Chapter I: G. Farben’s objections having been met and other difficulties (4)

It may be remarked that, in consequence of these arrangements between Dow and I. G., I. G.’s position in the European magnesium market was enormously strengthened. One particularly significant result of I. G.’s dominance was that Great Britain was rendered primarily dependent upon Germany for its magnesium imports. As late as 1938, 87.9% of the magnesium imported into Great Britain was obtained from Germany. When war broke out, Great Britain was at once cut off from a large part of its magnesium supply.

From the standpoint of the development of the industry in the United States, it is clear that the total effect of the arrangements among Alcoa, I. G., and Dow was to restrict magnesium production. The extent of the disparity in the magnesium output of Germany and the United States is clearly evident in the production figures for the years 1937 to 1940. In 1940, the year in which France fell, the United States produced 5,680 tons, while Germany produced more than 19,000 tons. Strenuous efforts on the part of the government and industry have been necessary to expand magnesium production sufficiently to meet our minimum wartime needs. The large plant construction undertaken by the government in cooperation with various magnesium producers has achieved initial success. It is clearly evident, however, that the magnesium program had to be inaugurated and carried out under the tremendous handicap of the monopoly situation which existed in the industry prior to the war.

It is equally clear that, from a political standpoint, the government began its operations completely in the dark. It is scarcely credible that, had the arrangements between Alcoa and I. G. and between Dow and I. G. been known to the government at the time at which they were made, the risks inherent in the private treating making of this type would have been permitted to stand.

It is characteristic of many cartel agreements which are arrived at secretly and maintained in silence that concealment of their provisions is motivated by the desire to avoid scrutiny of their operations by public authority. In some instances, the illegal nature of the terms of cartel agreements explains the cloak of secrecy which is cast over their provisions. Moreover, it is often stipulated in cartel agreements that, in any eventuality of action taken by government, the parties to the agreements shall cooperate in order to maintain their relationships despite anything that government may do.

There are numerous examples among the many agreements which have been investigated by the Department of Justice which clearly reveal the intent as well as the necessity for secrecy from the point of view of the cartels. Thus, in a letter from Canadian Industries, Limited, to the du Pont Company, the writer states:

“In the course of recent meetings in connection with the new Patents and Processes Agreement, I understand a suggestion has been made by the du Pont legal representatives which will involve the new agreement making specific reference to the respective territorial rights of du Pont and ICI. I cannot help feeling that on broad grounds this is undesirable both from the viewpoint of C-I-L and of the major stockholders. For instance, should any investigation take place in Canada which will require the production of this agreement, the clause in question would automatically necessitate the production in its term of the ICI and du Pont agreements: at least that is the way we would read it, and this would be bound to lead to publicity of a very undesirable nature in regard to the division of world territories. My practical suggestion is that, as the detailed prior commitments are now to be dealt with in the form of a letter separate from the agreement (this at the suggestion of the du Pont legal representatives) it might be possible to include the point in question in that separate letter also.”

The attitude of cartels toward the relation between their own policies and the policies of government are epitomized in the exchange of correspondence between Sir Harry McGowan, Chairman of the Board of Imperial Chemical Industries, and Lammot du Pont in May 1933. Sir Harry wrote:

“With a large organization such as we have I find it is a good thing to issue such warnings from time to time--one went out at the time of the Ottawa Conference--so that everything possible is done to ensure that no prospective political or legislative action on the part of governments is permitted to influence relations between du Pont and I.C.I.”

On June 17, 1933, Lammot du Pont replied as follows:

“I am much interested in what you say and have heartily approved your attitude toward our Patents and Processes Agreement and the relations between the two companies. I feel the same; namely that our relations have been so happy and have produced such satisfactory results that we should let nothing in the way of international agreements interfere in any way with the progress we have made or may make in the future. If any legislation or international agreements are brought about which affect these I.C.I.-du Pont relations I am sure we will be able to adjust ourselves so as to get the continued benefit of our agreement.”

A striking and instructive illustration of the role of secrecy in cartel agreements is provided in the terms of an arrangement concerning the pharmaceutical industry, between the Schering Corporation of Bloomfield, New Jersey, and the Schering, A. G., of Germany. One clause in this agreement, which was made in 1938, stated that “the existence, the content, and the details of operation of this agreement have to be kept secret by both parties notwithstanding the possible obligation of disclosing it to public officials.”

