Liberalism as State Non-Interference The Development of Swedish Cartel Legislation 1911–1953 Birgit Karlsson*

In Sweden free competition became regarded as very unrealistic during the first half of the 20th century. Stricter legislation to combat cartels came about during the second half.  This has been interpreted as part of Americanization as free competition is regarded as one of American basic values.  In this article the argument is that this development can also be explained from internal factors.  During the period 1911–1936 the debate in the Swedish parliament was focused on production issues and private organization of competition in the form of cartels was regarded as a way to diminish costs and thereby reducing prices. During 1937–1953 the resistance against state intervention was dissolved.  The urbanization process had by then made Sweden into a society of consumers and market issues were more in focus.  Cartel practices related to consumption, like the gross price system, were more difficult to defend than production cartels.

LE LIBÉRALISME EN TANT QUE NON-INTERFÉRENCE DE L’ÉTAT. LE DÉVELOPPEMENT DE LA LÉGISLATION SUÉDOISE DES CARTELS (1911-1953) En Suède, la libre concurrence a été considérée comme très (et de plus en plus) irréaliste durant la première moitié du xxe siècle. Une législation plus stricte en vue de combattre les cartels fut mise en place durant la seconde moitié de ce même siècle. Cette évolution avait été interprétée comme une composante de l’américanisation de même que la libre concurrence peut être considérée comme l’une des valeurs américaines de base. Durant la période 1911-1936, les débats au sein du Parlement suédois se concentraient sur le thème de la production : l’organisation privée de la concurrence, sous la forme de cartels, était considérée comme une voie permettant de diminuer les coûts et, par là, de réduire les prix. Au cours des années 1937-1953, la résistance face à l’intervention étatique s’effaça. Le processus d’urbanisation avait fait entrer la Suède dans la société de consommation de masse et le thème du marché devenait désormais plus au centre des préoccupations de chacun. Les pratiques des cartels relatives à la consommation, de même que le système des prix de gros, étaient désormais plus difficiles à défendre que les cartels de production. JEL Codes: N4, P1, K2, L4

* University of Gothenburg, School of Business, Economics and Law, Economic History.  Address: Box 720, se 405 30 Göteborg, Visiting address: Skanstorget 18, se 405 30 Göteborg, Sweden.  Email Address: [email protected].

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INTRODUCTION The 20th century is often called The American century. This implies a radiation of an American model which affects many aspects of life, even the economic part.  A part of this transfer of American economic practices is the anti-trust policy which has on the whole become accepted within the European Union.1  It is not difficult to pinpoint changes in European legislation which are similar to American laws.  It is more difficult to define the American ideas which have been used to give legitimacy to these changes.  According to Harm Schröter, one of the basic American values is “a (sometimes naïve) belief in the abilities of competition, that advantages for single persons will add up to the best for all members of society.”2  This is probably another way of describing a belief in Adam Smith’s “invisible hand,” which implies a very limited role for the state.  This model has had an enormous influence but it rests upon the fulfillment of some very important preconditions, related in any textbook for students in economics.  The sellers and buyers must be so many that they cannot on their own affect the price, the commodities must be simple and homogenous, consumers must be fully informed, new companies will not be locked out, there must be no economies of scale, the consumers must be fully informed and the division of income must be acceptably even.3  If these preconditions are there, the competition is perfect and acts as a regulator of the selfish behavior of individuals.  The link that transforms individuals’ selfish behavior into maximum social utility is free competition.  Competition forces producers to be efficient and generates commodities to the lowest possible prices, which is to the benefit of the consumers.  The state is in this model more or less unnecessary as a regulator.  The price mechanism steers resources to production of the commodities that correspond to the needs of the consumers. During the latter half of the 19th century the model of free competition between small companies became increasingly unrealistic, in the usa as well as in Europe.  Cartels, trusts and monopolies developed in most countries.  One important reason was the possibilities to achieve economies of scale in big companies and the needs to undertake large investments.  The development towards diminished competition threatened the liberal model and in the usa fierce legislation against cartels and trusts was realized.  In many European countries cartels were instead accepted with reference to discussions on social utility.  Germany is regarded as the main representative for this view, with Sweden as one of its imitators.4 Legislation related to cartels and limitations of competition took place in Sweden just after the war.  It is tempting to look at this development as part of a process in which German influence over Sweden was exchanged for American influence.5 This implies that countries like Sweden gave in to American values, 1.  See for example Freyer [2006], p. 3, and Fear [2008], 268–269. 2.  Schröter [2005], 10. 3.  Eklund [1990], 71. 4.  Sweden is placed in the group of countries with overwhelmingly positive assessment of cartels in Schröter [1996]. 5. See Schröter [2005]. Even in contemporary publications like Konkurrens eller samverkan (Brems [1951], 176, indirect influence from American economic thinking is pointed out as contributing to changes in legislation.

