s reply betrays a poor sense of economics and a great sense of his own importance: He believes my purpose in writing my editorial “was to defend Conrad Black against the new book about him by Maude Barlow and myself,” as if I feared (or cared) that his book might bring down or diminish the Black empire. More to the point, any reader not blinded by a loathing of Conrad Black would have seen my editorial for what it was: a criticism of the counterproductive laws that created Black’s Canadian empire and the counterproductive advocacy of people like Professor Winter that created the laws.

Guy Crittenden
The Next City
September 21, 1997

Guided by the invisible hand of the soft drink giants, governments introduced curbside recycling to the environment’s sorrow

Discussion

THE BLUE BOX ON YOUR FRONT PORCH WASN’T DREAMED UP by government officials. Or inspired by grassroots environmentalists. The soft drink industry and its packaging suppliers brought in the Blue Box to serve a common corporate agenda — thwarting government legislation that would have foiled their plans to bury the refillable bottle in the junk heap of history.

The soft drink industry pulled off this public relations masterstroke by tapping into a rare confluence of interests among industry, municipal officials, and activists. For environmental groups, the Blue Box was the dream of recycling come true. For municipal waste managers, it meant more programs and larger budgets to administer. And for soft drink companies, the Blue Box both trumped troublesome legislation and stuck governments with paying most of the disposal costs of throwaway containers, saving the industry greater costs that bottlers and their customers once bore in a clunky, refillable bottle system.

But gains for these three came at a cost to the rest of society: The Machiavellian manoeuvring created a crazy and often counterproductive system that undermines composting, modern incineration, user fees, and other waste management tools necessary to a truly sustainable society. Also forgotten in all this were the interests of taxpayers, who happily fill their Blue Box each week, oblivious to the financial waste or the social and environmental costs.

Sounds incredible and wrong? It is. Ironically, the legislation the Blue Box scuttles is no better.

Our story begins in Atlanta.

Things grow better with Coke

THROUGHOUT THE 19TH CENTURY, PHARMACISTS’ KNOWLEDGE of plants and herbs made them innovators in flavored soda waters, turning their stores into popular gathering places for refreshments. John Styth Pemberton, the Atlanta pharmacist who invented Coca-Cola in 1886, sold the drink at Jacob’s Pharmacy, then marketed his syrup to other druggists for their soda fountains. But syrup manufacturers wanted to tap the huge potential inside the customer’s home. To overcome the prohibitive cost of marketing cheap flavored waters in pricey bottles, the entrepreneurial industry conceived the refillable bottle.

Pop production soon flourished through a two-tiered system. The manufacturers sold their syrups to a national network of independent bottlers who mixed them with sweetened carbonated water and distributed the soda pop in refillable glass bottles. The system of brand-owning syrup producers and independent bottlers persisted for most of this century.

The refillable bottle system depended on each bottler’s ability to sell and then collect back its bottles, most of which would be on store shelves or in kitchen pantries awaiting return for deposit redemption. To prevent their valuable inventory from ending up at another bottler, bottlers set up exclusive distribution franchises, each territory determined by the distance a horse and driver, and later a motor vehicle, could cover in one day. The system was the ultimate in reuse. In the 1950s, the thick glass pop bottles were washed and reused an average of 45 times in thousands of communities across North America. Because the bottlers were independent, they could package beverages for various companies, including small mom-and-pop brands that competed successfully in local markets against the national producers despite their greater advertising power. Prior to 1962, all pop companies distributed their soft drinks this way.

Then the soft drink industry introduced disposable bottles and cans. The throwaway glass bottle — manufactured with thin walls to save on production costs — proved too breakable, irritating customers and grocers alike. But the steel can won over convenience-minded consumers, and almost everyone else, too. The major soft drink companies saw savings in automated equipment: Filling 2,000 cans per minute requires only half a dozen workers; the same number of bottles takes nearly 50 workers. Cans are easier to handle, lighter to ship, and unbreakable. Grocers love them for cutting their display and storage space requirements in half and for ending the hassle of handling empty bottles and deposit refunds.