In connection with an agreement concerning the plastics industry, the consideration taken into account by the Rohm & Haas Company and du Pont are indicated in a memorandum written by the latter company in 1936, in which it is stated:

“We discussed the whole situation again. They repeated over and over again that there is not the slightest possibility of the I.C.I.’s coming into the American market, but du Ponts are afraid to write a letter to this effect because in the case of an investigation of their firm by politicians, the politicians might make capital of such a statement, i.e., they might attempt to point out that the world was divided up between I.C.I. and du Ponts.

“I told Mr. Wardenburg that I had implicit faith in all the assurances which they had made to me, but that for my own protection I had to have a letter from du Ponts, in which they can assure us, in one way or another, that the I.C.I. will not take the opportunity to come into this market. After a lengthy discussion of the different ways to accomplish this purpose, it was agreed that Mr. Wardenburg will write a letter saying that while it is true that the I.C.I. under their contract have a right to come into the American market, they [du Ponts] happen to know that the I.C.I.’s development in the methacrylic ester field has taken a direction which is quite different from the one that is being taken by du Ponts and ourselves, so that it will be highly improbable that the I.C.I. will attempt to come into the U. S. market. I told him that such a letter will be satisfactory.”

It is clear that cartel interests fear that the revelation of the provisions of their agreements might impede the functioning of the agreements or perhaps draw down upon them action by public authority. Very often cartel agreements endeavor to discount this possibility in advance. In the case of the agreements between Standard Oil and I. G. Farbenindustrie it is provided that:

“It is our understanding ... that each party proposes to hold itself willing to take care of any future eventualities in a spirit of mutual helpfulness particularly along the following lines: In the event the performance of these agreements ... by either party should be hereafter restrained or prevented by operation of any existing or future law, or the beneficial interests of either party be alienated to substantial degree by operation of law or governmental authority, both parties should enter into new negotiations in the spirit of the present agreements and endeavor to adapt their relations to the changed conditions which have arisen.”

Because most cartel agreements provide for their resumption at the end of the present war, efforts to rehabilitate world trade may be insuperably handicapped unless prompt and effective action is taken by the government with full knowledge of the existence and character of such cartel agreements. Regardless of the particular form or direction of this nation’s trade policies after the war they could not become effective if secret agreements among the large industrial groups of the world contain arrangements which clash with the government’s program.

It is well to recall that the provisions of the Versailles Treaty at the end of the first World War which prohibited the manufacture of certain strategic products in Germany were rendered ineffective in many instances. Through foreign subsidiaries and under the cloak of cartel agreements with concerns in the United States and other countries, German producers of military equipment were able to nullify the application of the conditions imposed by the Treaty.

Public authority must not be left in the position of having to work in ignorance. Only by compelling the official acknowledgement and registration of the existence and provisions of agreements which affect our foreign and domestic commerce can government acquaint itself with the arrangements which have been made and which affect so vitally national security and national welfare.

During the present war one of the most serious problems with which the fighting services have had to contend on the battle fronts is the frequency of malaria, one of the most widespread diseases in the world. There are two standard remedies for malaria: one is quinine, a natural product obtained from the cinchona trees of Java; the other is atabrine, a synthetic coal-tar product. Because the production and distribution of quinine were controlled by one of the most closely-knit cartels in existence, a shortage developed almost immediately when the Japanese seized Java. The dwindling stockpile of quinine in the United States compelled the government to call upon druggists and housewives alike to turn over whatever small quantities were on hand in order to keep the fighting front supplied.

In the case of atabrine, only one company in the United States had a license to manufacture the drug under the I. G. Farben patents. It required the concerted effort of manufacturers and government to institute expanded production in order to make up for the deficiencies of quinine. Fortunately, these efforts have met with some success. With regard to the future, however, it must be borne in mind that cartels which are able to control and restrict the output of medical products, in particular those which are so widely needed, as quinine and atabrine, exert a direct influence on the military position of the United States and other countries, as well as upon the general health of the population. The opportunities for abuse which are present in monopolistic control of medical products are obvious. It is equally obvious that this government cannot afford to tolerate them. It would seem a minimum precaution to require that where cartels control the supply, the price, and the distribution of medical products, they should be compelled to record the terms on which control is based, in order that government might in its turn develop adequate safeguards for the general welfare.

