Cartel

Cartel. An association of independent firms in the same or related branches of industry formed for the purpose of regulating production or sales through the allocation of raw materials, the dividing up of markets, the assigning of sales quotas, or the fixing of prices. Cartels have a monopolistic tendency: they restrict, but do not abolish, free competition. Members of a cartel retain their identity and financial independence. Cartels are characteristic of periods of industrial concentration. Another form of association, consisting of enterprises belonging to different branches of industry and even of financial institutions, is prevalent today. These integrated enterprises share planning and management; hence, they sacrifice some of their former autonomy. Combinations of financial and industrial firms known as consortiums are organized for specific purposes. Trusts, which come under one management, are the most integrated form of association. They existed in the USSR, but were distinct from the capitalist trusts in the West. International cartels are composed of enterprises or financial firms from various countries.

In prerevolutionary Russia the syndicate, which was interested primarily in regulating sales, was the standard form of cartel. The production of the syndicate members was sold through a common marketing center. The syndicates in Russia were usually joint-stock associations of firms with a common statute capital and a single representative agency, which received purchase orders and distributed them according to quotas among the syndicate members. In the Russian Empire cartels arose at the end of the 19th century, and by 1917 there were 100 to 140 of them. The principal cartels were Prodamet, Produgol, Prodarud, the Russian Steamshipping and Trade Company, the Union of Rail Manufacturers, the Union of Rail Fittings Manufacturers, the Urozhai syndicate of farm-machine builders in Ukraine, and the Syndicate of South Russian Starch Factories. Most of these cartels were under the control of foreign capital or of the largest imperial banks, which were also usually foreign-controlled. Individual price-fixing agreements (known as puly or ringi) among manufacturers were common. The Russian cartels did not develop into trusts: attempts to turn Prodamet into a steel trust on the German-American model did not succeed. The Russian government tried to curb the growth of cartels only when they encroached upon state interests; for example, it reacted against Produgol when the cartel tried to increase the price of coal to the state railways, against the Syndicate of Sugar Manufacturers, and against the secret salt syndicate in Ukraine, which lowered prices to undercut the salt refineries in the Urals and thus reduced the government's income from excise taxes. In most cases, however, the Russian government permitted cartels to exist. The legislation against monopoly was limited to articles 913 and 1180 of the Code of Laws of the Russian Empire, which prohibited artificial price hikes on goods deemed primary necessities, but these articles were rarely invoked, particularly because of widespread corruption in government and judiciary circles.

Cartels in Ukraine often competed with cartels in Russian or Polish territory, and in the process the territorial interests of the Ukrainian enterprises became clearly defined. The government tried to defend the Russian cartels by manipulating freight tariffs on the state railways and by usually purchasing Russian products, but the policy proved a failure. The cartels in Ukraine, such as Urozhai, which after a fierce struggle captured markets as far away as Siberia, and Prodamet, extended their influence to markets throughout the empire.

During the Revolution of 1917 the cartels were nationalized, and during the period of the New Economic Policy the Soviet government organized state cartels, which usually operated on a territorial basis. The latter were abolished in 1929–30.

Before the First World War Galicia's petroleum industry was controlled by Austrian, British, American, and French concerns, and after the war, under Polish rule, it was controlled by British, American, and French cartels. A large part of interwar Poland's industry was controlled by cartels, and the Polish government was in debt to certain international cartels. In 1929 the Polish government adopted legislation similar to the German legislation of 1923 limiting the activities of cartels.

BIBLIOGRAPHY
Rieber, Alfred J. Merchants and Entrepreneurs in Imperial Russia (Chapel Hill, NC 1982)

Vsevolod Holubnychy

[This article originally appeared in the Encyclopedia of Ukraine, vol. 1 (1984).]