My Four Years in Germany

by James W. Gerard

I am afraid that, after this war, if we expect to keep a place for our trade in the world, we may have to revise some of our ideas as to so-called trusts and the Sherman Law. Trusts or combinations are not only permitted, but even encouraged in Germany. They are known there as "cartels" and the difference between the American trust and the German cartel is that the American trust has, as it were, a centralised government permanently taking over and combining the competing elements in any given business, while in Germany the competing elements form a combination by contract for a limited number of years. This combination is called a cartel and during these years each member of the cartel is assigned a given amount of the total production and given a definite share of the profits of the combination. The German cartel, therefore, as Consul General Skinner aptly said, may be likened to a confederation existing by contract for a limited period of time and subject to renewal only at the will of its members.

It may be that competition is a relic of barbarism and that one of the first signs of a higher civilisation is an effort to modify the stress of competition. The debates of Congress tend to show that, in enacting the Sherman Law, Congress did not intend to forbid the restraint of competition among those in the same business but only intended to prohibit the forming of a combination by those who, combined, would have a monopoly of a particular business or product. It is easy to see why all the coal mines in the country should be prohibited from combining; but it is not easy to see why certain people engaged in the tobacco business should be prohibited from taking their competitors into their combination, because tobacco is a product which could be raised upon millions of acres of our land and cannot be made the subject of a monopoly.

The German courts have expressly said that if prices are so low that the manufacturers of a particular article see financial ruin ahead, a formation of a cartel by them must be looked upon as a justified means of self-preservation. The German laws are directed to the end to which it seems to be such laws should logically be directed; namely, to the prevention of unfair competition.

So long as the question of monopoly is not involved, competition can always be looked for when a combination is making too great profits; and the new and competing corporation and individuals should be protected by law against the danger of price cutting for the express purpose of driving the new competitor out of business. However, it must be remembered that a combination acting unfairly in competition may be more oppressive than a monopoly. I myself am not convinced by the arguments of either side. It is a matter for the most serious study.

The object of the American trust has been to destroy its competitors. The object of the German cartel to force its competitors to join the cartel.

In fact the government in Germany becomes part of these cartels and takes an active hand in them, as witness the participation of the German Government in the potash syndicate, when contracts made by certain American buyers with German mines were cancelled and all the potash producing mines of Germany and Austria forced into one confederation; and witness the attempt by the government, which I have described in another chapter, to take over and make a monopoly of the wholesale and retail oil business of the country.

The recent closer combination of dyestuff industries of Germany, with the express purpose of meeting and destroying American competition after the war, is interesting as showing German methods. For a number of years the dye-stuff industry of Germany was practically controlled by six great companies, some of these companies employing as high as five hundred chemists in research work. In 1916 these six companies made an agreement looking to a still closer alliance not only for the distribution of the product but also for the distribution of ideas and trade secrets. For years, these great commercial companies supplied all the countries of the world not only with dyestuffs and other chemical products but also with medicines discovered by their chemists and made from coal tar; which, although really nothing more than patent medicines, were put upon the market as new and great and beneficial discoveries in medicine. The Badische Anilin and Soda Fabrik, with a capital of fifty-four million marks has paid dividends in the ten years from 1903 to 1913, averaging over twenty-six per cent.

The Farbwerke Meister Lucius und Bruning at Hoeckst, near Frankfort, during the same period, with a capital of fifty million marks, has paid dividends averaging over twenty-seven per cent; and the chemical works of Bayer and Company, near Cologne, during the same period with a capital of fifty-four millions of marks has paid dividends averaging over thirty per cent.

Much of the commercial success of the Germans during the last forty years is due to the fact that each manufacturer, each discoverer in Germany, each exporter knew that the whole weight and power of the Government was behind him in his efforts to increase his business. On the other hand, in America, business men have been terrorized, almost into inaction, by constant prosecutions. What was a crime in one part of the United States, under one Circuit Court of Appeals, was a perfectly legitimate act in another.

If we have to meet the intense competition of Germany after the war, we have got to view all these problems from new angles. For instance, there is the question of free ports. Representative Murray Hulbert has introduced, in the House of Representatives, a resolution directing the Secretary of the Treasury, the Secretary of War and the Secretary of Commerce to report to Congress as to the advisability of the establishment of free ports within the limits of the established customs of the United States. Free ports exist in Germany and have existed for a long time, although Germany is a country with a protective tariff. In a free port raw goods are manufactured and then exported, of course to the advantage of the country permitting the establishment of free ports, because by this manufacture of raw materials and their re-export, without being subject to duty, money is earned by the manufacturers to the benefit of their own country and employment is given to many workingmen. This, of course, improves the condition of these workingmen and of all others in the country; as it is self-evident that the employment of each workingman in an industry, which would not exist except for the existence of the free port, withdraws that workingman from the general labour market and, therefore, benefits the position of his remaining fellow labourers.