I believe it has been clearly demonstrated that certain fundamental decisions affecting our relations with the rest of the world have been formulated and put into effect by private groups without the sanction or knowledge of government. These decisions concerning our strategic materials, industries and trade, our Good Neighbor and our European policies, our disposition of enemy property, considerations of espionage, secrecy and the evasion of our laws, have all been accomplished without the knowledge of our government or its acquiescence.

If cartels are permitted to continue to enter into their secret agreements, then it will be impossible for the peoples of the world to develop mutual understanding or to share industrial experience and progress. Cartels have been a focus of conspiracy and distrust among nations in the past. It is not too much to say that they will form a nucleus of future distrust and intrigue. A world partitioned by cartels breeds economic friction and disunity. We must face the fact that a cartelized postwar world would inevitably be a world of suspicion and of clandestine international intrigue. Full reciprocity in respect of trade and technology can only be founded on mutual confidence and good faith.

There is current a school of thought which believes we must differentiate between good cartels and bad cartels. Do these people still propose to leave the conduct of our foreign economic policy in the hands of private monopolists, with the one caveat that these people be good monopolists and not bad monopolists? With all the best intentions in the world, it is neither the role nor the responsibility of businessmen to determine political questions which can only be resolved by constituted government. This is a responsibility which I believe businessmen should not undertake, and one which I believe that they do not wish to undertake. Even those businessmen who have engaged in these practices would be shocked to realize the implications of their acts. At the time they were operating in this manner they never thought in political terms, but rather in terms of the local market. Once operating in the international market, however, these businessmen found themselves in ambiguous positions where they were forced to make choices which they never contemplated. What would they do when confronted with the problem of choosing between national policy as it should be and their own private interests? It would seem, from the standpoint of public interest, that when questions of national concern arise they should be handled by properly constituted government authority.

American businessmen have not realized the significance of the relationship between their foreign cartel partners and the foreign governments involved. I doubt that they knew, for example, that the following statement was made by Mr. Meinhardt of Osram, a member of the international lamp cartel: “An international cartel has no right of existence and a German businessman has no right to become a member of such a cartel if this cartel is acting against the common interests of Germany.”

The attitude of American businessmen is typified in the following statement by an executive of the General Motors Company: “an international business operating throughout the world, should conduct its operations in strictly business terms, without regard to the political beliefs of its management, or the political beliefs of the country in which it is operating.”

All American businessmen and the Congress particularly should weigh with care the type of thinking which results from a cartelized economy such as Germany’s. Carl Duisberg, formerly chairman of the board of I. G. Farbenindustrie, expressed succinctly the philosophy of Germany’s cartel system when he said, in 1932: “The narrowness of the national economic territory must be overcome by trans-national economic territories.... For a final settlement of the problem of Europe ... a close economic combine must be formed from Bordeaux to Odessa as the backbone of Europe.” The ultimate consequences of such cartel aims have been reckoned across the council tables of Munich and the battlefields of Europe and Asia.

14

_Freedom or Control?_

All of us want our country to be strong and prosperous after this war is won. In attaining strength and prosperity, foreign trade will play an important part. Manufactured goods will leave the shores of this country and will find their way through the miracle of new forms of transportation, as well as on the tramp steamer, to the four corners of the world. Raw materials, and finished products as well, will come from these same four corners into the hands of the American consumer. The foreign trade of this country will be measured in billions of dollars. And our nation will take its place and play its part in what we believe can be a healthy world economy.

I do not think that there is any basic difference of opinion in this country as to the importance of our foreign trade. There appears to be some difference of views, however, as to how our foreign trade shall be conducted in the post-war world. It is argued that since Europe has a cartel system, if we wish to carry on trade on commerce with Europe or in the world, we must permit our foreign businesses to become cartelized. We are told, in short, that we must join hands with the cartels if we are to engage in foreign trade. Most of the people who make this argument do so regretfully. They know that the Sherman Antitrust Act, which prohibits restraints on both domestic and foreign trade or commerce, has reflected the free enterprise spirit of this country for more than fifty years. They know that the people of this country are unalterably opposed to a cartel system under which either the government or one’s competitors can determine what may be manufactured, how much can be made, and what price may be charged. They know that you cannot have a democratic system if enterprise is to be subjected either to government bureaucracy or to the rule of private trade councils. Nevertheless, these people, seeing a cartelized world around us, believe that much as we may dislike it, we cannot conduct foreign trade unless we join hands with the cartels.

