Monopoly

Monopoly. Exclusive control or ownership of a commodity or service through legal privilege, command of supply, or concerted action, usually for the purpose of controlling prices and thus maximizing profit. A monopoly operates in a given market and can be held by a single private or state enterprise or by an association of enterprises. In the preindustrial period private monopolies were granted by rulers to stimulate trade or the development of some branch of manufacturing in order to guarantee supply, but also to increase state revenues.

In Kyivan Rus’, the Lithuanian-Ruthenian state, the Polish-Lithuanian Commonwealth, and the Hetman state, the respective rulers granted monopolies, such as storage rights, to individual merchants, entrepreneurs, and craftsmen as well as to trading companies, guilds, and local magistrates. In the Polish state the gentry possessed a slew of monopolies. In different periods state monopolies known as regalii operated in mining, hunting, and logging as well as in customs, collecting, minting, and the postal service. The regalii were an important source of state revenues at a time when there was no regular taxation system. As the state's expenses grew, new monopolies were introduced: a salt-trade regaliia, for example, was introduced in the mid-16th century, which survived in Western Ukraine until 1939. Russian state monopolies were extended to Ukraine by Peter I. In the first half of the 19th century, as trade expanded and competition increased, manufacturing and trading monopolies became obsolete. Nevertheless, a number of the larger cities in Russian-ruled Ukraine held a monopoly on the liquor trade within their limits until 1862.

In its first phase industrial capitalism in Ukraine was competitive, but in the last quarter of the 19th century large private industrial and financial monopolies appeared and grew rapidly. They were associations of companies in the same branch of the economy or in the same territory, known as cartels or syndicates, and they were controlled mainly by French, Belgian, or German capital. They sprang up, usually, in response to frequent economic crises, which they proposed to control by restraining competition, dividing markets, planning production and prices, consolidating small enterprises, and dissolving unprofitable companies. In some cases the intent was to lower costs and expand production. At first the Russian government encouraged the formation of cartels and syndicates and worked closely with them. After 1910, however, fearing that the syndicates in Ukraine would become foreign-controlled trusts, from which Russian capital would be squeezed out, the state took some measures against them. But such actions were unsuccessful, because French and Belgian banks, and even the French government, which had lent huge sums to the Russian government, interceded on behalf of their shareholders who owned the monopolies in Ukraine.

The first cartel in Ukraine was the Syndicate of Sugar Manufacturers (1887–95), which was revived in 1897 as the All-Russian Society of Sugar Manufacturers. Its head office was in Kyiv. In 1890 the government's Metallurgical Committee bought up virtually all the cast iron and rails produced in the Russian Empire. To counteract this monopoly the French bankers of the Société Générale pour l'Industrie en Russie, who controlled most of the coal and metallurgical companies in Ukraine, set up two syndicates, the Prodamet in 1902 and the Produgol in 1904. The first represented about 80 percent of the empire's metallurgical factories, but by 1908 its core membership consisted of plants in Ukraine. Defeating other cartels, it established its control of heavy industry in Ukraine. Prodamet was a key player in the Council of Conferences of Mining Industrialists of Southern Russia and prompted it to consolidate and defend the interests of industries in Ukraine against competition from the coal and metallurgical centers in Russia and Poland. Produgol represented 60 percent of the mines in the Donbas, the mines owned by French and Belgian shareholders. By 1910 it controlled about 75 percent of the coal production and coke production in the Donbas.

A number of local monopolies were established in Ukraine. The Locomotive Union of the Luhansk and Kharkiv plants was formed in 1907. The Urozhai syndicate of farm-machine builders (est 1907) represented 18 companies, which accounted for 72 percent of the farm-machinery output in Ukraine (see Agricultural machine building). The Belgian-controlled Prodarud syndicate (1908–15) commanded at one time over 80 percent of the ore mined in Kryvyi Rih. Other cartels in Ukraine controlled the markets for tobacco (from 1912), salt (in Odesa and Crimea), and flour (in Odesa, Kherson, Mykolaiv). All shipping in the Black Sea and Sea of Azov came under the Russian Steam Shipping and Trading Society. The Med, Prodvagon, Trubprodazha, Gvozd, Provoloka, and Rockefeller's petroleum syndicate had an all-Russian status.

The financial monopolies in Ukraine had some distinctive features but were less important than those in Russia, because the shares and obligations of the major industrial companies in Ukraine were usually held by foreigners and their banks, such as Crédit Lyonnais, Banque de Paris et des Pays-Bas, and the Northern Bank in Saint Petersburg (fully French-owned). The only large bank centered in Ukraine was the Azov-Don Bank (est 1871), which, although financing grain exports from Ukraine, controlled virtually the entire Ukrainian sugar industry and was an important shareholder in Prodamet and Produgol. Most of the credit and commercial operations in Ukraine, however, apart from industrial financing, were in the hands of the large Russian banks in Saint Petersburg. The syndicate of insurance companies that operated in Ukraine was an all-Russian one.

