As the world community learns with each passing day the extent of corporate corruption and malfeasance, the issues surrounding price fixing also become more apparent to the public.
Milestones in international price-fixing cartels, US and European Union enforcement trends, successful anti-cartel techniques, how the law can deter such cartels in the future and suggested remedies, is the subject of The Globalization of Corporate Crime: Food and Agricultural Cartels of the 1990's by John M. Connor, the distinguished professor of agricultural economics at Purdue University and long-time champion of greater corporate accountability in agribusiness.
As this column recently noted, Professor Connor reminds us at the outset that since 1997 some 85% of all fines for price fixing have been imposed on food and agriculture cartels and that "affected commerce" (sales by members of a price-fixing conspiracy) of global cartels discovered since 1996 is a startling $76 billion.
Connor quotes Marion Monti, EU's Competition Commissioner, when he points out that price fixing bears all the hallmarks of a contagious disease, for it is a "cancer" on free markets as once one conspiracy has generated profits, it spreads from one division of a company to another and from one company to its industry's rivals
The Connor paper shows that international price-fixing cartels are not new, flourishing during the 1920-1940 period; however, scores of them were successfully prosecuted by the US Department of Justice in the late 1940s. After 1950, the DOJ routinely filed 20-60 price-fixing cases per year, but until the ADM lysine feed additive convictions of 1996, only three or four international cartels were prosecuted and the DOJ lost all those cases.
During 1988-1992, Connor adds, "more than 20 global cartels were formed by manufacturers from Europe, Asia and North America -- mostly food/feed ingredients industries. Between 1996 and 2002 five global cartels have had corporate fines totaling $2.891.7 billion imposed on them jointly by the US, the EC and Canada."
Several reasons for recent prosecutorial successes are noted by Connor which include: in the US and Canada, price fixing is a per se offense. In other words, no evidence on economic impact need be presented to prove allegations of price fixing. Also Congress has hiked the maximum penalties three different times -- 1974, 1987 and 1990 -- from 1974, when the corporate penalty was $50,000, to today, when it is nine times the illegal profits, and the individual penalties, which were $50,000 to $25 million today and from 12 to 36 months in prison.
International treaties and protocols have made joint raids and information-sharing possible across national jurisdictions, including aggressive prosecutions by the European Commission. There has also been increasing intolerance of criminal price fixing by the courts and an increasing convergence of anti-cartel enforcement worldwide.
While the pro-consumer aspects of anti-trust have become its centerpiece, its anti-concentration intent has been neglected and unenforced.
As anti-trust scholar Jon Lauck has pointed out, in the words of capitalism's harshest critic, this alleged "transformation of competition into monopoly [was] one of the most important -- if not the most important -- phenomena of modern capitalist economy." Long before Lenin advanced his diagnosis and radical solution, Sen. John Sherman, R-Ohio (1881-97), understood the implications of the "power and grasp of these combinations," fearing, without legislative action to reduce economic concentration, the coming of the "socialist, the communist, and the nihilist."
Following in the tradition of Sen. Sherman, who anticipated the dangers of economic concentration, Sen. Estes Kefauver, D-Tenn. (1949-63), blamed business leaders for their shortsightedness and their failure to appreciate the "inevitable" coming of fascism or socialist nationalization of the economy.
"Farmers have been a prominent voice in such criticism," Lauck adds. "Throughout the late nineteenth century farmers feared the economic consequences of a powerful 'tyranny of monopolies.' Farmers initiated demands for legislation that would reign in industrial concentration, an effort that produced the Interstate Commerce Commission to regulate railroads, and contributed to the consideration of more broadly-based monopoly laws.
"In response to the fears of the 'grave evil' of 'vast fortunes in single hands,' in the words of Senator George Hoar, R-Mass. (1877-1907), Congress passed the Sherman Antitrust Act in 1890. The legislation, according to the historian Richard Hofstadter, was a 'ceremonial concession to an overwhelming public demand for some kind of reassuring action against the trusts.'"
Such public demands were on display during the fall elections of 1890, causing Nebraskans, for the first time, to vote Democratic, sending to Congress William Jennings Bryan to make their case against the trusts. Unhappy with both political parties' efforts to address the trust question, many agrarian populists helped form the Peoples's Party in 1892, adopting the famous Omaha Platform, which stated: "The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind." The monopoly problem also remained a prominent issue in early 20th century politics.
President Theodore Roosevelt embraced the image of a trust-buster and initiated over 40 antitrust suits between 1901 and 1909. The election of Woodrow Wilson brought his "New Freedom" platform and a strengthening of federal antitrust legislation. The Federal Trade Commission Act of 1914 established a new agency to help enforce the antitrust laws and impressed farmers with its large-scale investigations of the meatpacking industry.
The Clayton Act of the same year attempted to slow economic concentration by limiting corporate mergers and to aid the building of farmer market power by exempting non-stock farmer cooperatives from the reach of the antitrust laws. The dual approach of applying antitrust scrutiny to corporate activity and promoting the economic organization of farmers became a standard policy for addressing concentration throughout the 20th century.
Lauck, however believes that "the accomplishments of this policy are in doubt. Antitrust laws have proved to be a poor method of limiting and reducing corporate concentration and power. The judicial embrace of efficiency and pro-competitive rationales for the antitrust laws in the last 20 years has further limited their effectiveness in this regard.
"Farmers continue to place great hopes in the antitrust laws. This contrast in economic health between vertically related sectors, to many observers, indicates the existence of market power in the concentrated processing sector and the powerlessness of farmers. Unfortunately for farmers, the antitrust laws have never been able to adequately address such concerns, especially the disparity of bargaining power between individual farmers and large-scale corporate buyers."
He adds, "The embrace of economics also precludes other policies embedded in the Sherman Act. Contrary to the scholarship of Robert Bork and others, the legislative history of the Sherman Act does not support a singular pro-consumer agenda concerned with economic efficiency Senator Hoar ... thought the Sherman Act 'ought to be directed' at the 'organized force of wealth and money' which 'crushed out' its smaller competitors.
"Such sentiment existed in the face of the pro-consumer impacts of the trusts, such as consumer price reductions. Congressman William Mason, R-Ill. (1887-81), referring to the Standard Oil trust, believed that 'if the price of oil, for instance, were reduced to one cent a barrel it would not right the wrong done to the people of this country by the "trusts" which have destroyed legitimate competition and driven honest men from legitimate business enterprises.'"
The legislation's namesake, Sen. John Sherman, also failed to emphasize pro-consumer and efficiency rationales. In his Senate speech on the issue, Sherman denounced the "kingly prerogative" of those men with "concentrated powers. We will not endure a king over the production, transportation, and sale of any of the necessaries of life."
Lauck concludes: "Compounding doubts about Bork's interpretation are Sherman's tariff views, which were protectionist and anti-competitive. Commentators at the time specifically linked the trust question and tariff question together, highlighting the anti-consumer consequences of allowing high tariffs to protect trusts. The pro-consumer interpretation is further weakened by evidence that prices of consumer products such as sugar and oil were falling when the Sherman Act was passed."
A.V. Krebs operates the Corporate Agribusiness Research Project, PO Box 2201, Everett, WA 98203; email avkrebs@earthlink.net; www.ea1.com/CARP/