Easy prey? Firms based in small nations and international cartels, 1919–1939

Abstract

It is taken as common sense that small countries have been more pressed and exploited by transnational enterprises than large ones. Economists call this the ‘small-country-squeeze’. Our contribution tries to transfer the thesis to the micro-economic level: Did mighty international cartels exploit their cartel partners based in small countries more easily than enterprises from larger states? From a viewpoint of political logic, or everyday feeling, such a thesis looks straightforward. In the following we apply the thesis of small-country-squeeze to several cases of cartels during their peak period, 1919–1939, and find surprisingly little evidence for this ‘common sense’. The assumption rather needs to be reversed: We should take non-discrimination as the normal case and try to find contradicting cases of discrimination.

Keywords:

• international cartels
• small states
• inter-war period
• syndicate

Acknowledgements

I thank the participants of the workshops or sessions on cartels in Bergen (2008), Utrecht (2009), Milan (2009), Neuchâtel (2009), Bergen (2009), Paris (2010), Glasgow (2010) and Athens (2011), the unknown referees and all others – of which I want to mention Margret Müller especially – for their useful ideas and helpful comments of earlier versions. All errors are mine, of course.

Notes

¹Katzenstein, Small States (1985). Kristensen/Levinsen, Country Squeeze (1978). Mokyr, ‘Small Open Economies’ (2006), 8–12.

²Consequently this contribution makes the same distinction between small European developed states and others, as Katzenstein, Small States (1985), and Svennilson, Growth (1954).

³Teichova, Background (1974). Wurm, Kartelle (1989).

⁶Kuorelahti, ‘Conquistadors’ (2011), 3.

⁴Teichova, Background (1974). Teichova, Kleinstaaten (1988).

⁵Sandvik/Storli, ‘Confronting Market Power’ (2011).

⁷Karlsson, ‘Cartels’ (2009), 190.

⁸Storli, Aluminium (2010), 148f.

⁹Karlsson, ‘Cartels’ (2009). Sandvik/Storli, ‘Big Business’ (2009), 209–223. Sandvik/Storli, ‘Confronting Market Power’ (2011). Storli, ‘kartell og stat’ (2008). Jensen-Eriksen, Predators (2010). Barjot/Schröter, Les Cartels (forthcoming 2013). Müller et al., Märkte (2011). Schröter, ‘Losers’ (forthcoming 2013). Kuorelahti, ‘Control’ (2010). Kuorelahti, ‘Conquistadors’ (2011). Resch, Kartelle (2003). Resch, Industriekartelle (2002).

¹⁰Two special cases (steel and light bulbs) are addressed in: Schröter, ‘Losers’ (forthcoming 2013).

¹¹Karlsson, ‘Cartels’ (2009). Kuisma, ‘Government Action’ (1993). Kuorelahti, ‘Control’ (2010). Kuorelahti, ‘Conquistadors’ (2011). Nordvik, ‘Marked’ (1996). Sluyterman, Dutch Enterprise (2005), 52ff.

¹²Bouwens/Dankers, ‘Handshake’ (2011).

¹³See: Espen Storli, who systematically corrects other views, Storli, ‘kartell og stat’ (2008).

¹⁴Barbezat, ‘Price’ (1991).

¹⁵Such material might well exist. Try for instance, for dyes, the archives of today's Novartis, and, for steel, what used to be ARBED in Luxemburg. While for legal matters such material has been unearthed since World War II, there is no such study on the inter-war period.

¹⁶In his novel ‘A Descent into the Maelström’, Edgar Allan Poe presented the maelström (malstrøm) as a deadly current at the Norwegian coast.

¹⁷For reason of briefness we use ‘USA’ to address all the nitrogen exporting enterprises registered in that country. We use such general terms because (a) they were used in the sources, (b) they are still used in colloquial language, (c) a precise list of all actors would easily fill a whole page of this journal – without giving much meaning, and (d) such a list, though fairly comprehensive, may still omit some smaller firms.

¹⁸On the nitrogen cartel see: Devos, ‘International Cartels’ (1992), 118. Schröter, ‘Marktregulierung’ (1991).