It was characteristic of the development of capitalist monopoly in Ukraine that none of the empire's largest monopolies concentrated there were controlled by Russian capital, but by Western European investors. They competed fiercely with monopolies in Russia and the Congress Kingdom of Poland, and opposed controls and interference in their affairs by the Russian goverment. Although multinational in origin, the bourgeoisie in Ukraine, which formed territorial conferences and local syndicates and cartels, became increasingly aware of its common territorial interests. Oriented primarily toward Paris and Brussels, it moved gradually closer to the idea of territorial separatism, although it had no direct ties to the Ukrainian national movement.

In the Russian Empire the state had a monopoly on the postal services, telegraph communications, and telephone communications and, from 1895, on the liquor trade. The profit margin on liquor sales until 1914 was 78.8 percent. In 1914–22 all trade in spirits was prohibited by law. In 1923 the Soviet government reimposed a state monopoly on liquor.

Although monopolies were far more extensive in Ukraine than in the rest of the Russian Empire, they did not reach the levels prevalent in Western Europe and the United States. No trusts or concerns arose in Ukraine. In 1914 the monopolies were subordinated to the state, because of the war. During 1914 the Russian government set up a number of special councils, state committees, and commissions to control industry. By 1916 all industry and the wholesale trade came under direct state control. The influence of Prodamet was reduced virtually to nil, and Produgol and Prodarud were dissolved completely. In late 1916 and early 1917, state monopolies in the grain trade and then the cloth, leather, sugar, and coal trades were introduced.

In 1918–21 the Bolsheviks extended state monopoly to almost all branches of the economy and nationalized private property. During the New Economic Policy (NEP) most state monopolies, except the prewar ones and those involving foreign trade, were abolished. Even nationalized enterprises competed with one another on the market and geared their production to demand. That was monopolistic competition, however, because they were all bound together in branch and territorial trust syndicates. During the NEP period 19 state trusts, representing about 800 large industrial concerns, including Donvuhillia, Pivdenstal, Trudtsukor, Sklosoda, and the Leather Trust, were set up. In December 1929 the trusts and syndicates were stripped of their planning and distribution powers, which were transferred to the central government. Competition between firms was halted. The introduction of central all-Union planning meant the restoration of state monopoly in all branches of production and distribution, although the phrase ‘state monopoly’ was never used by Soviet economists to refer to the Soviet economy. In contrast to previously known forms of monopoly the Soviet system created by Joseph Stalin can be called total state monopoly. In it the state planned everything from one center, and set all prices and wages without regard to market demand. There was no competition among enterprises, and they worked not to satisfy demand but to fulfill the state plan. The determination of profit margins and prices in the Soviet economy was also monopolistic.

In Western Ukraine monopolies developed relatively quickly, although industrial monopolies remained underdeveloped. Under the Austrian Empire the railway communications, the tobacco industry, and the salt and liquor trade were state monopolies. Under Poland match production was added as a state monopoly. The development of certain local industries, such as sugar refining, was restrained by Austrian cartels so that competition would be stifled. In the late 1880s most sawmills and the entire lumber export trade were in the hands of two German and one Austrian firm, which continued to dominate the lumber industry under the Polish regime. The petroleum industry was controlled before the First World War by Austrian, British, French, and German concerns, and after the war by Austrian, British, American, and French companies. Under Poland all of the main branches of industry were controlled by cartels. The government made no attempt to restrict the monopolies because they were held by international cartels to which the Polish government was deeply in debt. That state of affairs complicated the industrialization of Western Ukraine, drove down the value of local agricultural output relative to that of the imported industrial products, and impoverished the Ukrainian population. Economic conditions in Transcarpathia were somewhat better.

BIBLIOGRAPHY
Hauptmann, B. Die russische Eisenindustrie und die Kartellbewegung (Zurich 1913)
Zagorsky, S. State Control of Industry in Russia during the War (New Haven 1928)
Liashchenko, P. Istoriia narodnogo khoziastva SSSR, vol 2 (Moscow 1956)
Kononenko, K. Ukraine and Russia: A History of Economic Relations between the Ukraine and Russia, 1654–1917 (Milwaukee 1958)
Nesterenko, O. Rozvytok promyslovosti na Ukraïni, vol 2 (Kyiv 1962)

 Vsevolod Holubnychy

[This article originally appeared in the Encyclopedia of Ukraine, vol. 3 (1993).]