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Cartels as a Form of Concentration in Industry: The Example of the International Dyestuffs Cartel from 1927 to 1939

  • Chapter
German Yearbook on Business History 1988

Part of the book series: German Yearbook on Business History 1988 ((BUSINESS,volume 1988))

Abstract

Concentration in the economy is one of those fundamental themes which need to be taken up periodically, and are. A similar process is evident in the writing of economic history.1 Helmut Arndt and Günter Ollenburg defined concentration as “a concentration of economic forces”.2 This definition was adopted by historians3 and it also forms the basis of this article. That cartelisation is closely related to concentration is stressed by all sides, but even the views on the nature of the relation diverge. Wolfram Fischer saw the degree of cartelisation between the wars as furthering concentration.4 Hans-Heinrich Barnikel also saw “cartels in all their variety and with all their surrogate forms” in one of their variants as a form of concentration.5 Hans Otto Lenel pointed out that cartels generally increase concentration.6 But from the Marxist view Helga Nussbaum reaches a conclusion that is in some ways the opposite: the merger of existing companies is prevented, while the companies in the cartel show above-average growth.7 These statements are to be examined in this article, using the dyestuffs cartel as an example. However, the main focus will be somewhat different: Lenel and Nussbaum see cartelisation and concentration as two different things, while describing one set of causes and effects. Their considerations are based on concentration of ownership, while in this article the cartel is examined as a concentration of market power, as in the above definitions. From the perspective of the buyer the concentration of market power could certainly seem the most important and relativise the differences that persisted, no matter what they were.

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References

  1. In 1978 Hans Pohl and Wilhelm Treue published a collected volume, Die Konzentration in der deutschen Wirtschaft seit dem 19. Jahrhundert, Supplement 11 to the Zeitschrift für Untemeh-mensgeschichte, and in 1985 another collected volume, edited by H. Pohl, appeared, Kartelle und Kartellgesetzgebung in Praxis und Rechtsprechung vom 19. Jahrhundert bis zur Gegenwart. In 1986 a separate section at the 9th International Congress of Economic Historians was devoted to this subject.

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  3. With some deviations and greater precision (“the concentration of economic power”): W. Fischer, Bergbau, Industrie und Handwerk, p. 807, in: H. Aubin/W. Zorn, Handbuch der deutschen Wirtschafts- und Sozialgeschichte, Vol. 2, Stuttgart 1976.

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  4. Loc. cit., p. 810. The extensive tables on the strikingly high degree of cartelisation in the German economy underline what Fischer has to say on the world slump and the Nazi period (p. 811). They also show that further research is needed, since they are based simply on the number of cartels. The “concentration of economic power” (see above), measured by turnover, however, shows differences of at least 1:1000 between major cartels such as e.g. of the heavy industry and the local brickworks agreements. A survey, and if possible a weighted one, would be very desirable.

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  19. For instance, the turnover of Sandoz rose from SFr. 6 million in 1914 to SFr. 52 million in 1920 (Sandoz historical archive, C 102).

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  22. Of course the degree of depreciation was important too, and here the old-established German and Swiss producers had an advantage. The same factor also played a major part in the nitrogen sector (Schröter, H.G., Privatwitschaftliche Marktregulierung und staatliche Interessenpolitik: Das internationale Stickstoffkartell 1929–1939).

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  23. Because of the large number of dyes that had to be produced (Kugler, p. 29).

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  27. This was a pure holding company, and is often called IG Basel. It had no connections with Baseler IG or Schweizerische IG.

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  28. whereas in other mergers which also left the parent companies legally independent (like that of Vereinigte Stahlwerke in 1926), the management was merged, it remained separate in Baseler IG. As a result Baseler IG was dissolved in 1952 after heated arguments.

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  31. Kugler, p. 12.

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  32. The other countries are discussed in the section on the international dyestuffs cartel.

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  33. The C.M.C. had a capital of Ffr. 250 000 and it also acted as a cartel partner.

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  36. Natural dyestuffs and the simple traditional dyes, such as logwood extract, were not cartelised.

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  37. In many cases, even if they had an outside patent, companies were not able to produce the patented dyes to the same quality. This required factory experience, so that technical assistance was needed as well as the patent. Very few companies could manage without this (most easily IG Farben).

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  41. See also the memorandum by IG Farben for V. Maltzan, councillor in the Trade Policy Division of the German Foreign Office, in 1940 (PA AA, HaPol, HA Sammlung V.L.R. Dumont).

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  42. Contract of 31.1.1921 in BWA 19 Farbstoffe 15.

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  43. The “dual injustice”, see Memorandum of 1940, Note 41.