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which in the case of cartels meant that these were regarded as threats to a free society with free competition.  A starting point for this discussion is the link between competition and social utility.  In the usa the aim was to create as much competition as possible.  Cartels and trusts were regarded as illegal and the state could and should interfere on the market, where private actors had entered into agreements.  These state actions were supposed to lead, almost automatically, to increased social utility, mainly as lower prices for consumers.  The purpose of this article is to investigate if the Swedish legislation relating to cartels and limitations of competition can be mainly explained from internal factors or if it is a reflection of American values.  The source material for this study is very limited –it consists of the proposals and debates in the Swedish Riksdag on cartel legislation during the period 1910–1953.

THE FIRST PERIOD–PRODUCTION IN FOCUS The analytical model Social utility is indirectly defined in the competition law from 1953 where the harmful effects of limited competition are listed.  They are – inappropriate effects on price formation, – limitations of economic efficiency, – obstructing possibilities of other producers. If the producers did not manage to produce social utility in terms of low prices, economic efficiency and access to markets this must be explained by market failure.  The politicians could or would not directly interfere on the economic level.  What they could do was to undertake measures related to the political level.  These measures could be ideologically legitimated in terms of rights for small producers not to be locked out of the market.  By regulating the rights for producers they could hope for better functioning on the economic level.  If the undertaken measures were adequate, this would lead to increased social utility in all three aspects –other producers would get access to the market, economy would be more efficient and consumers would benefit from lower prices.  The simple table below illustrates the different levels. Producers

Consumers

Politics

Right to enter into contract Right to access to the market

Right to choose commodities

Economy

Maximized profits

Cheap commodities

The Death of “Free” Competition The period 1911–1925 is characterized of a process in which it became uncontroversial in the Swedish Riksdag to claim that free competition was dead.  Competition had become organized on the commodity market as well as on the labour 1069 Revue économique – vol. 64, N° 6, novembre 2013, p. 1067-1084

Revue économique market.  However the nature and extension of cartels and trusts were largely unknown and in 1910–1911 bills were brought to the Riksdag claiming for an investigation with the purpose to achieve knowledge on these matters.  The proposer was a social democrat who argued that during the 19th century economic freedom had led to an enormously increased production.  However, this development was no longer sustainable.  “The belief in the good effects of untamed competition was no longer possible to uphold.”6  Free competition was about to die all by itself.  Cartels and trusts had some advantages –private as well as social.  The most important advantage with a trust/cartel was that it could, with knowledge of the demand for certain commodities adapt production to demand, avoid overproduction and also avoid “some of these trade profits, advertisements and agents which are necessary for acquiring a place on the unorganized market but to such a large extent burdened production.”7  On an organized market production could be divided between different factories, standardization of commodities and prices, lower freight costs and more homogenous and cheap production could be achieved.  A well organized economic line of business would serve a social purpose –downturns in the business cycles would not be that devastating and in upswings the capacity could be used fully.  To play this role in society, monopolized lines of businesses had to accept social control.8 This argument would be repeated many times over the period –cartels brought social utility and must therefore accept that their maintenance could not be regarded as a private issue.  Public control was motivated. This positive view on cartels and trust was confirmed by one speaker after the other.  Trusts and cartels could strengthen production capacity against foreign competition, make administration cheaper, improve production methods, use better technical tools, turn to large-scale production diminish use of human labor and reduce prices.  On the other hand it could be feared that cartels had a “natural tendency to satisfy their own interests on the cost of consumers and common interest.”9  The temptation was probably biggest if monopoly on the home market was protected by tariffs.10  It can be argued that there was agreement within the Riksdag that cartels and trusts were more good than bad.  The disagreement was about if there was a need from the side of society to investigate or maybe regulate the way cartels worked.  Many of the speakers argued, that since the public was mainly negative to trusts and cartels an investigation would be a good thing to convince the Swedish people of the advantages of trust formation.11 During this debate, it seems clear that nobody denied that the classical liberal system was antiquated and that the reason for this was the advantages in economies of scale.  What was questioned was whether the problem could be solved through increased state intervention.  There was a political antagonism –the proposer of the motion was a social democrat and those who opposed to state interference were from bourgeois parties.  The opponents feared that legislation would lead to state embargo on industries.  There was also a risk that

6. Motion ak, 1911, nr 56: 2, Palmstierna. 7. Motion ak, 1911, nr 56: 11, Palmstierna. 8. Motion Andra Kammaren, hereafter ak (Second Chamber), Swedish Riksdag, 1911, nr 56, Erik Palmstierna. 9. Protocol fk, 1911, nr 17: 69, Danström. 10.  Protocol Första Kammaren, hereafter fk (First Chamber), Swedish Riksdag, 1911, nr 17: 69. 11. Protocol fk 1911, nr 17: 71–72.

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the question of cartels and monopolies could become a part of popular agitation and lead to social unrest.  The opponents emphasized the importance of reliable information on cartels to avoid these problems.  According to them, trusts and cartels had in Sweden been mainly good.  Especially within the export industry these organizations were absolutely necessary and it would be a mistake to undertake measures which could give the impression that a good development which was good for the future of the industry was counteracted.12  It is obvious that the bourgeois politicians were sure that if there was abuse within the cartels this was something that should be dealt with within the business organizations, not by the state.

