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Sales Syndicates, in which all members to the "cartel" pool their products, to be sold through a central committee which fixes the selling price and apportions among the members orders as they are received in proportion to the capacity of each.

"In a syndicate of this class the individual firms and companies which it includes retain their corporate autonomy, pay dividends on their own stock according to earnings, and unless otherwise agreed in the cartel, purchase independently the raw materials of manufacture."

A third class includes the trusts, or closely organized syndicates, which purchase original corporations and issue new stock, consolidating the management under the control of the central organization.1

"The majority of German business men and economists are not opposed to such syndicates and the creation of monopolies, in which the State itself sometimes participates in combination with private producers, is lawful if the creators commit no injurious act, a limitation so difficult to define and comprehend that practically the only difficulties with which the ordinary cartels come into contact are difficulties arising between the members themselves. The courts have frequently recognized the perfect right of producers to control their product in a monopolistic organization as a right somewhat akin to the right to make use of a highway, and only subject to correction of abuses of power.

"The profound difference between the German and the American conception of sound business conditions is best explained, perhaps, by the racial difference between the two peoples-the German, with strong collectivist tendencies which manifest themselves in society, in government, and in trade, and the American, with a deeply rooted individualism, which remains even when he engages in a collectivist enterprise. Thus it happens that the capitalistic classes of Germany, although opposing socialism in their public life, nevertheless drift in the direction indicated by their natural tendencies in their business life, and, in so doing, they have the tacit approval of the avowed socialistic classes, who perceive in the steady accumulation of the producing powers in a few hands a movement tending logically and inevitably toward the

'See Daily Consular and Trade Reports, January 25, 1911, p. 306.

eventual realization of their dogma-that is, the State in supreme control.” 1

"The German courts have repeatedly ruled, according to Richard Calwer, the socialistic writer, in his 'Kartelle und Trusts,' that the syndicates do not violate the principles of trade liberty, as they tend to protect the interests of the whole nation against the selfishness of individuals, and to protect the products of industry from the many disadvantages which arise from price cutting.

"Under these rulings, absolute or partial monopolization by many cartels has been brought about, the national output being reduced, with a consequent lifting of prices to a remunerative level. The danger point would be reached, from the point of view of the law, should a cartel of this character, on the possible refusal of one outside producer to accept its terms, undertake by unfair means to drive him into its fold or crush him if he refused its terms, and the difficulty of the prosecution would be to prove that any such result had been contemplated, even though its effect had been attained.

"The very forms of commercial organization most common in Germany and America correspond to the temperamental qualities of the two peoples. In Germany the commercial trust, or cartel, is usually a federation in which each member retains its commercial identity while abandoning its freedom of action to the federation for a contractual period of three or five or ten years, or perhaps longer, but expecting eventually to get it back, and then, perhaps, make another contract, if the results of the first have been satisfactory. A German cartel is, as a rule, open to all those who submit to its provisions, and the control of the members is confined to the limits traced in the federal pact. In the typical American trust, instead of this association of units with influence usually rated according to productive capacity, we observe generally the permanent ownership of a large part of the enterprise by a small group of persons, in which there is ordinarily some dominating personal element.

"The basic notion of the German organizer has been to control production definitely, leaving it to the resourcefulness of the individual producers in the cartel to make more or less profit out of the proportion of the production allotted to them; the basic notion of the American organizer has been, usually, to create a perfected and consolidated instrument, success following naturally as a result of its well-balanced and skill

1

"Legal Operation of Trusts in Germany," Daily Consular and Trade Reports, September 15, 1911, pp. 1217-1218.

fully organized proportions. German cartel organization has contemplated that all its constituent firms should remain in business; American commercial centralization usually has meant that the weaker, or for any reason undesirable, elements should go out of business, suggesting that the strong native individualism of our people rises to the surface, even when an effort tending toward pure collectivism is attempted." 1

A high German Court, after reviewing authorities in France, Russia, and the United States, made the following

comments:

"If, in any branch of the business, the prices so decline that a profitable trade is made impossible thereby, or that the trade is seriously endangered, the crisis at the start is not only injurious to the individual person, but also from a national economic point of view, and it lies, therefore, in the interest of the whole that the inadequately low prices in a certain branch of business should not permanently exist. Therefore, formerly, and at the present time, legislators have aimed to increase prices of certain products by inaugurating protective tariffs.

