which they had made to me, but that for my own protection I had to
have a letter from du Ponts, in which they can assure us, in one way
or another, that the I.C.I. will not take the opportunity to come
into this market. After a lengthy discussion of the different ways to
accomplish this purpose, it was agreed that Mr. Wardenburg will write
a letter saying that while it is true that the I.C.I. under their
contract have a right to come into the American market, they [du Ponts]
happen to know that the I.C.I.’s development in the methacrylic ester
field has taken a direction which is quite different from the one that
is being taken by du Ponts and ourselves, so that it will be highly
improbable that the I.C.I. will attempt to come into the U. S. market.
I told him that such a letter will be satisfactory.”
It is clear that cartel interests fear that the revelation of the
provisions of their agreements might impede the functioning of the
agreements or perhaps draw down upon them action by public authority.
Very often cartel agreements endeavor to discount this possibility in
advance. In the case of the agreements between Standard Oil and I. G.
Farbenindustrie it is provided that:
“It is our understanding ... that each party proposes to hold itself
willing to take care of any future eventualities in a spirit of
mutual helpfulness particularly along the following lines: In the
event the performance of these agreements ... by either party should
be hereafter restrained or prevented by operation of any existing or
future law, or the beneficial interests of either party be alienated
to substantial degree by operation of law or governmental authority,
both parties should enter into new negotiations in the spirit of the
present agreements and endeavor to adapt their relations to the changed
conditions which have arisen.”
Because most cartel agreements provide for their resumption at the
end of the present war, efforts to rehabilitate world trade may be
insuperably handicapped unless prompt and effective action is taken by
the government with full knowledge of the existence and character of
such cartel agreements. Regardless of the particular form or direction
of this nation’s trade policies after the war they could not become
effective if secret agreements among the large industrial groups of the
world contain arrangements which clash with the government’s program.
It is well to recall that the provisions of the Versailles Treaty at
the end of the first World War which prohibited the manufacture of
certain strategic products in Germany were rendered ineffective in many
instances. Through foreign subsidiaries and under the cloak of cartel
agreements with concerns in the United States and other countries,
German producers of military equipment were able to nullify the
application of the conditions imposed by the Treaty.
Public authority must not be left in the position of having to work
in ignorance. Only by compelling the official acknowledgement and
registration of the existence and provisions of agreements which affect
our foreign and domestic commerce can government acquaint itself with
the arrangements which have been made and which affect so vitally
national security and national welfare.
During the present war one of the most serious problems with which
the fighting services have had to contend on the battle fronts is
the frequency of malaria, one of the most widespread diseases in the
world. There are two standard remedies for malaria: one is quinine, a
natural product obtained from the cinchona trees of Java; the other
is atabrine, a synthetic coal-tar product. Because the production and
distribution of quinine were controlled by one of the most closely-knit
cartels in existence, a shortage developed almost immediately when the
Japanese seized Java. The dwindling stockpile of quinine in the United
States compelled the government to call upon druggists and housewives
alike to turn over whatever small quantities were on hand in order to
keep the fighting front supplied.
In the case of atabrine, only one company in the United States had
a license to manufacture the drug under the I. G. Farben patents.
It required the concerted effort of manufacturers and government to
institute expanded production in order to make up for the deficiencies
of quinine. Fortunately, these efforts have met with some success.
With regard to the future, however, it must be borne in mind that
cartels which are able to control and restrict the output of medical
products, in particular those which are so widely needed, as quinine
and atabrine, exert a direct influence on the military position of the
United States and other countries, as well as upon the general health
of the population. The opportunities for abuse which are present in
monopolistic control of medical products are obvious. It is equally
obvious that this government cannot afford to tolerate them. It would
seem a minimum precaution to require that where cartels control the
supply, the price, and the distribution of medical products, they
should be compelled to record the terms on which control is based, in
order that government might in its turn develop adequate safeguards for
the general welfare.
I believe it has been clearly demonstrated that certain fundamental
decisions affecting our relations with the rest of the world have
been formulated and put into effect by private groups without the
sanction or knowledge of government. These decisions concerning
our strategic materials, industries and trade, our Good Neighbor
and our European policies, our disposition of enemy property,
considerations of espionage, secrecy and the evasion of our laws, have
all been accomplished without the knowledge of our government or its
acquiescence.
If cartels are permitted to continue to enter into their secret
agreements, then it will be impossible for the peoples of the world
to develop mutual understanding or to share industrial experience and
progress. Cartels have been a focus of conspiracy and distrust among
nations in the past. It is not too much to say that they will form a
nucleus of future distrust and intrigue. A world partitioned by cartels
breeds economic friction and disunity. We must face the fact that a
cartelized postwar world would inevitably be a world of suspicion and
of clandestine international intrigue. Full reciprocity in respect of
trade and technology can only be founded on mutual confidence and good
faith.