¹⁹For Hydro's position see: Andersen, Flaggskip (2005). Tønneson, Selvstendighetslinje (1997).

²⁰For more details see: Schröter, ‘Technologietransfer’ (2004). Andersen, Flaggskip (2005).

²¹To be precise: There were, as with many other contracts of these politicised times, adjustments according to political considerations. For instance, apart from Norway, Hydro went on selling on its own in France and Poland, states where customers would prefer not to buy from a German firm. Hydro was also entitled to sell its outdated product Norgesalpeter under its own name to those customers who insisted on that product. Sold on its own account or not, all sales were included in Hydro's quota, of course. We find similar cases in other agreements of that time. For instance, due to the Swiss-Soviet trade war, Swiss dyestuffs were officially not exported to the USSR. That does not mean the USSR was excluded from them. Not labelled as Swiss, the cartel channelled them through IG Farben's distribution system into the Soviet Union. However, for the rest of this contribution we will not deal with such nice but rather anecdotal arabesques. Though interesting, they have no impact on the general line of development which we are dealing with.

²²Plumpe, I.G. Farbenindustrie (1990), 233.

²³Hoechst Archives (HA), without number: Economics Division Decartelization Branch Control Office, US Zone, Activities of the I.G. Farbenindustrie AG in the Nitrogen Industry, dated 15 June 1946, 50.

²⁴Sandvik/Storli, ‘Confronting Market Power’ (2011), 243.

²⁵‘Det synes nærmest so må de (IG Farben – H.G.S.) fra 1930 viklet seg inn i avtaler, både med Hydro og andre, som tvang demselv til å ta de største byrdene under den økonomiske verdenskrisen’ (Tønneson, Selvstendighetslinj (1997), 168).

²⁶In general see: Bertilorenzi, Contrôle (2011). Bertilorenzi, ‘Patent Licensing’ (forthcoming). Storli, Out of Norway (2010). Rauch, Hüttenaluminiumindustrie (1962). Rauh-Kühne, Schweizer Aluminium (2009).

²⁷Bertilorenzi, ‘Cartels’ (2009), 11, table 2.3.

²⁸Dealt with in each detail in: Storli, ‘kartell og stat’ (2008).

²⁹Calculated from Storli, ‘kartell og stat’ (2008), 85. Haugvik was situated in a remote place where there was no alternative employment.

³⁰Calculated from Storli, ‘kartell og stat’ (2008), 85. Haugvik was situated in a remote place where there was no alternative employment., 95.

³¹Sandvik/Storli, ‘Big Business’ (2009).

³²Plumpe, I.G. Farbenindustrie (1990), 197–199. Schröter, ‘Dyestuffs Cartel’ (1993). Schröter, ‘Kartelle’ (1987).

³³Reader, Chemical Industries (1975), 412.

³⁴Alfred Bürgin, a Swiss manager at Geigy's, wrote: ‘Die Verhandlungen und Auseinandersetzungen zwischen diesem Riesenunternehmen und der Basler chemischen Industrie in den großen Kartellverhandlungen der zwanziger Jahre bilden wohl innerhalb der Geschichte der schweizerischen Chemie das aufregendste, tiefgreifendste und wirtschaftspolitisch bedeutsamste Ereignis’ (Bürgin, Geschichte (1958), 234).

³⁵For the remainder: UK 1.5%; France: 0.5% (Plumpe, I.G. Farbenindustrie (1990), 52).

³⁶The oldest one was from 1905, the last one from 1925 (see more in Bürgin, Geschichte (1958), 253).

³⁷Brunner, ‘Die Geschichte’ (undated), 63. Brunner was director of the Department of Law at Ciba.

³⁸Reader, Chemical Industries (1975), vol. II, 32ff. Plumpe, I.G. Farbenindustrie (1990), 191.

³⁹Geigy Archives (GA): VE/IGK 3.

⁴⁰HA, Hö 303 (Tea 190): ‘Richtlinien für eine deutsch-französische Kapitalverflechtung’, attachment to the strictly confidential letter to Dr Schmitz, 18 January 1929.

