CHAPTER I. INTRODUCTION

This report, prepared for the information and use of the Subcommittee on Monopoly of the Senate Select Committee on Small Business, is a study of the development of legislation in the general area of monopoly power and restrictive business practices in a selected group of foreign countries. Factual information concerning the administration of these laws is presented, and brief notes concerning the attitudes of leading groups in these countries have been appended where sufficient information is available to make this useful.

The study reveals that almost all important countries of the free world have adopted legislation of some form on this subject at one stage or another since the advent of the industrial revolution. As might be expected, the type of statutes as well as the degree of effectiveness of their provisions and of their administration has varied greatly from country to country. These factors are a function of a number of complex considerations, such as the type of government in the particular country at the period in which legislation was adopted; its economic, social, and political aims; and the fundamental philosophy of the government and the people of a country toward the part the business community should play in the economic and political structure of the country. It is accordingly difficult to reach any generalizations as to the trend of development in the group of countries as a whole. It is possible, however, to trace several roughly defined periods of development of the regulation of business practices.

The earliest expressions against monopolistic restraints occurred well prior to the industrial revolution. For example, from very early days the British common law ruled that contracts in restraint of trade were illegal and therefore unenforceable; and the Statute of Monopolies in 1624 placed limits upon monopoly grants by the Crown, as a result of public resentment at a number of such grants relating to basic staples.

Toward the end of the eighteenth century, a series of actions was taken against the restrictive activities of the guilds. These found their clearest expression in France in Turgot's edict and Chapelier's act at the time of the French Revolution. There developed about this time, also on the Continent, a move to include in the civil or criminal codes provisions comparable to the English common law. Article 419 of the French Penal Code, still the only legislation on the subject in that country, was adopted in 1810. At the time of its passage, it was directed primarily against speculation in and cornering of foodstuffs. As a result of the industrial revolution, problems relating to monopolistic business practices as we know them today, began to emerge. After the middle of the nineteenth century, when the modern corporate forms of business enterprise developed, transportation services became improved, markets broadened, and commercial activities increased in complexity, monopolistic concentrations on the part of private enterprise began to be a major problem requiring decisions of

public policy. By the end of the nineteenth century, cartel practices had come to be employed quite widely in Europe, particularly in Germany.

Public pressure in the 1880's against monopolistic practices in the United States and Canada led to passage of legislation for their control. However, in most countries a predominantly laissez-faire policy was pursued toward the practices of private business, with no basic legislation being adopted either in support of or against such restrictive activities as prevailed. In France, for example, earlier statutes against guild restrictions, which could also be applied against cartel restraints, were weakened or repealed.

Although prior to World War I the cartel movement had not become so pervasive as to relegate competitive forces in trade and industry to the background, attempts were made in the twenties to cartelize industry more thoroughly as a result of the industrial maladjustments following the war. This development found expression particularly in the form of agreements to set prices and limit production, of restrictive trade associations, and informal "gentlemen's agreements."

As a result, a general departure from the previously prevailing laissez-faire policy began. The statutes which have been adopted on the subject since that time have sometimes intended to further private restraints on trade and in other cases have been designed to set limits upon the extent to which these practices could go.

In Western Europe, there emerged the doctrine of control of cartels and combines, that is, the doctrine that monopolistic abuses against the public interest could be restrained through a system of control while at the same time those restrictive arrangements which were believed to be favorable to the public interest could be encouraged. The Cartel Decree of 1923 in Germany, for example, was based on this general approach. The Norwegian Trust Control Act of 1926 gave the control authorities the right to modify or dissolve collusive undertakings. It was also the first law to incorporate the device of compulsory registration of cartel agreements.

In the depression period of the 1930's, most governments turned toward the encouragement or enforcement of cartel agreements as one of many control devices to try to overcome the stultifying effects of business inactivity and unemployment. The Governments of Germany, Italy, and Japan all adopted statutes for compulsory cartelization in this period. Many of the democracies also resorted directly or indirectly to this device in an attempt to counteract the economic instability brought on by the depression. For example, in Great Britain the Government encouraged industrial concentration in a number of industries. The Coal Mines Reorganization Act of 1930 was, in effect, practically a measure of compulsory cartelization, empowering the central mine organizations to establish limitations of output and prices for the entire industry. The United States National Industrial Recovery Act (1933), although not a law for compulsory cartelization, had many of the effects of such a law. A number of the NRA codes, developed and approved by the Government, forbade a seller to market below an average cost for the industry; others provided that entire industries must adhere to specified minimum prices under certain circumstances. In 1935 Belgium passed legislation which provided for the extension of existing cartels to outsiders where deemed desirable.

Also in 1935, the Netherlands enacted a law which not only brought outsiders into existing cartels, but provided for the establishment of new cartels upon the request of the principal producers.

Since World War II, the problems created by the existence of cartel and similar restraints on trade appear to be receiving greater attention and increased recognition in many foreign countries, particularly in Western Europe, with an accompanying increase in the number of statutes adopted, or legislative proposals made, for the curbing of such practices. As in the 1920's the doctrine being generally followed is that of controlling those practices which in the particular case are deemed to be contrary to the public interest, without any condemnation of cartel arrangements as such. Sweden adopted a statute in 1946 providing for the registration of cartel agreements and investigation of their effects. The British Monopolies and Restrictive Practices Act of 1948 provides for investigation, and remedial action when found to be justified in the public interest. Legislation has also been adopted in Denmark and Austria and is under consideration in Belgium, France, Germany, Italy, and the Netherlands. While these developments should not be overemphasized until the effectiveness of the measures being taken can be accurately assessed, they mark a more widespread effort to deal with the abuses stemming from cartel restrictions than has previously been seen.

The period since the war has also been marked by an effort to bring about for the first time cooperative international control of cartel practices. Negotiations have been instituted in ECOSOC looking to an intergovernmental agreement along these lines. In addition, the Schuman plan contains provisions designed to prevent cartel and monopolistic restraints in the Western European coal and steel industries.