A 75-Year Perspective on Investment in Forestry

John A. Zivnuska

Professor of Forestry, Emeritus - Department of Forestry & Resource Management

I feel privileged to serve as the S.J. Hall Lecturer in Forestry for 1989. After some discussions with Emanuel Fritz, Herb Jensen and myself in 1965, Mr. Hall established the Forest Economics Foundation to advance the understanding and practice of sound economic principles among forestry students. He asked me to chair an advisory committee to the Foundation. Following his long illness and death in February 1968, his widow, Mrs. Dessie Hall, moved to activate the program of the Foundation. Largely at my suggestion, she established the S.J. Hall Lectureship at Berkeley in November 1968. I can assure you I never expected to serve as a Hall lecturer.

Mr. Hall was a firm believer in hard work and the free enterprise system. While studying forestry at Syracuse University, he worked at setting pins in a bowling alley for 10 cents an hour. After graduating in 1920 he worked for a timber factorage company in the southern U.S. for 11 years. When the firm went bankrupt under the depression conditions of 1931, he and two associates organized Forest Managers, Inc., despite a complete lack of capital or demand for forest management. They found a niche in gum naval stores operations, built up a growing business, and began to purchase land and timber leases. Within a few years they were able to shift from naval stores operations to forest management.

Mr. Hall was among the first to recognize the potential of young growth timber stands on the West Coast. In 1948 he and two partners acquired an extensive area of cut-over redwood lands and established the Gualala Redwoods Company. The company quickly emerged as a leader in the industrial management of young-growth redwood land.

Mr. Hall's ability to find opportunity in the midst of adversity is an object lesson worth keeping in mind in attempting to develop a perspective on investments in forestry.

The Case for a 75-Year Perspective

Under California conditions it typically requires from 60 to 100 years to grow a stand of timber from regeneration to harvest age, with possibly a somewhat shorter period on some high-site private lands but surely somewhat longer on some low-site public lands. Thus 75 years is a reasonably representative period for producing a crop of timber in this state.

I must admit that this is not my only reason for selecting a 75-year period. During much of my career I have been involved in one way or another with studies directed to the future outlook of demand for and supply of timber in the United States. On the basis of this experience, I am not about to attempt to project the outlook for the next 75 years, or even the next 10 years.

Instead, I am going to look at the record of the past. Thus the choice of a 75-year period gives me a basis for going back to 1914 when the State of California initiated a small program of investment in forestry by establishing a program of forestry education at Berkeley, which was then the only campus of the University of California.

A Perspective on 1914

What was the situation and the outlook for investments in forestry when Professor Walter Mulford arrived in Berkeley in August 1914? The data in Table 1 give some clues. The population of the United States was less than 100 million as compared to nearly 250 million in 1989. There were less than 3 million people in California as compared to about 28 million today. The Gross National Product was under 40 billion dollars, while it is now approaching 5,000 billion dollars. Federal expenditures were well under $1.0 billion, representing less than 2 percent of GNP. Current federal expenditures are well over $1,000 billion dollars and represent nearly 25 percent of GNP.

As these numbers suggest, it was an almost wholly different world in 1914 from the one we know today. This was as true in matters affecting forests and forestry as for the rest of the economy. The period of continental conquest had passed. The agricultural frontier had closed in the 1890s and the number of farms in the United States had begun to decline. The levels of Umber cutting for fuelwood, for land clearing, and for use of wood in hewn, split, and round forms, which had been far greater than the cut for lumber, had all peaked by the end of the nineteenth century. By 1914 such timber cutting was declining rapidly, but this does not seem to have been generally noted.

TABLE 1. Seventy-five Years of Change: 1914 to 1989

Category	1914	1939	1964	Current
Resident Population of U.S., millions of people	99	131	191	246 *
Resident Population of California, millions of people	3	7	18	28 *
Gross National Product, billions of dollars - actual dollars	39	91	632	4,864 *
Gross National Product, billions of dollars - constant 1982 dollars	393	654	1,816	3,996 *
Federal Expenditures, billions of dollars - actual dollars	0.7	8.8	118.4	1,175.9 *
Federal Expenditures, billions of dollars - constant 1982 dollars	7.4	63.9	340.0	966.0 *
Federal Expenditures as Percent of Gross National Product	2	10	19	24 *
Lumber Production, U.S., billion board feet	40	29	37	45 **
Lumber Consumption, U.S., billion board feet	39	28	41	56 **
Wood Pulp Production, U.S., million tons	2.9	7.0	32.4	61.2 *
Wood Pulp Consumption, U.S., million tons	3.6	8.9	33.8	60.7 *
Paper and Board Production, U.S., million tons	5.2	13.5	41.7	76.6 *
Paper and Board Consumption, U.S., million tons	5.4	16.0	46.4	84.1 *
Softwood Plywood Production, U.S., million square feet	+	1.0	11.5	21.1 **