The German Example The First World War came to reveal new problems and possibilities for trusts and cartels.  In 1917, the same proposer of the earlier motion, Palmstierna, raised a new motion on investigation and proposals for measures to be undertaken in cases where social interests had to be looked after against monopolies.  The monopolies referred to were the sugar and the milk trusts.13  Some years experience of trusts in sugar and milk production had not always been seen as contributing to social utility.  The economic development in a country could no doubt be helped by trusts and cartels but they could also be obstacles for development.  Thus investigations were needed and proposal for measures had to be made.14 The debaters from the bourgeois parties instead emphasized other, more positive aspects of cartelization, using the German example.  German trusts and syndicates had played an important and gainful role during war time.  It had been a great advantage for the German state to leave orders to the trusts which could then distribute the orders and take responsibility for deliveries.  The syndicates had also played an important social role for price building and they were regarded as good taxation objects.  The importance of the organizations for coal as well as for iron and steel was also shown in the fact that the state had announced that if the members could not agree on common rules, the state would with force prolong the syndicate.  Industrial concentration led to better economic use of labor as well as machinery –better results with less work and less costs.  It could not be achieved without the syndicates, since this organization pressed factories to close down and gave them compensation in return.  Searching personal profit was not regarded as a problem, since “it was no doubt the task of any company to aim at cheaper and improved production and thereby acquire largest possible net profit.”15  The question was rather in which way the profit was strived for.  There were some who tried to get quick profits and those who invested for safe production long time ahead.  The country needed more strong amalgamations.16

12.  Ibid., 66–67. 13. Protocol ak 1917, nr 34: 18. 14. Protocol ak 1917, nr 34: 23–26. 15.  Ibid., 21, Hildebrand. 16.  Ibid., 19–22.

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Revue économique Nevertheless the proposer Palmstierna could state that there was no resistance in principle to control over trusts.  He interpreted this as a natural result of development.  The tendencies towards concentration had been speeded up in Sweden after the crisis of 1903-1904.  The advantages of concentration were saving of capital and labor, technical progress and possibilities to stand foreign competition.  According to him production had to be maintained in service of society and it was a demand that society itself controlled that production served the interests of society.  The danger with trusts was if the consumers were plundered and that traders were bound.  All profits from monopoly ought to be captured by society, not fall in the hands of private persons.17 Cartels were seen as a higher stage of development.18  Their activities could be regarded as serving social interests and the German example was not taken to be deterrent.  Cartels were thus seen as aiming at long-run development, not searching short-time profit.  Cartels were seen as an important part in the striving for stability which came to characterize the inter-war period.  If cartels served social interests, it was however hard to withstand demands for state influence.  This was a problematic path of development, especially for bourgeois parties.

Abuse of Power As investigations on cartels went on a more or less common view on cartels came to be crystallized.  Trusts and monopolies could give national economic advantages.  However, it could not generally be argued that monopolies meant unchanged production with less capital and labor.  It was clear that there existed trusts and cartels in Sweden that had been able to keep prices high and obtain unduly large profits.  The proposal in 1920 was that a controlling authority should be created with the right to look into accounts and elucidate net profit.  Through publicity this information would create a strong moral pressure which would force actors to correction.19  Nevertheless trusts in themselves were not the target, not even the social democrats wanted to make hindrances for their development “as long as it was loyal and did not violate the interests of others.”20 The question of power became more emphasized.  Cartels and trusts gave big economic advantages and it was not possible to stop an economic development which consisted in “sound thinking.”  It was the abuse of this power that was to be fought—this was a social interest.21  No real opposition was there –all parties had the question on their programs.22 The politicians formulated the question on cartels in terms of how production could lead to a maximum of social utility.  If the driving force was search for profit, it was definitely a potential problem if competition was limited and

17.  Ibid., 33–36. 18.  This was a view shared by leading economists, for example Adolf Ljunggren who published Ekonomiska sammanslutningar av monopolistisk natur I Sverige (Ljunggren [1912]).  Ljunggren was a pupil of the famous Swedish economic historian Eli Heckscher who shared this positive view on cartels and monopolies during this period; see Carlsson [1988], 184–185. 19. Motion fk 1920, nr 160. 20. Protocol fk 1920, nr 41: 92–94. 21. Protocol fk 1920, nr 41: 95–96. 22. Protocol ak 1920, nr 49: 101–102.

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did not function as a restraint on search for profit.  Still there was a belief that “sound” practices could stop abuse of power.  Even if nobody really spelled out the meaning of maximum social utility, it is obvious that it included lowest possible prices for consumers, efficiency in the economic activities and the right for entrepreneurs not to become locked out of the market.