Because cans require long production runs, they don’t suit the small, regional soft drink companies. But they liberate large soft drink companies from the high labor costs and hassles of small-scale bottle refilling. Large automated plants can flood entire states with soft drinks, providing enormous economies of scale that let the larger pop producers squeeze out smaller players and increase their market share. The refillable bottle’s virtual 100 per cent market share in 1958 has fallen to less than three per cent today. The 6,000 bottlers of that era have dwindled to about 1,000.

In all this, consumers have been big winners. Not only have they shed the hassle of storing and returning empties, but also they pay less for their pop (adjusted for inflation) than in 1970, leading to dramatic growth in total industry sales. In 1996, Americans consumed almost 200 litres of soft drinks per capita, Canadians about 100.

You got the wrong one, baby

UNFORTUNATELY FOR THE LARGE POP PRODUCERS, this contemporary business tale of restructuring, growth, and lower consumer prices was messy. Consumers’ enthusiasm for throwaway containers led to litter and to a huge backlash from environmentalists and government in the form of anti-litter deposit-return legislation and, in some places, government-set quotas for mandatory refillable bottles.

Soft drink manufacturers vehemently resist these with the best lobbyists that money can buy and a barrage of research attacking these programs’ costs. One of their most influential reports, a 1992 study by consultants Temple, Barker, Sloan claimed that national deposit legislation would drain the U.S. economy of more than $6.2 billion a year “in higher prices, lost sales, lost tax revenues, and in the creation of a reverse distribution system and new, unneeded bureaucracies.” A look at existing state and provincial deposit systems reveals why the industry fears their spread.

When the industry adopted the refillable glass bottle, it was the most economic technology. Legislated deposits evolved for political reasons. First introduced in Canada in 1971 by British Columbia and in the United States in 1980 by Oregon, these bottle return laws followed news reports — greatly exaggerated — of rusted cans and broken bottles cutting children’s feet and hands in playgrounds. Deposits led bottles to be returned for recycling in large numbers (exceeding 70 or even 95 per cent in some states). These return rates appeal to many environmental groups, who now demand all states and provinces pass bottle bills.

But at what cost? Never mind that industry’s switch to aluminum and plastic eliminated the broken glass problem; any system that handles material one item at a time will cost more than one which deals in bulk. When a customer returns a can or a bottle, the store has to sort it and track the paperwork of each transaction. Though retailers receive a handling fee of about 5 cents per container, they claim their real costs are between 9 and 17 cents. Since they can’t charge the difference to customers, they put it into overhead, spreading it out over the price of all foods sold. In other words, bottle bills force people who don’t buy soft drinks to subsidize those who do via higher food prices. Yikes!

To get around this problem, jurisdictions like Alberta and Saskatchewan tell consumers to return empties at industry-run bottle depots. Because this involves a special trip, consumers tend to save up a large load, helping to give the depots lower overhead than grocery stores. But the savings are a shell game, the hidden costs transferred from grocers to their customers who pay in warehousing the empties at their homes, and in time and fuel senselessly wasted travelling to and from the depot, all to maintain a system run in parallel to waste collection services for which consumers are already paying through their taxes.

Depots are dismal money-losing operations that pay consumers for their empties from the cheques they receive from grocers, who collect the customer’s original bottle deposits. The depot’s only profitable customer is the one who throws away his empties and never shows up to claim his deposit, letting the depot pocket the refund. Smart depot operations know that the more they discourage business, the less they’ll lose. In some jurisdictions, one-third or more of the empties get chucked.

Worst still, the returned containers aren’t being refilled — as is environmentally superior — but only sorted to be crushed for recycling. To encourage consumers to buy refillables, some jurisdictions have tried a “half-back” system in which the depots refund 10 cents for refillables, and only 5 cents for non-refillables. Yet despite this incentive, people still buy non-refillables.

