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Inasmuch as this combination is so entirely exceptional, in the fact that the Government exerts so complete control in many particulars, it may perhaps be advisable here to note briefly the question of its prices and output in distinction from the special discussion of the effects on prices of ordinary syndicates.
There has been a steady increase in the output of potash for a good many years, both before and since the organization of the syndicate. From 1888 the production seems, on the whole, to have been restricted in its rapidity of development. From 1888 to 1892 there was practically no increase. From 1893 to 1895 there was quite a material increase, and since that date the amount seems also to have been larger. The average price of Carnallit remained the same from 1892 to 1897, the latest figures obtainable, although this price was 10 pfennig higher than that which had been obtained for the four years preceding. On the other hand the latest price, 90 pfennig per 100 kilograms, is considerably lower than that which obtained from 1884 to 1887, 1.12 marks, or from 1879 to 1883, 1 mark. From 1866 to 1871 and again from 1874 to 1878, there was a low price of 80 pfennig. A somewhat similar development of prices is found in the other kinds of products.
The salt combinations. The output of salt in Germany seems to be rather strictly limited by the output of the salt springs and the additional capital that would be needed to provide fuel and evaporating pans at remunerative rates for any material increase in the production that might be desired. Inasmuch as the amount of salt required for food purposes and for the feeding of cattle varies only slightly from year to year, it is comparatively easy to make a combination of the German type with an agreement regarding the output of each separate establishment. In almost all of the European countries high taxes are imposed upon salt, so that here again another influence toward determining regularity of production enters in and thus favors combination.
Before 1868 salt was a Government monopoly in nearly all German States. The tariff union of that year, however, established free trade in salt throughout Germany. In consequence of this fact vigorous competition among the salt producers increased production enormously and lowered prices to a corresponding degree. Almost immediately from this competition local combinations were formed among producers These often divided the territory and gradually came to control the output over a considerable part of the country. The combinations were not firm, however, and did not last. Quite a general combination in 1872 and another one in 1874, both of which attempted to regulate prices and the conditions of sale without fixing the amount of production, soon fell to pieces. For some years thereafter there was a general union of German producers which devoted itself to the promotion of the interests of the industry through the collection of statistics, suggestions for improvements in methods of production, discussion of grievances of various kinds, etc. This union brought about an acquaintance among the producers which finally led to some of the later combinations. At length, after various attempts at a more complete organization, in 1887 the three large combinations were formed out of which have grown the North German and the South German combinations which have divided practically all Germany between them, excepting a comparatively small part lying nearest England, where all producers have competed freely with the English. În both these combinations territory is divided among various subgroups, and the productive capacity of each plant in each group is fixed according to an agreement based upon its output prior to the organization. Whenever any producer exceeds his assigned share a distribution of profits occurs. In one of the subgroups was established a central bureau to control all sales, in this way not merely
protecting the rights of the different producers, but also as has been the case in the United States, reducing aggregate freight charges by sending orders to the nearest plants. In other groups each plant is confined as far as possible to the circle of consumers nearest it which it had naturally secured prior to the formation of the trust. Any member of either of these great combinations may leave it at will, but the members are themselves largely groups of plants that had come together before its organization, and there seems little desire to break away. The combination, loose as it is in form, seems to have had for one of its principal purposes and effects the control of the wholesale dealers. During the period of competition among the producers these dealers had kept the retail prices up and had themselves secured the chief benefits coming from price cutting. Since the combination this has been largely done away with. The salt combination, inasmuch as it is for the interest of the producers to extend the sale of salt as widely as possible and thus to keep the retail price as low
1 Die Kartell der Deutsche Saliner, von Dr. Adolf Wurst. Schriften des Vereins für Social-politik, Leipsic, vol. 60, 1894.
as is consistent with fair profits to themselves instead of permitting the middlemen to absorb the profits, has forced the latter in more than one instance to put their prices down to a point determined by the combination itself.
The sugar combination.-Attention was called in the account given of industrial combinations in Austria to the combination made there between the sugar refiners and the producers of raw sugar and to the apparently beneficial effects upon the industry which this combination had had. Doubtless the prices had been materially increased at the expense of the consumers in Austria, while foreign consumers had profited thereby.
In Germany, in spite of the efforts made by the Government to develop the sugar industry, it had not been flourishing, and for a long time efforts had been made to bring about an organization which would put that industry also into a favorable condition. At length, in the latter part of 1900, the combination was completed, which so far, at any rate, seems to have been satisfactory to both producers and refiners. This combination is formed to a considerable extent after the model of the Austrian, but it will perhaps be worth while to go somewhat into detail regarding its method of organization, inasmuch as the type is quite exceptional and the industry is one of so great importance.