"It cannot, therefore, be looked upon as generally contrary to the interests of the whole, if manufacturers of a certain article form a cartel in order to prevent or to modify the mutual underbidding and the decline of prices for their products caused thereby; on the contrary, if the prices are continually so low that the manufacturers are threatened with financial ruin, their forming a cartel is not only to be looked upon as a justified manifestation of self-preservation, but also as an act which lies in the interest of the whole.

"The formation of the syndicates and cartels in question, therefore, has been designated in various quarters as a means which, if reasonably applied to national economics, is especially adapted to prevent uneconomic overproduction, yielding no profit and resulting in catastrophes." 2

"The Imperial German Government issued statistics in 1905, showing that there were 385 cartels existing at that time in Germany, but these figures are said not to contain the Konditionskartelle (those, e. g., fixing terms of sale other than prices) and numerous other confederations, the existence of which was not then within the knowledge of the authorities.

1 "Legal Operation of Trusts in Germany," Daily Consular and Trade Reports, September 15, 1911, pp. 1218-1219.

2

Daily Consular and Trade Reports, September 15, 1911, p. 1219.

When these statistics were made up, it was understood that about 12,000 establishments were members of syndicates. The following recapitulation shows the variety of industries covered by commercial combinations in 1905:

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Germany has a statute 2 prohibiting unfair competition. It provides that whoever is guilty in industrial deals of transactions which offend against good morals, may be held liable in damages. The courts have so interpreted the law that it not only covers unfair actions, but if a party refrains from doing something he ought to do, he is liable.

The German Courts go much further than the courts of this country in carefully weighing transactions to determine whether or not they are contrary to good morals and fair play, and in enforcing the laws against practices and actions which are not looked upon as decent and reputable. Individuals are protected against oppression by parties who are greedy for gain. Damages are awarded where things are done to influence a man's business prospects or his connections with his customers. If a man, in the exercise of a technical legal right, damages a third person, he may find himself liable under the very broad statute. Prevailing standards of good morals and commercial ethics are taken into consideration. In mercantile affairs the views of customers and of honorable merchants in their commercial intercourse are used to measure the guilt or innocence of specific acts.

A member of a combination wrote a certain customer that unless such customer refrained from making purchases from

1

1 Daily Consular and Trade Reports September 15, 1911, p. 1222. A translation of this statute is on file at Washington in the Bu reau of Manufactures.

1

firms outside of the combination, the combination would refuse to sell him goods. An outsider caused the arrest of the member, and he was convicted. The court held the combination legal, but it also held that in threatening a customer unless he ceased dealing with parties outside the combination, the threat amounted to oppression. The spirit of this decision is directly opposed to that of the Mogul Steamship case, referred to on page 349.

"The German Civil Code, paragraph 138, says that a transaction which offends against good morals is void. The forming of a cartel, or syndicate, is not held to come under this paragraph, but, when formed, it may bring itself under the operation of this provision by the means which it may choose to attain its purposes, such as, for instance, boycotting, the cutting of prices with competitors to such an extent as to bring about the financial ruin of the latter, misuse of their monopoly and franchises, and the like. Concerning_boycotting, there are decisions of the Imperial Supreme Court in the years 1903 and 1906 on this point.

"The German Civil Code contains certain paragraphs touching 'treu und glauben,' or truth and good faith, and perhaps these paragraphs may be designated as containing equitable principles in contradistinction to the more fixed legal rules, there being in Germany no system of equity law and no equity courts. The Supreme Court at Leipzig decided in the year 1904 that a stricter moral standard must be applied to cartels and syndicates; that is, that they must be held to a stricter accounting for the moral quality of their acts, because of the preponderance of economic interest which they repre

sent." 1

The German law to remedy the abuses of unfair competition came into force October 1st, 1909. The law contains both a general principle which supplies a weapon against unfair practices generally and an enumeration of a number of unfair practices specifically.2

1 Daily Consular and Trade Reports. January 25, 1911, p. 310. 2 The summary of this law is taken from an admirable report made by Sir Francis Oppenheimer, England's Commercial Attache for Germany; the report was presented in January, 1913, and is printed in Diplomatic and Consular Reports, No. 683, Miscellaneous Series.

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