CHAPTER III.

FRANCE.

EXTENT OF COMBINATION MOVEMENT-LATE DEVELOPMENT.

The movement toward industrial combination does not seem to have extended so far in France as in the other leading industrial countries of Europe. The movement is nevertheless distinctly noticeable there, and in one or two lines combinations are as complete and as effective as in any country. There seems also to be, during the last few years, a decided increase in this tendency. The backwardness of the movement has probably been due, first, to the fact that France is not yet so important a factor in international trade as is either England or Germany, and, second, to articles 419 and 420 of the criminal code of France, which forbid combination for the purpose of raising prices by fraudulent means, and which make such an offense criminal and punishable by imprisonment. Though the combinations already formed seem to have found it possible to arrange their business fairly well, so as to avoid any breach of the law, while at the same time accomplishing their purpose of controlling with a considerable degree of completeness the output and indirectly the prices, nevertheless the fear of this law has doubtless made many combinations much more secret in their work than they otherwise would have been, and it has in all probability checked somewhat their development.

PUBLIC SENTIMENT.

There does not seem to be any very pronounced public sentiment on the subject of combinations, although there can be little doubt that certain classes of the population, particularly the Radicals and those inclined to make trouble for the existing Government, are beginning more and more to realize that the combinations may have important social effects, and, possibly, that they may serve as a political cry of much importance. During the last year or two one of the most important of French newspapers, Le Temps, had an extended and thorough series of studies on this subject, in which the combinations in France, and to a certain extent those in foreign countries also, have been carefully considered. Two or three books treating the matter in part from the legal, in part from the industrial side, have also appeared, although these books to a considerable extent deal with conditions also in foreign countries.

As will appear later, some efforts have been made to get these combinations before the courts in the hope of having them declared illegal, but so far no case of importance has been made out clearly enough so that the Government prosecutor has felt compelled to push the matter. Beyond question the Government wishes to avoid extreme agitation on any such subject; and it is not likely, therefore, to take up an active prosecution of any of the combinations unless the case is a perfectly clear one. If later on the Radicals, for they seem to be the party most inclined in that direction, should be able to lay enough evidence before the public to convince them that the combinations are doing a positive injury to the country, the Government would doubtless become somewhat more active in making its investigations. There have been already made on the part of the Government inquiries along this line, but nothing really positive has been learned. At any rate, nothing positive has been published.

REASONS FOR COMBINATION.

The reasons for combination in France appear to be the same as elsewhere. The pressure of competition, forcing prices down to an unremunerative figure, and the consequent desirability of making what economies can be made through conducting business on a large scale, avoiding cross freights, and so on, seem to be the most important reasons. Owing, however, to the secrecy already mentioned, it is difficult to find out much that is definite with reference to most of the combinations. In fact, several of those that are probably the most efficient apparently consist merely of "understandings" among the different producers, with no formal contract in writing, and with no possibility of a legal enforcement of the agreements which have been entered into. This is certainly true in one or two cases. The pressure from competition has doubtless been felt in France much as in any of the other competing countries in most lines of business. The desire also on the part of the employers to be in a somewhat stronger position as regards their employees has possibly in some instances had its effect; but this does not seem to have been nearly so prominent in France as in England, or at times even perhaps in the United States, and the combinations that have proved, on the whole, most effective in France are of such a form, unless they are single corporations, that they leave to the individual establishments practically the entire power of directing their own affairs, so that this element scarcely appears.

Mr. Skinner, United States consul at Marseilles, calls attention to the fact that the industries of France are largely specialties, depending often for success upon a trademark or a family name of long standing. Such industries can not well be combined, of course. Again, there have grown up in many localities some specialty made by many of the inhabitants, e. g., Roquefort cheese. In such cases it is not unusual to have the different makers combine, as indeed has been done to a great extent by the cheese makers of Roquefort.

FORMS OF COMBINATION.

As has been already intimated, a very large proportion of the combinations in France are merely local, and consist of understandings or agreements more or less formal regarding output, division of territory, and so on, in merely one locality.

