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the different establishments and wish to make savings in order to secure a greater return on their invested capital, than by the promoter in the English or American sense of that word. In certain instances, as, for example, in the case of the iron industry, the so-called promoter was rather one interested in the iron business itself and was perhaps to be considered the chief factor in that industry.
Stock watering.–From the form of the combination itself it will be seen that the question of stock watering, which has been so prominent in the United States and in England, is of practically no significance in Austria. Where the combinations consist merely of agreements regarding output and prices, naturally there is no opportunity for stock watering; and, as will be seen from the discussion of the Austrian law, when the combination is made in the form of a single corporation the government supervision is so complete that there is little likelihood of abuse along that line.
From what has been said regarding the more usual form of combinations in Austria, it will be seen that many of the savings which are anticipated in the United States from joint management can not be expected there. Some of them, however, can be found.
(a) The saving which comes from closing of the poorest plants in order that the others may be run to their full capacity can not be made, but, on the other hand, part of the saving from running plants to their full capacity can be made through fitting the supply to the demand by estimating carefully beforehand the total amount that the market will take and then allotting to each establishment its percentage of output. Thus at the beginning of the year each establishment is equipped with men for the amount that will be in all probability demanded throughout that year, and the establishment is kept running steadily.
(6) There is also a saving in many cases in freights from shipping goods from the plants nearest the purchaser. This is particularly the case where there is a joint selling bureau for all of the establishments, which receives all orders and distributes them to the different plants. It will be readily understood, however, that this saving can not be made so completely as is readily possible when the establishments are under a single management, inasmuch as each establishment must receive its agreedupon percentage of the entire output, and if during the year an unexpected number of orders comes from a certain locality it will be necessary to ship into that locality goods from establishments lying farther away. Were the conditions different, a comparatively slight transference of working men to one or two establishments could increase their capacity and thereby effect a very material saving in freight. The Austrian form, then, while often permitting a considerable saving along this line, is not so advantageous as is the English or American form of combination.
It should be remembered, too, that in some of the greater combinations, as, for example, those in iron and sugar production, there is no common selling bureau, but each establishment sells its own product. In these cases there is regularly more or less of a division of territory among the different establishments, so that something is saved in the way of freight; but here again, of course, the saving is even less than with those combinations that have a joint selling bureau. The saving which comes from fewer traveling men and from the saving of office expenses is made with a joint selling bureau, but not otherwise.
The question of freight discriminations need not be dwelt upon at all, inasmuch as such discriminations among different establishments are not made. It is true that sometimes advantages are given for very large shipments, or the Government may even favor some special industry by giving special rates. In no case, however, is discrimination made between individuals or shippers where the conditions are the same, and none of the combinations count upon any advantage over their competitors in this regard.
(c) It is frequently true that in the purchase of supplies and materials, where there is a joint selling bureau, this makes also joint purchases, and under these circumstances naturally some savings are made. In most instances, however, this source of savings is not found, inasmuch as each establishment cares for the supplying of its own needs.
(d) The Austrian combinations have usually only an indirect influence upon wages. The combination as such has nothing whatever to say regarding the wages paid in the different establishments, that being left to the managers of the establishments. The wage conditions, however, in Germany and Austria are, if one is to trust the manufacturers in those countries, quite materially different from those in the United States. As they say, the wages paid are very much lower than in the United States, and public opinion would probably not justify the discharge in large numbers, with
out warning, even of laborers whose services were not needed. It is usually essential that they keep their laborers employed with a reasonable degree of regularity, unless they are themselves driven into bankruptcy or are permanently lessening their business. In consequence, they have very regularly attempted in their combinations so to organize the work that they shall keep their establishments running steadily all of the time, even though their capacity may be considerably lessened during a whole period. The desirability of keeping their men steadily employed has doubtless also in certain cases tended toward steadiness of prices. They ha at times not raised prices as much as the demand in the market would perhaps warrant. They have feared that this meeting of the demand would lead to an expansion of their business, which would probably not be permanent but which would rather tend to encourage speculation on the market and might comparatively soon lead to a shut down in their works and the consequent discharge of large numbers of laboring men.