⁴¹‘Obgleich die Schweiz, wie vorstehend ausgeführt, heute noch nicht für Kapitalverflechtung in Frage kommt, wird der Augenblick, in dem sie dazu reif ist, sich vielleicht sehr viel rascher einstellen, als einzelne der Baseler Herren – ein anderer Teil sieht heute die Verflechtung schon als ein Ereignis allernächster Zeit an – sich vorstellt’. HA, Hö 303 (Tea 190): ‘Richtlinien für eine deutsch-französische Kapitalverflechtung’, attachment to the strictly confidential letter to Dr Schmitz, 18 January 1929, 4.

⁴²‘Das rasche Verhandeln hat zweifellos den großen Erfolg mit sich gebracht, dass die Verhandlungen der Schweizer mit den Engländern gesprengt worden sind.’ HA, Hö 303: Internal letter to Dr Krekeler, 19 October 1928.

⁴³Bürgin, Geschichte (1958), 255.

⁴⁴GA, VE/IGK 3: Strictly confidential letter of Geigy's, 11 April 1929.

⁴⁵Shares in percentages: IG Farben: 65.6; Swiss IG: 17.4; CMC: 8.5; ICI: 8.5 (HA, without number: Economics Division Decartelization Branch Control Office, US Zone, Activities of the I.G. Farbenindustrie AG in the Dye Stuffs Industry, dated 15 June 1946, 51, 56).

⁴⁶GA, VE/IGK 3: Notice in handwriting of Geigy's example.

⁴⁷Brunner, ‘Die Geschichte’ (undated), 63ff.

⁴⁸‘Den Deutschen insbesondere war, wenn sie das natürlich auch nicht kundtaten, an der Wahrung der relativen Ruhe im Markt mehr gelegen als an der Erreichung ihrer Sollquote’ (Brunner, ‘Die Geschichte’ (undated), 63).

⁴⁹Plumpe, I.G. Farbenindustrie (1990), 129.

⁵⁰See in more detail: Blanken, Geschidenes (1992). Heerding, History (1986). Luxbacher, Massenproduktion (2003). Meinhardt, Glühlampenindustrie (1932). Rath, ‘Entstehung’ (1986). Reich, ‘General Electric’ (1992). Schröter, ‘Losers’ (forthcoming 2013).

⁵¹Schröter, ‘Specific Freedom’ (1993).

⁵²Kuorelahti, ‘Conquistadors’ (2011), 7.

⁵³Karlsson, ‘Cartels’ (2009), 196.

⁵⁵Jensen-Eriksen, ‘Predators’ (2010), 18f. Jari Ojala and Petri Karonen even suggested this to be a general characteristic: ‘During the 20th century, (export) cartels were a central element of cooperative capitalism in Finland, …’ (Business: rooted in social capital over centuries), Ojala/Eloranta/Jalava, Road (2006), 107.

⁵⁴Hexner, Cartels (1946), 375. Karlsson, ‘Cartels’ (2009), 13.

⁵⁶Fellman, ‘Finnish Model’ (2009), 8.

⁵⁷Barjot, ‘Morny’ (2010). Becker, Multinationalität (2002). Société de la Vieille Montagne, Société (1912). Société de la Vieille Montagne, Centenaire (1937).

⁵⁸Devos, ‘Agreements’ (1994), 148ff.

⁵⁹Teichova, Kleinstaaten (1988), 171.

⁶⁰Symeonidis, Competition (2002).

⁶¹Literature supports this thesis: ‘…, thus providing evidence that small states may in fact be seen to have considerable freedom of manoeuvre in the global political economy’ (Lange/Pharo, ‘Cake’ (2008), 151). See also: Hedberg, ‘Bilateralism’ (2009). Hedberg, ‘Exchange’ (2009). Schröter, ‘Specific Freedom’ (1993).

⁶²But even small states could exert pressure and success as the case of Haugvik (above) shows. Also Sandvik and Storli maintained: ‘… a small state like Norway … had some leverage in trade negotiations, even with large countries’ (Sandvik/Storli, ‘Big Business’ (2010), 221).