The combination is a union of the sugar producers who manufacture raw sugar direct from the beets on the one hand, with the refiners on the other. The whitesugar factories, which themselves produce direct from the beets white sugar that is capable of being marketed, have a double part to play inasmuch as they belong in part to the first group as being producers from the beets, and also count in the second group inasmuch as they place their wares directly upon the market.
By the sugar syndicate, that is, the refiners, there is guaranteed to the producers of raw sugar a certain minimum price whenever that market price falls below a determined level. This so-called inland normal price has been fixed at 12.75 marks per centner corresponding to the Austrian normal price of 15 florins per 100 kilograms. The combination, therefore, limits itself to an influence upon the inland price and has nothing whatever directly to do with the world market price. This latter price, however, which determines the amount that may be contributed to the raw-sugar producers by the refiners, is the average monthly price on the Magdeburg market. Every month the refiners, the white-sugar manufacturers, and the producers from molasses pay over to the syndicate of German sugar refiners (Syndicat Deutscher Zuckerraffinerien) the difference between the inland normal price and the world market price, plus 10 per cent. The entire sum thus collected forms the so-called combination advantage (Kartellnutzen). This is then paid to the German sugar syndicate (Deutscher Zucker-Syndicat), made up of the manufacturers of raw sugar, and by this syndicate is distributed among the producers of raw sugar in proportion to the amount of production allowed them by the tax authorities. (It should be recalled that the Government controls absolutely the output of sugar in Germany.)
For example, if within any month the average price for raw sugar in the Magdeburg market should be 10.60 marks, the refiners and the other factories that produced white sugar would have to pay for every centner of raw sugar delivered for inland use the difference between the inland normal price, as given above, of 12.75 marks and 10.60 marks, that is, 2.15 marks, plus 10 per cent; therefore, on the whole, 2.36} marks. If this average price for the month should be assumed as the average price for the year, the total amount of the combination advantage, on the further assumption of 13,500,000 centner of refined sugar entering into inland consumption, would amount to 31,927,500 marks, and if we further assume that the total production for the year was 37,000,000 centner, this would amount to a compensation in round numbers of 85 pfennig per centner to the producers. That would correspond to an average value for the centner of sugar to 10.60 marks plus 0.85 mark, or 11.45 marks—that is, the average price for the year.
In return for this compensation paid them by the refineries, the raw-sugar factories agree, in the first place, to produce themselves no refined sugar for inland consumption, and, in the second, to sell raw sugar and molasses only on the production of a contract which contains the so-called combination clause and on which is printed a list of all of the factories which belong to the combination, both raw-sugar factories and those producing the refined sugar. According to the combination agreement the sugar bought must either be sent directly abroad or must be sold to one of the factories
1 This account is taken largely from the Zeitschrift für Spiritus Industrie, August 15, 1900, which sums up in definite form the main points in connection with the organization. Information has also been derived from the officers of the combination and from certain explanations given in print by the managers of the syndicate to the different members.
which belongs to the combination. In case of a sale to a third party the possessor is, in each case, obliged to put the purchaser on his part under the obligations of the combination. In no case may sugar be sent to any refinery not included in the combination. Beyond this the trade in raw sugar remains entirely free, each factory being at liberty to sell its product at whatever price and to whomsoever it will, if it fulfills the conditions named above.
The refineries again, on their part, agree to buy only the raw sugar which has come from one of the factories belonging to the combination.
In order to make more easy the transition to the method of doing business under the combination it was provided that during the first year only half and during the second only three-quarters of the compensation should be given to the raw-sugar producers.
A still further limitation of the compensation to the raw-sugar factories is this, that the compensation per centner of raw sugar can in no case exceed 3.40 marks. If, therefore, the world market price goes below 9.35 marks, the fall has no further influence toward increasing the combination advantage. On the other hand, if the world market price goes up to the fixed inland normal price, the combination of course has no effect to increase that price further.
The combination advantage, therefore, of the sugar factories per centner increases as the world market price decreases, as the inland consumption increases, and as the total production falls. It might appear at first thought as if the raw-sugar factories would have no interest whatever in increasing the price of their product, since an inland normal price is guaranteed to them through the combination advantage. This opinion, as will readily be seen, would be mistaken, for the high world market price goes finally to the advantage of the raw-sugar factories also, inasmuch as it affects favorably their entire production, while the combination advantage has to do only with that part of their product which remains at home. The highest possible price of sale in each separate instance comes also to the advantage of the raw-sugar producer, since the combination advantage is reckoned according to the average price for the month and not according to the price reached in each special case.
