IN OUR present economic impasse certain of our industrial leaders and economic writers show a tendency to favor some form of "managed" industry as a solution of our difficulties. The most pronounced manifestation of this tendency may be seen in the more or less organized efforts to obtain relief from the restrictions of our anti-trust laws, and in connection with this subject particular emphasis is placed on the evils of the unrestricted production of essential raw materials. Another indication may be seen in the effort of some of our important industries which produce raw materials to obtain additional tariff protection or even embargoes against foreign competition. In so far as its general tendency is to restrict competition, the effort to get legal sanction for resale price-fixing might also be regarded as a part of the general movement, although in this connection the immediate aim is to fight concentration in retail distribution.

In the arguments favoring a mitigation of the rigors of our anti-trust laws, the cartel is generally pointed out as an institution which we might incorporate in our economic structure with considerable benefit. The cartel may not always be mentioned specifically, but it is definitely implied in the course of action which is described as likely to follow changes in the anti-trust laws. For unless we assume that our producers and distributors have in mind some understanding about prices, production, selling terms or markets, what would be the use of making such agreements legal?

If we analyze the tremendous amount of economic and pseudoeconomic literature which purports to shed some light on the present economic slump, we find that the price decline is assigned a most conspicuous place among the causes or effects. This is not to be wondered at, considering the fact that the price decline is at once the most tangible and the most dramatic manifestation of the crisis, if we include the decline of security values. The producers and distributors most affected by the slump in prices are generally more prominent and articulate than the handful of objective investigators who are inclined to look for more fundamental factors and who draw unorthodox conclusions as to the lack of balance between production and consumption, with its suggestion of radical social changes. The man who has lost a large part of his security holdings, commodity reserves or other invested capital in the slump, is not likely to listen seriously to an academic interpretation involving a wider distribution of purchasing power among the masses of consumers, which he is likely to interpret as necessarily implying a curtailed return for capital. Now a price decline naturally suggests the remedy of price-fixing or production restriction by agreement, which are the essential features of the cartel, but to the American producer this in turn suggests unwelcome attention from the Department of Justice and the alleged harshness of our government policy as compared with the more liberal, not to say friendly, attitude of some of the more advanced European countries. An American industry that has been taken to task by the Federal Trade Commission or the Department of Justice for "conspiracy in restraint of trade" is inclined to envy the lot of its competitors in a country like Germany, for instance, where an action similar to one which is prosecuted in the United States would bear the more dignified name of cartel and would be sanctioned by custom and law. The German Government, for example, instead of bringing action against the organization for restraining competition, provides a special law regulating such activities and also a special court which passes on the rights and obligations of the constituent members. If one of them should withdraw from the cartel for insufficient reason, or if he should violate any of the provisions bearing on fixing of prices or production, the court will order him to rejoin the organization and probably fine him for breach of contract. It is quite true that, as will be described further on, the recent attitude of the German Government toward price-fixing organizations has not been so friendly, but this may be a passing phase, induced by the present economic crisis, and may not persist when conditions become normal.

Another reason why the cartel is of so much greater concern to us now than it was in pre-war times is that our economic relations with the outside world, especially Europe, have become so much more intimate. Not only do some of our industries participate in international cartels, with the approval of the Federal Trade Commission in virtue of the Webb-Pomerene Law, but through their foreign branch factories they also take part, sometimes reluctantly, in national cartels and similar industrial agreements in foreign countries. When, further, we take into account the closer personal relations developed through individual business contacts and through such organizations as the International Chamber of Commerce, we can hardly be surprised to find that the American business man is manifesting considerable curiosity about the environment in which his foreign competitor is carrying on his business and is sometimes inclined to idealize foreign conditions or at least overestimate the importance of some foreign institution and the possibility of its being adapted to American conditions. In the case of the cartel, we may say that while it is still a very important factor in a number of European countries, and is receiving a good deal of attention in England as a possible solution of industrial difficulties, its relative importance is perhaps not as great as is generally imagined. Just at present there is a tendency to question its efficacy as a factor in the price situation, particularly in the international field.

Before we enter upon a more detailed statement of the present position of the cartel and analyze the reasons for its failure to operate successfully in the present crisis, it might be advisable to describe its character and background and give some idea of the extent to which it has been adopted abroad.