*1988, **1987

Even lumber production was some 12 percent below the peak levels of 1906 and 1907, but at 40 billion board feet it was still higher than in any subsequent year prior to 1985. The fact that lumber production in the United States had entered a prolonged period of decline does not appear to have been recognized. The wood-based pulp and paper industry was still relatively new, of limited size, and based almost entirely on spruce and the true firs. The manufacturing of quality wood veneers was well established, but the softwood plywood industry as such did not yet exist.

Both the Forest Service and the National Forest System were well established, but the management of these lands was essentially custodial in nature. There were a number of National Parks, but the National Park Service was not established until 1916. There was still a vast area of unreserved public domain lands and there was a General Land Office to handle surveying and disposal of these lands, but the Bureau of Land Management was not created until 1946. Gifford Pinchot, the first head of the Forest Service, had been fired in 1910 by President Taft, but was still busily preaching his timber famine message. The Bureau of Corporations had published its three-volume study of the lumber industry (7) in 1913 and 1914, emphasizing the concentration of forest ownership in a limited number of large holdings and warning of an impending timber monopoly. The extent of small holdings of forest lands does not seem to have been recognized.

The sixteenth amendment to the Constitution which authorized income taxation had been adopted in 1913, but the magnitude of future development of such taxation and its far reaching implications for all forms of investment, including investment in forests and forestry, were not yet evident.

Recreational uses of forest lands existed, but received little attention. Roads were poor, cars and trucks were still relatively new, and horse-drawn buggies and wagons were still a part of the transportation system. The six-day work week was common. It was not until 1926 that the 40-hour work week was introduced by Ford Motor Company and not until the 1940s that the five-day work week became standard. Wilderness was still a real condition on much of the mountain land of the west rather than a Congressional land classification.

In California, as in most of the United States, there was investment in timber and forest lands, but there was no investment in growing timber. To be sure, eucalyptus was being planted with some encouragement from the Forest Service, but this was more a form of land speculation than of forestry. It was, in any case, the wrong species in the wrong place at the wrong time. As far as the commercial tree species were concerned, the early foresters had not yet discovered that they did not know how to plant such trees successfully. It should be remembered that it is only in the last 35 years that foresters have been able to establish forest plantations successfully under the climatic conditions of California.

To complete this brief picture of conditions in 1914, I must mention uncertainty. In this regard, I need only note that World War I broke out in the first week of August 1914. I suggest to you that not even Nostradamus could have projected the developments of the next 75 years.

Involuntary Forestry and New Resources

The opening of the Erie Canal in 1830 led to far-reaching changes in land use in the eastern U.S. By 1850 the agricultural use of extensive areas in New England was being abandoned and the land was being allowed to revert to a forest cover. Over the following decades such abandonment of land use and reversion to forests spread to many areas of the United States where, for one reason or another, it did not pay to keep the land in nonforest uses.

In the 1920s, although the economy was generally prosperous, agriculture was seriously depressed. The 1930s brought the Great Depression and intensified agricultural distress. Under these conditions the rate of land use abandonment accelerated. By 1940 the agricultural use of vast areas of land in the northeast, the south, and the lake states had been abandoned and lands were reverting to forest cover. This same pattern occurred in the west, although on a lesser scale because the conversion of forest land to nonforest uses had not been as extensive.

The silvical characteristics of the major commercial tree species being what they are, much of this abandoned land, although not all, reverted to well-stocked stands of valuable species. Thus in California some of our finest young growth pine and redwood stands developed on lands which had been cleared for agricultural and grazing uses.

At the same time the rate of timber cutting dropped well below earlier levels. By the 1920s there was little demand for timber cutting for fuelwood, for land clearing, or for use of wood in unprocessed forms. The demand for lumber was still increasing, although at a slower rate than earlier, but the combination of demand and supply conditions resulted in higher prices and a reduced cut. In the early 1930s the demand for forest products collapsed along with the economy generally. By 1933 lumber production in the United States had plunged to less than 14 billion board feet.