Through the combination now the refineries, the white-sugar factories, and those which produce sugar from molasses on their side are in a position to maintain a fixed inland price, since competition practically disappears. The fixed price for home consumption is made up by the refiners from the following factors: First, the inland raw-sugar price, including the combination advantage; second, 4 marks margin per centner between the price of raw sugar and refined sugar; third, 50 pfennigs per centner combination advantage for the refineries, and, fourth, 10 marks consumption tax per centner. Setting aside the lesser percentages for the first 2 years after the combination comes into full effect, the prices, therefore, will be determined as follows: If we assume a world-market price as before, averaging 10.60 marks, we shall reach the following as the inland-consumption price for refined sugars: 1. Raw-sugar price
12. 75 2. Margin...
4.00 3. Combination advantage for refineries.
.50 4. Consumption tax
27. 25 This will remain the price as long as the world market price does not exceed 12.75 marks nor fall below 9.35 marks. If it should increase to beyond 12.75 marks, the effect of the combination would stop and we should have competition coming again into play. In like manner, if it falls below 9.35 marks, the combination advantage would never exceed 3.40 marks, and the inland price for refined would fall correspondingly below 27.25 marks.
From the account given of the working of the combination, and from the examples of its effect upon prices, it will be seen that the intention is to bring about greater stability in the condition of the sugar market, and if one may judge from the long experience of Austria, as well as from the experience so far in Germany, this result will be obtained. Such a result could not be brought about without an agreement that should include practically all of those interested in German sugar, both the refiners and the producers of the raw sugar. Although in many cases their interests may seem to be opposed to each other, they must be harmonized in some such way as this indicated before there can be secured any stability of price for either the inland or export trade.
It should be noted that the effect of this combination is likely to be felt chiefly by the home consumer. The producer of raw sugar is guaranteed a living profit. Owing to the command that he has of the home market the refiner can practically
secure for himself likewise a living profit from the consumers, but there seems to be no way for the consumer to avoid paying a high price for sugar, in order to have the industry maintained. At the rates that have been given there is, of course, a possibility of competition arising outside of those belonging to the combination, but with so great a percentage as is now included in the combination working together, and with the certainty that any attempt to start new refineries or new sugar factories outside would be met at once by positive competition of the most vigorous kind on the part of the combination, there seems little likelihood of the combination being broken.
The spirits combination.—Like the sugar combination in that it brings together all classes of producers, but different in organization, is the spirits combination. The Union of German Distillers is a combination of enterpreneurs, with the object of promoting the interests of its members through joint disposal of the product; in other words, it is a combination of enterpreneurs with a joint selling agency. The peculiarities of this combination lie in the relations existing between the Union of German Distillers (Verwertungs-Verband Deutscher Spiritus-Fabrikanten) and its selling agency (Centrale für Spiritus-Verwertung, Gesellschaft mit beschränkter Haftung), and are defined in the contract concluded by the two parties concerned. The details of these relations are given in the translations in Appendix II. They can be briefly formulated as follows:
The selling agency is a separate society with limited liability, the stockholders of which may or may not be at the same time members of the Union of Distillers. A joint board of directors, consisting of several members elected by the board of directors of the Union of Distillers and of the same number of directors of the society, supervises and regulates the price which each individual spirits producer receives for the alcohol he furnishes, the share which the selling agency has in the sale price, etc. Each spirits producer belonging to the Union of German Distillers is bound to deliver his whole output to this selling agency, which sells the product and pays the producer. In the case of violation of this agreement the producer pays a fine of about $5 (20 marks) to the selling agency for each hectoliter of pure alcohol withheld from it, except for his own use or local demand. The producer must deliver the product to places agreed upon, the freight being charged against him; the product is shipped either in barrels or cars specially constructed for the transportation of alcohol; in the latter case the producer pays only the net freight. The price which the distiller receives for his product is the annual average price at which the agency sells the product. Immediately after the first delivery the producer receives a payment on account, the magnitude of which is fixed by the joint board of directors, basing their decision upon the prospective crop of potatoes and the interior and exterior demand for alcohol. At the end of the year, when the actual average net proceeds are found out, this payment, in proportion to the number of liters delivered, may be increased or diminished. Deduction from the price is made by the selling agency for spirits of inferior quality. The agency is bound, on the other hand, not to transact any business along the line of selling spirits, alcohol, and so on, for its own account or for the account of any person not belonging to the Union of Distillers, under the penalty of a fine of about $2.50 (10 marks) per hectoliter disposed of or bought in this way. It is bound also not to dispose of any business establishment belonging to it without imposing its obligations toward the Union upon the acquirer. The agency must not, without the consent of the joint board of directors, participate in business enterprises of similar kind in Germany which are not under the contract; this limitation does not extend to such enterprises abroad. It can not accept new members without the consent of the board of directors of the Union of Distillers. It insures the product against fire and bears all losses which may occur from the selling of the rectified and nonrectified product.