If we consider the cartel in its essentials as an economic organization, and ignore for the moment the finer distinctions, we find that it is merely a voluntary association of independent producers or distributors created for the purpose of restricting competition by fixing prices, terms of sales, production, markets, or any other phase of production or distribution; it aims primarily at depriving the individual producer or distributor of the possibility or inducement to enter into injurious competition with the other members of the cartel. Perhaps we might also say that the cartel represents a step further in the development of a trade association than is legal in the United States under our anti-trust laws, but which in many foreign countries is looked upon as a logical outgrowth of the trade association idea. This, in its simplest terms, is a national cartel. The international cartel is merely a further extension of the same development to include producers or distributors in two or more foreign countries. Naturally, the international cartel is likely to be more difficult of achievement and more complicated in operation, but essentially it is merely the international form of the national cartel.

Now let us return to a consideration of the origin and causes of the cartel movement and examine its achievements and possibilities, especially from the standpoint of our own economic future.

In Germany, the classical land of cartels, the institution is regarded primarily as having developed out of the slump which followed the impetuous and not very sound industrial growth inaugurated after the victorious outcome of the Franco-Prussian War. The large indemnity obtained from France and the stimulus that came from political unification furnished the basis for an industrial and financial boom; this was quickly followed by the famous crisis of 1873, considered by some economic historians as the first comprehensive crisis in the modern economic world. The fact that the cartel development was greatly stimulated by the crisis gave rise to the theory that it was merely an emergency movement, the "child of necessity," in the same way that some economists were inclined to stress its dependence on tariff protection because of the fact that many cartels came into existence after the adoption by the German Empire of the protective tariff of 1879. Whether the cartel was a means of escape from the cutthroat competition that generally develops during a slump, or whether it was an attempt to take full advantage of the benefits of the protective tariff of 1879, cannot be proved by merely citing the statistics of cartel development. Judging from our own experience with industrial amalgamations, we might say that probably both factors are likely to influence such a movement; we are likely to witness an acceleration of the movement toward combinations when there is a considerable number of "distress" firms to be picked up by those which are economically strong, as well as in times of prosperity when promoters are attracted by the profit-making possibilities of some of the independent concerns and manage to amalgamate them with their stronger competitors or form a new and strong competitive group.

Without going any more deeply into the merits of the various factors advanced as being responsible for the cartel movement in Germany, we may say in general that the cartel has been an important factor in the economic life of that country from the crisis of 1873 to the present, making allowances for the economic disturbances of the war and the recent rise of the more intimate forms of amalgamation, which more or less resemble our trusts. In view of the fact that practically every industry of national importance capable of being cartelized is already directly or indirectly connected with one or more cartels, there has naturally been a slowing up in the movement, for lack of material, we might say.

In Germany, where the cartel psychology and philosophy are most developed, the cartel is regarded as being in the nature of a protection for the small producer against his stronger competitor or the trust. The theory is that by compelling the large producer to enter a cartel where in the adjustment of production and distribution policies the interests of the aggregate of small and medium size producers must be given consideration, a barrier, more or less temporary, is built up against the onrushing tide of industrial concentration. This has been the underlying aim of the government in connection with the policy of compulsory cartels. It is quite true that in the heavy industries the impetus for organization, and perhaps the determining influence on cartel policies, comes from the larger units; but the fact that, by and large, the success of a cartel depends on the degree to which an industry is organized means that the smaller producers must be given a voice, even if in some cases this leads to their being absorbed by the larger units.

It is rather remarkable that in the United States the antitrust laws, which are intended to protect the small independent producer as well as the general consuming public, form the chief obstacle to the organization of cartels.

