Cronograma

This chapter concludes by reviewing the key lessons learned so far from the evolution of practice of, and the academic literature on, cartels in general and export cartels in particular as discussed in this chapter.

The first lesson is drawn from the fact that cartels were originally a reaction to exces-sive competition. The implication is that, cartels including export cartels should aim at demolishing excessive competition, not any competition. Later in this dissertation, excessive competition is a level of competition at which competition is worse than cartelisation for enhancing productive capabilities (the argument will be developed further in subsequent chapters). In an extreme case, excessive competition may make it difficult for firms to even survive. The idea is closely linked with the infant industry argument, under which firms from infant industries need a certain level of protection, by which firms and the industry could survive the infant stage. This is why historical evidence shows that SMEs were usually

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regular users of cartels in developing countries. Moreover, further implications could be made in the context of export cartels. Both SMEs and larger firms from developing countries could usually be seen as novices (or relatively smaller firms) in the global market, whose export cartels are much needed to mitigate excessive competition in the global market. It was discussed that excessive competition may come from exporters from the same and other exporting countries and from domestic producers in the importing country. Therefore, an export cartel formation potentially mitigates excessive competition in two ways. First, an export cartel allows exporters from the same country to make an agreement to regulate their interaction, by which excessive competition is reduced. Second, an export cartel, in some cases, may enhance productive capabilities of firms, which exporters may use to compete with the exporters from other countries and the domestic producers in the importing country.

The second lesson is derived from the first. This dissertation by no means proposes that export cartels are always preferred to competition. Even though, in this chapter, a number of successful cases of using export cartels to promote economic development have been seen, there have been some cases under which export cartels contribute so little or even hinder economic development (e.g., the US tobacco industry from 1890 to 1939 in Zitzewitz (2003)). It was also shown that most countries promoted export cartels in just specific industries and during specific periods. One noticeable fact is that, once the industry’s productive capability has been increased, export cartels usually become less necessary. For example, the number of export cartels in the US have been significantly decreasing in most industries, in which the US have significant prowess as exporters. However, it does not always follow that some countries, to a greater extent than other countries, have developed facilities (e.g., central coordinating units, cartel offices, and departments with knowhow of cartel formation) and traditions (e.g., positive public view on cartels, the business practice by which cooperation between firms is promoted, and a long-term relationship between firms within the same industry), on which cartelisation could be easily formed. Similarly, some

countries have made several attempts to promote competition through government policies and the legislation process, where cartelisation has been indirectly viewed negatively in public. These path-dependent factors also determine how export cartels affect productive capabilities compared with competition. In other words, we need to be more precise in defining the terms excessive competition before we can say that an export cartel formation is a (proper) reaction to excessive competition.

The third lesson is trivial, yet so important. It was the government who was at the heart of all policies related to export cartels. Moreover, as was shown in different countries, allowing export cartels to be formed alone is not sufficient with regard to economic development.

In other words, mere exemptions of competition law for export cartels are not sufficient to guarantee that export cartels will be formed in the situations under which productive capabilities are promoted. For example, Germany, led by its strong government, used financial institutions as a coordinating unit to facilitate and monitor cartel formation in various industries. The United States enacted the laws (e.g., the WPA and the ETCA) and assigned the responsibilities to government agencies (the Ministry of Commerce and the Department of Justice). Likewise, the Japanese government assigned MITI to take charge on organising cartel formation in various industries in the late twentieth century. It is therefore clear that the government has to be actively involved in promoting export cartel formation. However, what remains unclear is the conditions under which the government (or the government agencies) should promote or prohibit export cartels.

The last lesson is essentially the chicken-or-the-egg question. We have seen from history that competition was not always desirable nor easy to be introduced at all. For example, in the cases of post-Second-World-War Japan and Germany, the US attempts to introduce American-style competition failed miserably and both countries continued to use cartels in various industries for several decades before gradually abandoning them only recently.

One of the recent arguments against cartel usually revolves around the lack of incentive

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to invest in productive capabilities caused by lack of competition. However, the point concerns the sources where firms could draw sufficient resources for such investments from the beginning. Moreover, competition, despite providing incentives to invest, also places a downward pressure on the profitability of firms, which they may use to invest. Therefore, even though competition enhances incentives to invest in productive capabilities of firms, it also decreases the capability of firms to do so. Thus a framework is required to properly analyse the conditions under which competition or cartelisation should be promoted over the other cases when it comes to productive capabilities and economic development.