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  46. Similarly, 450 auramine dyestuffs were converted to 3, 360 rhodamine dyestuffs to 6 and 230 types of Victoria blue to 8 offsettable types (Kugler, p. 31).

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  47. The text of the contract is in Hö 305.

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  48. But in the Swiss IG the German-Swiss agreement of 1929 was called the “Twosome Cartel”, see below.

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  49. Hö 305.

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  50. Similar provisional agreements, generally to test the partner in practice, were used as a preliminary to more comprehensive cartel agreements in several cases. The German and French partners in the potash industry, who dominated the world market, “tested” each other particularly intensively. In 1924 they concluded a one-year agreement for the United States and Sweden, and in 1925 a one-year agreement for the world market. The real contract was not signed until 1926 (Schröter, H.G., Die internationale Kaliwirtschaft 1918 bis 1939, Kassel 1985, pp. 35–41).

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  51. Bürgin, p. 253.

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  52. BWA 19.1.

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  54. Dyestuffs factories in Lithuania and Moskow. The biggest turnover was achieved in 1915 at 1.3 million roubles (CIBA-Geigy historical archive, FA Geigy FL2 (His), KAR 1, KAR la).

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  55. Appendix 1 to the contract of 27 April 1929, p. 12 (WA Sandoz Kartellbeziehungen No. 1); letter of 27 November 1929, p. 6, loc. cit.

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  56. Characteristically, nearly all the dyestuffs incorporated by the French side were based on licences from IG Farben, while the Swiss had their own products, loc. cit.

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  57. The reference period was from 1 January 1924 to 30 June 1928, loc. cit.

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  58. It was valid from 1 October 1928 to 31 December 1929, loc. cit.

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  59. “The rapid negotiations certainly achieved a major objective, namely blowing apart the negotiations between the Swiss and the British” (letter from Prof. Meyer of 19 October 1928 to Dr. Krekeler, both of IG Farben, HO 312, p. 1).

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  63. v. Schnitzler to Koechlin, loc. cit., p. 2.

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  64. The other agreements in BWA 13/18; HA Sandoz; see also Tammen, p. 32f.

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  67. HÖ 305 for both the Guidelines and a letter to Dr. Schmitz of 18 January 1929.

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  69. Loc. cit., p. 4.

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  70. Loc. cit., p. 2. “Although Switzerland, as stated above, is not yet seen as ripe for capital integration, the moment when it is mature for this may perhaps come very much more quickly than some of the gentlemen in Basle imagine. Some of them already see integration as a fact in the immediate future. In that case nothing further need be done than to include Switzerland with the amount originally envisaged for it, and which is also identical with the amount to be deposited under the cartel agreement now to be concluded. If only for that reason, and because figures were calculated for the key of three which take adequate account of the original aims of security and the preservation of interests for both sides, the amounts for the German-French capital integration should remain at Sfr. 24 million shares of the Swiss institute of IG, which would initially be an estimated 72 million Sfrs., and accordingly a French incorporation to the countervalue of about 18 million Sfrs”. See Bürgin, p. 254.

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  71. A copy of the contract is in BWA 13/19.

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  72. Loc. cit., see Schröter, V., Weltmarkt, p. 298.

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  73. Kugler, p.45.

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  74. File note of 1 February 1928 on a discussion on 23 January 1928, p. 4 (HÖ 302). From the material available it is not possible fully to clarify that question.

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  76. Letter to Krekeler of 21 February 1929 (HÖ 310).

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  77. Note of 5 July 1927, BA NL Silverberg 236. Woolcock was the Director of the Association of British Chemical Manufacturers, while Duisberg was Chairman of the Supervisory Board of IG Farben.

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  79. HÖ 310, p. 1f.

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  80. The most exact figures, those given here, are in Kugler, pp. 33 and 56.

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  81. Lecture by Dr. Loehr (1937), p. 14, HÖ 2508.

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  82. Loc. cit.

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  83. Letter to J.R. Geigy AG of 22 August 1929, HÖ 303.

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  84. Minutes of the Kaufmännische Kommission of 6 June 1928, p. 8, BWA 13/8.

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  85. Compiled on 10 September 1929, see below, HÖ 109.

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  86. Copy in BWA 19 Verträge, Hydrosulfit l.

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  87. The IG agreed not to supply the British Isles and Brotherton not to sell in Europe. Moreover, Brotherton was only to sell to British India, Japan, China, Mexico, South America and Australia, markets where the firm was already established, loc. cit., para. 4.

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  88. Notes of meeting of the enlarged committee on 18 March 1930, HÖ 109.