While Germany has been the leading exponent of the cartel idea, it is safe to say that hardly a country of economic importance in Europe is not affected to some extent by the cartel movement, although the institution is not always known by the same name. In France, for instance, it is better known as a "comptoir," with the emphasis largely on joint selling. Belgium has a number of highly developed cartels, and has figured in the international cartel movement for a good many years. The same is true -- though to a lesser extent perhaps -- of Switzerland. In Italy, the development of modern large-scale industry is a comparatively recent phenomenon, but the country is making up for lost time and is beginning to take a prominent part in the international phase of the cartel movement. In Great Britain the cartel is still looked upon somewhat askance by more conservative industrialists, raised on the doctrine of economic individualism and British domination. However, the economic difficulties experienced in Great Britain since the armistice, and particularly her failure to regain her prominent pre-war position and to meet the competition of the more aggressive countries, are beginning to influence public opinion; and today men in prominent official positions are inclined to come out in favor of amalgamation and other forms of organization to facilitate the modernizing of British industrial methods and the elimination of uneconomic competition. This change in public opinion is being brought about not only by contemplation of the sad state of certain basic industries like coal and cotton, but also by the conspicuous prosperity of some of the more modern industries like chemicals and rayon, where the influence of what we might call the Continental attitude toward amalgamation and elimination of competition has been very strongly felt.


The international cartel of which we now hear so much is no more a post-war development than its domestic prototype, but it is receiving far more attention at present very largely because now it is functioning in an entirely different economic environment. The strong emphasis on the economic phases of the World War, the tremendous financial problems involved, the highly popularized and not always deep discussion of "control of raw materials," "European customs unions," etc., have made the average man much more sensitive to economic movements than he was before the war. At present he is quite ready to accept the implication that the big international combinations effected or planned by the international captains of industry and finance often outweigh in importance the political activities of the various governments; that there is a sort of economic supergovernment, not the pre-war "international finance" that was supposed to be responsible for most of the world's ills, but a more enlightened, more efficient but also more influential force that sometimes goes over the heads of the governments and is strong enough to ignore the politicians who are guided by popular sentiment. He believes that this economic "superstate" was responsible for the fact that German and French potash producers started to negotiate for the restoration of the world potash monopoly at a time when he, the man in the street, thought that it was not safe for a Frenchman and German to come within striking distance of each other. And he remembers that it was only a short time later that the German steel producers took the initiative in approaching their recent enemies in regard to the organization of the raw steel cartel.

In the face of an overproduction crisis, and in the absence of inimical legislation (as in most European countries), it is quite logical that producers should get together to regulate competition in such a way as to enable everybody to make a little profit or perhaps merely to protect themselves against losses. While special circumstances, sometimes due to an overdeveloped sense of individualism, may delay or entirely prevent the successful outcome of the negotiations, they result as a rule in the formation of a cartel of one kind or another. This, of course, presupposes that the product in question lends itself to cartelization. It is quite obvious, for instance, that while it would be comparatively easy to regulate the production of a highly standardized product like steel rails, it would be much more difficult, if not impossible, to bring about a similar organization among the producers of ladies' hats, where the instability of the product would prevent any agreement regarding prices and where the predominating element of taste and skill would make it impossible to keep out new competitors. The ideal product for cartelization should be basic, capable of standardization, and hence offering advantages of large scale production; further, it should be subject to control by means of natural factors like scarcity of raw materials, or by patents or other means which would prevent new competitors from interfering with the rules of the cartel.

When we look at the outstanding international cartels we find that most of them are based on factors such as those just described. There is, for instance, the Franco-German potash cartel, which deals with a commodity in universal demand and subject to financial and government control. In the Continental Raw Steel Cartel and the European Rail Cartel we have the same elements (with the exception of government participation), but with the additional control involved in the fact that large amounts of capital would be required to start new steel mills. In the electric bulb cartels the patent element is a strong factor, as well as the financial obstacles in the way of new enterprises. The dyestuff, copper, plate glass, and bottle cartels all embody one or more of the elements essential for the formation of a cartel. It is not intended, of course, to lay down a hard and fast rule, but past experience would seem to indicate that an organization, the primary object of which is to eliminate or control competition requires certain economic or legal factors to enable it to perform its function.

Another feature of the cartel is that its members are financially independent. An organization involving one unit's financial control over another is no longer a cartel; it may be a trust, a "community of interests," a "konzern" or a "fusion," depending on the degree of financial interrelation, but not a cartel. This is rather an important point to keep in mind, as there is an inclination to group under international cartels all combinations involving the international control of a commodity, like the Swedish-American Match Trust, the margarine combination, etc. These are no more cartels than are our own large oil corporations with their international ramifications.