This pattern of extensive reversion of land from agricultural use to a forest cover in combination with sharply reduced rates of timber cutting was sometimes referred to as "involuntary forestry" in the 1930s. In any case, by 1939 a vast new forest had developed, forest growth was increasing rapidly, and the basis had been laid for the transition from a declining forest inventory for the nation to an expanding forest inventory. While the development of provisions to control forest fires was a contributing factor, the recovery of the forests of the nation and the young growth stands which have been extensively utilized in recent decades are primarily the result of a lack of investment in keeping the land cleared for nonforest uses, not the result of investments in growing timber.

However, investments were made in the development of new and improved methods of wood processing and in plant capacity based on this development. The outstanding example of this was in the pulp and paper industry. By the 1920s consumption of wood-based paper and paperboard was expanding rapidly, but domestic pulpwood appeared to be in short supply and declining rapidly. With the manufacture of wood pulp based on the groundwood and sulfite processes, the industry was dependent on spruce and true firs as the primary pulpwood resource.

The result was that by the late 1920s approximately half of the wood basis for the pulp and paper consumed in the United States came from imports from Canada and Scandinavia. The Forest Service published a major study in 1924 (1) identifying the problem and stressing an urgent need to grow more spruce and fir in the United States.

However, during these same years the sulfate pulping process was developed into a highly versatile process and new methods of bleaching were making sulfate pulp useful for producing white paper. Within a relatively few years the newly developing young growth pine forests of the south became the nation's primary pulpwood resource, while in the west Douglas-fir emerged as a major source of pulpwood. Today, the south, which had no pulp and paper industry in 1914, is the world's leading center for pulp and paper production.

The softwood plywood industry provides another example. It began developing rapidly in the middle 1920s but by 1946 it was still essentially a Douglas-fir plywood industry limited to the Pacific northwest. In its 1946 reappraisal of the forest situation, the Forest Service concluded that further expansion would be limited by the difficulty in procuring logs to keep the existing mills at capacity operation (2). In fact, the industry invested in new mills, in improved patching methods and additional face materials, and in marketing utility grades. Production expanded from 1.4 million square feet in 1946 to 11.5 million square feet in 1964. Additional western softwoods were used and an appreciable plywood industry emerged in California.

Then in 1964 new peeling equipment and techniques enabled the first plant producing plywood from the much smaller southern pine logs. Almost overnight, a whole new peeler log resource was created. Subsequent expansion has been largely concentrated in the south and California's developing plywood industry has faded away.

Thus, while it was a lack of investment in keeping the land in a cleared condition that led to the development of new young growth forests, it was investment in wood processing that changed this emerging new forest and more of the remaining old forests into valuable timber resources.

The Restricted Sawlog Supply of the 1940s

Although by the late 1940s the new forests of the nation were developing rapidly, the supply of timber suitable for lumber production was tight. Much of the young growth was still below merchantable sizes and there was a lack of production capacity in sawmills designed for efficient utilization of the smaller young growth logs. A very large inventory of softwood timber had been set aside for future timber supplies from the National Forests some 50 years earlier, but management of these lands was still largely at a custodial level and the Forest Service was not geared up for any rapid increase in its program of timber sales and management.

In the years immediately following World War II, the nation faced a great pent-up demand for housing as the result of 15 years of low housing construction due to the Great Depression of the 1930s and the war. Demand for lumber soared, but production did not increase. The total production of softwood lumber in the United States averaged only 28.9 billion board feet annually for the period 1949-1951 as compared to 28.3 billion board feet for 1940-1942. Except for a remarkable increase in lumber production in a limited region, softwood lumber production would have shown a marked decline.

Production from the six counties of southwestern Oregon more than doubled from 1.7 billion board feet in 1940-1942 to 3.9 billion board feet in 1949-1951, while production in California doubled from 2.2 billion board feet to 4.3 billion board feet. In all the rest of the nation softwood lumber production declined, dropping from an average of 24.4 billion board feet annually in 1940-1942 to 20.7 billion board feet in 1949-51. Much of the increased production from Southwestern Oregon and northern California came from heavy cutting on nonindustrial forest properties. The impact on these lands was heavy, but it provided the only positive response to the increased demands of the American people for softwood lumber.