In some instances, however, these combinations have become national in scope, taking in all of the important manufacturers in the one special line of industry in the country. Perhaps the most important examples of this kind are the combinations among sugar refiners and petroleum refiners, which include practically all the producers of first rank in the country, and in one case at least have contracts with foreigners. According to the statement made by some of the Government officials on the basis of reports which had come to the department, these combinations are mainly agreements regarding the division of territory and extent of output.

Some of the agreements, especially those in the iron manufacture and in the petroleum trade, seem to have something also of an international significance, although, as was said before, France along these lines plays relatively so small a part in international trade that she need hardly be mentioned in this connection. In the especial lines in which France is powerful, not to say dominant, in the foreign trade it has not been possible to find that there is any industrial combination of note, largely, doubtless, because of the nature of the industries. It is difficult to make effective combinations in industries which cater to personal taste and in which the product is not made in uniform shape in large quantities.

Practically all of the combinations that exert any powerful influence upon the market are in the nature of what used to be called in the United States "pools" or "agreements" concerning output and prices, accompanied in the most important cases by a central selling bureau which allots to each one of the constituent members its due proportion of the output and then acts as the agent for all in selling the goods. A somewhat more detailed description of two or three of the more important combinations will perhaps serve to illustrate best the form:

(a) The sugar combination.-There seems to be a general belief that the combination among the sugar refiners is a very complete one, controlling both output and prices. The consul at Marseilles reports that the refiners operate through a pool which fixes prices. He also says that the output of each refinery is restricted in proportion to its producing capacity, and that the export trade also is proportionately divided. According to the best information obtainable, however, this is probably not entirely accurate, though in the main it is right in substance. The evidence

1 Special Consular Report, Vol. XXI, p. 457.

seems to be absolutely beyond question that on the exchange in Paris the leading refiners at times do appear as competitors in buying and selling, and that their prices, at any rate, are not always the same.

Much more important, however, is the direct word of one of the leading members of the combination, a man whose word would seem to be in all respects beyond question. He makes the following statements regarding it:

The number of sugar refineries of importance in France is very few, perhaps not more than 6 or 7 in all. These are mainly in Paris, although there are one or two more in other places in the northern part of France and in Marseilles. These refiners come together from time to time at irregular intervals to talk over the sugar situation. They know one another and have confidence in one another's integrity. At such meetings the general condition of the business is discussed, but the decisions reached are limited to diminishing or increasing the production. There has been a general agreement among them as to the normal output of each refinery; and a certain normal output being taken as the basis, they at times, probably with some regularity, make an agreement that the production for the following month, or other specific period agreed upon, shall be lessened or increased a certain percentage-10 per cent, 20 per cent, or whatever figure seems desirable to meet best the needs of the market.

Although no formal agreement seems to exist regarding the division of territory, it is, of course, true that, owing to their situation and the importance of freight on sugar as an element in fixing prices, the refineries have to a considerable extent their natural market. It seems probable also that, inasmuch as their agreements are quite frequently made regarding output, there is more or less of an understanding not to attempt to secure customers one from the other. This last feature, however, was not stated by the director in question.

He did, however, say distinctly and repeatedly that there were no agreements whatever regarding prices, and that the question of a uniform price was never mentioned at these meetings. An agreement of that kind, he said, would be, in his judgment, illegal, and they all wished to keep within the law. So far as he knew they did all keep within the law. These agreements that were made regarding output were never put into writing, and every member to the agreement was, of course, at liberty, so far as any forfeit was concerned, to keep it or violate it as he pleased. It was clearly his belief, however, that, owing to the fact that the members were few and knew one another well, these agreements regarding output were faithfully lived up to.

While there is no reason whatever to question the accuracy of this statement regarding the form and extent of the agreements that are made, anyone will recognize the fact that the basis of making an agreement limiting or fixing the output from month to month must be market conditions. If, owing to a large output, prices have been lowered by competition among the different members to an unprofitable rate, an agreement that the output during a succeeding period should be decreased by 10 or 20 per cent would imply clearly that this lessening of the output would afford an opportunity for prices to be raised or maintained. While, therefore, the different refiners might compete somewhat with one another in the selling market, and might never have any formal agreement regarding prices, they, of course, by their other agreements are strictly limiting the character of their price competition and are influencing to a very great extent, if not controlling completely, the prices to the consumers. The nature of the agreement, and the implications that are connected with it, seem to show clearly the effect of the French law and the way of doing business in this particular industry.

