Syndicate (cartel form)

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Syndicate or industrial syndicate is a term in classic cartel theory for a special type of cartel that is characterized by a central sales structure or purchasing office. Cartel bans exist worldwide .

Concept history

In the 19th century German-speaking countries , syndicate was used to describe a corporation with several owners. Organs of more highly developed cartels could also be structured in this way: this was typically the case for the central sales companies that were jointly owned by the member companies of an industry association. In the context of cartel theory, syndicates were cartel bodies that were also corporations. From around 1900 the meaning of the word syndicate was expanded . According to the principle pars pro toto, i.e. from the part (= sales organization) to the whole (= syndicate cartel), syndicate now means 'cartel with centralized sales', whereby the sales company was only part of the whole (the syndicate).

An additional expansion of meaning to include cartels with a purchasing company only occurred on the part of science, for reasons of theoretical logic, not in common parlance. In the 1950s and 1960s the “rationalization syndicate” emerged as a conceptual new creation. This did not mean a special form of cartel, but a legal authorization. Exceptions could be made to the general ban on cartels, which had been in force since 1958 by GWB , until the 1990s if rationalization was proven.

Examples of important syndicates

Organizational characteristics

Syndicates were organisationally developed, strongly institutionalized, complexly structured cartels that fulfilled several functions at the same time, i.e. combined several types of cartel. Their definition was that they "have their own cartel body that appears on the market as an entrepreneur". In practice, these were predominantly sales cartels ; sales were carteled. But procurement cartels , whose members bought through community organizations, were also detectable. In the case of the sales syndicates, prices , production quantities and the legal conditions of sale were set: In this respect, they were price , production and condition cartels . In order for the syndicated product types to be interchangeable among the various manufacturers represented in the syndicate, quality standards as well as surcharges or discounts in the event of deviations were agreed . Customers could not count on a continuous supply from just one member of the syndicate. U. adjust to slight quality fluctuations due to a change of supplier. The syndicates were called “cartels of a higher order” because in the cartel development system they ranked after all those cartel forms that were only based on agreements. Syndicates were usually complex in their institutional structure. Their organ formation was often differentiated into a multitude of commissions and special organs, including legal organs such as arbitration tribunals . In 2013, the cartel researcher H. Leonhardt pointed out that there was a large degree of structural equality in the structure of organs in international intergovernmental organizations and more highly developed cartels.

Syndicate advertising

The advertising under the terms of a joint marketing by Absatzkartellierung was different than on liberal markets. Syndicates sold standardized goods whose quality was controlled. The actual manufacturers of the goods usually did not build their own company and product image . Instead, this was done by the syndicate as the delivery decision maker, accounting authority and quality guarantee. A curiosity of the time was (in the case of Kali) indirect advertising measures for goods, for the production of which the syndicated goods could be used.

  • the RWKS as a supplier of Ruhr coal

  • Logo of the Swiss Cheese Union: Alphorn blowers on an Emmentaler loaf

Mental consequences of cartelization and syndication

The organizational changes that the syndicated entrepreneurs underwent had an effect on them mentally: The central, joint sales organization (ideally) relieved the members of all marketing and sales functions, making them inactive in important areas of business life and dependent on the syndicate headquarters could become. As a result of the monopoly of sales in the central sales point, the syndicate members (in tendency) no longer had their own sales departments and no longer had access to customers. Liberal critics of the cartel movement spoke of a kind of 'civilization' of the entrepreneurship that would become weaned from risk and indolent.

Syndicate seats

The locations for the syndicate headquarters were mostly chosen to be conveniently located in the middle of the production and sales area controlled by the association. There was often competition between municipalities or states to locate large sales outlets, which were also followed by other cartel activities, such as general meetings . In 1893, for example, the city of Essen decided the location question of the Rheinisch-Westphalian coal syndicate for itself with a generous offer of real estate . The more the cartels came under the influence of the state, the more important short communication channels to politics became. Since the First World War at the latest, more and more empire-wide cartels have been formed, preferably based in Berlin , the capital of the empire .