There is current a school of thought which believes we must
differentiate between good cartels and bad cartels. Do these people
still propose to leave the conduct of our foreign economic policy
in the hands of private monopolists, with the one caveat that these
people be good monopolists and not bad monopolists? With all the best
intentions in the world, it is neither the role nor the responsibility
of businessmen to determine political questions which can only be
resolved by constituted government. This is a responsibility which
I believe businessmen should not undertake, and one which I believe
that they do not wish to undertake. Even those businessmen who have
engaged in these practices would be shocked to realize the implications
of their acts. At the time they were operating in this manner they
never thought in political terms, but rather in terms of the local
market. Once operating in the international market, however, these
businessmen found themselves in ambiguous positions where they were
forced to make choices which they never contemplated. What would they
do when confronted with the problem of choosing between national policy
as it should be and their own private interests? It would seem, from
the standpoint of public interest, that when questions of national
concern arise they should be handled by properly constituted government
authority.
American businessmen have not realized the significance of the
relationship between their foreign cartel partners and the foreign
governments involved. I doubt that they knew, for example, that the
following statement was made by Mr. Meinhardt of Osram, a member of the
international lamp cartel: “An international cartel has no right of
existence and a German businessman has no right to become a member of
such a cartel if this cartel is acting against the common interests of
Germany.”
The attitude of American businessmen is typified in the following
statement by an executive of the General Motors Company: “an
international business operating throughout the world, should conduct
its operations in strictly business terms, without regard to the
political beliefs of its management, or the political beliefs of the
country in which it is operating.”
All American businessmen and the Congress particularly should weigh
with care the type of thinking which results from a cartelized economy
such as Germany’s. Carl Duisberg, formerly chairman of the board of I.
G. Farbenindustrie, expressed succinctly the philosophy of Germany’s
cartel system when he said, in 1932: “The narrowness of the national
economic territory must be overcome by trans-national economic
territories.... For a final settlement of the problem of Europe ... a
close economic combine must be formed from Bordeaux to Odessa as the
backbone of Europe.” The ultimate consequences of such cartel aims have
been reckoned across the council tables of Munich and the battlefields
of Europe and Asia.
14
_Freedom or Control?_
All of us want our country to be strong and prosperous after this war
is won. In attaining strength and prosperity, foreign trade will play
an important part. Manufactured goods will leave the shores of this
country and will find their way through the miracle of new forms of
transportation, as well as on the tramp steamer, to the four corners of
the world. Raw materials, and finished products as well, will come from
these same four corners into the hands of the American consumer. The
foreign trade of this country will be measured in billions of dollars.
And our nation will take its place and play its part in what we believe
can be a healthy world economy.
I do not think that there is any basic difference of opinion in this
country as to the importance of our foreign trade. There appears to
be some difference of views, however, as to how our foreign trade
shall be conducted in the post-war world. It is argued that since
Europe has a cartel system, if we wish to carry on trade on commerce
with Europe or in the world, we must permit our foreign businesses
to become cartelized. We are told, in short, that we must join hands
with the cartels if we are to engage in foreign trade. Most of the
people who make this argument do so regretfully. They know that the
Sherman Antitrust Act, which prohibits restraints on both domestic and
foreign trade or commerce, has reflected the free enterprise spirit of
this country for more than fifty years. They know that the people of
this country are unalterably opposed to a cartel system under which
either the government or one’s competitors can determine what may be
manufactured, how much can be made, and what price may be charged. They
know that you cannot have a democratic system if enterprise is to be
subjected either to government bureaucracy or to the rule of private
trade councils. Nevertheless, these people, seeing a cartelized world
around us, believe that much as we may dislike it, we cannot conduct
foreign trade unless we join hands with the cartels.
There is a small minority in this country, of course, which has always
opposed our own free enterprise system. If these people could manage
it, they would have the economy of this country run by enlightened
and benevolent monopolists. These people make the argument, not at
all regretfully, that we must join hands with foreign cartels. They
know that once we have joined hands with foreign cartels, we will have
opened the door to monopoly at home, and that is what they want.
Let me venture a prediction. This country will engage in foreign trade
and commerce on a scale never before imagined, and we are not going to
join hands with any foreign cartels. There will be a drive to get us
into the foreign cartels; that drive in fact is now going on. It will
fail. It will fail for two good reasons. The first of these is that
our foreign trade would not be helped in the least if we joined with
the cartels. The second and even more important reason is that this
country is in no mood to give up an American way of life because Europe
believes in cartels.