Interest Groups In 1925 the time had come for a proposal on legislation on investigations on the influence of cartels and monopolies’ effect on economic life.23 Verdicts from organizations on the proposed legislation largely repeated the same arguments.  National Board of Trade, as well as cooperative organizations emphasized the consumer interest and pointed at the risks with cartels and monopolies in terms of worse quality and higher prices.24  It was pointed out that the main problem was not always in production but in distribution.  There were unnecessary middlemen whose activity meant that the cost of living increased.25 The cooperative movement argued that prices and thereby consumer costs could be reduced through free trade and organization of consumers for increasing knowledge and organizing boycotts.26 Even if there were risks with cartels and monopolies, advantages dominated, according to many organizations.  The National Board of Health and Welfare regarded the development towards cartels as natural and unavoidable with much more possibilities for rationalization which made a higher form of organization possible.27  Concentration of production, uniform labor staff management and modern organization were other positive assessments of the development.  Standardization ought to lead to lowered production costs.28  The company organizations which commented on the legislation not unexpectedly tended to play down the risks with cartelization although they admitted that they existed.  They were however very skeptical to whether these possible risks could be diminished through state action in terms of legislation.  They regarded legislation as a rejection of the need for business actors to search the most suitable forms for economic activity.  Not only consumer interests should be emphasized.29  One problem emphasized by National Board of Trade was legitimacy.  There had been misuse of cartels during the years of crisis which had created an unduly negative picture of cartels among people in general.  This had to be changed, since cartels and big companies in general meant advantages for production technique and national economy.  Thus it was argued that it was also in the interests of business to stop abuse.30 There were also arguments against cartelization which were more related to the political issue of freedom. Cartelization often meant reduced degrees of freedom for small companies.  Retailers often lacked real possibilities to refrain

23.  Proposition nr 110, 1925, 27. 24.  Ibid., 18. 25.  Ibid., 15. 26.  Ibid., 16. 27.  Ibid. 28.  Ibid., 7. 29.  Ibid., 18. 30.  Proposition nr 110, 1925, 20.

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Revue économique from agreements.31  Situations which resembled monopolies meant that the economically stronger part’s power over the economically weaker risked increasing.  The head of the Department argued that legislation was necessary when amalgamations with unacceptable methods tried to annihilate competitors or place the economically weaker part in dependency.32 The actors in the Riksdag debate from 1925 seemed to agree on that the problem so far was mainly a potential problem.  Nevertheless, there had been tendencies to abuse and to avoid the problem to get larger dimensions, different measures were proposed.  National Board of Trade shared the skepticism of the company organizations against state interference and mentioned lowering of tariffs and maximum prices as possible measures.33  Neither was it regarded as possible to directly dissolve companies or cartels, since this was regarded as contrary to the accepted view on freedom of trade.34  One possible measure was to give more publicity to the activities of the cartels, which would increase possibilities to discover abuse.  Cartels were perfectly legitimate which meant that measures had to be formed in way that did not affect the “loyal movement of amalgamation.”35  It was regarded as important that loyal companies who notified membership were not affected worse by this compared to companies who were more ruthlessly led.36

Summing Up the First 15 Years The Swedish interpretation of liberalism during this period can be effectively contrasted to the American interpretation.  Liberalism was interpreted, at least by the bourgeois parties, as non-interference from the state, implying respect for rights of possession.  They agreed that cartels and trusts could create problems since there was a connection between competition and efficiency.  To solve this problem negotiations and regulations within business organizations was recommended.  The focus was on social utility in terms of economic efficiency and access to market for outsiders.  The social democrats did not challenge this interpretation of liberalism.  If cartels could effectively replace free competition as a tool for transforming individual utility to social utility, this was acceptable from an economic standpoint.  The focus for the social democrats was on social utility in terms of low prices for the consumer.  If cartels provided economies of scale prices could decrease and create more room for consumption. This means that there was more or less a common view on cartels and trusts.  According to this analysis these organizations created economic utility for both producers and consumers.  “Free” competition was dead and there was hope for that “organized” competition could lead to a more efficient production.  In this development investigation, information and publicity played important roles.  The political problem of small producers being locked out of the market were discussed but were regarded as abuses that could be dealt with 31.  Ibid., 15. 32.  Ibid., 30–31. 33.  Ibid., 19–20. 34.  Ibid., 23. 35.  Ibid., 26. 36.  Ibid., 23.

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and did not threaten the model as a whole.  The resulting legislation implied a permanent commission which had the right to make investigation when abuse of cartels was suspected.  Sweden was at this period of time no doubt a typical European country and any American influence is hard to discern.

The Second Period–the Market in Focus Marketing and Advertising The discussion during the first 15 years was almost exclusively focused on production.  It was in the production area that efficiency could be increased through standardization, rationalization and organization.  Sales and distribution were rarely discussed and when it was done, it was often in terms of “unnecessary” middlemen.  It was in the production sector that cartels could enforce increased efficiency and lead to lower prices, especially if they could come in immediate contact with the consumers.  If production was organized in this rational way, it would not only lead to bigger space for consumption, it would also contribute to a stable economic development.  In a time of price fluctuations, overproduction and unemployment, stability was certainly a positive word. During the 1930s the discussion related to cartels and trusts turned more to the sales and distribution area.  The focus for discussion was now the content of the expression “free competition”.  Other adjectives than “free” were used to signify the way competition should be –“sound” or “loyal” are examples.  When discussing cartels and trusts loyalty was mentioned as a positive word –it was important to protect loyal companies.  During 1931 there was an intense debate around sound and loyal competition and the use of advertising.  For example it was discussed if it would be prohibited for retailers to offer an extra commodity free or to a very low price when the customer bought another commodity.  Both those who were for and those who were against the prohibition agreed on that disloyal competition existed and ought to be forbidden.  However, it was difficult to form rules which did not hurt loyal methods as well.  There existed laws against incorrect information in obvious contradiction to sound business and fines could be imposed for disloyal advertising.  What was disloyal could be discussed.  Actors that might be affected by the rules were post order companies who sold to the customer directly from a catalogue.  Some speakers regarded these rules as old fashioned and pointed to the fact that sound business was a conception which had constantly become redefined –bad business manners were often accepted when found profitable.  Even the conception “gaining advantage from the gullibility of the public” was something that could be redefined and reinterpreted according to circumstances.37 Catalogue companies were one way of selling practices which was regarded with suspiciousness.  Another example is from 1933 when there was a proposal on investigation on trust-similar companies.  In this case it seems that the target was the growing unit-price stores (epa).  The “loyal” trade was threatened 37. Protocol ak 1931, nr 39: 57.