The sales and marketing activities of entire industries were concentrated in syndicates. A large number of administrative processes arose, so that hundreds of administrative employees work in such cartel centers (e.g. RWKS , steelworks association , potash indicator ). Syndicate seats were often stately, representative buildings and could be worthy of monument protection both architecturally and as a remnant of a submerged, special economic system .

Relationship to society and politics

Syndicates were never secret and conspiratorial, as the modern, negative cartel stereotype suggests. By referring the customer to a central sales point or the supplier to an association purchasing agency, the situation was completely transparent: one side of the market was clearly monopolized , so that no secret could be made of this fact, even if one had wanted to. Several syndicates carried out active public relations work , published business reports , advertising , advice for customers and the like. a. m. Because of their economic importance, syndicate cartels were often under the scrutiny of the press and politics. Since the First World War , the larger syndicates have increasingly been subjected to economic policy purposes. In the German Reich, the coal mining and potash mining syndicates were given public law status with the Coal Industry Act of March 23, 1919 and the Potash Industry Act of April 24, 1919. In the Third Reich, the management intervened heavily in the pricing of the raw material syndicates, so that extra profits were no longer possible.

Cost savings and sustainability

The pooling of the sales of the syndicate members enabled substantial savings. The organizational cohesion also promoted other joint services such as technical services, rationalization advice, research and development, corporate and industry planning.

Syndicates were sustainable in the sense that they were geared towards long-term viable business operations. An ecological orientation in the modern sense was alien to the entrepreneurs of the classic cartel system: they were above all economical. The double, complementary management of the entrepreneurs on the one hand and the syndicate headquarters on the other generated broad, intensive business governance - hardly any aspect of business life was strategically neglected. The principle of collaborative problem solving made it possible to achieve an efficiency that is not possible under liberal conditions :

  • By distributing the orders according to the principle of the shortest (cheapest) delivery route, the transport costs were minimized. The typical liberal markets costs through cross-sales ( "cross selling expenses") as a result of supplier diversification fell away. Inadvertently, this also minimized energy consumption and environmental pollution .
  • Due to the transition to joint sales and marketing, the individual companies no longer had to spend on invoicing , payment control , advertising , agents , discounts, etc. Only advertising for the industry or their types of product were necessary at intervals to maintain the market. Syndicates with the market power of large corporations appeared in 'disputed' areas, such as the Rhenish-Westphalian coal syndicate against the comparatively unorganized British coal.
  • The distribution of the demand by production quota to the syndicated companies increased the uniformity of the workload and stabilized the demand for labor. In this way - more than in liberal markets - the costs of ramping up and down production, including abrupt new hires and layoffs, could be avoided, which lowered average costs.
  • Waste materials that would have been shoveled into the dump or flared in unsyndicated individual companies were recycled within the framework of joint solutions. Fertilizers were made from the slag from the Ruhr area and the coke oven gas became the basis of a regional network. While Thomasmehl GmbH no longer exists, Ruhrgas AG has existed to this day - both emerged as executive bodies of syndicate cartels.

However, there could be conflicting goals between the optimization goals in the production and sales areas of syndicates : If the orders were unevenly received regionally, the full minimization of transport costs was often foregone in favor of a quota-based utilization of the member companies.

The special efficiency of syndicates was even acknowledged by neoliberal experts. The Federal Cartel Office calculated the early 1960s, the ongoing, recurring cost advantages of cement syndicates with 2-3%. Already deducted from this were the losses in the optimization of transport costs, which occurred due to the consideration of an even utilization of all syndicate operations. The overall efficiency advantage of the syndicate system was therefore greater than 2–3% annually, because the cost advantages from more even production (without frequent start-ups or discontinuation of production) were added.

