As early as 1810, France adopted Article 419 of the Penal Code, which outlawed coalitions of sellers. These affiliations had resulted in the raising or lowering of prices above or below those of ‘natural and free competition’. However, the law was unevenly implemented and by 1880 had fallen into disuse. From the 1890s, the French courts began to accept ‘defensive’ combinations (cartels) and to uphold their agreements. It was not until 1986 that France repealed Article 419 and adopted a ‘modern’ and more comprehensive anti-trust law.[82]
The USA was the pioneer in ‘modern’ competition law. The country introduced the Sherman Antitrust Act in 1890, although five years later the act was crippled by the Supreme Court in the notorious Sugar Trust case. Until 1902, when President Theodore Roosevelt used it against J P Morgan’s railways holding company, the Northern Securities Company, It was in fact mainly used against labour unions rather than against large corporations. Roosevelt set up the Bureau of Corporations in 1905 to investigate corporate malpractice; the bureau was upgraded into the Federal Trade Commission with the Clayton Antitrust Act of 1914, which also banned the use of the antitrust legislation against the unions.[83]
During the nineteenth century, the British state neither supported nor condemned trusts and other anti competitive arrangements. However, until the First World War, the courts were quite willing to uphold the validity of restrictive trade agreements. The first anti-trust initiative to be taken was the short-lived Profiteering Act (1919, discontinued in 1921), created to cope with postwar shortages. During the Depression of the 1930s, the state endorsed rationalization and cartelization. It was only with the 1948 Monopolies and Restrictive Practices Act that serious antimonopoly/antitrust legislation was attempted, but this remained largely ineffective. The Restrictive Practices Act of 1956 was the first true antitrust legislation, in the sense that it assumed – for the first time – that restrictive practices were against the public interest unless industrialists could prove otherwise. The 1956 Act effectively countered cartels, but was less successful against monopolization through mergers.[84]
As already mentioned in Chapter 2 (section 2.2.3), the German state initially strongly supported cartels, and enforced their agreements during the early period of their existence (the late nineteenth and early twentieth centuries). The high point of this was a ruling in 1897 by the highest court in the country that cartels were legal. From the First World War onward, cartelization became widespread, and the means by which the government planned economic activities. The Cartel Law of 1923, which gave the court the power to nullify cartels, was the first general competition law in Europe. However, the law remained ineffective, as it defined cartels very narrowly, and those to whom this law gave the powers to control cartels – namely, the economic ministry and the cartel court – hardly used them anyway. The cartel court was abolished in 1930 when a series of emergency acts empowered the state to dissolve any cartel if deemed necessary. In 1933 the Minister for Economic Affairs was given the power to nullify any cartel or decree the formation of compulsory cartels.[85]
In Norway, a Trust Law was first introduced in 1926, but the trust board in charge of it operated from the standpoint that it should monitor, but not categorically prevent, monopolistic behaviour. Although the law was subsequently replaced by the Price Law and the Competition Law in 1953, which had somewhat more stringent provisions (for example, companies now had to report major mergers and acquisitions), the main thrust of the Norwegian anti-trust policy remained that of publicity and control, rather than the imposition of outright bans. The Danish competition law of 1955, (t~e Monopolies and Restrictive Practices Act) operated on the same principle of ‘publicity and control’.[86]
3.2.5. Financial institutions
With a marked increase in banking crises across the world during the last two decades or so, especially in developing countries, establishing a good system of banking regulation has become a major theme in the push for institutional development by the IDPE. In the history of the NDCs, however, the establishment of institutions to regulate banking became an issue rather late, as the development of banking itself was a slow and uneven process, with the possible exception of Britain.
The banking system in the NDCs was only established slowly.[87] Even in England, a country wlth the most advanced banking system in the world until the mid-twentieth century, complete financial integration was only achieved in the 1920s, when deposit rates for town and country became uniform. In France, the development of the banking system was even more delayed, with widespread use of banknotes emerging in the nineteenth century (as opposed to the eighteenth century in Britain) and with three quarters of the population still without access to banking as late as 1863. Prussia had no more than a handful of banks until the eighteenth century, while the first joint stock bank was only founded m 1848. In Sweden, bank~ only appeared in the late nineteenth century. They went through a major expansion in 1870, prior to which credits to producers and exporters were provided by merchant trading houses and only became fully, established in the 1890s. In Portugal, the banking industry only saw major development in the 1860s and 1870s, after the formation of joint-stock banks was allowed.[88]
In the NDCs, banks only became professional lending institutions after the, early twentieth century. Before then, personal connections strongly influenced bank lending decisions. For example, throughout the nineteenth century, US banks lent the bulk of their money to their directors, their relatives, and those they knew.[89] Scottish banks in the eighteenth century and English banks in the nineteenth century were basically self-help associations for merchants wanting credit rather than banks m the modern sense.[90]
Banking regulation was highly inadequate. The USA permitted ‘wildcat banking’, which was ‘little different in principle from counterfeiting operations’ .[91] Wildcat banking was especially problematic during the 30-year period that saw the demise of the short-lived semi-central bank, the Second Bank of the USA, between 1836 and 1865 (see section 3.2.5.B). Although the overall cost of failures of unregulated banks at the time is estimated to have been small, such collapses were widespread.[92] As late as 1929, the US banking system was made up of ‘thousands upon thousands of small, amateurishly managed, largely unsupervised banks and brokerage houses’. This meant that even during the prosperity of the Coolidge presidency (1923-9), 600 banks a year failed.[93]
In Italy, there was a huge scandal in the late nineteenth century (1889-92), where the bankruptcy of one of the six note-issuing banks, Banca Romana, revealed a web of corruption (extension of credit to important politicians and their relatives, including two former prime ministers), a defective accounting system, and ‘irregular’ issue of banknotes (e.g., duplicate notes) in the heart of the country’s banking industry.[94]
85
Bruck 1962, pp. 93, 96; 196-7,222; Hannah 1979; Gerber 1998, pp. 115,129-31, 134,147. It is well known that after the Second World War, Germany, together with Japan, was made to adopt a stringent US-style competition law by the American Occupation Authority. However, subsequent modifications of the law, especially in 1953, made collusive arrangements easier, especially among small firms, when they are related to aims like ‘rationalisation’, ‘specialisation’ (i.e., negotiated market segmentation), joint export activities, and structural adjustments (Shin 1994, pp. 343-355).
87
Details in the following paragraph are from Kindleberger 1984, unless otherwise specified.
88
Details on Prussia are taken from Tilly 1994; on Sweden, Chang and Kozul-Wright 1994, p. 872; on Portugal, Mata and Valerio 1984, pp. 147-8.
89
Lamoureaux 1994. However, Lamoreaux argues that, given the high degree of competition and low leverage level prevailing in the US banking industry, this practice was beneficial.