It may perhaps therefore be said without exaggeration, that the chief effect of the Austrian combinations upon wages has been to secure somewhat greater steadiness of employment for the workingmen.
It is probable also that in certain cases the indirect effect of the increased profits, which have doubtless been secured, has been to enable the workingmen to increase their wages somewhat; but ordinarily it will not be claimed by the manufacturers that the combinations have affected wages one way or the other.
There has been little said by the managers of Austrian combinations regarding the lowering of prices effected or to be effected through the savings of combination. Generally speaking, it has been stated without much hesitation that inordinate competition, driving prices below the remunerative point, has been the chief cause of the organization, and in consequence it is to be expected that prices will be raised when the combination has succeeded in firmly establishing its position.
In speaking of the organization of the sugar combination, attention has already been called to the fact that the margin between the raw and refined product was materially increased from less than 5 forins to more than 10 florins, other favoring circumstances being of course taken into consideration, and that after the combination was suspended in 1894 this margin dropped again to 4 florins, but that again after the combination was arranged the margin went up to 8, and later at one time to even as high as 12 florins. The effect of the combination, therefore, in the way of increasing prices seems to have been pretty clearly established. In a report made to the chamber of commerce in Prague, Herr Wittgenstein, of the iron combination, states that under the combination the prices of iron had not ruled higher than during the three or four years preceding its organization. For certain grades of the product the price had not been lessened. There can be no doubt whatever that the profits of the organization were very greatly increased, this being due of course, in part at least, to the savings effected by the combination itself. The effect of the foreign market upon these prices in connection with the tariff will be discussed more at length somewhat later.
The wire-tack combination states that before its organization prices among the different competing establishments had fallen so low that manufacturers, in order to avoid bankruptcy, had resorted to defrauding the buyers. In packages which should have contained 1,000 pieces, at times were found only 900 or 800 or even 700 pieces. After the formation of the combination this state of affairs came to an end. The production being limited to an amount that the selling bureau can dispose of at remunerative rates, and overproduction being thus eliminated, the product has been sold by weight instead of by packages, and the defrauding of the public has thus been rendered impossible. The combination claims that its prices have not been increased. Their prices also, it is claimed, have been held below what might be secured without bringing in German competition. Through fear of bringing in new competitors their
prices have been held to what the managers consider a reasonable point and to rates that are fully lower, on the whole, than those existing before the combination. It is, of course, not claimed that prices have not been high enough to make profits fairly satisfactory. At the time that the report was made, late in 1895, the combination was exporting products to a considerable extent at prices lower than those secured in Austria; but even with this foreign market, the plants worked regularly only five days in the week.
After a fairly complete investigation of the larger combinations in Austria, the chamber of commerce of Prague reaches the conclusion that although there has been a decided regulation and limitation of the production by these combinations, and although the prices have been made much more nearly uniform throughout the
country, the prices on the whole have probably not been materially increased, although in certain instances increases have been made, and in other cases prices have been lowered. Attention is called to the fact that the combinations can not raise prices materially without inviting new competitors—a state of affairs of course found in all countries where combinations exist. The report also mentioned the fact that in Austria foreign products have been imported even less since the formation of combinations than before, and adduce this as a reason for believing that prices, on the whole, have not increased.
THE TARIFF AND PRICES.