There is a small minority in this country, of course, which has always opposed our own free enterprise system. If these people could manage it, they would have the economy of this country run by enlightened and benevolent monopolists. These people make the argument, not at all regretfully, that we must join hands with foreign cartels. They know that once we have joined hands with foreign cartels, we will have opened the door to monopoly at home, and that is what they want.

Let me venture a prediction. This country will engage in foreign trade and commerce on a scale never before imagined, and we are not going to join hands with any foreign cartels. There will be a drive to get us into the foreign cartels; that drive in fact is now going on. It will fail. It will fail for two good reasons. The first of these is that our foreign trade would not be helped in the least if we joined with the cartels. The second and even more important reason is that this country is in no mood to give up an American way of life because Europe believes in cartels.

We have been willing to subject ourselves to all kinds of governmental controls over American business in order to win this war. When the war is over, these controls must go, and as soon as possible. We are not going to keep these controls either in the hands of the government or in the hands of a few private individuals. We are not going to imitate the very foreign economic system which we have defeated.

The monopolist tells us that European industry is cartelized and that it will remain so after this war is over. What kind of wishful thinking makes the monopolist so sure of that? I do not believe that the French or the Belgians will wish to embrace an economic system after this war is over which took their basic industries and put them into the hands of an international set of cartelists dominated by the Germans. I do not believe that the British will wish to encourage a system which in March 1939 gave birth to the announcement between the Federation of British Industries and the German Reichsgruppe Industrie that the two groups would eliminate competition between British and German industries, would fix prices, and would seek the aid of their governments against the industry of any third country, clearly meaning the United States, which did not join in this limitation of production plan. Great Britain needed its own full production in those days, and American production as well. I do not believe, for that matter, that the British will wish to have an economic system which has made the British consumer pay high prices and has restricted production in both Great Britain and the Dominions.

It is clear, of course, that in each country of the world, there are a few monopolists who will benefit from the cartel system. We have them in our country also. But we are not going to let these few determine our own economic life, and we should not let them control our attitude or actions in Europe. Certainly it is too early to predict that Europe will remain cartelized after this war. I think it is not unlikely that the consumers of Europe will decide they have had enough of that system and will demand a change.

But no matter what Europe does, our foreign trade will not be helped in the least by our joining foreign cartels. The very reverse is true. The way to kill American foreign trade is to have American producers enter into international cartels. One reason for the current drive to get American firms into foreign cartels is precisely that. There are a few monopolists who do not look with favor upon sales by American firms in the rest of the world. They are terrified that our mass production methods may benefit consumers in the rest of the world. They will not be able to maintain their own prices if this should occur. Their invitation for us to join them in cartel agreements is not an invitation to engage in trade or commerce; it is an invitation to discover upon what terms and conditions we will keep our trade at home.

The record is very clear. A small number of powerful American firms entered into illegal cartel agreements before the war, particularly in the halcyon days of the twenties. These were agreements to restrict American exports. Typically, the American firms agreed not only not to export themselves but wherever possible to keep other American firms from exporting. These agreements occurred in synthetic nitrogen, aluminum, magnesium, optical glass, electric lamps, pharmaceuticals, plastics, chemicals and a host of other items. It is quixotic to think of these agreements as having promoted foreign trade; their whole purpose was to prevent it. Where was our foreign trade when these firms agreed to turn over the Latin American market in pharmaceuticals to the Germans? What foreign trade was being promoted when we agreed not to export to Great Britain more than a limited quantity of magnesium? The underlying philosophy of these agreements was that if the foreign firms would stay out of the American market, we would stay out of the foreign market.