The sustainability of the economy (which was not always, but often maintained) left its mark on mining districts. This is how a “ cultural landscape ”, a “functional network” of infrastructural facilities, “in a globally unique density” was created in the highly cartelized Ruhr area . The density of industrial plants was essentially caused by the endeavor to mine the developed coal deposits as completely as possible and to leave nothing in the mountain. Here, the syndication enabled the mines to mine coal with little risk. The joint sales point ensured, regardless of short-term preferences on the demand side, meticulous and continuous marketing of all types of coal produced in the Ruhr mining industry . This momentum was lacking in liberally organized coal industries, so that there - as in the USA - there was considerable “overexploitation” due to “ignored” coal stocks that were no longer economically accessible.

Disadvantages of the cartel and quota system

In practice, the considerable savings through syndication were offset by some disadvantages that resulted from the distribution of the orders to be processed according to a quota system . In principle, each syndicate member received a certain share of the demand to be distributed, which should be proportional to his production capacity. Because every member company strived for the highest possible quota of total sales (the syndicate products were overpriced and therefore above average profitable), there were regular conflicts and quota fights in sales cartels like the syndicates . Syndicate members who were neglected saw a way out in equipping quotas , expanding capacity (against the will of the other cartel companies) in order to enforce their quota claims in this way. Agreements to limit investments proved difficult or impossible to enforce in the long term. Ultimately, there was considerable excess capacity in syndicated industries. The so-called quota shafts of the potash industry , which were only sunk to increase the quota and then immediately shut down, had a particularly paradoxical effect .

Economic Effects

The prevailing neoliberal approach to cartel theory assumes that cartels with a strong tendency are detrimental to the economy. This is plausible for illegal, secret cartels, which only increase prices and cause misallocation without performance. Since syndicates always acted openly on the markets, they were under observation and had to constantly justify their pricing. In them there was regularly a fraction of the so-called “apostles of temperance”, which pushed for somewhat lower, more moderate prices. In later years politics also intervened, so that the distortions in the price system remained smaller than postulated by the neoclassical view. Critical cartel researchers like Harm G. Schröter generally assert that long-term cartels (and these were especially the syndicates) were more useful than harmful. For the German Empire , the mining syndicates were a clear competitive advantage. The cooperation between the mining and steel entrepreneurs enabled them to overcome their structural inferiority vis-à-vis the British coal and steel industry in the long term, within half a century (!), And sometimes to reverse it.

Development tendencies towards a horizontal group

As early as the 1880s, cartel and concentration experts had recognized that close cartels had the potential to develop into industry groups. The merger of the carteled entrepreneurs could through equal merger respectively. Formation of a holding company or purchase by a financially strong actor. There are numerous examples of this in American economic history in the late 19th century, when corporate mergers in a number of industries gave rise to horizontal corporations with large market coverage, so-called trusts . But also in Europe, for example in Great Britain, Germany and Austria-Hungary, some such mergers took place.

The merger tendency of developed cartels can easily be explained:

  • The actors knew each other through regular cooperation and can assess the value of the other cartel companies. The risks of a purchase, share swap, etc. were therefore manageable for them. This information advantage and the established cooperation relationships increased the likelihood that changes in ownership and concentration processes were purely internal. In the case of state-controlled or controlled cartels, a particularly potent merger was available in the form of the public sector, who transformed cartels in trouble into a state corporation.
  • Due to the extended rights of disposal in a group, numerous rationalizations could be carried out, which previously failed due to the egoism of the individual companies: the closure of less profitable facilities as well as an industry-wide exploitation of know-how. In general, a production and sales structure could now be built from a single source, in which the operating units were optimized in terms of size and location. Since the production plants were now usually larger and disproportionately more powerful, in addition to the organizational effects, considerable economies of scale could also be achieved.