We have been willing to subject ourselves to all kinds of governmental
controls over American business in order to win this war. When the war
is over, these controls must go, and as soon as possible. We are not
going to keep these controls either in the hands of the government or
in the hands of a few private individuals. We are not going to imitate
the very foreign economic system which we have defeated.
The monopolist tells us that European industry is cartelized and
that it will remain so after this war is over. What kind of wishful
thinking makes the monopolist so sure of that? I do not believe that
the French or the Belgians will wish to embrace an economic system
after this war is over which took their basic industries and put them
into the hands of an international set of cartelists dominated by the
Germans. I do not believe that the British will wish to encourage a
system which in March 1939 gave birth to the announcement between the
Federation of British Industries and the German Reichsgruppe Industrie
that the two groups would eliminate competition between British and
German industries, would fix prices, and would seek the aid of their
governments against the industry of any third country, clearly meaning
the United States, which did not join in this limitation of production
plan. Great Britain needed its own full production in those days, and
American production as well. I do not believe, for that matter, that
the British will wish to have an economic system which has made the
British consumer pay high prices and has restricted production in both
Great Britain and the Dominions.
It is clear, of course, that in each country of the world, there are a
few monopolists who will benefit from the cartel system. We have them
in our country also. But we are not going to let these few determine
our own economic life, and we should not let them control our attitude
or actions in Europe. Certainly it is too early to predict that Europe
will remain cartelized after this war. I think it is not unlikely that
the consumers of Europe will decide they have had enough of that system
and will demand a change.
But no matter what Europe does, our foreign trade will not be helped
in the least by our joining foreign cartels. The very reverse is true.
The way to kill American foreign trade is to have American producers
enter into international cartels. One reason for the current drive to
get American firms into foreign cartels is precisely that. There are
a few monopolists who do not look with favor upon sales by American
firms in the rest of the world. They are terrified that our mass
production methods may benefit consumers in the rest of the world. They
will not be able to maintain their own prices if this should occur.
Their invitation for us to join them in cartel agreements is not an
invitation to engage in trade or commerce; it is an invitation to
discover upon what terms and conditions we will keep our trade at home.
The record is very clear. A small number of powerful American firms
entered into illegal cartel agreements before the war, particularly in
the halcyon days of the twenties. These were agreements to restrict
American exports. Typically, the American firms agreed not only not
to export themselves but wherever possible to keep other American
firms from exporting. These agreements occurred in synthetic nitrogen,
aluminum, magnesium, optical glass, electric lamps, pharmaceuticals,
plastics, chemicals and a host of other items. It is quixotic to think
of these agreements as having promoted foreign trade; their whole
purpose was to prevent it. Where was our foreign trade when these firms
agreed to turn over the Latin American market in pharmaceuticals to the
Germans? What foreign trade was being promoted when we agreed not to
export to Great Britain more than a limited quantity of magnesium? The
underlying philosophy of these agreements was that if the foreign firms
would stay out of the American market, we would stay out of the foreign
market.
There is no mystery about this. The monopolists know it very well
as do the other American companies, large and small, who were not
permitted to export because if they did so, they would interfere with
the arrangements to keep trade and commerce from flowing in either
direction across the borders of this country. The reasoning is clearly
set forth by an official of an American company in explaining why his
company cannot export:
“... you spoke of a possible license from the G.E. to export lamps to
certain countries. I don’t know whether I explained the situation to
you, but the fact is that in the world at large, the more important
electrical interests, such as the G.E., Siemens of Germany, Phillips
of Holland, etc., are closely bound together in a cartel with the
result that they have entered into binding agreements, apportioning
world markets between the respective companies. Accordingly you can see
that if the G.E. broke their agreement and allowed us to export into
a foreign country which was assigned under the cartel agreement to a
European manufacturer, that European manufacturer would have a claim to
enter the American market in competition with us and probably could not
be restrained from doing so. This is something which would probably not
be to our advantage.”
One might as well urge that a railway wreck promotes transportation as
to urge that a cartel agreement promotes trade.
The cartelist lives in a land of make-believe. I do not suppose that
we can object to anyone having his own private fairy tale, but this
kind of fairy tale can be dangerous to the future peace and security of
this country. It is a self-perpetuating fairy tale. It is founded on
economic maladjustments and it tends to prolong these maladjustments
by collecting a hidden tax from consumers and by donating the proceeds
to monopolists who have no incentive to change their ways. The
consequences can be disastrous in both the military and the political
sphere. As for our own economic life, international cartels breed
domestic monopolies. Their final result is complete government control
and management of business.