There is no mystery about this. The monopolists know it very well as do the other American companies, large and small, who were not permitted to export because if they did so, they would interfere with the arrangements to keep trade and commerce from flowing in either direction across the borders of this country. The reasoning is clearly set forth by an official of an American company in explaining why his company cannot export:

“... you spoke of a possible license from the G.E. to export lamps to certain countries. I don’t know whether I explained the situation to you, but the fact is that in the world at large, the more important electrical interests, such as the G.E., Siemens of Germany, Phillips of Holland, etc., are closely bound together in a cartel with the result that they have entered into binding agreements, apportioning world markets between the respective companies. Accordingly you can see that if the G.E. broke their agreement and allowed us to export into a foreign country which was assigned under the cartel agreement to a European manufacturer, that European manufacturer would have a claim to enter the American market in competition with us and probably could not be restrained from doing so. This is something which would probably not be to our advantage.”

One might as well urge that a railway wreck promotes transportation as to urge that a cartel agreement promotes trade.

The cartelist lives in a land of make-believe. I do not suppose that we can object to anyone having his own private fairy tale, but this kind of fairy tale can be dangerous to the future peace and security of this country. It is a self-perpetuating fairy tale. It is founded on economic maladjustments and it tends to prolong these maladjustments by collecting a hidden tax from consumers and by donating the proceeds to monopolists who have no incentive to change their ways. The consequences can be disastrous in both the military and the political sphere. As for our own economic life, international cartels breed domestic monopolies. Their final result is complete government control and management of business.

The cartelist appears to believe that the way to engage in foreign trade is to have a conference--a kind of Alice in Wonderland mad tea party. At this conference the world is divided up; markets are allocated; and, if he is fortunate, an American enterpriser will be given some business. At the end of the conference he can telephone his office and say “Men, we have been given the Shangri-La market; it’s all ours.” Sometimes the cartelist sounds as though he were too lazy to attend the conference himself. He wants his Government to go for him. He wants the Government to tell him what to do, what markets he can have, and what he can sell. One gets the impression that foreign trade is conducted in an armchair, that it is better if you can get the Government to do it for you, and that it does not make much difference what you have to sell.

This kind of thinking is dangerous. It is a denial of the principle of private property with the profit reward for private initiative and risk taking. Foreign trade presents special problems, but it is none the less true in foreign as well as in domestic trade that if you want to sell you have to make a product the consumer wants to buy. In the development of the foreign market there is no panacea, no easy substitute for ingenuity and efficiency. We cannot expect the foreign consumer to adjust his desires to whatever it is we want to sell. We have to make the kind of a product he wants to buy. The truth of the matter is that many of the large concerns that have made cartel agreements have not been particularly anxious to sell in the foreign market. They have been more anxious to keep independent enterprise in this country from gaining access to foreign markets than they were to sell themselves. As a consequence we must frankly admit that in many industries, American enterprise has not shown the competitive alertness it has at home. If it does not show competitive alertness, it does not deserve the business. And you cannot find a substitute for competitive alertness in an armchair cartel conference or even in an intergovernmental cartel conference.

The cartel conference is a kind of legislature, imposing hidden taxes on consumers and bestowing bounties on others, without the necessity for disclosure or responsibility to any electorate. It is truly a method of imposing taxation without representation. This is true in every cartel case. Some time ago it was fashionable to scoff at international relief or development projects as being international WPAs. Americans were asked rhetorically whether they wished to take care of inhabitants on some other portion of the globe. But no relief scheme has ever been imagined, and no one would dare to present it, which could begin to compare with the international relief societies maintained for themselves by the international cartels. Gigantic sums are drained from the American consumer each year and given outright to domestic monopolists and to foreign companies operating in protected markets. When it is urged that American companies should be allowed to join with foreign cartels in order to promote foreign trade, it should be remembered that what is there called foreign trade is in reality a gigantic relief enterprise supported by the American consumer. I can illustrate this with an example taken from one of our earliest cartel cases.

The story begins prior to the First World War with the discovery and development in Germany of a way of making synthetic nitrate of soda by taking nitrogen out of the air. Prior to that discovery, the world was dependent upon Chile for its nitrate of soda for use in both fertilizer and the making of munitions. The discovery of this new way of making nitrate of soda changed the history of the world for it made it possible for the Germans to wage war without depending upon a raw material to be found only in the Western Hemisphere. It is probable that if synthetic nitrogen had not been discovered, the Germans could not have been able to go to war.