Examples of former syndicates that merged into corporations or went up into corporations

  • German potash certificate , Berlin, until 1945: the components gradually merged into K + S (Kali und Salz) AG, Kassel.
  • Rhenish-Westphalian coal syndicate and successor companies: from 1968 RAG Aktiengesellschaft
  • Various brown coal syndicates up to max. 1950s: later mergers and takeovers by electricity companies (suppliers such as RWE ).
  • Various German chemical cartels and syndicates until 1925: IG Farbenindustrie AG , historical group (until 1945).
  • British Coal Corporation, an association of all British coal mines founded in 1946 as the National Coal Board

Individual evidence

  1. ^ Holm A. Leonhardt: Cartel theory and international relations. Theory-historical studies , Hildesheim 2013, p. 110.
  2. ^ Holm A. Leonhardt: Cartel theory and international relations. Theory-historical studies , Hildesheim 2013, p. 344.
  3. ↑ Günther Kiersch: International Iron and Steel Cartels, Essen 1954, p. 70.
  4. ^ Leopold Mayer: Cartels. Antitrust Organization and Antitrust Policy. Wiesbaden 1959. p. 109.
  5. ^ Holm A. Leonhardt: Cartel theory and international relations. Theory-historical studies , Hildesheim 2013, p. 547.
  6. ^ Holm A. Leonhardt: Cartel theory and international relations. Theory- historical studies , Hildesheim 2013, pp. 494–495, 596–609.
  7. ↑ a b For Kali: Dirk Reder u. a .: Experience growth. The history of the K + S Group 1856–2006, Hünfeld 2006, pp. 106–107.
  8. ↑ For cartels in general, particularly praising the syndicates: Jacob Herle / Max Metzner (eds.): Production support through cartels. Berlin 1929, pp. 5-9.
  9. ^ Cartel synopsis of cement. A comparison of cartel arguments of the German cement industry and the counter arguments of the Federal Cartel Office / ed. from Fachverband Zement eV, Cologne 1963.
  10. ^ Foundation for the preservation of industrial monuments and historical culture: Unique in the world: Zollverein and the industrial cultural landscape of the Ruhr area. A proposal for the UNESCO World Heritage (June 2012), pp. 5, 7, 8. http://www.industriedenkmal-stiftung.de/welterbe/Broschuere_Welterbe.pdf .
  11. ↑ Günther Kiersch: Organization of the coal sales in the United States and Western Europe, Essen 1952, p. 7.
  12. ↑ Leopold Mayer, Kartelle, Kartellorganisation und Kartellpolitik , Wiesbaden 1959, p. 302.
  13. ^ Holm A. Leonhardt: Cartel theory and international relations. Theory-historical studies , Hildesheim 2013, pp. 94, 98, 249, 268.
  14. ↑ Thomas Jovovic: Germany and the cartels. A neverending story, in: Yearbook for Economic History 1 (2012), p. 265 (p. 237–273).
  15. ↑ Harm G. Schröter, The Cartel Ban and Other Inconsistencies. New approaches in international cartel research, in: Margrit Müller (Ed.), Regulated Markets. Guilds and cartels, Zurich 2011, 199–211.
  16. ^ Holm Arno Leonhardt: German organizational talent. On the economic historical roots of a national stereotype, in: Zeitschrift für Wirtschaftsgeographie, 59. 2015, 60–61.
  17. ↑ Gustav Schmoller, [Review by] Kleinwächter, Friedrich: Die Kartelle. Innsbruck 1883, in: Yearbook for Legislation, Administration and Economics in the German Empire, 7 (1883), pp. 335–336.
  18. ^ Günther Kiersch: Organization of the coal sales in the United States and Western Europe, Essen 1952, p. 17.

literature

  • Holm Arno Leonhardt: Cartel theory and international relations. Theory-historical studies , Hildesheim 2013.
  • Leopold Mayer, Cartels, cartel organization and cartel policy , Wiesbaden 1959.
  • Günther Kiersch: Organization of Coal Sales in the United States and Western Europe, Essen 1952.
  • Günther Kiersch: International Iron and Steel Cartels, Essen 1954
  • Arnold Wolfers: The Cartel Problem in the Light of German Cartel Literature . Munich 1931.
  • Horak, Karl The nature of the participation figure in sales syndicates with special consideration of the syndicate agreement, Göttingen / Olmütz 1927.