But soft drink producers dread deposit systems less than refillable bottle quotas and much less than an onerous European trend called producer responsibility, which requires them to somehow assume the ultimate cost of disposing of their products’ packages. In several European countries, the manufacturer remains the legal owner of the container, even after the consumer buys a bottle of pop. In Germany, which bans pop packaging from landfills, 72 per cent of all carbonated beverages must be sold in refillable bottles, a proportion that increases gradually to 81 per cent by the year 2000.

The 1990 law that led to these requirements also brought chaos. German municipalities collected mountains of packaging material, which had no market, and because environmental laws ruled out German landfills, the municipalities shipped boatloads of recyclables as far away as Africa to be dumped. Recycling that did occur required mountains of money — every tonne of diverted material cost $800. And that’s in a country efficiently packing 80 million people into an area the size of Newfoundland.

In America, where only 10 states adopted bottle bills, battles rage over getting the other 40 to follow suit. In Canada, where every province except Manitoba has a deposit-return system of one kind or another, and where Ontario, to boot, has the dreaded refillable bottle quota, the fight has been quite different.

With restrictive environmental legislation looming throughout North America, the soft drink industry, its suppliers, and the grocers joined forces in the 1980s to promote an environmental alternative more to their liking: curbside recycling. It’s no accident that the locale for test marketing this new concept was also the home of North America’s only refillable bottle quota for soft drinks: Ontario. They named their project the Blue Box.

Feeding Blue

ENVIRONMENTALISTS HAD BEEN PUSHING MUNICIPAL CURBSIDE RECYCLING since the early 1970s to keep materials such as newspapers and cans out of landfills. Pilot projects sometimes succeeded where markets were already established, such as with paper, but generally they failed for reasons that plague recycling to this day: competition from virgin materials, wild fluctuations in the price of commodities, and contamination of the materials themselves. Without the intervention of the soft drink industry, curbside recycling would have fizzled except in those communities where local circumstances made it practical.

In 1977, the soft drink industry, in a gentleman’s agreement with the Ontario government, agreed to sell at least 75 per cent of its products in refillable bottles rather than cans, and the government agreed to spare the industry from stricter formal regulation. Just two years later, after a string of 1.5 litre glass bottle explosions led to a federal government ban, the agreement became unenforceable. The soft drink companies saw a golden opportunity to permanently eliminate refillable bottles and to distribute more of their products in disposable containers.

By 1980, new government backing for recycling — including cash recycling grants — set the stage for the Blue Box. The soft drink industry renamed its convenient throwaways recyclables and set itself up as puppet master in a tangle of competing proposals from the manufacturers of steel and aluminum cans, glass and plastic bottles, their unions, environmentalists, consumer groups, and government officials. Negotiations ground on for years.

In 1985, Alcan cut through the tangle by swaying most parties to the wisdom of switching from steel to aluminum cans. Recyclers covet aluminum for its high price (a minimum of $900 per tonne at the time). Environmentalists recoil from aluminum because its production from rapacious bauxite mining eats up land in Third World countries and its manufacture consumes inordinate amounts of electricity here at home. But some — especially Pollution Probe — grasped the diabolical beauty in the Alcan scheme. By salting the low-value materials that we now find in our Blue Boxes with pricey aluminum, recycling the box’s entire contents would become thinkable. The pop companies agreed to use this more expensive metal, and the government to relax the refillable quota for soft drink containers to 40 per cent, then to 30 per cent once the Blue Box served half of all Ontario’s households. A few environmental groups called the scheme a sell-out to industry; the Canadian Environmental Law Association withdrew from the process entirely.

To oversee the Blue Box, the provincial government created a Recycling Advisory Committee carefully made up of industry reps, select environmentalists, and other stakeholders. A clubby atmosphere soon set in: Its small elite reported directly to the minister of Environment, behind the backs of most environmental groups, and prevented leaks by keeping files out of the hands of civil servants. The soft drink companies soon saw their newfound buddies would not force them to meet even the 30 per cent quota.

In 1989, the companies proposed that they be required to maintain the capacity to produce 30 per cent of its products in refillables, but not be required to actually do so. The government acquiesced.

