Decartelization

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Decartelization is the transition of a national economy from monopoly control by groups of large businesses, known as cartels, to a free market economy. This change rarely arises naturally, and is generally the result of regulation by a governing body.

A modern example of decartelization is the economic restructuring of Germany after the fall of the Third Reich in 1945.

To truly understand the term “Decartelization”, you must first and foremost be familiar with the term “cartel”. A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual member's profits by reducing competition. Competition laws forbid cartels. Identifying and breaking up cartels is an important part of the competition policy in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put agreements to collude on paper.

1 Historical background
2 Free market
3 Debate
4 External Links

[edit] Historical background

Examples of alleged and legal monopolies:

The salt commission, a legal monopoly in China formed in 758.
British East India Company; created as a legal trading monopoly in 1600.
Dutch East India Company; created as a legal trading monopoly in 1602.
U.S. Steel; anti-trust prosecution failed in 1911.
Standard Oil; broken up in 1911.
National Football League; survived anti-trust lawsuit in the 1960s, convicted of being an illegal monopoly in the 1980s.
Major League Baseball; survived U.S. anti-trust litigation in 1922, though its special status is still in dispute as of 2008.
United Aircraft and Transport Corporation; aircraft manufacturer holding company forced to divest itself of airlines in 1934.
American Telephone & Telegraph; telecommunications giant broken up in 1982.
Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by the European Commission in 2004, which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The fine was 1.35 Billion USD in 2008 for incompliance with the 2004 rule.[8][9]
De Beers; settled charges of price fixing in the diamond trade in the 2000s.
Apple Inc., Accused of forming a Vertical Monopoly, with iPod, iTunes, iTunes Music Store, and the FairPlay DRM System.[citation needed]
Joint Commission; has a monopoly over whether or not US hospitals are able to participate in the Medicare and Medicaid programs.
Telecom New Zealand; local loop unbundling enforced by central government.

[edit] Free market

While there have been many cases of alleged monopolies and many settlements, the only true example of decartelization (when an entire national economy switches to a free market, rather than being controlled by cartels) is the economic restructuring of Germany, after the fall of the Third Reich in 1945. In 1945, it is safe to say that there was no German economy whatsoever: the country was destroyed utterly and almost completely. No heavy industry, no agriculture, no light industry, and no commerce, wholesaling, or retail selling occurred outside of the black market, rationing, etc.

By 1948, however, the German economy had begun to rebound thanks to the Marshal Plan and proactive help from the victors of the war to prevent a humanitarian crisis in Europe. By the 1950s and 1960s, one speaks of the "economic miracle" of Germany as it became the leading industrialized economy in Europe and one of the top 10 economies in the world (ever since).

[edit] Debate

The general debate with decartelization is a national economy controlled by monopolies and cartels, versus a free market economy. With a free market economy, the pros are very clear. It encourages individual initiatives; it determines price of goods through competition, and motivates people to work towards financial freedom. Most individuals would prefer a free market economy, where there are many buyers and sellers in each market, and the prices are determined based on competition alone. The problem is, it is not up to the individuals. In most cases of cartels, these secret arrangements are done “under the radar”, and theses major companies know how to clean their tracks. It is very difficult to prove that companies have formed a cartel; therefore it is very difficult to dismantle one.

In the case with the Third Reich in Germany, the people had no choice. In fact, many people were apposed to the idea of these “cartels” controlling the German economy. During the war, there was a school called Soziate Marktwirtschaft, the "socially conscious free market." Members of this school hated totalitarianism and had propounded their views at some risk during Hitler's regime. Wrote Henry Wallich. "During the Nazi period the school represented a kind of intellectual resistance movement, requiring great personal courage as well as independence of mind." The school's members believed in free markets, along with some slight degree of progression in the income tax system and government action to limit monopoly.

It took a lot of time for their words to be heard, and for them to win this debate. It was only until after the war, or the fall of the Third Reich, that it was it possible for Germany to move towards decartelization.