Export prices. It is very generally the case in Austria that when the combinations are able to more than meet the home demand for their products their export prices are made lower than the domestic in order that they may extend as widely as possible their foreign trade, and by this means keep their establishments running at their full capacity. The managers of the wire-tack combination declare that they are unable to export at all, inasmuch as in order to reach the neutral markets they must meet the prices of Germany and Belgium, and that the cost of production in Germany and Belgium is so much less that this is impossible. They are able to keep their own home market only through the influence of the protective tariff. In certain individual cases where they have the advantage in cost of transportation, as in Bulgaria and Roumania, they are able to compete because of special advantages granted them by the Government in bringing in free of duty some of their raw material, wire rods, for example. They can in this way secure it at some 3 florins per 100 kilograms cheaper than otherwise would be the case, and therefore they are in a condition to export their product at 3 florins per kilogram less than they sell it for within the country. They, however, do not hesitate to say that they go often further than this in order to secure the export trade. Through the influence of the Government they can thus save 3 florins, but in many cases, in order to secure the trade, they must sell still lower, and not infrequently sell even at a loss. For example, they at times have sold at Sofia, in Bulgaria, at 161 francs less than in Prague, a deduction in price not much more than half of which is to be considered the advantage given them from their raw material imported tariff free. The reason for their selling abroad so much cheaper than at home is explained as follows: The circumstances are such that without the export bounty they would be compelled to limit their work to 4 days in the week. With this export trade they are able to run 5 days in the week. In order, therefore, to secure for their workingmen employment for 5 days in the week at least, they are willing to make the sacrifice mentioned above for securing the export trade. Had they the advantages of the sugar manufacturers, of securing an export premium for their product, this, in their judgment, would not be necessary;
The combination of enameled ware calls attention also to the export premium granted the sugar manufacturers, as a justification for their also exporting at times at somewhat lower rates than those at which they furnish the home producers. They claim, however, that the differer.ce between their home and export prices is only a small percentage, and is founded upon the condition that the manufacturer is not merely compelled to sell abroad cheaper, but that he is also in a condition to supply the foreigner at somewhat cheaper rates. In foreign countries they meet the competition of the German, French, and Belgium manufacturers, who can produce somewhat cheaper than they can because they have cheaper raw material. These advantages of the foreign competitors are so great that, in spite of the Austrian protective tariff, they are able to send even into Austria some of their products. The cheaper production for export is explained in this way—that ordinarily orders for export are quite large for single articles, so that their production, being in large quantities, is somewhat simpler and enables the manufacturers to secure a somewhat better division of labor, and thus to produce at a somewhat less cost than when the orders to be filled are smaller and made up of a variety of different articles. In certain cases, also, there is a drawback for the imported raw material when the finished product is exported.
It is urged still further that it is wiser to export goods at cost or even a trifle below the cost, all normal expenses being taken into consideration, for the purpose of keeping the workingmen and the machines and other forms of capital fully employed. It is the intention regularly to supply as fully as possible the home market, and then to dispose of the surplus in export at the world's price. It is, they say, no argument that the home price is too high because under certain circumstances it has been thought desirable to export at prices lower than are demanded within the country itself.
Likewise the refiners of petroleum acknowledge freely that their products are sold abroad at less prices than at home. They declare this to be the natural consequence of the great richness of the crude petroleum in Galicia since the late discoveries there. The supply exceeds decidedly the effective home demand, and therefore it is necessary to export a surplus of refined; but, of course, this export must be in competition with the American and Russian petroleum, the surplus being thus sold at the prices in the world market. Unless this were done there would be a check in the production in the interior of the country itself, which could not fail to have an injurious effect. It is claimed that the advantages of the increased production of crude petroleum have thus been made much more secure than would otherwise be possible for the many small producers, who, without the combination, could not protect themselves. Their petroleum is now handled in connection with the refined, and they thus share both in the profits on inland petroleum and in whatever may be made from the export. It is perhaps here the proper place to state that owing to the security of the profits in the home market, brought about in part through the protective tariff, the directors of the combination state that they have been able to meet the German company allied with the Standard Oil Company on even terms in the markets of Germany in the sale of benzine, and that also in France, Belgium, and Switzerland they have been able to secure their fair share of the output. If it were not for the protective tariff, as has been stated, they believe that the Standard Oil Company would not merely be able to drive them out of the neutral markets mentioned, but also to ruin their business in Austria. Although the German representatives of the Standard are acknowledged to be more powerful, yet they, protected by the tariff, have been able to make enough trouble so that they have practically compelled them to make a division of the market. In general it may be said that practically all of the important combinations that are able in any way to export have found themselves compelled by the situation in the world market to do so at prices somewhat lower than they have asked in Austria itself. As has been already explained by the representatives of the combinations, particularly in their reports to the chamber of commerce at Prague, this has been considered a fair policy, because without making these concessions they could not export at all, and without the export trade they would not be able to keep their establishments running fully so as to produce at the least cost. Generally speaking, they are of the opinion that this full employment of their home capital and labor is better for the laborers, and tends also, on account of the cheaper cost of production thereby gained, to enable them to sell the product at home even at lower rates than would otherwise be the case.