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Revue économique by these companies who started multiple shops all over the country and sold cheap imported products to the detriment of Swedish handicraft and Swedish factories. This could be achieved since these trust-like companies had such great capital reserves that they could sell at a loss and through this occasional price reduction ruin the competitors and then increase prices and get good profit.38  This proposal did not lead to any changes in legislation but in 1931 a law against disloyal advertising was decided.  It forbade for example incorrect information with the purpose to evoke the apprehension of an advantageous offer in obvious opposition to sound business.39  The discussion continued into the 1940s, now in the form of discussion over trademarks.  Certain parts of advertising activity, like slogans, came to be protected.40 The interest in these discussions was not mainly on production but on distribution and consumption.  Traditional values like quality, long-time relations and honesty were challenged by new forms of companies like mail order companies and unit-price companies.  The post-order companies could be defended as taking away one part in the chain from producer to consumer, thereby making reduced prices possible.  The critique was here mainly directed towards alleged dishonesty if the companies presented themselves as producers when in fact they were distributors.  Producing companies seem to have been regarded as in some ways more valuable than distributors.  The discussion on unit-price companies revealed once again the picture of consumers as uninformed victims for advertising cheap products of bad quality.  There is also a nationalistic tone discerned –these low-quality products were often imported. Another important aspect of the problem was the difference in power between producers.  It was certainly a fact that companies with big capital resources could stand very low prices much longer than smaller companies.  This could be dismissed as a consequence of competition –small companies might work more inefficiently and in that case it would be perfectly all right if they were driven out of the market.  However if it was the case that stronger companies used low prices as a short-time strategy and then increased prices when their competitors had been eliminated, this could not be defended as contributing neither to efficiency nor to freedom.  Nevertheless it was a market problem in which legislation was difficult to formulate.

From Stability to Expansion During the Second World War state influence over production as well as trade increased considerably.  When the state tried to handle the problem of planning and distributing, their dependence on cartels and other forms of company cooperation became crucial.  These business organizations had to deal with planning and distributing raw material and production assignments within their line of business.  The cooperation between state and business did not always work smoothly but it was accepted, probably since the alternative was direct state planning.  By the end of the war, these organizations were not willing to continue

38. Motion ak 1933, nr 397. 39. Protocol ak 1931, nr 39: 48. 40.  Proposition nr 258, 1942.

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the cooperation with the state.  The experiences from the war period were one of the reasons for the strong resistance against planned economy which became obvious during the period 1946-1948.41 During the inter-war period public investigations on cartels and competition had been undertaken.  The results were published in 1940 but, since war was going on, proposals for changes in legislation were postponed.42  During the war, there were also a lot of public investigations undertaken with the purpose of planning for an expected dip in the business cycle after the war.  The development was supposed to be parallel to what had been the case after World War I.43  One of the Commissions was about supervision of activities for reducing competition within the economy.  The perspective had been widened compared to earlier investigations.  Not only cartels and monopolies were addressed but also other types of limitation of competition.  A lot of cooperation took place on the distribution level and trademark competition was regarded as a way of limiting competition.  The goals for the economic policy were now also more ambitious than before –expansionism was important.  Thus company cooperation which expressed itself in terms of production restrictions could not be accepted.  Increased prices as an effect of restrictive practices would lead to less space for consumption among the consumers and thereby diminished demand which in turn could affect employment.44 A proposal was made to the Riksdag demanding investigation on legislation for hindering unsuitable competing methods. The public investigations undertaken had showed that cooperation mainly concerned regulation of market conditions like pricing, competitive methods and competition conditions.  The tendencies towards increased cooperation had been conserved and strengthened during the war period.45  According to the commission cooperation and concentration tendencies had its social right to exist only in the rationalization which was thereby made possible.  In earlier investigations the social interest had been analyzed mainly in terms of effects on consumer prices.  Now it was rationalization in itself which was regarded as the main purpose.  It is obvious that the commission did not accept cartels and monopolies simply as steps towards a higher form of production.  Their utility had to be evaluated with respect to what it delivered to society.  If it delivered rationalization and as a consequence lower prices, it was accepted.46  If earlier discussions had concentrated on stability, efficiency and national competitiveness, this discussion concentrated on expansionism.  It was regarded as a social interest that companies working in areas with incomplete competition did not maintain restrictive practices.  This could lead to incomplete employment and less supply of products than potential.47 It was also maintained that experiences from many years of monopoly pointed to less positive effects.  Even if rationalization was a positive thing, it seemed that 41.  Brems [1951], 163–164.  See also Appelqvist [1997]. 42.  sou 1940, 35.  Organiserad samverkan inom svenskt näringsliv (Stockholm 1940), 3–4. 43.  One of the most influential persons dealing with planning for a coming depression was the economist Gunnar Myrdal. In his publication Varning för fredsoptimism (Myrdal [1944]) he developed the possibilities for achieving a stable economic development through more planning. 44.  sou 1945, 42.  Betänkande angående övervakning av konkurrensbegränsande företeelser inom näringslivet. 45.  Proposition nr 264, 1946, 11. 46.  Ibid., 9. 47.  Ibid.