The Allies at that time were dependent upon Chilean nitrate of soda, and as a military matter, this dependence made the Allied position in the first years of the war exceedingly precarious. The Germans knew that Great Britain could not stay in the war for any considerable length of time if it were cut off from its only source of nitrogen, and accordingly in 1917, the Germans set up a blockade outside of Valparaiso. The first attempt of the British to break this blockade was unsuccessful, but the blockade was finally removed as a result of the battle of the Falkland Islands when Admiral Von Spee was defeated. As an economic matter, this dependence of the Allies upon Chilean nitrate of soda was, of course, good for Chile. The United States in 1917 and 1918 purchased almost four million tons of nitrate from Chile; we paid on the average of about $82.50 per ton. At one time, the price rose to $150.00 per ton. In those days, Chile had a unique product, a natural monopoly, and we had to pay for it. The First World War gave to Chile the chance to receive large revenues on a valuable asset, but the First World War also created a situation where in the days to come that asset would depreciate enormously.

The asset of Chilean nitrate of soda was depreciated enormously because all of the important countries of the world, including our own, began to produce synthetic nitrate of soda. Chile no longer had a natural monopoly safe from effective competition. The producers of synthetic nitrate of soda began to compete with each other and with the Chileans. In order to remove this competition they formed a cartel.

The cartel was formed in 1926 and by 1938 it had reached its full growth. The cartel was dominated in Europe by the so-called DEN group, composed of Imperial Chemical Industries, Ltd. for the British, Stickstoff-Syndikat, controlled by I. G. Farbenindustrie for the Germans, and Norsk Hydro for the Norwegians. The European end of the cartel formed an international company in Switzerland to handle the cartel affairs, and thus to represent the thirty-five principal European producers. By special agreements the cartel was extended to cover the Chilean producers of natural nitrate, and I am sorry to say, the important American producers as well. The cartel was an international combination to restrict production, maintain prices and to allocate territories. The world was divided up into special zones of influence; quotas were assigned, and sales in forbidden areas or above the allowed quota resulted in the assessment of penalties. Mexico, for instance, was allocated to the German producers. The American producers were required to refrain from exporting to certain areas. The Barrett Company could not sell substantial quantities of nitrate of soda into foreign markets reserved for the Chilean producers. Du Pont was kept from selling a nitrogenous product in the Philippine Islands. This was not an international trade agreement; as is true with all cartel agreements, this was an agreement to restrict trade.

The cartel agreements covered the American market. Imports by a foreign company to this country had to be included in determining whether that company had exceeded its quota of the world market. American companies were restricted in their exports and to some extent in their production. And sales in the American market, whether for Chilean, European or American producers were at agreed upon prices. An elaborate system of distribution was worked out and adhered to so that these agreed upon prices could be maintained down through the wholesalers and retailers. The cartel thus reached down and touched the American farmer buying in the country store.

Now nitrate of soda is important to the American farmer as are the other fertilizer nitrogen products which were covered by this cartel. In 1937, approximately 700,000 tons of nitrate of soda were imported from Chile for distribution to the American farmer. If there is a cartel in fertilizer nitrogen, it is the American farmer who pays. And he has paid in millions of dollars--a hidden tax to the foreign and domestic producers.

Production was restricted and prices were fixed by this cartel. Some of the higher prices went to Chile; some of them went to our own producers and abroad. The consumer, who in this country happened to be the American farmer, paid a tax in the form of higher prices to keep this cartel going. He did not know he was paying this tax. He did not have the opportunity to elect a representative who might have been for or against this tax. And yet, out of every dollar the farmer paid, a part of it was an involuntary offering to the cartel.

And what was the good from all of this? A hidden tax was collected; purchasing power was destroyed. And all of this was done so that productive capacity could go unused. Out of the hidden tax paid by the American farmer, only a part of it went to the Chilean companies; a good deal of it went to American and European producers.