The methods by which the cartel controls competition depends on the circumstances. In some cases it is done through fixing of prices, which involves a highly developed degree of standardization and a rather elaborate organization to enforce the provisions of the cartel; in others it is achieved through a joint selling organization, so that the individual producer, by being prevented from coming in direct contact with the final consumer of his product, is deprived of the temptation to break the rules of the cartel. Price cartels, while very direct, are not very easy to maintain, as the individual producer is not always sufficiently imbued with a belief in the permanence of the cartel or hard enough pressed financially to sacrifice the good will involved in direct contact with the consuming market. Another difficulty about price cartels is that unless they also include the fixing of terms of sales, credits, packing, etc., they are not always in a position to prevent competition. The really effective price cartels are those which maintain central selling organizations.

The territorial cartels restrict themselves to a division of markets; in the international field they generally provide that the domestic markets of the constituent countries be inviolable unless domestic production is insufficient to take care of requirements. Theoretically the neutral markets are divided with a view to economic and efficient distribution, but we understand there are a good many exceptions.

When an industry is suffering from overproduction and at the same time is not in a position to fix prices, it sometimes resorts to the formation of a production cartel, the object of which is to limit production and thereby bring about a more lucrative price level. This type of cartel is not very easy to organize, especially when the industry includes large and aggressive producers who are not inclined to sacrifice their advantages in the competitive struggle and to slow up their pace to accommodate the economically weaker units. The problem of allotting quotas among the members leads to great complications and has contributed rather frequently to cartel mortality.

The international cartel, from a technical standpoint, does not differ essentially from the domestic cartel, except that since it treats the industries of the constituent countries as a unit it implies a sufficient degree of organization in the domestic field to assure compliance with the provisions of the control of competition in the international field. In the case of some countries membership in the international cartel may consist of a single domestic cartel, as is the case of the German representation in the Continental Raw Steel Cartel; while in the case of less organized countries it is likely to be made up of the separate producers, perhaps under the informal leadership of the larger producers.

Another thing to be kept in mind is that many domestic cartels -- and indirectly the corresponding international cartels -- include in their membership not only single firms but also large combinations, in some cases controlling a very large share of the total domestic output of the commodity in question. This range in the size and importance of constituent members is one of the chief points of weakness in the organization and maintenance of cartels. In order for a cartel to be successful in controlling competition, its membership must be as comprehensive as possible. Among the German students of the cartel movement there is a division of opinion as to whether a cartel is monopolistic in its essence. We need not examine the points in controversy since we are interested primarily in the economic phase of the movement and need not burden ourselves with fine points of technique. It would seem, however, that if we admit the basic function of cartels as regards elimination or control of competition, we cannot escape the conclusion that the tendency of the cartel must be to leave out as few actual or potential competitors as possible. This inclusiveness often leads to dissension growing out of differences in interest and viewpoint, due largely to differences in financial strength and traditions. Almost inevitably the big producer, operating on a large-scale basis with modern equipment and strong financial backing, has different ideas as to the chances of getting a proper share of the market than the smaller and less efficient concern. The latter would probably require for its own protection that the minimum price be adjusted to the production costs of the weakest members of the cartel; the strong producer, on the other hand, would like to see it fixed at a more moderate level, in order to promote consumption and give him an opportunity for profit by his large scale production methods. The same difference of opinion is also bound to arise when it comes to working out the details of restricting output, where there may be a very sharp division of opinion, not only as to the separate quotas to be allotted to each plant, but also as to the capacity of the market. In some cases these differences are settled under the pressure of some crisis, only to come up again when the market begins to move upward, so that many a cartel goes under when the emergency responsible for its birth has passed and when the stronger and more aggressive concerns decide that they would gain by playing a lone hand. It has happened, especially in the case of a cartel that enjoys an actual or approximate monopoly, that the stronger members bought out the weaker concerns merely to get hold of their allotted quota and add it to their own quota in order to utilize more fully their own equipment; the less efficient plants were in this way gradually eliminated. This has been the case particularly in the German potash cartel, which will be described later. In order to cope with this divergence of interests the better organized cartels resort to different methods, such as penalties for overproduction, compensation for underproduction, joint selling agencies, central statistical bureaus, etc.