It is noteworthy that no question regarding wages, or method of manufacture, or other incidental matters of that kind, which must inevitably come up in the case of a close consolidation, are ever entered into at these meetings where the amount of the output is determined.

(b) The petroleum combination. The coalition of the petroleum refineries in France dates back to about the year 1888. It was originally formed by the three principal refiners of Paris, namely, Fenaille & Despaux, Desmarais frères, and Deutsch & ses fils. These refiners formed themselves into a syndicate in order to monopolize the French petroleum industry and to control the market for refined petroleum by preventing the importation of the American article in a refined state.

By virtue of the protective customs duty on crude petroleum in France, which gives the French refiners a benefit of 7 francs ($1.35) per 100 kilograms (220 pounds) upon the refined article, their syndicate enjoys a monopoly which yields them great profits.

Once united the 3 firms named set about completing the syndicate by taking in other refiners of northern and southern France, about 10 in all. The importance

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of a syndicate was demonstrated to the outside refiners. The conditions were stipulated and a uniform price established, to be maintained or modified at the weekly meetings of the members of the original syndicate, in Paris, who also put a limit to the production of each refinery. Each firm forming a part of the syndicate agreed not to sell under the prices fixed upon. The result was that all the smaller refiners, appreciating the advantages of the monopoly, enrolled themselves, and the trust was put on a firm footing.

The syndicate then entered into a contract with the Standard Oil Company of the United States by which it purchases a large proportion of its crude petroleum, all of its American imports, from it, and it is said that the Standard agreed to deliver oil to no other person, firm, or syndicate in France. Statements have also been made that the Standard Oil Company in reality owns the French company; but officials of the Standard in the United States say that, aside from the agreements mentioned above, their only interest is a payment regularly received as a consideration for running in harmony two refineries which they built in France some years ago, before this combination was made.

A contract was also made with the house of Andre & Co., which had the monopoly of the sale in France of Russian petroleum. The firm ceded its monopoly to the syndicate on condition that it would take a certain quantity of petroleum per annum. An agreement satisfactory to the Standard Oil Company was entered into, and the importation of Russian petroleum was likewise controlled.

From this moment a long series of prosperous business years were enjoyed, and are still enjoyed, by the trust, which fixed its own prices and crushed out all other importers. Indeed, the great prosperity of the petroleum trust has tempted a number of capitalists to break it, or endeavor to compete with it, but the impossibility of importing petroleum from either the United States or Russia has made competition impossible, and the trust still prospers in spite of several attacks made upon it by members of the Parliament.

(c) The iron combination (Le Comptoir Métallurgique de Longwy).-The combinations in the iron industry have been much more complete in their form and presumably much more effective in their entire methods of procedure than the loose combinations mentioned. The combination now known as the Comptoir Métallurgique de Longwy dates back to the 1st of January, 1877. When it was first organized it included some 4 companies, and other companies have joined from time to time. In all, 25 companies have joined, but many of these have been consolidated, and at the date of the last available report, on the 1st of August, 1900,1 11 were included in the companies named. A complete translation of the articles of association and by-laws [statuts] is given in the appendix, but the leading provisions regarding the form of the organization, its object and aim, should be mentioned here.

In the first article it is stated that nothing contrary to the laws of France is to be undertaken by the company, although many people have been inclined to think that the organization is contrary to article 419 of the penal code already mentioned. It is further stated that since each company can sell abroad at its pleasure, and consume in its own work whatever of its product it wishes, there is no monopoly; but these statements of course, in themselves, are not enough to show that there is not practically a monopoly to a sufficient extent to affect materially the price in the general market. It is true, beyond question, however, that the bureau does not control the entire French production, although, as will appear later, it probably does control enough to affect the general price. The purposes of the bureau are stated as follows:

(1) To endeavor to prevent the importation of pig iron, especially that of English production.

(2) To do away with intermediaries, to lessen the number of agents-in short, to reduce the general expenses of sale.

