Front Page Titles (by Subject) CHAPTER IV: EXPORT BOUNTIES AND CARTELS - The Comedy of Protection
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CHAPTER IV: EXPORT BOUNTIES AND CARTELS - Yves Guyot, The Comedy of Protection 
The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).
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EXPORT BOUNTIES AND CARTELS
Bounties in sugars and alcohol—Military organisation of industry—Export bounties to the mining and metal Cartels; an advantage to foreigners—“Giving work to foreign workmen”—“The National System of Political Economy” subordinates German industry to the foreigner and gives him presents—Cartels develop into trusts—Industrial confusion—Constitution of an industrial oligarchy—Ineffectual effort to fix prices—The Campanile of Venice and industry on stilts.
Up to September 1, 1903, there was a bounty on the export of sugar, and alcohol has still a bounty of 81/2d. per gallon. Other bounties were granted by Cartels, associations of producers which marshalled industry under the benevolent eye of the Government, on the military system of the “flogging corporal.” Raffalovich’s recent work on “Trusts and Cartels” gives the truly wonderful results of this system. In 1891 the mine and metal Cartels agreed to give bounties on exportation in order to clear the home market, the amount of the bounty being calculated with reference to the distance of the factory from the frontier; those factories which wished to share in the benefits had to submit their books to the distributing official. In 1901 the mines of the Ruhr were over-productive; the theoretical reduction of output which was 15 per cent. in October, was carried to 20 per cent. It was found necessary to stimulate export, and the Syndicate raised the margin reserved for covering losses on export from 3 per cent. in 1900 to 6 per cent. in 1901-2. The bounty paid by the mines producing more than this specified tonnage and the indemnity allowed to those producing less was raised from 6d. to 1s. Cartels could increase home consumption by lowering prices, but that was not their aim; they reserved all their favours for the foreigner: the price of blast furnace coke was only lowered from 17s. to 15s. a ton, and that of coke from 10s. to 9s. 6d. a ton, although the sales in 1901 were 13 per cent. lower than those in 1900. The coke sold at home at 15s. was sold by the Cartel in France, Luxembourg, and Belgium at 12s. 6d., and a contract has been produced referring to a sale to a factory in Bohemia at 11s.
The panegyrists of the German Cartels would lead one to suppose that they worked in perfect harmony without the slightest friction; as a matter of fact, some of the Cartels tyrannised over those which used their raw materials. In 1899, for example, the Rehmschied canal builders bought sheet-iron at the Essen dock for 200s. per ton, which was sold to a Dutch timber-yard for 180s., and the Manchester cutlers got their iron cheaper than those in Solingen. The Rheinish-Westphalian Cartel sold iron at home for 95s. which they sold abroad for 80s., and 72s. in September, 1902. The English and Belgian rolling mills fixed their selling price in relation to the lowest cost at which they could get German iron; and the German rolling mills, which exported 60 per cent. of their output, had to sell abroad at this price, although they paid 18 and 20 per cent. more for their raw materials. A Cartel which sells semi-manufactured goods with a bounty to foreigners is robbing the industry of its own country of these goods, and especially in giving labour in proportion to the degree of finish of the product. Far from protecting “national labour,” Cartels give work to foreign workmen.
Here is a striking example of the different phases through which a Cartel may pass: In 1900 the Paper Syndicate raised the price of paper 33 per cent.; this rise naturally produced its normal effect—increased output, creation of new works, installation of new machinery. The competition of factories outside the Syndicate compelled it to lower its output to 45 per cent. The members submitted to this reduction only on condition that it applied solely to the qualities of paper included in their agreement, and then devoted all their energy to the production of the other qualities, the result being over-production. To clear the home market the Syndicate forced exportation; paper was offered abroad at 10 to 15 per cent. reduction; the Hamburg wholesale dealers paid 2d. or 21/4d. for goods that cost the home consumer 21/2d. or 23/4d. Since some of these consumers were manufacturers of paper goods, exporting half their output, their position with regard to foreign competitors was one of marked inferiority.
In September, 1904, the Association for the Defence of Steel Consumers protested against the action of the Syndicate in selling them couplings at 5s. 6d. and plates at 4s. above the selling price in England, and demanded the reduction of the price of partly manufactured steel to 5s. As ground for their refusal the Syndicate alleged the 15s. bounty.
The export bounties made it possible to throw partly-manufactured goods on the foreign market much below the German selling price. Many of these products of German origin, for example coke and iron, enable England to compete with Germany in the market for finished goods, not only abroad but in Germany itself. Hotbed German industries count on getting rid of their surpluses in foreign markets, and are therefore dependent on them. List’s system of national economy subordinates German industry to the foreigner, and gives him presents.
To listen to the admirers of the Cartel system one would imagine that a Cartel has only to establish itself to kill all competition. It has been shown above that it provokes it, and it does so in another way also.
The metal factories wanted to shake off the tyranny of the Mining Cartel: those who were able worked their own mines, and the output from the non-Syndicate mines grew steadily—11,900,000 tons in 1899, it was 12,600,000 in 1900 and 13,100,000 in 1901. Meanwhile, the factories that were subject to the Cartel found themselves at a disadvantage compared to those which provided their own raw material. The heads of the Cartel had, of course, taken care to repeat that they must be distinguished from a Trust, that they would not destroy moderate or small producer; of course the exact reverse is the case. In the Ruhr basin the Coal Syndicate had one competitor, the State coal mines. It carried the subordination of the metal industry to such a pitch that a high-power furnace could only be worked in conjunction with its own coal mine. Having crushed a combined steel factory and rolling mill, they established the principle that every establishment must contain in itself blast furnace and steel manufactory. This is the effect of the trust tyranny, confusing industry instead of specialising it according to the law of the division of labour. Thus, out of nineteen independent businesses at Rote Erde coal mines—blast furnaces and iron mines—sixteen have been absorbed by three companies, Gelsenkirchen, Schalke, and Aachener Hutten.
M. Gothein, a member of the Reichstag, and the Commission on Cartels, declares that the great combinations have crushed the little firms—for example, the rolling mills, which received no benefit from Protection. And yet, he said, no country is capable of producing such cheap coal as Germany. Protection, therefore, does not assure the success of its mining industry, but it does create that industrial oligarchy which ruins the small and middling manufacturer.
According to M. Oppenheimer, English Consul at Stuttgart, “the Syndicate’s price policy is in the interest of capitalists producing their own partly-manufactured goods and owning their own mines and blast furnaces, since, producing his material at a reasonable cost, he can compete favourably in his output of finished goods with those who have to go to the Syndicate for their raw material.” The ideal of all Protectionists is to fix prices; it is one of the objects of the Cartels; but the price of different mineral products shows that they have not been more successful in attaining this than any other of their objects.
The Syndicate thus failed either to fix prices or keep them to the high standard of 1890.
Protectionists and Socialists agree in denouncing the middleman; the Stuttgart Chamber of Commerce, in its Memorandum on Cartels, recognises the value of his services as a buffer between producer and consumer; Cartels try to suppress him or restrain his liberty of action with regard to the price, quantity, and quality of goods. In times of crisis, which the example of Germany proves that they stimulate rather than prevent, Cartels delay the recovery of the market and the re-establishment of equilibrium of supply and demand.
Mr. Chamberlain threatened a downfall for English industry like that of the Campanile in Venice—an inapplicable comparison, for while the fabric of English trade, without Cartels or export bounties, stands firm in a position which can be gauged by the market returns, that of Germany shows cracks, at times like the crisis of 1902-1903, which foreshadow a fate like that of the Campanile for an artificial trade, not resting upon solid foundations, but founded upon piles.