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Revue économique when monopoly had been ruling for a longer period the tendencies became largely negative.  Technical development lagged behind and ineffective production methods were maintained.  In cartels, pricing seemed to be adapted to the least productive company within the cartel.  This was analyzed in social terms –the productive resources of society were not used in the way that led to maximum production result and maximum national income.48 The commission discussed the possible need for supervision over cartels and monopolies.  Many of the organizations that had left statements were hostile.  Neither Federation of Swedish Industries nor the employers’ organization found supervision motivated.  Information on the work of cartels was considered to be a good thing since it had made it possible to dissipate popular misunderstandings.49  Greater demands for public information could thus be accepted but it had its limitations.  If agreements were published and if they contained information which could be used by foreign business interests, this kind of information had to be protected.50 Within the trade chambers there was also strong reluctance to the proposal.  Supervision was considered expensive and unnecessary.  Cartels and other cooperative organization could not in the long run shut competitors out.  Nor could an unreasonable commodity price be protected in the long run.  “By the way the chamber considered the consumers on the whole capable to estimate the legitimacy of the compensation demanded from them for the utilities and services that were offered to them and find measures to address unreasonableness.”51 Overtaking by the state had to be avoided.52  Within these organizations it is obvious that the “Swedish” interpretation of liberalism still ruled –state interference had to be avoided and business organizations could deal with the potential problems themselves.

Monopolistic Competition and Sales Organization Sales organizations gradually came into focus.  Monopoly prices had effects on the sales organization which were heavily criticized.  Monopoly prices could lead to an over dimensioned sales organization –agents, sales representatives, exhibitions, and discount to retailers.  It could also lead to a situation where the agreements between companies were widened also to include discounts and conditions for sales.53  Local monopoly for retailers existed, due to the position of the store and also the consumer’s lack of information on the pricing of the competitors.54 As mentioned above a new element in the discussion was commodities with specific trademarks.  It was argued that a producer of a trademark had an advantageous position on his specific commodity market.  The potential competition was of course bigger than for a sheer monopolist but he definitely has an 48.  Ibid. 49.  Ibid., 20. 50.  Ibid., 17. 51.  Proposition nr 264, 1946, 20. 52.  Ibid., 22. 53.  Ibid., 9. 54.  Ibid., 8.

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advantageous position.  The producer achieved this position, not through lowered prices but through comprehensive advertising or through specific details in the outfit or packaging of the commodity.  These measures attracted the consumers’ attention “without having any proper value” which led to increased costs.55 This view on trademarks was not accepted by Federation of Swedish Industries.  It could not be regarded as a variant of incomplete competition.  It was a system which had become widely spread and it had advantages for producers and distributors.  For the public it meant a better guarantee for the condition of the commodity and it removed unnecessary discussion on prices.  It was also regarded as an advantage that the price was the same wherever the commodity was bought.  It was a development towards more rational commodity distribution which ought not to be stopped.  According to Federation of Swedish Industries, the only type of incomplete competition that could be addressed by legislation was the type based on agreements or single producer.56 The state measures that were discussed were lowered tariff rates and starting of state-owned companies in areas where competition was low.57  The aim was to create a higher degree of competition but not to break up well functioning cartels.  The resulting legislation in 1946 was not characterized by the American prohibition principle.  Instead it was an explicit form of the abuse principle.  A public authority –the Bureau of Monopoly was created with the power to undertake investigations if abuse could be suspected.  Firms or trade associations could be demanded to give a full statement on any agreement affecting prices, production, turnovers or distribution.  The agreements were to be published in a register over cartels.  Inquiries on selected branches were also to be published in the same publication.  The market situation should be continually analyzed and special investigations should be undertaken when misuse ore damaging effects of incomplete competition could be feared. It can be argued that this legislation indicates a certain reinterpretation of liberalism with possibilities for the state to interfere.  It can also be argued that the idea that makes this state intervention legitimate is Palmstierna’s argument from the early debates on cartels –that cartels and monopolies created social utility and therefore also had to accept that their actions were not wholly private and could be exposed to scrutiny.

Experiences From the War The forced cooperation during the war had produced disparate tendencies.  On the one hand it had showed that production could be increased and unemployment wiped out through cooperation under state supervision.  On the other hand the company organizations had become even more unwilling to accept state intervention in their future work.  The discussion of state influence on production was part of a much larger debate on planning the economy, in which fear of communism and the beginning of the Cold War came to be crucial.  The new issue under discussion was trademarks.  It was not a new phenomenon but it had 55.  Ibid. 56.  Ibid., 24. 57.  Ibid., 13.