The point we should like to make here is that the cartel, as an economic instrument for the limitation of competition, has had a rather stormy career, is in general far from perfect, and is probably not the ultimate form of industrial association. In fact there is reason to believe that some countries have already gone beyond the cartel stage.


The international cartel, like its national prototype, originated long before the World War, although our own interest in international economic developments at that time was not sufficiently wide to bring it to public attention. As a matter of fact, some of the more or less prominent international cartels are revivals or post-war versions of the pre-war organizations. This is true of the European rail cartel (known before the war as the international rail cartel), the aluminum cartel, the electric bulb cartel, and the cartels dealing with such commodities as carbide of calcium, plate glass, bottles and enamel ware.

The World War proved fatal to many of the international cartels, particularly because Germany had been very prominently connected with the movement. It was some time after the Armistice before the political atmosphere was calm enough to allow the start of reconstruction. Since Germany was most anxious to resume her international economic position, she took the initiative in opening negotiations and probably received a few snubs from her less economically minded former enemies. This was particularly true in connection with commodities like potash and steel, for the respective positions of the producing countries had been drastically shifted by the peace treaty. All Germany's post-war plans and activities were, to say the least, scrutinized with considerable anxiety by her former enemies as well as by neutrals who had succeeded in improving their international economic position at her expense. The first international cartels in which she participated were naturally included in the scrutiny. This fact, indeed, served to give the movement too much emphasis, particularly as regards its possible effect on the international economic position of the United States.

The first post-war international cartel to come into the full glare of the limelight was the Continental Raw Steel Cartel, which started operations in October 1926, following several years of negotiation. It is true that the Franco-German potash agreement, which came into effect in 1924, was in some way more dramatic, since it dealt with a monopoly commodity of vital importance to our agriculture and since it was particularly symptomatic of Germany's anxiety to rebuild her economic structure. The steel cartel, however, is a more typical international cartel, both from the standpoint of the number of countries involved as well as from the angle of cartel technique, and this despite the fact that it lacks the basic advantages of the potash cartel.

The European steel industry was in a most serious condition after the Armistice, not only because the military demand for steel had fallen off, but also on account of the dislocation caused by the shift of the Lorraine and Saar plants to France and the expansion of the world's steel production as a result of war demands. The construction of new plants in Germany and the reckless competition fostered by the demoralization of currencies in France and Belgium introduced new complications, so that when Germany's currency was stabilized by the Dawes Plan the German steel producers found themselves at a considerable disadvantage in the export trade and were naturally anxious to come to some sort of agreement with their chief competitors. The fact that France was the strongest rival and that at that time there were quite a number of other economic as well as political problems outstanding between the two countries did not make things any easier. The negotiations taxed to the utmost the not inconsiderable skill of the German delegates, among whom Fritz Thyssen, the chairman of the board of the Vereinigte Stahlwerke, Germany's counterpart of our United States Steel Corporation, is credited with having played the most prominent part. The rather complicated structure of the cartel and the clever provisions designed to reconcile the various conflicting interests and at the same time take care of the chief protagonist, testify to the difficulty of the task.

The Continental Steel Cartel is a production cartel; it merely limits the output of the member countries, and provides a rather complicated system of penalties for overproduction, compensations for underproduction and provisions for frequent revisions to take care of future developments. It has a good many shortcomings, even from a purely technical viewpoint, as the German negotiators were fully aware; but it was the best that could be done under the circumstances. In order to induce France to join it was necessary to make her quota somewhat out of line, as shown by the fact that the French producers have been getting the lion's share of the compensations for underproduction. At the time of the agreement, Germany was utilizing only about 50 percent of her capacity, while the French plants, stimulated by inflation, were working at about 75 percent. Germany had to accept a quota far below her capacity, but succeeded in getting in a provision by which her share would increase more rapidly with improvement in the world demand and the consequent increase in the total output allowed by the agreement. In actual practice, however, the increase in demand has been confined largely to the German domestic market, so that German producers have been paying most of the penalties and the French producers have been receiving most of the compensations, or, as some of the dissatisfied element among the Germans express it, the German producers were subsidizing the French to undersell them in the world markets. A certain amount of relief has since been given to the German producers through a reduction in the penalty rate, but that has not reconciled them fully to the way the cartel has operated. The chief defect is the failure to include a pr ce-fixing provision; the German representatives were very anxious for this but it proved out of the question on account of the conflicting interests. Many attempts have been made to get the same results indirectly through the organization of centralized sales cartels for semi-manufactured products, but with a few exceptions these have been unsuccessful. Not only is the cartel defective technically, but it also lacks comprehensiveness, even from a purely European viewpoint, since the British producers are still outside and are likely to stay out for some time. For the last year or so the cartel has largely existed only on paper. The attempts to organize subsidiary cartels have failed; the penalty provisions for overproduction remained unenforced for a considerable period and have lost their force in view of the general falling off in production. No definite action has been taken so far to place the cartel on a more permanent basis, beyond prolonging it on its present basis until the end of September.