When the environmentalists who agreed to the original Blue Box deal saw how completely they had been outmanoeuvred, they made much of the betrayal during the next provincial election campaign in 1990. The opposition NDP, which promised to phase out steel soft drink cans and implement a refillable system, won. But after the election, the NDP backed off the steel can promise to appease the United Steelworkers of America. Many environmentalists expected this reversal. But no one expected the NDP to also renege on its refillables commitment.

The soft drink companies threatened to challenge their need to meet the 30 per cent quota in court and the Premier’s Office and the Environment Ministry also feared challenges under the Canada-U.S. free trade agreement and the Canadian Charter of Rights and Freedoms. The government caved in, timidly asking only that the industry spend a million dollars on television ads to promote refillables. Predictably, the poorly produced ads flopped. By mid-1991, about 10 per cent of soft drink sales were refillable, by 1993, it was 3 per cent.

Compared to a full-scale bottle deposit-return system, the Blue Box program saves the soft drink industry an estimated $60 million to $80 million each year in Ontario, or about $1 billion over the past 15 years. In that period, the industry contributed a mere $40 million to the Blue Box program — 4 per cent of the tab they otherwise faced. The provincial and municipal governments contributed $600 million.

By the end of 1992, more than 500 Ontario municipalities ran recycling programs serving roughly 80 per cent of the province’s households, expensively diverting from landfill more than 420,000 tonnes of Blue Box materials. Municipal waste managers competed with one another to recycle higher and higher waste tonnages, almost regardless of cost. The government basked in accolades, leading other jurisdictions across North America to copy its curbside recycling model. In the United States and Canada, more than 9,000 communities now run curbside recycling programs, a number that keeps growing. Ontario’s Blue Box program has become a popular icon for convenient public participation in environmental protection. As the soft drink lobby’s executive director, Stuart Hartley, cheerfully says, “More people use their Blue Box than vote.”

I’m a pepper, you’re a pepper

THE BLUE BOX PROGRAM REEKS OF PROBLEMS, largely because its one-size-fits-all approach trashes its many merits — all municipalities with more than 5,000 residents must offer a Blue Box-type program, arbitrarily collecting materials selected by bureaucratic whim in the provincial capital. The result has often been absurd.

For example, collection crews in sparsely populated parts of Northern Ontario have had to collect glass hundreds of miles away from any viable glass market, leading to huge glass mountains because it’s too expensive to haul the stuff south. Listening to the northern reeves and mayors swap stories about this nonsense is like eavesdropping on plant managers from the former Soviet Union complaining about having to meet state-mandated production quotas. After the province cancelled recycling subsidies in 1996, the northern towns rebelled and discontinued glass recycling, in defiance of provincial regulations. Faced with the stark costs of collecting, sorting, and getting rid of recyclable Blue Box materials, some cities and towns threaten to drop curbside recycling altogether. Other communities that object to the one-size-fits-all approach — but nevertheless want to reduce the amount of waste that’s landfilled — now experiment with alternative schemes such as separate collection and sorting of wet and dry garbage, or other practical local approaches sidelined by the province’s single-minded commitment to Blue Box-style recycling.

If the goal is to reduce waste, why build the entire waste management system around soft drink container recycling? It may make sense to recycle the huge urban forests of office paper, newsprint, and cardboard, but do we need to recycle every candy wrapper? Why not focus instead on composting yard waste and kitchen scraps, which account for approximately 50 per cent of residential garbage? If the goal is to protect the environment, why not prevent household hazardous waste from entering ill-equipped municipal landfills? Even a tiny amount of batteries, used motor oil, cleansers, and other household chemicals can pollute precious groundwater far more than pop bottles. Many combinations of waste management tools — which may or may not involve curbside recycling — offer better environmental protection at a lower cost than current systems in most jurisdictions.

When environmentalists, industry, and government cut the deal that created the Blue Box, they succeeded in building a massive and expensive infrastructure, one that affects us all in our daily lives.