Integrated Utilization and Investment in Forestry

Although a number of scattered examples of investments in growing timber emerged during the 1920s and 1930s, it was not until the 1940s that programs of investing private capital in timber growing began to be developed on a strong and continuing basis. In 1941 the Weyerhaeuser Company determined that if it was going to incur the costs of holding its cutover lands in any case, then it would pay to invest in improving the growth of timber on these lands. Its establishment of the Clemons Tree Farm proved to be a turning point for investments in forestry.

In 1943 the Congress amended the Internal Revenue Code and provided that revenues resulting from the holding or growing of timber in the ordinary course of business could be treated as a capital gain rather than as ordinary income. This created a tax climate favorable to investments in forestry. By the end of World War II the expectations of continuing high demand for forest products combined with the evidence of a tight timber supply encouraged investments in providing for long term timber supplies.

By 1950 the development of hydraulic and mechanical log debarkers opened up the use of mill residues from lumber and plywood production for pulpwood. This triggered the development of integrated utilization, in which lumber, plywood, and pulp and paper operations were brought together under a common management and often at a common site. Such utilization enabled the recovery of greater volumes and values from an increasingly expensive log supply.

The 1950s were marked by a major restructuring of the forest products industries. Acquisitions, mergers, takeovers, and corporate growth characterized the period. All of this required major capital investments in forest product facilities with long operating lives. This in turn required ensuring long-term timber supplies, which commonly meant major investments in holding forest land and in growing timber on that land. Thus investments in growing timber became increasingly common and increasingly large, at least among the larger forest products corporations.

The Timber Resource Review

During the 1950s the Forest Service undertook a major Timber Resource Review, with the results being published in draft form in 1955 and in final form in 1958 (3). This was by far the most comprehensive analysis of the American forest situation which had ever been undertaken. Although the reports were seriously flawed in some major respects as I have argued elsewhere (8), the TRR was a landmark in American forestry.

The analysis showed the net growth of all forest growing stock as measured in cubic feet to be some 32 percent greater than the cut. For all of the imbalances that remained by species groups, size classes, and regions, a major turning point had been passed. The total volume of the forests of the United States was no longer declining, but instead had begun to increase.

The TRR showed that the forest products industries held only 13 percent of the nation's forest land, that 27 percent of the forest land was in public ownership, and that 60 percent of the total forest area was held in some 4.5 million farm and other private ownerships, typically of small size. The TRR also included an extensive review of the productivity of recently cut lands. The findings showed that productivity was highest on public forest lands, forest industry lands, and large private forest holdings generally. In contrast, the areas left in a condition of low productivity were concentrated in small private holdings.

The myth of timber barons and a possible timber monopoly had disappeared. The myth of a timber famine had been brought to an end. And the basis for a new myth, that of poor management of small private forest properties, had been established.

This new myth was developed by equating low productivity with poor management. It assumes that the purpose of the owners of small forest properties is to grow commercial timber, even though there is little or no evidence to support this assumption for most such properties. In fact, many of these properties are not physically suitable for timber management because of problems of small size and/or location. Further, for the many small forest owners who have heavy mortgage and consumer debts, investment in growing timber would be as unsound as it is infeasible. And the wealthier owners of small forest properties commonly appear to be holding them for purposes other than producing income by growing and cutting timber.

Opening of the Environmental Era

The following decade was marked generally by a continuation of the patterns of the 1950s with increasing investment and intensification of management on the larger private forest holdings and an expansion of the cut from the public forest lands of the west. According to the Forest Service's Timber Outlook study (4) as published in 1973, by 1970 the total timber inventory of the nation had increased by 11 percent over the 1952 level, with softwood volume having increased by 5 percent and hardwood volume by 19 percent. Net growth on the extensive softwood forest areas in public ownership remained low because much of this area had not yet been brought into a net growth condition by timber cutting.

On January 1, 1970, President Nixon approved the National Environmental Policy Act as his first official act in the new decade. It was an appropriately symbolic action, for it proved to be the opening of the environmental era and of new and far more open procedures for the conduct of business by public agencies. While concerns with water and air pollution and later with toxic wastes were the center of attention in the 1970s, policy actions in other areas also proved in time to be significant to the conditions affecting investments in forestry. Important examples include the Endangered Species Act of 1973 and Executive Order 11593 of 1971 which resulted in full activation of the National Historic Preservation Act of 1966.