Whenever the argument is made that a cartel supports a distress industry, the complete answer is that it would be cheaper and better to make an outright gift, raised, if necessary, by lawful general taxation through the Congress. It would be cheaper because consumers would not be required to pay an additional amount to those who are not distressed as they have to do when the cartel keeps the general price up. It would be better because if it were a gift, it would not be raised from only one group of consumers, as in this case, the farmers. It would be better because the contributors to the gift fund would have some chance to know what they were doing and to decide whether they wanted to do it. Nor would the gift be as likely to disappear under the burden of an inefficient method of production as is the case with the hidden tax which is collected every year and which imposes no incentive upon the monopolist to change his ways. You cannot expect the monopolist to change his ways when he can collect a hidden tax every year. No doubt after this war, it will be argued that synthetic nitrogen capacity should go unused by agreement between the large companies. We should remember that if this is done, as with all cartel agreements, there is a hidden and unlawful tax; in this case it would be the American farmers who would pay.

I do not revive this synthetic nitrogen story in order to make charges, but merely as a specific illustration of the way cartels operate. The actual cases are the best answers to the argument that cartels promote trade. The synthetic nitrogen cartel was typical in many ways. The particular occasion for the birth of this cartel was the development of a synthetic process which threatened to destroy the capital value of a natural product. After this war, there will be many new processes whose existence will destroy old capital values and which can be looked upon either as keys to open the doors of new opportunities or as occasions for restrictive agreements. The synthetic nitrogen cartel brought together producers fearful of each other’s productive capacity. As is true in almost every important cartel, the restrictive agreements might have had important military consequences, even though many of the private producers were only thinking in terms of a peace-time market. And finally, this foreign cartel, as is so frequently the case, bred a domestic cartel.

The effect is far-reaching both politically and economically. You can never deal with just one cartel separate from the others because the cartel world is an intricate and interrelated maze. Thus the foreign participants in the nitrogen cartel include the German I. G. Farbenindustrie and the British Imperial Chemical Industries--each a member of a variety of world dividing cartels. The American producers, whether they knew it or not, were entering into an international game to divide markets in which every market and every type of product was involved if the full scope of the cartel agreements of their partners were revealed. They were dealing in secret international diplomacy.

In many cases they were in reality dealing with foreign governments, despite the fact that it has not been the policy of this country to have the conduct of our foreign affairs in private hands. Since 1799 an Act of Congress has prohibited every citizen of the United States, without the permission of the Government, from carrying on any written or verbal correspondence or intercourse with any foreign government with an intent to influence the measures or conduct of any foreign government in relation to any disputes or controversies with the United States. Quite apart from whether this criminal statute is applicable, its spirit would deny to any citizen the right to barter away the trade of the United States by agreement with a foreign government.

One need only think of the possible disastrous effects of permitting Germany to build up a monopoly position in Latin America. The economic effects grow like a snow-ball. Thus in the instance of the synthetic nitrogen cartel, the American consumer lost purchasing power; that meant that American producers could sell less and could therefore buy less. The Chileans received only a portion of the amount of money taken out of purchasing power, but the related cartels operate in Chile, such as the chemical cartel of which both Imperial Chemical Industries and du Pont’s are members. And these cartels do the same thing to Chile that the synthetic nitrogen cartel did to us. Economic life is so related today that you cannot restrict one part and not have almost endless repercussions. For instance, if American movies should be kept out of foreign areas, the effect is immediate on all kinds of American products which are advertised continually through the medium of the motion picture. If the motion picture producers enter into a cartel agreement, they are restricting a good deal of American trade in addition to their own.

What then is the solution? There is no solution if the problem is how can you have American firms enter into foreign cartel agreements but not restrict American trade and commerce. It is surely no solution to say that in the future we will have the governments enter into cartel agreements for us. As an economic matter, it makes no difference whether an agreement to restrict trade is private or governmental. As a political matter, I would agree that if we are going to have such agreements, with their widespread economic diseases, they had better be the responsibility of the government, if only because, the government which makes such agreements can be changed by the voters. But I would suggest that effective governmental control over such agreements would require such a degree of interferences and surveillance over private industry as to place in great jeopardy our own free enterprise-private property system. The history of attempts to control cartels by legalizing and controlling them is not particularly inspiring. Germany is one example.

There is not any one solution because there is not just one problem. There are many things which must and can be done if this country is to encourage foreign trade.

_First_, we must encourage domestic research. Any country which wishes to engage in trade and commerce in the future industrial era must develop its own laboratories and encourage its own domestic research. It has sometimes been suggested that the reason why some of our larger American companies entered into agreements to stay out of important markets such as Latin America was because such was the price they had to pay to get the benefits of European research. It has sometimes even been suggested that we have been dependent upon European research acquired in this manner for many of the important developments which have helped us in this war.