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Revue économique gained in importance and advertising had become a very important strategy for persuading the consumer that a commodity with a specific trademark was better than other commodities which fulfilled basically the same needs.  The resistance against this kind of competition was to a large extent expressed as a defense for traditional value.  If it was only the question of providing the commodity with an aura of being something different without “really” doing so it could once again be seen as a way of cheating the consumer.  In that case it was hard to accept the practices as “sound” competition.  The interest on legislation came to lean more upon selling than production practices.  One main reason for this development is no doubt increased real incomes and increased potential consumption volume.  The Swedish society had during the period become a society of consumers.  The percentage of persons employed in the agricultural sector during this period diminished from almost 50% to below 20%.58 During the period 1920-1960 advertising increased and the border between basic commodities and luxury products became more and more blurred.  Even if the war led to a more “rational” consumption, it soon became obvious that the companies were to make more use of advertising to create a more “irrational” consumption after the war.59  This development can to a large part be seen as an example of the theory elaborated by Alfred Chandler.  Modern companies can undertake production-oriented as well as market-oriented strategies to get access to new markets or gain new market shares.  Production-oriented strategies can for example be economies of scale, while market-oriented can be “scope” which means development of new products. Using advertising, trademarks or new payment measures are other ways of attracting consumers.  In this development price becomes much less important as the argument in consumers choices.60

The Legislation of 1953 In 1953 the law on Restrictive trade practices was passed.  It was mainly aimed to prevent bidding cartels and the gross price system.  These ways of limiting competition were regarded as especially harmful.  In the Riksdag the main matter of discussion was whether or not the business organizations themselves could undertake necessary measures to stop abuse of agreements.  According to the well-known economist Cassel, self sanitation was under way.  A main task would be to form norms –a kind of honorary codex for competition.  Cassel also defended the gross price system.  He argued that it could be of great value to the housewife to know that the price was the same in all shops.  This was also an advantage to persons who lived in remote areas, even if it meant that consumers in urban areas might pay a higher price than the price that could have been the result of free competition.61  Other conservatives also defended the gross price system.  According to one conservative member centralization of price setting would not necessarily lead to higher prices.  Centralization saved a lot of

58.  Krantz and Schön [2012]. 59.  K. Hermansson, “I konsumentens spår,” in Alèx and Söderberg [2001], 206–207. 60.  Chandler [1990] and Teece [1998]. 61. Protocol ak nr 21, 1953, 129–133.

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calculation and could lead to lower prices.  For example coffee with a specific trade mark could be cheaper than coffee grinded by local retailers.62 The defenders of the proposal argued that the gross price system was bad practice, since the price was decided by the actor with the highest costs.  This kind of pricing counteracted rationalizations and thereby the space for diminishing prices.63  The gross price system was meant to protect the interests of the producer who wanted to avoid that his commodities were used as bait.  The system was also meant to provide the retailer with some kind of protection against price destructive competition.64 The conception competition was also to a certain extent discussed.  According to a liberal discussant, living competition was absolutely necessary and the will to compete had been diminished due to state influence during the war.  Competition could not be totally left alone.  Instead of talking about “murdering” competition as in the old days, he suggested “effective” competition.  There were limitations in competition which were useful and others which were not.  The legislation had to show in its application which kinds of competition which could be regarded as legitimate.65  Other liberals agreed to the problem of defining the word competition.  Ruthless and unsound competition could lead to conditions which from the national economic point of view was unsatisfactory.66  It was a discussion over the links between selfishness and social utility.  One of the conservative members argued that it was impossible to forbid trusts and cartels since it was impossible to forbid people from being egoistic and think of their own advantages.  Actually it was not primarily the consumers who would suffer from cartels but business itself since the companies lost interest in developing better commodities and cheaper articles.  Freedom ought to exist, not only in relation to the state but also to the rest of business.  Still it was no doubt that monopolies could be of use to society’s economy.  It was not a simple thing to decide whether or not a cartel brought utility.67 The debate made clear that sales and distribution meant much more during the 1950s than during the 1910s.  It might be expressed as the conception on the direct link between production costs and prices had become molded.  The gross price system could be seen as a way to uphold the vision that prices were related to production costs, but it could also be criticized as a way to adapt prices to the least effective producer.  The abolishment of the gross price system would in that way mean a better adaptation to cost of the best producer.  It is obvious that the link between cost and price is the crucial question.  Production costs could be rationally addressed through economies of scale and technical development.  Distribution costs could at least to a certain extent be addressed for example by reducing the amount of mediators.  However there was room for new manoeuvres where trademarks and advertising came to play an increasing role and costs for marketing and sales arrangements had to be included in price calculations.  These costs had in the 1930s discourse been regarded as mainly 62.  Ibid., 144–145. 63.  Ibid., 134. 64.  Ulf af Trolle, “Bruttoförbudets grundval och verkningar,” in Ekonomisk Tidskrift, vol. 57, nr 1, March 1955, 13. 65. Protocol ak nr 21, 1953, 135–137. 66.  Ibid., 151. 67.  Ibid., 139–140.