In the next chapter (Chapter 4), the main thesis of this research, the relocation of com-petition will be introduced. In short, it will be argued that export cartels do not eliminate competition but relocate competition across different activities instead. Therefore, the point is how competition could be optimally relocated by an export cartel to promote economic development.

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Chapter 4

The relocation of competition

"When the prices of the products of an industry fall to an unreasonably low level, and the successful operation of the industry is thereby endangered or made impossible, the resulting crisis is detrimental not only to the individuals affected but to society at large. Therefore, it is to the interest of society that prices in any given industry should not remain long at a level that is below the cost of production...it cannot be simply and generally contrary to the public welfare that producers interested in a given branch of industry should unite in order to prevent or to moderate price-cutting and the consequent general decline in the prices of their products...when prices are for a long time so low that financial ruin threatens the producers their combination appears to be not merely a legitimate means of self-preservation, but also a measure serving the interests of society" – A decision of the German Supreme Court of Justice in Saxon Woodpulp case Martin (2010).

4.1 Optimal competition and dynamic efficiency

4.1.1 Optimal competition: economic development as an objective

Optimal competition is not maximum competition when it comes to economic development (Amsden and Singh, 1994). Rather than enhancing competition in all activities, optimal competition for economic development is achieved when competition is enhanced in the activities in which competition promotes productive capabilities more than cartelisation does, and cartelisation is also enhanced in the activities in which cartelisation promotes productive capabilities more than competition does. The enhancement of both competition and cartelisation is conducted through the relocation of competition process, the concept which will be introduced shortly. In other words, optimal competition is achieved by relocating competition across activities in the most productive allocation possible.

In this study, economic development is defined as "a process of economic growth that is based on the increase in an economy’s productive capabilities: its capabilities to organise–and, more importantly, transform–its production activities" (Chang, 2014). Therefore, competi-tion is a means not an end when it comes to economic development (Posner, 2009). It is true that competition serves as the best tool by which allocative efficiency can be achieved.

However, the objective of an improvement in productive capabilities leads to the alterna-tive concept of efficiency: dynamic efficiency, which is defined as the highest long-term productivity growth rate (Amsden and Singh, 1994).

There is a tradeoff between allocative efficiency and dynamic efficiency. Amsden and Singh (1994) argued that dynamic efficiency is achieved through enhancement of investment and acceleration of technological development, two activities which are not specifically promoted or even demoted by allocative efficiency. As the foundation of economic devel-opment lies in the productivity growth through investment and technological develdevel-opment, dynamic efficiency should then be prioritised over allocative efficiency. Therefore, optimal

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competition for economic development is not maximum competition, by which export cartels should be allowed to form given that they enhance productive capabilities. Moreover, it is not only export cartels which are generally allowed to be formed, but other cartels are also allowed to be formed in most developed countries including the EU and the US if they promote technological progress through the likes of research and development (Connor, 2007a). However, neither the policy guidelines nor the academic works have ever precisely described or explained how export cartels may actually promote technological progress or, even, economic development. This chapter discusses the framework in which the optimal level of competition could be achieved: the relocation of competition.

4.1.2 Excessive competition: creative destruction in competition

Rosenthal and Matsushita (1997) discusses the difference between competition in Japan and Germany and the West. They emphasised the importance of cultural difference, by which the economic consequences of competition are influenced. Japan and Germany treated the idea of competition in a relatively pessimistic way by using such terms as "excessive competition" or "ruinous competition". Particularly in Japan, Chapman (1991) claimed that a discussion amongst MITI’s top planners concerning an imposition of antitrust policy was generally negative. The reason the Japanese perceived competition differently was due to historical reasons (as discussed in Chapter 3). Even though the terms "excessive competition"

or "ruinous competition" have been cited several times throughout the previous chapters, the precise or pragmatic meaning has never been proposed. This chapter proposes an alternative interpretation of "ruinous competition". In short, under the framework of the relocation of competition, competition is excessive or ruinous when it prevails in the activities in which it is less productive than cooperation.

An alternative way to look at excessive competition is through the point that excessive competition today may lead to inadequate competition tomorrow. In other words, the

restriction of competition today may enhance future competition. The argument is actually well captured in the US Supreme Court decision on the Overlap policy used by a group of leading universities in 1992. The Massachusetts Institute of Technology (MIT) and the eight Ivy League universities formed the Overlap group to coordinate their financial aid processes. The Court overturned the claim of the DOJ in which the DOJ argued that the group is essentially an illegal per se price-fixing cartel and should be dissolved immediately.

The court argued that the Overlap group "regulate(s) competition in order to enhance it, while also deriving certain social benefits".