Such is the famous Continental Steel Cartel, representing the outstanding steel producers of Continental Europe, but with a combined production capacity considerably below that of the United States. Even the most ardent exponents of the cartel idea are ready to admit that its effect on prices has been very slight and that its continued existence is due more to its potentialities than to actual accomplishments.

We find a striking contrast in the Franco-German potash cartel. While potash lacks the basic importance of steel, the Franco-German potash situation is ideal for the creation of a successful cartel. The potash cartel is based on a practical monopoly of an essential product and comes close to being an agreement between two governments instead of between private producers.

Like steel, potash was vitally affected by the territorial provisions of the Versailles Treaty. The transfer of Alsace to France put an end to Germany's pre-war monopoly of this commodity, which had operated through the Kali-Syndikat, an organization which was set up by a special law and which included in its membership some of the German states as owners of potash mines. The Alsatian mines, which became almost entirely the property of the French state, entered immediately upon a very aggressive campaign and made a strenuous bid for the markets formerly held by Germany, particularly those in the United States. In this competition the German industry found itself at a disadvantage, burdened as it was by a tremendous excess capacity and by the demoralization of the German currency. The French producers were favored by the higher yield of the Alsatian potash; also, according to their German rivals, they were receiving a government subsidy. Between 1919 and 1923, the Alsatian producers increased their exports to the United States tenfold and their total exports only about fourfold, which justifies the supposition that they had intentionally picked out a tender spot and were strengthening their position for eventual negotiations with the German producers.

The Germans were not slow in starting negotiations, although the political atmosphere of 1919 was not propitious to the healing of economic wounds. By the agreement finally concluded in August 1924, the American market was divided on the basis of 68.8 percent for Germany and 31.2 percent for France. The French share was considerably in excess of actual French shipments in 1923. There was much grumbling on the part of the stronger German producers, who attributed the yielding policy of the German negotiators to their anxiety to take care of the weaker members of the German cartel. The more definite agreement which was negotiated in 1926 to run for ten years divided the world market on the basis of 70 percent for Germany and 30 percent for France, with some additional contingent concessions to France in case the sales should reach a certain level. An interesting point about the Franco-German potash cartel is that the agreement bears the signature of the French government organization in which the ownership of most of the Alsatian mines is vested, while the Kali-Syndikat, the German signatory, owes its legal existence to the German potash law of 1919, by which all German potash producers must belong to the organization. This gives it a rather special position among international cartels and has been a factor in the legal action taken by the United States against the operations of the selling agency of the cartel.

The international aluminum cartel was created in 1926 for a period of two years (later extended for another three years) to replace the old cartel broken up by the war. It includes the producers of Germany, Great Britain, France and Switzerland, with their affiliated organizations in other European countries. Its object is to "stabilize" prices, encourage exports, and pool patents and processes. It has not been successful in maintaining prices; indeed, it has been compelled to reduce prices three times since its organization. An interesting feature of the operation of this cartel is that it has served to concentrate the world control of aluminum in two organizations. It is also worthy of remark that here is another example of the German Government's participation in industry, for the German output, somewhat less than one-fourth of the European output, is produced mostly in government-owned plants, developed largely during the war as a result of the scarcity of copper. In spite of its non-aggressive price policy -- dictated, it is claimed, by actual or potential competition from American producers and their foreign subsidiaries -- the international aluminum cartel is far from leading an undisturbed existence. Recent negotiations between Germany and Switzerland over aluminum exports from the latter country indicate that the renewal of the cartel at the end of 1931 is by no means assured.

