Conclusiones

The United States of America used export cartels, i.e., export associations, to help their smaller and incompetent exporters to compete aboard (Fournier, 1932). Even though the United States (US) have promoted the decartelisation campaign worldwide, particularly after the Second World War, export cartels have been left untouched until now.

3.3.2.1 From Alexander Hamilton to the First World War

Alexander Hamilton, the first Secretary of the Treasury under President George Washington, first proposed in the "Report on the Subject of Manufactures to the US Congress" in 1791 stating that infant industries must be protected in order to be able to compete in the global market, the underlying idea on which the relationship between export cartels and economic development in this dissertation is based on. Even after Washington’s time, President Thomas Jefferson, despite the Jeffersonian democracy emphasising agrarian democracy, did not abandon Hamilton’s basic policies. It was partially because Hamilton’s ideas were very influential in the early days of the United States (Notz and Harvey, 1921).

The infant industry ideology served as a blueprint for the US economic policy until the end of the Second World War (Chang, 2010). The early period of industrialisation in the US was well-described by Alfred Chandler in his seminal work–the Scale and Scope. His

main thesis was that the three-pronged investment played a central role in the economic development of the US. These investments include the manufacturing investment (production facilities), marketing investments (marketing and distribution network), and management investments (management). Through these newly-invested factors, the building and the operation of the rail and telegraph system led to the new type of business enterprises, in which a separation of ownership and management had been clear-cut. This new type of business enterprise, in turn, enhanced the building and the operation of the rail and telegraph systems. Moreover, these new business enterprises also used mass marketing and production to enter the new markets (economies of scope).

Cartels played an important role behind the construction of the rail and the telegraph systems, which could be considered as the foundations of the industrialisation process in the US. For example, the US railroad cartels played an important part in operating and further building of the railroad system during the early period. These cartels include the Iowa/Omaha pool, the Southern Railway and Steamship Association (SRSA) (Hudson, 1890).

The main purpose of these cartels was to help relieve the high fixed costs, low margins, and high concentration of the railroad industry in the regional markets. Moreover, it is arguable that, without cartels, the so-called three-pronged investment would have been less likely.

This is because, in order to achieve a greater scale of production to fully benefit from the upgraded infrastructure, firms need a considerable amount of resources for the investment, the argument which is in line with the infant industry argument discussed earlier.

During the inter-war period, cartels were still used in various industries. However, there were some factors by which export cartels became more necessary to exporting firms, especially small- and medium-sized exporters. Stocking and Watkins (1948) argued that there were three factors stimulating cartel formation, including export cartel formation during the period: war-time (the First World War) mobilisation of industry, maladjustment of productive capacity to market demands, and monetary instability.

3.3 Export cartels in the pre-First World War period 75

For the war-time mobilisation of industry, a number of industry-wide organisations of production supervised by the government were formed for the first time and had proven more productive than solely relying on the market. These organisations were formed to improve efficiency, price and quantity controls, standardisation of products or processes, specialisation of plants, exchange of technical information, coordination of outputs. However, Stocking and Watkins (1948) argued that, in peacetime, the US domestic consumers may resist such suppression by businessmen (this is in contrast with Germany as discussed earlier) and the limitations on consumer freedom of choice. Still, export cartels were found to be a compromise between the government’s direct intervention and the businesses free competition.

As for the industrial maladjustments, productive capacity could not be adjusted to meet the demands of war time. The maladjustments were particularly severe in some strategic industries, such as steel and shipbuilding (to be exploited in warfare production), but also in other relevant industries such as foodstuffs and raw materials (to serve the military missions).

Due to their war-specific needs, the demands in these industries increased significantly during the war but decreased sharply immediately afterwards.

3.3.2.2 The post-First World War period

When peace came, adjustment back to the old demand pattern proved difficult, as evident in the huge increase in world commodity stocks from 1922, with wheat, sugar and rubber stocks at almost double their pre-war levels (Kaldor, 1976). Therefore, cartels were used to manage the readjustment process because the market was unable to adjust itself solely through the price mechanisms alone. Moreover, an absence of sufficient population growth due to the war casualties also made it difficult for the demand to match the excessive supply.