The Forest and Rangeland Renewable Resources Planning Act of 1974 (RPA) as amended in 1976 by the National Forest Management Act led to a major redirection in the management of the National Forest System. These changes in the public forestry sector had significant impacts on investment in the private forestry sector.

In California the Legislature enacted the Z'berg-Nejedly Forest Practice Act of 1973 "to serve the public's need for timber and other forest products, while giving consideration to the public's need for watershed protection, fisheries and wildlife, and recreational opportunities...." This Act gave California by far the strongest controls over timber cutting of all of the states and ensured that any reductions of investments in timber by cutting would be accompanied by some retention of investment in the form of residual growing stock to meet basal area standards or by reinvestment in regeneration to meet stocking standards. The requirement for a permit to engage in timber operations also proved to be a mechanism for enforcing a wide variety of other environmental regulations. In addition, it became a fulcrum for various efforts to limit and even to preclude harvesting the timber on some properties.

Inflation and Low Interest Rates

The 1970s were also marked by continuing and accelerating inflation. The rate of inflation was generally close to, and at times exceeded, various market rates of interest such as the prime rate and the rates on home loans. Thus this was a period in which real interest rates were low and at times were negative. Now the growing of timber is basically a process of capital investment extending over long periods. The primary cost in growing a stand of timber from regeneration period to harvest age is the cost of holding the capital invested in land and growing stock over the many years until the timber can be cut and sold. The low real interest rates meant a low cost of holding capital and thus were highly favorable to investments in forestry.

In addition, the demand for timber and forest products was generally good and the anticipations for the 1980s were highly optimistic, especially in the case of lumber. From the late 1950s on, long-term outlook studies had consistently projected that new housing starts in the United States would reach peak levels in the 1980s. Such projections were based primarily on demographic factors and gave little weight to other economic factors. Thus in an analysis developed in 1978 and published in draft form in 1979, the Forest Service projected that construction of new housing would average between 2.5 and 2.7 million units annually during the 1980s (5). While this was on the high side, at that time practically all projections of housing starts in the 1980s were for well over 2 million units annually.

While both the low real interest rates and the high expectations as to future demand were favorable to investments in forestry, the overall outlook for the forest products industries in the western U.S. became increasingly clouded due to a series of actions affecting the availability of timber from public forest lands. The Forest Service's sudden adoption of the nondeclining yield policy under an emergency directive in 1973 ended prospects for further increases in cut and put future cutting levels in doubt. Then the Monongahela decision cast the entire Forest Service timber sale program into jeopardy until adoption of the National Forest Management Act in 1978. This legislation in turn raised new uncertainties about future cutting levels due to various provisions, including the requirement for a new process of forest planning. At the same time the individual national forests were making a series of uncoordinated reductions in the area of the standard component lands for timber management, thus reducing long-term potential timber supplies. There were also greatly expanded set asides for wilderness areas and a new process was initiated of setting aside prime old growth timber as habitat for the northern spotted owl.

By the late 1970s, uncertainty had greatly increased as several forces converged:

concern about the continuing availability of public timber
accelerating inflation
high future demand expectations

The result was highly speculative bidding for public timber, especially in the Pacific northwest. The average bid price for Forest Service timber on the west side of the Pacific Northwest Region exploded from an average of $124 per M board feet in 1976 to $311 per M in 1980, and then collapsed to $83 per M in 1982. While the Forest Service persists in publishing these bid prices as being "average stumpage prices for sawtimber sold on National Forests," in fact most such high bid sales were not completed and the prices never paid. Indeed, the highest average price ever actually paid for sawtimber in this Forest Service region prior to 1988 was $142 per M in 1979 and again in 1980.

Collapse, Recovery, and a Changed World for Investments in Forestry

On October 18, 1979, the Federal Reserve Board announced a policy of requiring higher bank reserves as a means of controlling inflation by controlling the money supply. The prime rate of interest, which had already risen from 8 percent in early 1978 to about 14 percent, shot up to an unprecedented 20 percent in April 1980, dropped back to 11 percent in August, and then rose again to an all-time high of 20.4 percent by December, 1980.

