CARTELS AND MARKETS
Opel production line, Germany, 1931
In an article published in 1932, Michal Kalecki outlined two components in the capitalist economy: 'a cartelised sector displaying constant profit margins and a competitive one where profit margins fluctuate with prices, thereby rising in a boom and falling in a recession.' (1) The cartel is able to escape these price fluctuations because its area of production requires a very high initial capital outlay and a high level of specialist expertise. It therefore faces very few competitors and can determine its own prices - cost of production and a self determined profit margin. In the case of an increased demand for its product it increases its workforce; in the case of a decrease in demand it lays its workforce off and reduces the quantity of goods it produces, but its productive capacity in terms of the material means it has at its disposal, is unaffected, so it represents idle capacity. The theory of the cartel and its effect on the national economy had been developed by the Marxist economist Rudolf Hilferding in his book Das Finanzkapital (1910).
(1) Michal Kalecki: 'The influence of cartelisation on the business cycle' in Collected Works of Michal Kalecki, Vol 1 (part 2), Oxford, Clarendon, 1990-97. The original article was published in 1932 in the Polish Socialist Review. Summarised in Joseph Halevi: The Political economy of Europe since 1945 - a Kaleckian perspective, INET (Institute for New economic Thinking) Working Paper No 100, June 2019. Downloaded from the internet so the pages are unnumbered.
Hilferding had seen the cartels as a stabilising influence, with the destabilising pattern of boom and bust being determined by the competitive sector of the economy, but Kalecki saw them as exacerbating the boom and bust pattern, pushing into overproduction during the boom which then contributes to the bust which it deepens radically by reducing its production and laying off workers, thus reducing demand in the competitive goods sector.
The broad argument of Josef Halevi's essay The Political economy of Europe since 1945 - a Kaleckian perspective is that the process of European integration, promoted by the US in the privileged position it occupied after the war, was the transformation of cartels, still operating within the framework of the nation state, into 'oligopolies' which straddle national boundaries. The argument gets its full expression in the period from 1945 to the Treaty of Rome in 1957. This present article - which is based on my own reflections though in broad agreement with Halevi - is confined to the period from 1945 to 1950, before the process really gets going.
The two most heavily cartelised economies in the Western World - indeed in the world prior to the late twentieth century unless we could add Japan - were the United States and Germany. The United States presented the bizarre spectacle in the 1930s of a country fully self sufficient in all the necessities of life, from raw materials and food to the most technically advanced manufactures, nonetheless undergoing a crippling depression with the solution appearing to be a revitalisation of industry through exports but the opportunities for export blocked by protectionist British and (to a lesser extent) French empires, a German (National Socialist) system of bilateral trading arrangements spreading through Europe, a Communist Soviet Union (whose need for imports had, however, promising possibilities in the 1920s, possibly, at least in the short term, furthered rather than cut off by Stalin's drive towards industrialisation) and a Japan which had been the US's best market but was developing through territorial expansion the means of becoming much more self sufficient.
The situation in Germany was very different because, unlike the US, Germany was heavily dependent on imports both of raw materials and agricultural produce - imports paid for largely by exports of the produce of the cartels. In the financial crises of the interwar period these had come under quite heavy US domination, a factor to which Halevi attaches particular importance with regard to its consequences for the post-war period:
'American corporations stood to benefit from a German dominated recovery chiefly for two reasons. Firstly because they had already been heavily involved in the industrial sectors of the Third Reich, with their own branches in the automotive and electronic industries. Secondly, at the European level, US multinationals were especially well placed to profit since they could link up their plants in Germany with their affiliates in the UK and Belgium. In this way US corporations in Europe would become a major factor both in terms of structural integration because US firms looked right from the beginning at the overall level of European demand. The practical problem was that no spontaneous "market" mechanism could bring about the desired expected level of profitable demand.'
Halevi gives as a source for 'the integration of US automotive companies into Nazi Germany and how such an integration worked after 1945,' Simon Reich's book The Fruits of Fascism. (2) Reich certainly shows that there was substantial US involvement in the beginnings of the large scale automobile industry in Germany but the main point he is making is that the Nazis made life difficult for foreign-owned firms to function in Germany and that this policy was continued after the war. He wants to 'assert that Fascism revolutionised the attitudes of the German state about economic policy and how it conceived of the scope and domination of its power. Those changes were sustained in the Bonn Republic and reflected in Bonn's behaviour in the automobile sector' (p.5). 'If I can present evidence to sustain the claim that Nazi state policies are critical to the auto industry's degree and distribution of power in the post war period, I will have done much to explain the basis of German post-war prosperity, without making a claim about other sectors.'
(2) Simon Reich: The Fruits of Fascism - Postwar prosperity in historical perspective, Cornell University Press, 1990.
In the 1920s and early 1930s, according to Reich, there were some 150 small producers in the German car industry. The Ford Motor Company was incorporated as a car manufacturer in Germany in 1925, the first car was assembled in 1926, and the first wholly German produced car appeared in 1932. The only German car manufacturer that had successfully copied Ford's method of mass production was Opel, but it was bought by General Motors in 1929. According to Reich the Nazis pursued a policy that discriminated against Ford as a 'foreign' firm, initially favouring Opel, despite its ownership by GM, but obliging both firms to adopt a fully German management and eventually giving full backing to the wholly German Daimler Benz and the new, largely government created Volkswagen. There were ups and downs in the story (Hitler in 1938 awarded Henry Ford the 'Grand Cross of the German Iron Eagle' in honour of his 75th birthday) but in general it is a tale of steadily increasing state domination and 'Germanisation' of the sector and Reich sees it as contributing to the success of the post war German automobile industry in contrast to Britain which pursued a policy of equal treatment for foreign investors, offering foreign firms 'national treatment.' He tells us (p.2) 'Governments in Japan, Italy, France and West Germany never talk about the advantages of attracting foreign investment or the application of anything resembling "national treatment."' In 1989 Europeans reacted angrily to Margaret Thatcher cultivating Japanese investment. 'They want to subvert Japanese competition' (Reich's book was published in 1990). If one wished to argue that the UK joined the Common Market in order to subvert it that might make a good starting point.
Reich maintains (p.28) that the automobile industry in the 1920s was 'the only major German economic sector where foreign firms were the dominant producers.' This was because, contrary to the chemical, electronics, optical and coal cartels, well established since the nineteenth century, automobiles were a new sector with the US already installed in the leading role. Nonetheless, given the dependence of the German economy in the 1920s on American financial manipulation through the Dawes and Young plans, US capital must have become important in German industry and would hardly have been withdrawn once the Nazis came to power. (3)
(3) There must be a literature on this but I haven't yet encountered it.