The last stimulus of cartelisation during the post-First World War period was the monetary instability, which was caused by the government attempt to finance the war. During the

First World War, the US government’s public debt was increased almost twenty-folds. A substantial increase in money supply also caused currency devaluation. Businessmen were forced to either write down inflated capital values or increase their earning power. Cartels (and other concerted actions) were formed precisely to support the latter. In contrast to Germany, where cartels were formed largely to rationalise industries, the US cartels were mainly formed to organise stabilisation in the post-war period.

Export cartels were much needed after the First World War, especially by SMEs, in order to deal with the global volatility. However, these enterprises were reluctant to form export cartels due to the existence of the Sherman Act or the Antitrust law. As a consequence, in 1918, the last year of the First World War, the US Congress passed the Webb-Pomerene Act (WPA) to exempt the formation of export cartels (i.e., the export associations) from the provisions of the Sherman Act. The government tried to support smaller exporting firms through the WPA and encouraged them to advance their collective interests (by reconciling their individual interests). The WPA was partially a counter-measure to foreign export cartels and partially a supporting regime for exporters, who found themselves unable to secure financial support either domestically or abroad. These exporters were typically expected to be small firms in unconcentrated industries so that they could gain economies of scale (Larson, 1970). Evidently, Herbert Hoover, the Secretary of Commerce at that time, actively supported trade associations (export cartels) (Stocking, 1954). The WPA explicitly aimed to encourage firms to form a full export cartel (involving all firms in the industry) by disallowing export cartels to exclude or suppress other non-associated exporters from joining an export cartel (Stocking and Watkins, 1948).

After the WPA was enacted, the number of national trade associations attained new highs.

Between 1918 and 1940, there were over 120 export associations involving over 2,000 firms filing registration statements with the Fair Trade Commission (FTC). In 1940 alone, there were 44 registered trade associations with 434 participating firms (Gilbert and Dickens,

3.3 Export cartels in the pre-First World War period 77

1940). The functions of these trade associations spanned from price fixing, output restriction, to trade channel confinement. The idea behind fixing prices at that time was particularly interesting. One of the prominent trade association executives stated that "competition at all times should be based on quality and service and never on prices" (Berk, 1996). The statement provides a foundation on which the subsequent chapters discussing how export cartels may promote productive capabilities by relocating competition across activities will be based.

In the 1930s, export cartels were an essential part of the movements to deal with the Great Depression. Under theNew Deal, a number of domestic laws were enacted between 1933 and 1938. These domestic laws were both passed by the Congress and the presidential executive orders during the term of President Franklin D. Roosevelt. One of the laws that is directly related to export cartels was theNational Industrial Recovery Act of 1933 (NIRA).

The NIRA was enacted to avoid the so-called cut-throat competition, the concept which is closely related to excessive competition in Germany and ruinous competition in Japan.

The NIRA was soon declared unconstitutional by the Supreme Court in 1935, which ruled that the NIRA infringed the separation of powers under the United States Constitution (i.e., the Schechter decision). This is because the NIRA allowed the government to have a non-predetermined discretion to defy the Antitrust law legislated by Congress. Some authors questioned the effectiveness of the NIRA in the first place by saying that the high-cost firms were sustained by it (Alexander, 1997). Even though the NIRA was declared unconstitutional, the business conducts in the US had never returned to full competition during the New Deal period. For example, during the term of President Franklin D. Roosevelt (1933 - 1945), with the assistance of Judge Thurman Arnold, the side-stepping of competition still persisted.

Similar laws to NIRA were legislated during the period, e.g., the Agricultural Adjustment Program of 1938 and the Bituminous Coal Conservation Act of 1937 (Stocking and Watkins,

1948). The resistance against cut-throat competition persisted until at least the outbreak of the Second World War.