The cartelist appears to believe that the way to engage in foreign
trade is to have a conference--a kind of Alice in Wonderland mad
tea party. At this conference the world is divided up; markets are
allocated; and, if he is fortunate, an American enterpriser will be
given some business. At the end of the conference he can telephone his
office and say “Men, we have been given the Shangri-La market; it’s
all ours.” Sometimes the cartelist sounds as though he were too lazy
to attend the conference himself. He wants his Government to go for
him. He wants the Government to tell him what to do, what markets he
can have, and what he can sell. One gets the impression that foreign
trade is conducted in an armchair, that it is better if you can get the
Government to do it for you, and that it does not make much difference
what you have to sell.
This kind of thinking is dangerous. It is a denial of the principle
of private property with the profit reward for private initiative and
risk taking. Foreign trade presents special problems, but it is none
the less true in foreign as well as in domestic trade that if you
want to sell you have to make a product the consumer wants to buy. In
the development of the foreign market there is no panacea, no easy
substitute for ingenuity and efficiency. We cannot expect the foreign
consumer to adjust his desires to whatever it is we want to sell.
We have to make the kind of a product he wants to buy. The truth of
the matter is that many of the large concerns that have made cartel
agreements have not been particularly anxious to sell in the foreign
market. They have been more anxious to keep independent enterprise in
this country from gaining access to foreign markets than they were
to sell themselves. As a consequence we must frankly admit that in
many industries, American enterprise has not shown the competitive
alertness it has at home. If it does not show competitive alertness,
it does not deserve the business. And you cannot find a substitute for
competitive alertness in an armchair cartel conference or even in an
intergovernmental cartel conference.
The cartel conference is a kind of legislature, imposing hidden taxes
on consumers and bestowing bounties on others, without the necessity
for disclosure or responsibility to any electorate. It is truly a
method of imposing taxation without representation. This is true
in every cartel case. Some time ago it was fashionable to scoff at
international relief or development projects as being international
WPAs. Americans were asked rhetorically whether they wished to take
care of inhabitants on some other portion of the globe. But no relief
scheme has ever been imagined, and no one would dare to present it,
which could begin to compare with the international relief societies
maintained for themselves by the international cartels. Gigantic sums
are drained from the American consumer each year and given outright to
domestic monopolists and to foreign companies operating in protected
markets. When it is urged that American companies should be allowed to
join with foreign cartels in order to promote foreign trade, it should
be remembered that what is there called foreign trade is in reality a
gigantic relief enterprise supported by the American consumer. I can
illustrate this with an example taken from one of our earliest cartel
cases.
The story begins prior to the First World War with the discovery
and development in Germany of a way of making synthetic nitrate of
soda by taking nitrogen out of the air. Prior to that discovery, the
world was dependent upon Chile for its nitrate of soda for use in both
fertilizer and the making of munitions. The discovery of this new way
of making nitrate of soda changed the history of the world for it made
it possible for the Germans to wage war without depending upon a raw
material to be found only in the Western Hemisphere. It is probable
that if synthetic nitrogen had not been discovered, the Germans could
not have been able to go to war.
The Allies at that time were dependent upon Chilean nitrate of soda,
and as a military matter, this dependence made the Allied position in
the first years of the war exceedingly precarious. The Germans knew
that Great Britain could not stay in the war for any considerable
length of time if it were cut off from its only source of nitrogen,
and accordingly in 1917, the Germans set up a blockade outside of
Valparaiso. The first attempt of the British to break this blockade was
unsuccessful, but the blockade was finally removed as a result of the
battle of the Falkland Islands when Admiral Von Spee was defeated. As
an economic matter, this dependence of the Allies upon Chilean nitrate
of soda was, of course, good for Chile. The United States in 1917 and
1918 purchased almost four million tons of nitrate from Chile; we paid
on the average of about $82.50 per ton. At one time, the price rose to
$150.00 per ton. In those days, Chile had a unique product, a natural
monopoly, and we had to pay for it. The First World War gave to Chile
the chance to receive large revenues on a valuable asset, but the First
World War also created a situation where in the days to come that asset
would depreciate enormously.
The asset of Chilean nitrate of soda was depreciated enormously because
all of the important countries of the world, including our own, began
to produce synthetic nitrate of soda. Chile no longer had a natural
monopoly safe from effective competition. The producers of synthetic
nitrate of soda began to compete with each other and with the Chileans.
In order to remove this competition they formed a cartel.