(3) To study possible improvements which can be made in the production of pig iron and in transportation tariffs.

(4) To come to an agreement with respect to the purchase of fuel, so as to lessen the net cost.

(5) To take into consideration economic questions, to find out all means tending toward cheapening of products for the development and prosperity of the Lorraine works, and for increasing the welfare of the working population.

The various companies entering into this agreement form a corporation for the purchase from its members and the resale in France, the French colonies, and countries under the protectorate of France all the pig iron manufactured by them in the

1 Special Consular Report, Vol. XXI, p. 445.

territory concerned. The agreement applies also to all those plants which they may hereafter build or purchase. The agreement is limited to French territory and to the iron manufactured for sale. Any needed in their own establishments for manufacturing purposes is left out, and all members are at liberty to enter the foreign market.

The agreement is for a period of 5 years and 5 months, but provision, of course, is made for its extension. Being merely a selling bureau, the company needs but a small capital, 78,000 francs, on which regular dividends of 5 per cent are paid. This capital is divided among the different companies, roughly, according to their productive capacity, the amount which each one shall subscribe for being fixed in the agreement. No creditor or claimant of any of the separate companies is to have any right whatever to the bureau property.

Each company is represented on the council of management of the bureau, and these representatives are given votes in proportion to the share of each company in the total amount of pig iron produced by them all.

Generally speaking, weekly meetings are held for the general conduct of the business. In case any new business comes up without written notice concerning it having been given beforehand, three-fourths of the entire votes represented must be present. With this sufficient quorum, the decision of the majority controls the acts of the minority as well, but for any business to be done it is requisite that there be a three-eighths vote of all.

The business is regularly carried on by a managing director, who may or may not be a member of one of the companies, but he is, of course, chosen by the council and represents the council in all business arrangements. A provision is also made for a supervising commissioner, whose business it is to keep track of the business done, and to make reports independently to the council, serving thus to a certain extent as a check upon the work of the managing director.

In the contract itself is fixed the amount of product that shall be assigned to each one of the companies entering the combination. This amount depends, of course, upon the capacity in monthly production of each one of the separate establishments, due allowance being made for the various kinds of pig iron produced and for the number of furnaces in each establishment. If to fill orders most conveniently from favorably situated plants in any one month a larger share than the normal is allowed to one establishment, that is evened up later by larger orders going to others or by the proper addition or subtraction from the profits at the time of regular settlements. None of the companies shall sell in France or the French colonies or countries under the protectorate of France, without the consent of the bureau, any of their main product or any of the minor products. In case it does sell any of its products or does not respect the precise differences that are provided for regarding the different grades of material sold, the council shall decide whether or not there is occasion to deduct the tonnage sold from the amount of production which has been assigned to the producing company. If new furnaces are built or acquired by any of the companies, the productive capacity of such new works must be determined as that of the earlier ones has been, and they must come into the agreement on substantially the same terms as do the others. In case of any disagreement between the council and the producing company regarding the productive capacity of a furnace or otherwise, an arbitrator is to be chosen by the two parties to settle the dispute.

While the entire available production for the home trade of each establishment is to be placed at the disposition of the bureau to be sold, any company may still refuse to participate in any contract by submitting to a reduction of its quantum of production in an amount equal to its proportionate share in the contract.

In case the bureau can not dispose of all of the available production, the council decides upon the proportional reduction of the deliveries of each company to the bureau. Of course all the details regarding the productive capacity of the different establishments and of their relations to the bureau are fixed in the regulations. In order that there may be no possibility of misunderstanding or complaint on any side, the bureau has the right to investigate carefully the records of production, the books of invoices, of shipments, and so on, of all of the separate companies belonging to the bureau, and each company has full access to all of the books and the correspondence of the bureau, though no company has the power to authorize a stranger to interfere in any way in the affairs of the bureau.

The general expenses of the bureau are covered by a proportionate assessment upon each member, and in order to provide against losses by bad debts a fund is created by the reduction of one-half of 1 per cent on the amount paid to each company on its invoices until the fund has reached an amount of 300,000 francs. case this fund is depleted, it is reestablished again by the assessment noted,

In