The chief interest in the copper cartel is that it is largely an American institution; the American producers play the leading part and the Webb-Pomerene act of 1926 forms the basis for the entire organization. It is essentially a price cartel, providing theoretically for a very rigid control of supply, attained by a practical elimination of independent middlemen. Recent fluctuations in the price of copper may be accepted as conclusive proof that while there may be some difference of opinion as to the reasons for the inability of the cartel to stabilize prices, there is none as regards the facts.

The foregoing description of a few of the outstanding cartels is not meant to be exhaustive but rather representative. There are a number of international cartels which seem to lead a more or less normal existence and have succeeded in overcoming some of the difficulties of internal organization. We might mention the rail and tube cartels, which have succeeded in establishing themselves as controlling factors in the international trade in those commodities. Then there is the nitrate cartel, organized last year, which involves practically the entire European production of synthetic nitrate and the Chilean production. It is true that it is not on a very secure basis, considering that the present organization is to run only for one year beginning August 1930 and that all attempts to renew it have so far failed. The fact that the basis of the international cartel is an agreement between the German and British producers and that in those two countries the industry is highly concentrated financially would indicate the possibility of a permanent agreement. On the other hand, we must keep in mind the fact that nitrates have a political as well as economic aspect, and that the expansion of the industry may be dictated in some cases by reasons of national defense; nor can we lose sight of the expansion program of the American producers and the complications introduced by the Chilean product.


After this description of the origin and functions of the cartel, it remains for us to consider its recent progress, and particularly the part it has played in the present economic crisis. Whatever difference of opinion there may be as to the merits of the cartel as an institution, there is general agreement that its essential function is to restrict or eliminate competition. This function is sometimes justified by broad social considerations, as is the tendency in the United States in connection with the agitation for the conservation of natural resources, or it may be regarded from the narrower viewpoint of its influence on the earning capacity of a particular industry. The significant fact is that here we have, on the one hand, an institution specially devised for dealing with a serious evil resulting from our competitive system; on the other hand, we face a world crisis the outstanding characteristic of which is a ruinous price decline in the principal world commodities ascribed by many competent observers to absolute or relative overproduction. It would therefore seem fair to evaluate the cartel, in its international aspects at least, on the basis of its behavior in the present crisis. If it should be found that it has failed in these times to perform its essential function, we might be justified in questioning the value of the institution as a whole.

When we examine the situation of the outstanding world commodities we find that the behavior of the cartelized commodities has not differed essentially from that of the free commodities during the recent price decline. Taking up the metals, whose price fluctuations during the last year or so has been most spectacular, we find that a commodity like copper, subject to the strictest kind of price control, has fluctuated at least as violently as zinc or tin, which have been subject only to partial and ineffective control, or lead and silver, which are free from cartel restrictions entirely. It is true that the European aluminum cartel has managed to maintain prices, but these prices have been repeatedly reduced under pressure of competition and curtailed demand and some doubt is expressed as to its fate after the expiration of the present agreement at the end of 1931. There have also been rumors of unofficial price cutting. The Continental Steel Cartel, in spite of its prominence and theoretical importance, has not been in a position to influence steel prices to any extent through its curtailment program; the attempts at direct price-fixing for steel products through subsidiary cartels have been definitely abandoned. Even the Spanish-Italian mercury cartel, which is practically a government monopoly, has been unable to hold prices at a remunerative level, and has been suffering from an accumulation of stocks.