It should be borne in mind that these statements, coming as they do from the managers of the combinations, are not accepted by everybody in Austria.
Home prices as affected by the combinations and in connection with the tariff.—The other side of the question
was quite fully discussed at a meeting of the Austro-Hungarian Export Association held on the 14th and 15th of April, 1898, in Vienna, where the special subject taken up for discussion was the export trade. At that meeting Prof. Dr. Eugen von Philippovitch presented a report on “Combinations in Relation to the Export Trade," which was discussed at some length by business men and representatives of the chambers of commerce present at the meeting. Dr. Philippovitch, although of the opinion that in many particulars the combinations were essential and beneficial to the State, nevertheless thought that they, with the assistance of the protective tariff, had been enabled to put the inland prices considerably higher than would otherwise have been the case, and higher also than was justified by the cost of production. His argument was directed chiefly against the iron combination. He made, in the first place, a direct comparison in several instances between the prices for products of the same kind in Germany and in Austria. For example, bar iron selling in Germany at 103 marks? was selling in Austria at 101 florins. Certain iron beams in Austria had sold at about 2 florins more per meter-centner on an average than in Germany, and he argues that this result, brought about through the influence of the tariff, will place a burden per head of the population of some 50 kreutzers, resulting in an expenditure in Austria of some 12,500,000 florins more per year for iron and steel than if they were able to import free of duty from Germany, or, as he puts it, we could send all of the workingmen who are engaged in the mining of the ore and in the working of iron and steel, together with their families, wives and children, home and give them each a pension of 250 florins (there being altogether some 52,000 persons, their families being counted with them), provided that we could import free of tariff our iron and steel from Germany; and we should then spend no more than we are at the present day spending for iron and steel.”
1 The mark equals 23.8 cents.
2 The florin is valued at 40.6 cents.
This illustration is given not for the purpose of proving or disproving the figures given, but to call attention to the difference in the claims made by those engaged in the production of iron and steel itself and those who stand outside. Not merely does Professor Philippovitch, who himself is inclined toward freedom of trade along these lines, thus declare the effect of the protective tariff upon prices, but in that particular, the influence of the tariff, the leaders of the combinations themselves agreed that the tariff had much influence.
Herr Wittgenstein, who was for some years the head of the iron combination in Austria, gives the following tables to show the increase in iron production from 1884 to 1895 inclusive, the last 9 years being those during the existence of the combination, and also the average price at the works, in Bohemia, of various kinds of products manufactured by the combination for the 3 years preceding its organization and the nine years following. He argues from this that, generally speaking, the influence of the combination has been toward lowering somewhat the prices:
Average prices, at the works in Bohemia, of various kinds of products manufactured by
It should be kept in mind, however, that during this period of eleven or twelve years there were very important improvements in production that might justify some reduction in price.
On the other side, as regards the influence of the tariff, he gives the following evidence: In a report which he made on his combination to the Verein für Social Politik, he declared that the purpose of the combination was “to secure the highest prices which were to be secured after taking into account foreign competition and the tariff and freight conditions." He also declared that this programme had been strictly beld to, and inquired why business men complained of it. He asked whether every business man did not fix his prices as he was compelled to do by the conditions of competition, freight, and tariff. He says again: “On the one side our Minister of Commerce is congratulated if he is able to carry through a commercial treaty with neighboring countries through which the inland industries are given advantages, but, on the other side, it is considered a wrong act on the part of manufacturers if they make agreements with one another in order to make use of these same advantages;"'