Reports of the Industrial Commission...

The situation regarding industrial combinations in Europe probably justifies the following conclusions regarding the nature and results of industrial combinations there, and European experience suggests certain thoughts applicable to the situation in the United States.

EXTENT OF COMBINATIONS.

There is a strong tendency toward the formation of industrial combinations everywhere in Europe. In Germany it is probable that the movement has extended as far as in the United States; and that the combinations there, speaking generally, exert as great power over prices, over wages, and in other directions as they do here. The plan of organization, however, as appears from the report, is materially different. In most cases the German combinations are made simply by contracts between independent establishments regarding output, prices, etc., instead of the form being that of a single large corporation. In practically all of the important cases, however, the central control, owing to the favorable attitude of the German Government and law courts and public opinion, is complete enough to give full power of direction.

In Austria the situation is nearly the same, so far as the extent and power of the combinations are concerned. On the other hand, there is more disapproval of the combinations on the part of the public, and three decisions of the courts made within the last three years, which render the contracts among the different parties to the combination non-enforceable, seem to have weakened in many respects the strength of the combinations within themselves. So far these decisions have produced little effect, but it is practically certain that if this attitude of the courts is not changed and if there is no new legislation the combinations will be likely to take on a new form in certain particulars.

In England the movement toward combination has not gone so far as in either Austria or Germany. There were in earlier days very many local combinations to keep up prices, and in some cases these rings have proved very successful. Within the last three years, however, a very active movement toward the concentration of industry into large single corporations, quite after the form which has been common in the United States, may be observed. Nearly all of the feeling that one notes in England on this subject has reference to the later great corporations formed by the buying up of many different establishments in the same line of business, corporations that through combination have succeeded in acquiring in many particulars a good degree of monopolistic control.

In France one finds the movement toward combination much less pronounced than in any of the countries mentioned before. The reasons for this are perhaps two: first, France is less developed industrially than the other three countries, especially England and Germany, and as French industry has not yet entered so much into international competition as has been the case in other countries, the same pressure toward the savings and toward the added power that came from combination has not been felt. In the second place, the French criminal code is very severe against fraudulent or monopolistic attempts to control the market. This code was doubtless passed with reference to conditions entirely different from those now existing, but if a combination should apparently be able to increase prices, and should attempt to do so, its officers might be in danger of imprisonment. In consequence, while the movement toward combination is very evident, the managers of combinations are much less inclined to let their movements appear in public. The combinations in France, also, with few exceptions, are less firm in their method of organization, much more being made dependent upon mere verbal agreements.

THE FORMS OF COMBINATION.

The form which the combinations take in every country seems to be partly a result of the business habits of the country, partly a result of legislation or lack of legislation.

In practically all places the combinations start by simple agreements among different establishments to sell at a uniform price, or to make no effort to secure the patronage of the customers of one another, or another manifestation of the same plan-to divide territory among themselves. In most instances, particularly if there are many members of the combination, it will be found that some are not faithfully living up to their agreements, and an effort is then made to secure a firmer union. Wherever the courts will hold legal an agreement for limiting product or for uniform prices, the more natural and usual form is for such contracts to be put into writing, with a penalty for breach of contract.

In order to avoid the necessity of litigation, it is very common for deposits of securities to be made by each participant to the agreement, with the understanding that if the contract is violated the deposit will be forfeited. If the laws of the country, however, as enforced by the courts, hold such contracts illegal and contrary to public policy, so that they can not be enforced, the combinations are practically compelled to take some other form, such as that of a single corporation, as in the United States and of late in England, or else to accomplish the same result in some other way. If the agreement has to do particularly with the regulation of price and is not intended to affect materially the methods of manufacture, it is a common practice in France, in Germany, and in Austria, as well as in other European countries, to organize a selling bureau for all of the establishments, and through this selling bureau, which in itself may be a separate corporation, to determine the extent of the output for each separate establishment and the price that shall be secured for goods. In such cases, of course, the books of the separate members of the combination are open to the selling bureau, and the work of the bureau is open to all of the members, so as to prevent fraud of every kind.

On the continent of Europe it is very generally the case that these combinations regarding prices and output refer only to goods sold within the country, and do not apply to sales for export. It is possible to determine with a reasonable degree of exactness the quantity of goods of any kind that will be consumed at a price remunerative to the combination within the country itself; that quantity is then fixed, and a steady, uniform price for the whole country may practically be established at rates not very oppressive to the consumers and at the same time profitable to the combination. Any additional spirit of enterprise on the part of any of the members has to seek its satisfaction in foreign trade.

CAUSES OF COMBINATION.

In practically all of the countries the causes for combination are substantially the same as those found in the United States. The first motive usually assigned is ruinous competition carried to so great an extent that practically all are losing money. The desire for increasing profits, of course, is also satisfied more easily when great economies can be made, and it is generally found that by a combination savings of various sorts can be secured. It is to be noted, however, that in Austria, France, and Germany, where the form of combination is largely that of simple agreements among different establishments, each one of which is managed independently, the savings that come from closing of the poorest establishments, from the better distribution of products among different establishments, etc., can not well be secured, although those which come from lessened cost of selling are easily made. Members of syndicates in the cases mentioned do not hesitate to acknowledge that the form of combination into a single corporation is more advantageous as regards many of these savings, than the form that is more common in their own country. They, however, attribute their hesitation to adopt the more complete form to the high taxation and the publicity to which corporations are subjected, and to the greater spirit of independence, as they claim, on the part of their manufacturers, who, they say, would not be willing to give up the power of independent management of their own establishments. It is probable, however, that they have not yet felt the pressure of necessity to so great an extent as has been the case with manufacturers in England and the United States on account of the unwillingness of the courts in those countries to enforce contracts that seem to be in restraint of trade.

RAILROAD DISCRIMINATIONS.

Industrial combinations seem to have been made throughout Europe with practically no aid through discriminating rates given by the railroads or other transportation agencies. It is true that in practically all countries at times certain special rates have been given to foster some special industry in certain sections of the country. Particularly is this true where the railroads are owned by the government, as in Prussia, but even there no discrimination is made between different shippers under similar conditions, and the rate is given rather as a bounty to encourage the development of the industry or to increase the export trade, instead of a certain amount paid out of the public treasury, as in several of the States of the Union to foster, for example, the beet-sugar industry. It is possible that in one or two of the countries there have been slight discriminations made in individuals cases, but this has been done so rarely that it may be said to be of no significance whatever.

THE TARIFF.

Protective tariffs do not seem to have been of special significance in the formation of industrial combinations in Europe, although in many cases the combination has been enabled to take advantage of the protective tariff in the way of securing higher prices. In free-trade England the combination movement seems to have developed considerably further than in protectionist France; but, on the other hand, the movement toward combination has gone much further in extent in Austria and Germany, both protectionist countries, than in England, although in England the form of combination is generally more complete. Dr. Liefmann, in an article on combinations in England,1 expresses the opinion that the chief reason for the lesser development of monopolistic combinations in England and the continuance of severe competition in branches of industry in which in Germany there have existed for a long time very rigid combinations-for example, the coal industry-is the principle of extreme individualism in England, which has a much firmer hold among business

1 Jahrbücher für Nationalökonomie und Statistik, October, 1900, p. 434,

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