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Revue économique unnecessary but it is obvious that this perception was about to change.  If supply could be mainly addressed in a rational way, this seemed to be far more complicated to demand.  Trademarks and advertising created a social reality in which some commodities could be sold to higher prices than others which filled the same need.  The difference between needs and demand became more of an issue in the times of consumer revolution.68

CONCLUSION The introductory question of this article was if Swedish cartel legislation could mainly be explained from American influence or from internal factors.  It has not been possible to give a clear answer to this question but it can be maintained that the internal factors can be enough to explain the development.  The Swedish view on state intervention can be discussed in relation to the American view. During the first 15 years, liberalism was interpreted as non-interference from the state.  The political argument from the bourgeois parties related to producers was that the state had no right to interfere neither on ownership nor on the right to enter into agreements.  The economic argument was that producers would become more efficient through cooperation.  The social democrats accepted this interpretation of liberalism as long as it provided social utility in the form of better room for consumption.  If they did not, state regulation could be contemplated. During the later part of the period the resistance against state intervention was loosened up.  This development can be linked to the structural change in Swedish society which during the period had become a society of consumers.  This forced politicians to focus more on market questions.  As long as cartels were mainly seen as having influence over production, it could with some credibility be argued that cartels lowered prices through better use of economies of scale.  As cartel practices became more related to consumption, like the gross price system, it became more difficult to argue that they had beneficial effects on prices. The arguments for cartels that had been so decisive during the first part of the period thus fell in importance.  The model related to economies of scale had implied that lower production costs would mean lower consumer prices and thereby increased social utility.  As prices to a large extent lost the direct relation to production costs and were decided also by marketing costs, the arguments for state non-intervention began to falter.  It was more difficult –even if attempts were made– to argue that there were big economies of scale in marketing and distribution.  The defense for the Swedish model of non-interference from the state was broken up.  This process was also facilitated through the experiences of the war with increased state insight in cooperative arrangements and a political will to increase state planning.

68.  Aléx Peder, “Begär eller hushållning, Om behovets historia,” in Peder and Söderberg [2001], 51–54.

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The development in the Swedish legislation resembles the American antitrust logic in its assertion that big business and cartels provide social utility and therefore must accept interference from the state.  It differs from the American logic in that the social utility is not seen as coming up automatically with the breaking up of cooperative arrangements.  In some cases –mainly related to large-scale production– cooperation could be accepted.  In some cases –mainly related to distribution and sales practices it was forbidden.  This development can be explained from internal factors.  American influence is during this period superfluous as explanatory factor. On the other hand it is easy to imagine an increasing American influence during the coming years. The discussion on trademarks heralds a consumer society characterized by an American lifestyle.  It is a society in which social utility for consumers is not only low prices but also “freedom of choice,” which often means the possibility to choose between very similar commodities but with different trademarks.  It is to be pointed out that this perception of reality was still far from the opinions of Swedish politicians during the first post-war years.

REFERENCES Alèx, P. and Söderberg, J. [2001].  Förbjudna njutningar – spår från konsumtionskulturens historia i Sverige.  Stockholm: Norstedt Akademiska Forlag. Appelqvist, Ö. [1997].  Världsintressets advokat: Gunnar Myrdal och den svenska efterkrigsplaneringen 1944-1945.  Gøteborg: Statsvetenskapliga institutionen, Gøteborgs Universitet. Brems, H. [1951]. Konkurrens eller samverkan. [Stockholm]: Studieførbundet Nåringsliv och samhalle, p. 260. Carlsson, B. [1988].  Staten som monster.  [Lund : Ekonomisk-historiskå føreningen], 412. Chandler, A.D. [1990].  Scale and Scope: the dynamics of industrial capitalism. Cambridge (Mass.): The Belknap Press of the Harvard University Press, 860. Eklund, K. [1990].  Vår ekonomi.  En introduction till samhällsekonomin (Our Economy: An Introduction to Economics).  Stockholm: Norstedt Akademiska Forlag. Fear, J.R. [2008]. “Cartels.” In Jones, G. and Zeitlin J. (eds), The Oxford Handbook of Business History.  Oxford: Oxford University Press, 268–292. Freyer, T.A. [2006].  Antitrust and global capitalism, 1930–2004. Cambridge (uk): Cambridge University Press, 452. Krantz, O. and Schön, L. [2012].  Swedish historical national accounts 1800–2000 Table V Employment 1850-2000, available at www.ekh.lu.se. Ljunggren, A. [1912].  Ekonomiska sammanslutningar av monopolistisk natur I Sverige.  Sthlm: Norstedt. Myrdal, G. [1944].  Varning för fredsoptimism.  Stockholm: Bonnier. Schröter, H.G. [1996].  “Cartelization and decartelization in Europe, 1870-1995: rise and decline of an economic institution,” Journal of European Economic History, 25 (1): 129–153. Schröter, H.G. [2005].  Americanization of the European Economy.  A compact survey of American economic influence in Europe since the 1880s.  Dordrecht: Springer. Teece, D.J. [1998].  Economic performance and the theory of the firm, Cheltenham: Edward Elgar Publishing, 640.

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