But the massive Blue Box infrastructure rests on two wobbly stilts. The first is municipal subsidies, which top up the shortfalls that result when aluminum fails to subsidize recycling the trash it’s mixed up with. In 1997, recycled plastics sold for $50 per tonne or less, yet cost thousands of dollars per tonne to collect. Mixed colored glass is practically worthless. Across the province, the estimated average loss from recycling a tonne of material (including collection, transportation, processing, and revenues from sale) varies from $80 to $173.

The second, and more important stilt, is the aluminum can, the very basis of the Blue Box economy. Soft drink companies recently committed to using aluminum in their cans for three more years, but they also plan a switch to cheaper plastic bottles. To the industry’s embarrassment, Pepsi jumped the gun with its recent “Handle Without Care” ad campaign, which exhorted shoppers to buy plastic bottles fitted with a convenient handle rather than more expensive cans. Because plastic bottles would sound the death knell for the Blue Box — which still serves the industry’s purposes — the rest of the soft drink industry coerced Pepsi into withdrawing the campaign. But for how long can pop consumers be forced to buy more expensive containers to prop up curbside recycling? Sooner rather than later, the growing popularity of plastic pop bottles across North America will kick the aluminum stilt out from under the entire money-losing Blue Box infrastructure.

The uncola

YET RECYCLING OFTEN DOES MAKE SENSE. IN VERY DENSE CITIES, the cost of baling recyclable materials has sometimes been half that of landfilling them. The problem with the Blue Box and similar programs rests in their financing. The pop container problem will be solved as soon as the consumer of soft drinks — not the government, not the industry — pays for the disposal of its packaging. This only requires charging user fees for garbage or recyclables put out at the curb.

Unless I’m charged directly for the garbage I set at the curb, I have no economic interest in reducing my waste. It makes no difference to my bill whether I buy my milk in plastic bags or polycoat cartons; my laundry detergent in refillable containers or clunky boxes. I can buy and throw out all the pop containers I want, and I’ll still pay the same for garbage collection as my next door neighbor who never touches the stuff. My excessive disposal costs are diffused among, and subsidized by, my penny-counting, coupon-clipping, environmentally-conscious fellow taxpayers, particularly the ones who buy refillable bottles. More than anything, this transfer of money from those who conserve to those who consume encourages waste.

The elimination of this subsidy is the simplest yet most powerful action society could take toward protecting the environment, reducing waste, and lowering costs. With user fees (and without any proselytizing about Saving Planet Earth), I’d avoid buying products sold in bulky packaging to save money, and I’d flatten my pop cans and plastic bottles quite voluntarily. If I couldn’t be bothered doing so, at least I’d pay a price for my laziness.

Cities and towns that do charge user fees for garbage report dramatic reductions in garbage, as high as 40 per cent. Seattle householders are so aggressive about cramming as much as possible into their standard-size garbage bins that their actions have been nicknamed the “Seattle Stomp.”

Many people would continue to buy throwaway cans and bottles, but would pay for the convenience. They could reduce disposal costs by flattening containers to reduce volume, and some might even buy compactors or shredders for their homes. The smart waste hauler would further reduce his landfill tipping fees by flattening containers and bottles himself with automated equipment, perhaps built into the truck itself. When plastic prices are low, the material might be redirected to a high-tech incinerator. Where landfill or incinerator prices are high, recycling will still make sense. Both the retailer and the hauler would have an economic interest in catering to consumer demands for the best combination of efficient packaging and convenient, low-cost disposal, since consumers would pay directly for both.

Ironically, the search for lower disposal costs and the elimination of subsidies would trigger a revival of the refillable bottle, for economic rather than political reasons, with niche operators carving into the soft drink giants’ market share.

Just such a revival is already occurring with beer. Despite being inundated with cheap beer in cans, American beer drinkers have begun turning back to glass bottles in droves, preferring the bottle’s coldness and the taste of local microbreweries’ premium brands with their distinct, non-pasteurized ales and lagers. In taverns and restaurants, where it is convenient for brewers to get back their bottles, refillable bottles never fell out of favor.