In reward for the care and obligations which the agency undertakes it has a share in the annual proceeds resulting from the sale of the spirits. From the sale in Germany of the unrectified product it receives 2 per cent of the annual proceeds. From the sale of the rectified product its share varies according to the foll ing table of net proceeds per hectoliter:
7.5 per cent in the case of 34 marks.
per cent in the case of 34.01 to 36 marks.
Not higher, however, than 4.80 marks. If the amount of rectified spirits in any year is greater than 110 per cent of the amount produced on an average in the years between April 1, 1894, and March 31,
1897, the percentage of the agency is reduced by about 33} per cent. If, however, the amount of rectified spirits is less than 90 per cent but still greater than 80 per cent of the amount mentioned, the share of the ageny is increased by 15 per cent on the total rectified quantity. The agency pays certain premiums for certain qualities of spirits when they are rectified in the manner prescribed by it. Besides these premiums it makes extra allowances for the spirits producers in a kind of inverse proportion to the number of liters produced. Thus, producers of less than 600,000 liters of pure alcohol have an allowance of 0.80 marks; producers of more than 600,000 but less than 1,000,000 have an allowance of 0.40 marks; of more than 1,000,000 and less than 1,500,000 liters an allowance of 0.20 marks per hectoliter, favoring in this manner small producers.
The spirits producers must furnish to the society or agency information as regards the capacity of their plants, area under the cultivation of potatoes, the harvests, and
An attempt is made likewise to keep steady the prices to consumers. price is fixed for the dealers. If they do not abide by it, the threat is made of charging them more thereafter for their stock, or even in extreme cases of refusing to sell to them at all.
The Rhenish-Westphalian Coal Syndicate.—The formation of the coal syndicate which unites all of the mines of the Westphalian district, with the exception of those in the possession of the iron and steel works and some few of less importance, came really from the union of various groupings of mines that had been made earlier. During the time of the crisis, about 1875, it was found that the competition among the different mines, taken with the irregularity of production, had brought about much suffering among the mine owners. Whenever there came a strong demand there was an eagerness to increase the output on the part of most of the individual mine owners; there were continual efforts to increase the prices in accordance with this demand, and they often went unreasonably high. As soon as the demand fell off the large supply on hand and the large number of men at work led to an effort on the part of each mine owner to increase his sales as much as possible and, in consequence, to exceedingly low prices. This continual variation in the prices and in the output led to many efforts to secure more harmonious action. As early as 1878 an attempt had been made at an agreement upon prices so far as gas coal was concerned, and in 1881 there was finally established a combination between the producers of two of the most important kinds of coal-gaskohlen and gasflammkohlen. Besides that, beginning as far back as 1878, there had been an effort made to regulate somewhat the output, and during the years 1880–81 and again in 1885–86 there were conventions held with that end in view. An attempt was also made to secure this regulation by means of a law which should distribute the entire output among the
different mines; but this finally had to be dropped on account of legal difficulties. The especially depressed condition of the coal market in 1885 led to the formation of the Vereinigung der Fettkohlenzechen und Koksanstalten of Dortmund. This union, however, failed, because a large majority of the producers remained outside. Another attempt in 1887 also failed.
The dissolution of the coke combination, with still further cutting of prices than before, led finally, in 1890, a very large majority of the producers of coke to the organization of a selling bureau, the Westphalian Coke Syndicate, and thus the coke manufacturers reached a firm organization. The failure to organize a general coal combination had not prevented, however, some smaller combinations being organized, which were seemingly successful. There was, for example, the Dortmund Coal Selling Combination, and following that the selling combination of Bochum and of Essen. They, however, competed against each other and with the mines which remained outside. Competition was not checked until, in 1891, an association was made to regulate prices among these three smaller combinations and the independents. The present coal syndicate, which has also contracts with the Westphalian Coke Syndicate and the Dortmund Briquette Selling Combination, was organized in February, 1893, and has since proved successful. Its effect upon prices will be considered hereafter, but from what has already been given, it will be seen that it has, in the main, in spite of many individual criticisms, met with the approval of the leading manufacturers and leading business men, and especially with that of the Prussian Government.
In Appendix Ib, p. 171, is given a translation of its articles of association. The main features of the plan are as follows:
1 Jahrbuch für den Oberbergamtsbezirk Dortmund; Deutsche Industrie Zeitung; Die Deutsche Volkswirthschaftliche Correspondenz, August 21, 1900; and also information from the directors.