There will probably always be a certain amount of obscurity about this claim that we are dependent upon European research. The files of some of the Antitrust Division cases, however, indicate that even though German firms may have been bound under their agreements to make their research available to their American friends, in many important instances they did not do so. In any event, I think we would agree that it is of the utmost importance that American firms be able to stand on their own feet, and that they should not be dependent upon research from abroad. It has been quite natural, of course, for European research to be in advance of our own in some fields. But failure to develop our own laboratories and our own scientists would be criminal negligence.

I suggest that we ought to have an impartial and searching survey begun as soon as possible as to American research facilities and the state of American research. This is not a matter which concerns only our foreign trade. It goes to the very heart of our future domestic well-being.

Of course, I do not mean to suggest that we should cut ourselves off from European research. There is every reason to believe that research in the future will be truly international in the sense that a partial discovery in England will be supplemented by work done in France or in this country. Possibly some inter-governmental agency can be developed which will act as a kind of international clearing house in order to speed the development of common research carried on in separate areas. It is likely that private institutions in this country and the government itself, as suggested by Senator Kilgore, could aid in the performing of this function. If a study were made of our own domestic research facilities, I would expect that out of that study a recommendation might well come to set up some kind of an international clearing house for research.

There is a further step we can take. The research which has been developed in Germany during the last ten years under the Nazi regime is research which in right belongs to the people of the United Nations. It was Nazi government sponsored research used for the purpose of making war upon us. It is research which should now be put to use for the general good of mankind. It should not be considered as belonging to private hands either in Germany or elsewhere. The United Nations should make sure that steps are taken to make available this research so that it can be used generally.

_Second_, we must remove, through inter-governmental action, the waste and misuse of resources which occur when industries cannot compete and are artificially maintained. It will be much cheaper for this country to offer transitional credit to be used to develop new industries than to continue paying hidden taxes which don’t accomplish anything. We should set up an international mechanism whereby substantial credit can be made available to other countries upon such terms as will encourage the readjustment of the use of their resources so that these resources can be employed, without the crutch of a trade barrier, in the free trade of the world. Consistent with this aim, we can urge also the adoption of minimum wage and health standards so that labor exploitation does not become the means of providing a hidden subsidy for industry in countries having substandard labor conditions.

_Third_, it is, of course, imperative that this country make known its determination to encourage foreign trade and to make it possible for American firms, large and small, to bring their goods to the consumers who will buy. Through vigorous antitrust action, we can break up the activities of a great number of foreign cartels. And American firms are perfectly capable of engaging in vigorous competition with the old monopolistic companies of Europe. Where American industry is competitive at home, such as the automobile industry, there is no way a foreign company effectively can keep out American goods, and foreign consumers would be the first to object if that were tried. It is the industries which are monopolistically dominated at home which seem to have the greatest difficulty. I suspect, however, that in those industries there are smaller firms who will be glad to have the opportunity of selling abroad.

_Fourth_, we should stand ready to help create an international forum to which countries denied access to raw materials or allowed to purchase them only on the basis of monopolistic prices can go to present their case. This does not mean that we should take part in any international control of business, but it does mean that for those few areas where monopolies continue to persist, we must create a world where there is a remedy within the structure of the peace. Many of these raw materials no longer have their former importance. Poetic justice may come to rubber, quinine and eventually to diamonds. Persistence in monopoly prices usually stimulates the development of a substitute. The international forum which I urge will probably not have to hear too many cases. The power of competition has grown more powerful during the war because of the development of myriads of substitutes for the key raw materials.

The opportunities are tremendous. The tools needed for the job are the productive facilities and materials which we will have in abundance. We can play our part with energy and initiative; we would not have it otherwise. We believe in competition, and we are ready to compete. We are ready to engage wholeheartedly in rebuilding a world of peace in which every man and every country can have a stake. We know that we cannot maintain, let alone advance our standard of living save upon the basis of an active and expanding international trade. Our expanding trade will enlarge the area of the interests which we have in common with other peoples, and for us, as well as for them, will narrow the intensity of our differences. And we will have played our part in foreign trade in such a way as to preserve the symbol of our political and economic democracy.