Refilling makes sense for wine and spirit bottles, too. Encore of Richmond, California, collects millions of used refillable wine bottles on the West Coast and sells them at discount prices to more than 300 California wineries. Ontario vintner Livio Camarra wants to do the same thing. He discovered that Toronto’s Blue Box program spends 5.8 cents transforming a 50-cent wine bottle into one cent worth of broken glass, which often becomes fill. Dozens of cash-strapped municipalities across the province who want glass out of the Blue Box have endorsed his proposal to wash and resell these bottles in a for-profit private sector scheme.

Non-pop, non-alcoholic refillables also make sense. The Stewart’s chain of 172 convenience stores in New York state sells more than a third of its soft drinks, juice, and milk in such containers. The milk bottles, made from a special Lexan resin, can be reused more than 100 times. The Schroeder Milk Company in Minneapolis, Minnesota, uses a thick-walled plastic container that averages 50 uses. With a savings of 6 to 10 cents per gallon, some stores ring up 80 to 90 per cent of their sales in refillables.

Despite the shift to recyclable containers by the major soft drink companies, numerous niche players still tout the refillable. Chokola Cola serves a small market near Wilkes-Barre, Pennsylvania, entirely with refillable bottles. The company survives by taking care of its bottles, many of which have been in circulation since the 1960s (some as far back as 1926). Ale-8-One, a ginger ale sold in Kentucky, maintains a 70 per cent rate of refillable sales. It attributes its success to the absence of a strong competitor — neither Coke nor Pepsi makes a ginger ale — and to the economics of refillables, which give customers a 20-cent price break on the beverage. In an unsubsidized, competitive market, high-quality local soft drink labels (like their cousins in beer) would cut into the business of the national brands.

Then there’s soda pop itself. Anyone who’s been in a supermarket recently knows about the huge variety of different fizzy juices and isotonic sports drinks on the market. “Generic” brands bottled under private label by companies like Cott Beverages for grocers compete directly against the national brands. In all, there are more than 450 different soft drinks.

Some companies are about to capitalize on refillables by installing a mini-bottling plant right beside a large factory, auto assembly plant, army base, or any facility with a high concentration of people in a remote location. By eliminating transportation distances and by collecting back all its bottles, local operators expect to undercut the prices of national producers.

Another growth category is fountain soda sold in convenience stores like 7-Eleven. One innovator may already be ahead of the game. Vancouver-based Fountain Fresh puts all of its capital costs right in stores themselves. Customers bring an empty plastic pop bottle (of any size, from any competing brand) and place it in a computerized machine that rinses and sterilizes the bottle, then fills it with fountain soda pop. Two litres of freshly carbonated pop for just 79 cents. With the push of a button, the machine dispenses as many as 24 different flavors, ranging from traditional colas to exotic new age tastes like apple-kiwi. The technology eliminates packaging costs and the need to transport anything but flavored concentrate to stores. Retailers sell more product in less space, enjoy higher margins and avoid bottle or can inventories. Wal-Mart is installing the machines in stores across North America.

The cheekiness of turning another company’s recyclable bottle into a refillable one testifies to the boundless creativity that has been obscured by the war over packaging, by misguided legislation, and by the subsidy-driven solutions to non-problems, which culminated in the Blue Box. For the sake of the environment, it’s time for the war to end, for the conspirators to be free to innovate, and for their customers to pay directly for the products and services — including recycling services — they desire.

Letters

, Essa Township, Ontario, responds: November 1, 1997

, Environmental Plastics Advisory Service, West Vancouver, responds: November 20, 1997

, Editor-in-Chief, Solid Waste & Recycling, replies

1. James Hall
2. Jim Cairns
3. Guy Crittenden

James Hall, Essa Township, Ontario, responds: November 1, 1997

Without access to the statistics cited and other information regarding the Blue Box program, I cannot comment on much of what was covered. There are however some areas in which I feel sufficiently informed to offer my opinions.