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  89. Loc. cit., 22 January 1932, HÖ 110.

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  90. Minutes of the IG Farben Dyestuffs Committee meeting on 6 January 1937, p. 7, HÖ 110.

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  91. Quoted by Etzold, H., Der Konkurrenzkampf zwischen der deutschen und der englischen Teerfarbenindustrie während der Weltwirtschaftskrise, thesis, Halle 1966, p. 260.

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  92. Loc. cit.

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  93. P. 17, sent by Dr. v. Schnitzler on 26 January 1933, HÖ 110.

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  94. Talk by Dr. Loehr, p. 10, HÖ 2508.

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  95. On Anglo-German rivalry in Scandinavia, in the chemical sector particularly, see Schröter, H.G., Aussenpolitik und Wirtschaftsinteresse. Skandinavien im aussenwirtschaftlichen Kalkül Deutschlands und Grossbritanniens 1918–39, Frankfurt/M./Bern 1983, pp. 244–321, and for a more general account, Nilson, B., Handelspolitik unter skärpt konkurrens, Lund 1983.

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  96. Italics in the text. Minutes of the meeting of the “enlarged Dyestuffs Committee” on 9 October 1931, p. 3.HÖ 110.

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  97. Etzold, p. 177; Reader, p. 194; Schröter, V., Weltmarkt, p. 305; Schröter, H.G., Aussenpolitik, p. 274.

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  98. Various factors were involved here: dyestuffs customers generally had little in-depth knowledge of the products, and most of them depended on technical assistance and instructions from the manufacturer. The price of the dyes also made little difference in the cost of their goods to customers (the textile industry, and so on), so that price fluctuations for dyestuffs did not affect their end prices very greatly. A steel company, for instance, would be very much more dependent on the price of steel.

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  99. Minutes of the meeting of the Dyestuffs Committee, quoted from Schröter, V., Weltmarkt, p. 305.

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  100. Annual Report by Dr. v. Schnitzler, 26 January 1933, p. 17f., HÖ 110.

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  101. Joint letter from Dr. v. Schnitzler, C. Koechlin and J. Frossard to Mr. Walker of I.C.I., of 9 June 1938, BWA 13/20.2.

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  102. “… the Holliday question is one which in the first line concerns the Cartel partners in the Great Britain market, since we are of the opinion that the elimination of Holliday at this stage will not bring about a change worth mentioning in the competitive situation in foreign markets”, loc. cit.

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  103. Loc. cit. The letter ends by assuring Walker that I.C.I. is the party that must take action in Great Britain, and that the Three Party Cartel, and its members, will refrain from any unilateral steps.

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  104. See Schröter, V., Weltmarkt, pp. 308–310.

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  105. “Holliday can really only be seen as an independent (sic!) competitor in basic dyestuffs. Its activities in the other production areas are rather sporadic and, moreover, built on pre-products from I.C.I.”, (Dr. v. Schnitzler’s Annual Report of 26 January 1933, p. 17, HÖ 110).

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  106. See also the following figures in the lecture by Dr. Loehr, 1937, pp. 13ff., HÖ 2508.

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  107. The ratios for the British market for I.C.I. to the Three Party Cartel had been fixed at 53.80:46.20. 108 For instance, indanthrene brown BR was supplied for indanthrene brown R and G, and naphtogene blue RR was replaced with diazo indigo blue BR and so on, loc. cit., p. 17.

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  109. For more details see Schröter, H.G., Aussenpolitik, pp. 313–318.

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  110. Wendt, B.-J., Economic Appeasement. Handel und Finanz in der britischen Deutschlandpolitik 1933–1939, Düsseldorf 1971.

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  111. Another case was the Italian firm “Melegnano”, which had specialised in supplying a local market with wool dyes.

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  112. After the exchange the IG had 49.0% of ACNA, and 51.01% of Bianchi, while Montecatini held the rest in both cases. On ACNA see Schröter, V., Weltmarkt, pp. 428–430.

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  113. Report by the Management Board of CIBA to the Board of Directors, 17 August 1899 (CIBA-Geigy historical archive, FA CIBA, KG 2.15.04).

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  114. The contract is in the Sandoz historical archives, Kartellbeziehungen, no number.

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  115. Schülde undertook not to sell dyestuffs from its own production for more than Zl 400 000 (about RM 188 000) a year. Any loss in turnover would be made good by IG Farben through direct payments (25%) (Kugler, p. 124).

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  116. Verein für chemische und metallurgische Produktion in Aussig, from 1939 in Prague, also known as the Aussiger or Prager Verein.