We also find that in spite of the pressure exerted by the price decline several prominent industries have found it very difficult and in some cases impossible to establish or renew international agreements. The negotiations for the renewal of the zinc cartel, which expired at the end of 1929, have only recently resulted in an agreement to go into effect on August 1, and providing for a production cut of 45 percent. This is to remain in force until the end of 1932, subject to automatic renewal. The rayon industry, which was most disastrously affected by the slump, is still without an international agreement, despite the close financial relations existing between the outstanding producers of Europe and despite the extreme concentration of the industry along national lines. The utmost that has been accomplished so far is an agreement between the chief foreign competitors in the German market. No perceptible progress has been achieved toward an international agreement on cement, and the League of Nations report on the coal situation is not very optimistic as regards the possibility of a cartel for that industry. The tin and sugar restriction agreements are too recent to furnish a basis for judging their effectiveness. The international nitrate cartel, which has been organized only for a year, will probably not be renewed in its original form. Even a thoroughly cartelized industry like the German potash industry is suffering severely from overproduction and some of the constituent corporations have been forced to drastic curtailment. When we consider the fact that all these industries are suffering extremely from their inability to market their output at reasonably remunerative prices, and that they possess the essential characteristics for successful cartelization, we are justified in questioning the effectiveness of the international cartel as a remedy for a disastrous price decline. It may be argued, of course, that none of the cartels cited above had reached a state of perfection at the beginning of the slump, and, therefore, that their breakdown or ineffectiveness should not be accepted as a valid basis for the indictment of the whole cartel idea. The logical reply would be that very few economic organizations ever reach a state of perfection, and that it is inconceivable that any industry scattered among a number of countries and involving any considerable variation in scope and environment could ever form a perfect voluntary organization.

It is interesting, too, that while the cartel has not made much headway during the last few years, industry has developed considerably along the lines of international financial concentration. This is true not only of the electrical industry, particularly in its public utility aspect, but also of the non-ferrous metal industry, where progress in financial interrelation has been made by Great Britain, Germany and Belgium, as well as the United States. In the same direction we have the gigantic combination of the Dutch and English margarine and soap interests (Unilever), with its world-wide ramifications covering raw materials as well as retail distribution. The rayon industry, in spite of its inability to reconstruct the old international agreement, has gone a long way toward international financial concentration, as evidenced by the German-Dutch combination (AKU), the close relations between the latter and the Courtauld interests, and the increasing participation of the two groups in the Italian rayon industry. Similar tendencies are to be observed in the linoleum and lead pencil industries. Considering the fact that national industrial combinations have grown much faster than the international ones, and that the present slump will probably accelerate the process, we may express some doubt as to whether the international cartel is to be the principal factor in the organization of industry along international lines. Rather is there good reason to believe that the international combination, involving financial interrelation, will play a very conspicuous if not dominant part in the future.

When we turn to the national cartel, we find that while there has been no serious attempt to dislodge it from its dominant position in Germany, where it has reached its highest development, the present economic disturbance has served to attract unfavorable attention to its price-fixing function. The fact that the price level of cartel-controlled commodities, particularly those of general consumption, has failed to reflect to any considerable degree the general decline in the prices of raw materials and other world commodities made it necessary for the German Government to take advantage of the emergency clause of the constitution, not only to carry out certain financial measures, but also to force arbitrary and horizontal reductions in the price of articles of general consumption, many of them trade-marked articles, subject to price-fixing or cartel control.

In the case of some recalcitrant cartels, the German Government has made use of its bargaining power as a large consumer to force them to come to terms. Under the present emergency decree, the government enjoys much wider powers in dealing with price-fixing than under the cartel law of 1923; its actions are not confined to cartels and it does not require a decision of the cartel court to bring about the desired price reduction. The present situation is of course abnormal, and it is unlikely that an institution which has played so important a rôle in German economic life will undergo fundamental changes on the basis of an emergency decree. The fact remains, however, that the whole subject of cartel control has been under examination in Germany for some years and it is quite possible that the present action of the government will have some influence on future cartel policy.

In conclusion, it may be said that the cartel, in its national as well as international aspects, is still one of the outstanding factors in the economic life of several of the most important countries of Europe. But the existing international cartels have exercised so little influence on price levels during the present price decline that it may be seriously doubted whether the cartel is adapted to perform its price-stabilizing functions in a serious emergency. Some of our industries are already participating in international cartels, and there is a strong probability that with the increase in our foreign branch factories and other methods of economic contact more of them will become involved in the movement. From a domestic standpoint, however, the political obstacles as presented by our anti-trust laws are so formidable that the question of adapting the cartel to our economic conditions is likely to remain one of mere academic interest for some time to come. When we do reach a stage of economic development where public opinion would approve a fundamental revision of our policy toward restraint of trade, it is quite possible that the cartel will have been replaced to a considerable extent by an economic organization involving a much closer financial relationship and somewhat resembling our trusts.

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  • LOUIS DOMERATZKY, Chief of the Division of Regional Information of the Bureau of Foreign and Domestic Commerce in the Department of Commerce, Washington
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