I don’t agree with the contention that a “pay at the curb” garbage collection system is the panacea that many municipalities and this commentary seem to consider it. When we first moved into the countryside in Essa Township, about an hour northwest of Toronto, there was no garbage pickup at all. The township had a well-run dump site where residents could deposit their trash at no cost (there was some sorting at site, but not full recycling at that time). Shortly after that the dump was taken over by the county, which immediately opened it up to the entire county and started charging everyone for dumping.

The immediate result, until the township was able to institute curbside pickup, was the continual appearance of garbage bags along all the country roads. This garbage dumping scenario was repeated when another local municipality started charging at the curb for garbage pickup. Too large a fraction of the people out there are all too willing to stick their garbage in the trunk and give it a heave the next time they’re driving through the countryside. Of course, this generally removes it from the concern of the municipality charging for the pickup of the garbage, so they aren’t bothered. Everyone is happy except the residents of the countryside who have to live with all that garbage and then pay higher taxes so their level of local government can pay someone to go pick it up.

I share your concerns about non-refillable containers and about materials that find their way to dump sites that shouldn’t. I just don’t think the solution is doing away with home sorting of garbage and charging at the curbside. As you seemed to say, before advocating just throwing all your recyclables in landfill as long as you flattened them first, we need less, not more, garbage going to landfill. Doing away with home sorting will only exacerbate the problem.

People also don’t generally think far enough ahead for curbside charges to reduce the amount of garbage they create. If they find they have the garbage, they either pay the piper or throw it in the trunk to dump somewhere the next time they’re out for a drive. People only think about what they’re doing when they’re paying for it and that is at the store. (That’s obvious. That’s why they’re buying non-refillables in the first place because they have to pay a 25-cent or 60-cent deposit on each refillable container.) That’s where the charges should be made. And not just for soft drinks, although they are one of the worst offenders. Additional charges could be made for excessively packaged items and for other items that should be in refillable containers.

As far as soft drink containers go, there are many jurisdictions that already charge deposits on plastic and aluminum as well as refillable glass. In British Columbia, I haven’t seen any refillable soft drink containers, but there is a deposit payable on all the non-refillable ones. The same is true in many places in the United States.

Jim Cairns, Environmental Plastics Advisory Service, West Vancouver, responds: November 20, 1997

The recent battering and bruising of the Blue Box raises some overdue questions about collection methods and sustainable packaging in Canada. The much maligned Canadian Soft Drink Association (CSDA) is actually an industry leader in sustainable packaging stewardship. Necessity is the mother of invention. No sector’s financial contribution or product packaging stewardship surpasses CSDA’s in reduction and recycling.

In Ontario, soft drink industry discards are the major industry funders of the Blue Box. In Manitoba, CSDA is currently the sole industry funder of Manitoba’s residential curbside/depot collection system. In Western Canada and the Maritimes, the soft drink industry and the Canadian Council of Grocery Distributors (CCGD) cooperate through their participation in the deposit/refund depots along with the Provincial Depot operators associations. With the cooperation of the consumers and these partners, 80 per cent recycle rates for aluminum and PET containers are being achieved in these regions. No significant impact on market share or growth of the soft drink industry is discernible in Canada.

The challenge appears to be for other industries’ discards to make comparable input.

The issue of reuse (refilling) of containers remains under debate and will not likely be resolved through subjective Life Cycle Assessment studies (he who pays the piper calls the tune). The reality of today’s global economy is that packaged products imported from distant regions are unlikely to be collected, sorted, sanitized, and refilled. Perhaps some local brand owner may be prepared to refill.

Irrespective of the collection system adopted by provincial and municipal governments — Blue Box or deposit/refund — we should be thankful as Canadians we have the National Packaging Protocol’s (NaPP) conservation commitment in place between industry, advocacy groups, and governments. In true Canadian democratic style it is perhaps correct and advantageous to have several collection systems in operation. As Mr. Crittenden points out, “one system does not necessarily fit all”; should one system prove to be more sustainable in achieving the common goals of NaPP, then possibly it will be preferentially adopted.