It was a chaotic and traumatic period in the world of finance. The U.S. economy was thrown into a sharp recession. Housing starts dropped from a peak of 2 million units in 1978 to only 1.1 minion in 1982. The forest products industries experienced the most severe and prolonged depression conditions since the 1930s.

The rate of inflation was sharply reduced. Market interest rates dropped back to more usual levels but remained well above the rate of inflation. Thus the 1980s were marked by relatively high real interest rates in sharp contrast with the low or negative real interest rates of the 1970s. In time the overall economy recovered and expanded, but not all sectors shared fully in this recovery. The long-expected peak level of housing construction in the 1980s did not emerge. The actual average annual rate has been approximately 1.5 million units rather than the 2.5 to 2.7 million units projected by the Forest Service in 1978 and published in final form in 1982 (by which time it was clearly wrong).

The impact of these changes on the forest and forest products sectors of the economy was very heavy and the response of investors was rapid and pronounced. A pattern of acquisitions and mergers in the pulp and paper industry which had developed in the late 1970s expanded into a major restructuring of the entire forest products sector, including major changes in the ownership of timber and forest land and in related forestry programs.

There were numerous acquisitions, mergers, takeovers, and spinoffs. Overall, there was a marked reduction in the total number of enterprises in the forest products industry. Such major companies as Crown Zellerbach, Diamond International, St. Regis, Container Corporation of America, and Georgia-Kraft went out of existence.

In many instances the balance between investments in mills and investments in forests and forestry which had developed over the preceding decades was subject to major changes. A number of companies sold or attempted to sell major areas of forest land as the best means for raising capital to invest in modernizing their mills, to service existing debt, and for other investment purposes. Others spunoff their forest lands into limited partnerships or other forms of business organization, thus separating the forest assets from the parent company, as a defensive measure to reduce the possibilities for an unwanted takeover. Further ownership changes sometimes followed.

Takeovers were often followed by breaking up the assets of the taken company and selling them separately. A notable example of this was the takeovers of Diamond International and Crown-Zellerbach, both of which had been among the leaders in the development of industrial forestry programs.

The pulp and paper mills of the two corporations were acquired by the James River Corporation, a specialty paper company which was established in 1969 with a single small paper mill, but the 2.5 million acres of forest land formerly held by the two companies remained in the hands of corporate raider Sir James Goldsmith.

In California, the state's largest private forest owner, the Southern Pacific Land Company, sold its forest holdings to Sierra Pacific Industries late in 1987 as part of a series of actions taken following the merger of Santa Fe and S.P. This was only one of a number of major changes affecting the private lands of the state, with the most publicized surely being the takeover of Pacific Lumber Company by the Maxxam Group in 1986. As the two examples suggest, every such major change had its own special circumstances, but all were responsive to the major changes affecting the forestry and forest products sectors of the economy.

As another measure of these changed conditions, during most of the 1980s some eight to 10 million acres of industrial forest land were being openly offered for sale, and more surely would have been available in response to offers. However, buyers were few and far between and many of the properties were on the market for long periods before being sold.

The Tax Reform Act of 1986 eliminated the differentials between the tax rates for capital gains and for ordinary income, thus eliminating the advantage of having the revenues resulting from the holding and growing of timber treated as capital gains, Both this action and the complex new regulations pertaining to the tax treatment of passive income were directly adverse to investments in growing timber, although there are differences in opinions as to the magnitude of this adverse affect.

By the late 1980s the strength of the general economy had brought lumber consumption in the United States to all-time record levels, but U.S. lumber production was less than consumption. The devaluation of the Canadian dollar relative to the U.S. dollar which had taken place by 1979 opened the way for an expansion of Canadian lumber exports to the United States. The Canadian mills proved to be strong competitors and held nearly 30 percent of the U.S, lumber market throughout the 1980s. In effect an increasing portion of the Canadian wood supply has been added to the U.S. wood supply as the base for the high consumption of forest products in the United States.

As a result of these far-reaching changes in the economy and in the status of the forests of the nation, the strong ties that developed between investment in forest product plants and investment in forests and forestry over the preceding decades have been greatly loosened, though certainly not demolished. Some of the forest properties that changed hands during this period were acquired by forest product companies. However, many were acquired by a variety of new investors in forest properties including limited partnerships, insurance companies, union pension funds, foreign investors, and financial operators of differing descriptions. The long-run significance of such ownership changes remains to be seen, but, given the circumstances and the nature of the organizations, it seems probable that many of the new owners are looking for returns through subsequent resale of the properties at higher prices rather than from investment in long-term timber management.

