International cartels and technology transfer, 1890-1948

"This paper explores the role of international cartels in the development of innovative and capital-intensive industries in Europe from the early 1890s to the early 1940s. The literature on international cartels after the Second World War has focused primarily on their effects on prices and their anti-competitive character. This paper mounts a challenge to this literature, arguing that this approach obscures two fundamental facts. The first is that technological co-operation was a driving force behind cartelisation. The second is that international cartels constituted powerful vehicles for technology transfer across national boundaries. International cartels were complex sets of arrangements whereby giant corporations based in various European countries sought to attain a monopolistic control over the global market. These arrangements accompanied the evolution of most capital-intensive, science-based industries. The historical evolution of these industries demonstrates that market-sharing agreements represented only one, and not even the most important, facet of international cartelisation. This evolution reveals that international cartels were indeed technological co-operative networks. These networks were established to settle patent disputes, to monitor technical advances, to reduce risks and to develop new products. The pattern emerging from the history of capital-intensive industries is that co-operation usually began as patent pooling and then progressed to the commercial sphere. Commercial agreements complemented patent and technological co-operation, which secured a firmer control over markets than price or sales arrangements. Cartel members continuously exchanged knowledge within these international networks. The main feature of this exchange lay in that it was characterised by the inflow and outflow, rather than by a one-way flow, of knowledge. Through its cartel relations, which frequently entailed financial ties, a company based in one country could have access to new advances or patents developed in other countries. This access to advances continued even during the 1930s, when, in spite of the increasing fragmentation of world trade and international political rivalries, a number of important innovations, including those affecting rearmament, were exchanged. The exchange of artificial rubber and artificial oil technologies between the US corporation Standard Oil and the German firm IG Farben until the early 1940s is a case in point. A number of similar examples for each science-based sector can be identified. When surveying the historical evolution of capital-intensive industries, it is difficult to escape the conclusion that global technological progress benefited from these exchanges. However, while in general acceptable, this conclusion needs some qualifications. For one thing, patent and knowledge exchange only took place within the network, as well as the producing countries covered by it, and was also aimed at keeping new interests at bay. Secondly, once obtained the access to networks, although vital, did not guarantee industrial success. Not all corporations – and the producing countries covered by the cartel agreements – benefited from, or contributed to, the global progress to the same extent. In-house capabilities, institutional environments, labour costs, access to capital and to markets affected their position within the networks, as well as their ability to exploit technologies. This was truest of newcomers. The paper is divided into three parts. The first part reviews the debate on international cartels during the inter-war period. In contrast to more recent studies, the inter-war literature placed great emphasis on the effects of international cartels on world trade, technology transfer and industrialisation. The second part of the paper traces the history of international cartels in a number of capital-intensive sectors (rayon, chemicals, electrical equipment, aviation, automotives, and iron and steel), with particular emphasis on the inter-war period. The paper concludes by suggesting that the study of international cartels adds several new dimensions to the theme of technology transfer, and can help break new ground in the analysis of patterns of industrialisation. The historical evolution of international cartels suggests that technological progress cannot be attributed to any particular national environment and was global in nature. It also reveals that the need for corporate co-operation became more pressing as technologies became more sophisticated and a greater number of countries industrialised. Finally, it sheds light on the ways in which the emergence of corporate capitalism and imperfect competition – themselves largely the product of technological progress – affected historical patterns of technology transfer. This paper draws mostly on unpublished material. Its main sources include, for the rayon industry, companies’ archives (the VGF Archives in Wuppertal, Germany; the Courtaulds Archives in Coventry; the Snia Viscosa Archives in Milan), and, for other sectors, the PRO at Kew, London, the hearings of three US Senate Committees on international cartels (the Kilgore, Bone and Truman committees) and official publications by the British Board of Trade and the League of Nations."