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  117. See Teichova, A. Internationale Kartelle und die chemische Industrie der Vormünchner Tschechoslowakei, in: Tradition 1972, pp. 143–175.

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  118. Vorträge Dr. Loehr, p. 8, HÖ 2508.

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  119. Sandoz historical archive, Kartellbeziehungen, no number.

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  120. Immediately after it came into force this agreement was used to exert pressure in the negotiations with the Polish companies, since they bought their pre-products mainly from the Three Party Cartel itself or from Aussig.

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  121. Vortrag Dr. Loehr, p. 15, HÖ 2508.

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  122. See Schröter, V., The IG Farbenindustrie AG in Central and South-East Europe, 1926–38, in: Teichova /Cottrell, International Business and Central Europe, 1918–1939, Leicester/New York 1983, pp. 139–172.

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  123. Kugler, p. 16.

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  124. Interestingly, the Soviet Union did not approach the cartel, either, to request compensation payments for refraining from exporting, although it was quite successful with this in other fields, see Schröter, H.G., Kaliwirtschaft, pp. 53–57.

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  125. Japan, China and the areas under Japanese influence, such as Korea, Manchuria, Formosa and so on, and Hong Kong as well.

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  126. Letter of 16 April 1929, HÖ 303.

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  127. Confidential memorandum to certain members of the Central Committee of IG Farben and to Professor Bosch, Professor Duisberg and Dr. v. Weinberg of 26 January 1933, p. 18, HÖ 110.

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  128. A full, if brief account is in Schröter, V., Weltmarkt, p. 310f.

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  129. In retrospect Kugler said: “The above agreements achieved a substantially complete regulation of competition in the China market, particularly in indigo, the most important single manufacturing type”, (p. 35).

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  130. Schröter, H.G., Aussenpolitik, p. 290f.

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  131. Confidential report of 26 January 1933, p. 18, HÖ 110.

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  132. Strictly confidential report from IG Farben, signed by V. Schnitzler/Krüger, to a senior official in the Reich Ministry of Economics, Dr. Schlotterer, on 3 August 1940, reprinted in Eichholtz, D., Die IG Farben — Friedensplanung, in: Jahrbuch für Wirtschaftsgeschichte 1966, Part III, pp. 280ff.

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  133. Internal memorandum from the Dyestuffs Division Management of IG Farben to Dr. Struss, p. 1,12 March 1934, HÖ 1094.

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  134. Tammens gives 61% (P. 33), but that may be quantities. Since his figure is given without reference figures — there are big differences between values and quantities — and without a year or source, it is not very helpful.

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  135. Calculated in current prices by Kugler, p. 19.

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  136. Calculated from Kugler, p. 19f.

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  137. Kugler, p. 34 (p. 33 on Tammen’s figure of 88%), see Note 135.

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  138. They have deliberately been excluded here, but we can take the following as an example: the agreement of 1931 with Mitsui Bussan on sulphur black on the Chinese market was not prolonged in 1933 at the request of the Japanese. As a result, sulphur black was released in 1937 in the China Six Party Agreement as well. 140 For a summary see Schröter, V., Weltmarkt, pp. 341–346.

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  139. Bürgin, pp. 253 and 256f.

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  140. Nussbaum, International Cartels, p. 139.

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  141. Dr. ter-Meer was a member of the Management Board of IG Farben.

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  142. ter-Meer, loc. cit., p. 73.

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  143. Lenel, Ursachen, p. 229. His statement (p. 230) that small companies were basically inferior to large companies in the cartel, since competition was shifted from production and sales to organisation and legal disputes does not, however, apply to the dyestuffs cartels. But an account of how the disputes were fought out would be beyond the scope of this article.

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  144. Some contracts remained formally in force and others, especially in the German occupied territories, continued to be effective right through the war.

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Authors
  1. Harm G. Schröter
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  1. Historisches Seminar, Abt. Verfassungs-, Sozial- und Wirtschaftsgeschichte, Rheinische Friedrich-Wilhelms-Universität, Konviktstraße 11, D-5300, Bonn 1, Germany

    Hans Pohl

  2. Lehrstuhl für Kreditwirtschaft und Finanzierung, Johann Wolfgang Goethe-Universität, Mertonstraße 17-25, D-6000, Frankfurt am Main, Germany

    Bernd Rudolph

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Schröter, H.G. (1990). Cartels as a Form of Concentration in Industry: The Example of the International Dyestuffs Cartel from 1927 to 1939. In: Pohl, H., Rudolph, B. (eds) German Yearbook on Business History 1988. German Yearbook on Business History 1988, vol 1988. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-75512-5_4

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