Correspondingly, on the wood products side there has been the development of new companies such as James River which have become major investors in wood processing facilities without also making large-scale investments in forests and timber growing. Some long-established companies have made major investments in new mills in the southern U.S. without protecting these investments by acquiring new holdings of forests and forest land to ensure a long sustained flow of logs to these mills.

To be sure, a number of the old-line companies continue in the pattern of supporting investments in wood processing facilities through the holding and management of large forest areas. However, all of these companies have in fact gone through substantial internal restructuring, including reorganizing operations, shifting the balance of investments between mills and forests, redirecting corporate strategy, and changing forest management practices and timber cutting schedules. Indeed, such internal restructuring has been essential to survival and continued success.

Some Concluding Comments

As I hope this review of the last 75 years has demonstrated, the forests, the forest products industries, and investments in forestry are subject to constantly changing forces. Over a period as long as the production cycle in forestry, the magnitude of the changes is massive.

While I have limited my comments to timber, other goods, services, and values provided by the forests of the nation have been subject to equal or even greater forces of change. Indeed, many of the services and values which receive major attention today either were unknown or little considered 75 years ago. Some of the more obvious examples are classified wilderness, wild rivers, protection of habitat for endangered species, off-the-road vehicles, downhill and cross-country skiing, landscape aesthetics, high technology backpacking, preservation of particular plant communities, and generally an influx of an urbanized public with easy access, leisure time, and discretionary income.

The demand for many of these services and values coupled with the demand for environmental protection including air, water, and soil resources are commonly manifested through political processes rather than through the market economy. The political climate has become an important force affecting the extent and location of investment in growing timber. In some regions, notably including California, the potential investor now confronts a very real question: If he invests in growing or holding timber for the future, will he be permitted to harvest that timber, and, if so, under what conditions?

The changes and developments of the last 75 years were not predicted and, in a real sense, were not predictable. The future cannot be known. Any attempt to make highly detailed projections of developments over a period as long as the production cycle for timber in California would be an exercise in futility.

Adaptability and a continuous process of adaptation are the key to responding to uncertainty and change. Because of the length of the production period forests are not highly adaptable to the rapidly shifting demands and values of our society, but over time major adaptations do take place as is shown by the record of the last 75 years.

Within the private sector a major element in this process of adaptation has been changes in the nature and ownership of forest properties. As nearly as I can determine, there is no area of private forest land in California which is in the same ownership today as it was 75 years ago. All the large private forest holdings have changed hands at least once, and a number have had two or more changes in ownership. Among the smaller non-industrial forest properties, changes in ownership are frequent. Some estimates indicate that on the average such properties are not held in the same ownership for more than eight or 10 years, although data in this regard are limited. In addition, some parcels have been blocked up into larger ownerships and many others have been broken up into smaller ownerships. Considerable areas have been moved out of forest use and other areas have returned to forest use.

Nationally, there are a few old-line corporations established more than 75 years ago which still hold substantial areas today that they held 75 years ago, but even such companies have experienced major changes in their aggregate forest holdings. Generally, in the private forest sector changes in ownership over periods as long as 75 years are the normal experience, including both changes of owners and changes in the parcels owned.

The management of private forest lands in the United States is the management of changing properties under changing ownerships for changing demands under changing conditions. In sharp contrast, the models of traditional forestry theory for the regulation of the growing stock and determination of the allowable cut are totally static. Attempts to apply such models directly to actual properties cannot be expected to work over a period of years. Instead, each owner must manage his property with response to change in the real world, not in terms of a nonexistent static state.

Overall, private owners have demonstrated the ability to adapt to change. The adaptations have not always been either easy or cost-free. Communities have been stranded, workers have lost their jobs, forest areas degraded, firms gone bankrupt, and capital lost. The instantaneous cost-free two-way mobility of factors of production of the theory of pare competition has no counterpart in the management of actual forest properties. But for all of the problems, change has been accommodated.