Guy Crittenden, Editor-in-Chief, Solid Waste & Recycling, replies

My article exposed the specific commercial agenda served by the promotion of curbside recycling in the 1980s as the soft drink industry and its packaging suppliers dodged the threat of government-mandated deposit-return systems for pop containers. I’m not against recycling, per se: My objection is that our overemphasis on this tool — and our neglect of others — is in many instances frustrating the evolution of an optimum system for managing household wastes.

An honest reassessment requires a dispassionate look at system costs and what we’re trying to accomplish in the first place. What is the full cost per tonne of collecting and recycling each material? What are the real environmental benefits of diverting specific materials from landfill? When might it make more sense (political correctness aside) to incinerate plastic pop bottles, for instance, rather than recycle them? And what was the science behind Canada’s commitment to reduce by 50 per cent the volume of packaging material sent to landfill by the year 2000? Why not 20 per cent? Why not 80 per cent? Why packaging and not, say, kitchen scraps and yard waste, which constitute roughly half the waste stream?

As I attempted to answer such questions, my faith in the status quo quickly unravelled. I found data from municipalities and industry groups were often vague, confusing, or even deliberately misleading. Calculations based on weight rather than volume is just one way costly materials are made to look cheap.

I concluded that market mechanisms could greatly improve the value households receive from waste management services and better protect the environment. User fees are one mechanism that encourages waste reduction at the source. Whenever they don’t, at least the polluter pays. (By the way, in practice, roadside dumping declines sharply as bags are opened and offenders are identified via addresses on mail, and so on, and ticketed.)

Another market mechanism some people advocate is a government-mandated deposit-return system, especially for soft drink containers (the very system the pop producers wanted to avoid). These systems are ubiquitous in Canada; as of January 1, British Columbia expanded its system to include all packaging materials. But as I researched my article, I discovered that such systems can be even more costly and inefficient than curbside recycling programs. I didn’t realize the extent of the inefficiency until very recently.

Last year, my request (made under the Access to Information Act) was denied for copies of a study Price Waterhouse and a team of consultants prepared in April 1993 for Ontario’s then NDP government, which was intent on introducing a deposit-return system in the province. The consultants studied systems in other jurisdictions, then proposed a model that combined the best elements to achieve the highest level of returns at the lowest cost. The plan was mysteriously cancelled by the NDP and the study was not only shelved but also sealed from prying eyes inside a submission to cabinet. This was a shame, since this independent study was said to be chockablock with unbiased data on the real costs and benefits of deposit-return systems.

I nevertheless obtained a copy of this secret report via another source and found that, even in their best-case scenario, the consultants believed a deposit-return system in Ontario would cost consumers more than $237 million every year in higher pop prices and in subsidies to the special container-handling system. These costs (largely hidden) are amazing when one considers that advocates describe deposits as cost-neutral for consumers (because consumers recover their 10 cents at the store).

The study also showed that high-tech jobs in packaging plants would be replaced by low-wage, unskilled jobs managing empty containers. Pop companies would lose $38 million, and container suppliers $11 million, annually. Distributors would lose $13 million, and retailers $50 million. (No wonder grocers fight this kind of legislation!) However, the government would take in more than $109 million. (No wonder governments pass this kind of legislation!)

Some of the data in the 1993 report are probably out-of-date, but their essential conclusions suggest that the soft drink industry had good reason to devise an alternative to legislated deposits.

Recent information from the City of Toronto public works department reveals that only about 50 per cent of paper and glass is being diverted from landfill via the Blue Box. Diversion rates for plastic and aluminum soft drink containers are less than 30 per cent. Some of this relates to that city’s inefficient system, but, even if the rates were higher, the information suggests another system might be better. Guelph’s “wet-dry” system is diverting far more material than Toronto’s (perhaps 250 per cent more in 1998) at a comparable cost (and with no Blue Box). Even the organizations that support the Blue Box are talking about this as the wave of the future.