The timber famine has not developed and the forests of the nation have not been destroyed. Over the yews the people of the nation have enjoyed a high level of consumption of forest products. In the aggregate, the forests of the nation are far greater in volume and in better condition than was foreseen or expected during most of the last 75 years. According to the most recent estimates of the Forest Service, the growth of the nation's forests in 1986 was 31 percent greater than the cut in terms of cubic foot volume of growing stock (6). By 1987 the total volume of the nation's forest growing stock was 24 percent greater than the 1952 volume as reported by the Forest Service in 1989 (and 46 percent greater than the 1952 volume as initially reported by the Forest Service in 1958). Even in California, which was the last of the major forest states to reach its historic peak in timber cutting, growth of softwood growing stock in 1986 was double the 1952 level and was 10 percent greater than removals. For all of the problems in specific situations, in the aggregate the nation's forest inventory is continuing to increase and forest conditions are continuing to improve.

This record for timber has its counterpart for the entire economy. More generally, it can be said that for all of the difficulties, the inequities, and the fears of the present, there are far more people in the United States living at a far higher standard of living, at least in material terms, than ever seemed likely during most of the last 75 years.

I would like to let S.J. Hall have the last word in this 75-year perspective on investments in forestry, and I think I know what he would say:

Don't sell the free enterprise system short.

References

(1) Clapp, E.H., and C.W. Boyce. 1924. How the United States Can Meet Its Present and Future Pulpwood Requirements. U.S. Dept. Agric., Dept. Bull. 1242. Govt. Print. Off., Washington, D.C.: 100 p.

(2) U.S. Dept. Agric., Forest Service. 1946. Potential Requirements for Timber Products in the United States. Report 2 from a Reappraisal of the Forest Situation. Govt. Print. Off., Washington, D.C.: 70 p.

(3) U.S. Dept. Agric., Forest Service. 1958. Timber Resources for America's Future. Forest Resource Report No. 14. Govt. Print. Off., Washington, D.C.: 713 p.

(4) U.S. Dept. Agric., Forest Service. 1973. The Outlook for Timber in the United States. Forest Resource Report No. 20. Govt. Print. Off., Washington, DC: 367 p.

(5) U.S. Dept. Agric., Forest Service. 1982. An Analysis of the Timber Situation in the United States, 1952-2030. Forest Resource Report No. 23. Govt. Print. Off., Washington, D.C.: 499 p.

(6) U.S. Dept. Agric., Forest Service. 1989. An Analysis of the Timber Situation in the United States, 1989-2040. Draft, Govt. Print. Off., Washington, D.C.: 281 p. plus

(7) U.S. Dept. of Commerce and Labor, Bureau of Corporations. 1913 and 1914. The Lumber Industry. Govt. Print. Off., Washington, D.C.: Part I 311 p.; Parts II and III, 264 p.

(8) Zivnuska, John A. 1956. Timber Today - And Tomorrow. Forest Industries Council. Washington, D.C.: 151 p.

Introducing: John A. Zivnuska

John A. Zivnuska received his BS and MS degrees in Forestry at the University of California, Berkeley, in 1938 and 1940, respectively. Following service as a Naval Officer from 1942 to 1945, he resumed graduate studies at the University of Minnesota, receiving the Ph.D. in Agricultural Economics there in 1947.

Dr. Zivnuska served as Instructor through Professor at the University of California from 1948 to his retirement in 1982. During this 31-year period, he was a leader in the development of professional forestry education, forestry economics, and in the profession.

Author of 190 publications, John's early research papers involved the rigorous application of economic theory and analysis to forestry, particularly in the development of long-term timber growth goals and forest taxation. These early works were highly influential in establishing forest economics as an area of specialization within the general field of forestry.

Additional articles have focused on supply and demand of commercial timber resources, pricing, economic aspects of multiple use, forest policy, and professional forestry education.

John was an able administrator and a national leader in forestry education. From 1965 to 1974, he served as Dean of the School of Forestry and Conservation; Associate Director of the U.C. Agricultural Experiment Station, and Director of U.C.'s Wildland Resources Center. From 1970 to 1972, he served as the elected President of the Council of Forestry School Executives and frequently traveled to Washington for conferences with USDA officers and gave testimony on funding needs for research in the nation's forestry schools.

He has also served as ex officio member of the California State Board of Forestry from 1965 to 1973, and was elected to the Council of the Society of American Foresters from 1962 to 1963. He then was elected Fellow of the SAF in recognition of his contributions to forestry and the profession. On his retirement in 1982, the University recognized John's outstanding career by awarding him the Berkeley Citation, the highest prize the campus can bestow on a faculty member.