Toward State-Managed Cartels?

June 5, 1950

The Schuman proposal for “pooling” the coal and steel production of France and Germany was followed by a chorus of unqualified praise and endorsement. Nothing in recent months has so clearly illustrated the present matter-of-fact acceptance of a statist and collectivist ideology. The few voices that asked whether this might not mean merely one more state-dominated cartel were hardly heard.

Let us examine the text of the proposal: “The French Government proposes that the entire French-German production of coal and steel be placed under a joint high authority. . . . A president will be chosen by the governments by common agreement; his decisions will be enforceable in France, Germany, and the other member countries. . . . The setting up of the high authority in no way prejudges the question of ownership....”

Now decisions by a “joint high authority” presuppose (1) the nonexistence or cessation of free competition among the individual companies; (2) that major decisions on policy would be made not by the heads of the individual companies, but by a single head; and (3) that the industries as a whole would be directed in the same unified way as a monopoly or a typical international cartel.

The “high authority” who directed the industries would be politically appointed. Such a setup does prejudge the question of ownership because under it the managerial authority that is the usual prerogative of ownership would be held by governments. The profits of the individual companies would necessarily be government-determined. The proposed setup would be, in short, another step toward government management and state socialism.

“The functions entrusted to the joint high authority will be . . . to modernize production and improve its quality....” This implies that the “high authority” will decide what new machines will be installed in which producing units. In short, a politically appointed head will decide the amount, nature, and distribution of investment in the steel and coal industries. The text calls specifically for an overall “production and investment plan” and an overall “reconversion fund to facilitate the rationalization of production.”

The plan envisages “the institution of a mechanism for equalizing prices”—i.e., central price control rather than free competitive markets. Wages would also be “equalized”—i.e., state-controlled and dictated.

“The flow of coal and steel between member countries will be immediately exempted from all customs duties and may not be subject to freight differentials.” Standing by itself, this part of the proposal would merit the highest praise. But what does it mean as merely part of a new quota or allocation system or state-controlled monopoly under which, for example, the more efficient companies would not be permitted to expand production and markets at the expense of the inefficient, high-cost companies?

The plan brings out the ambiguity in the newly fashionable word “integration.” What is proposed is a cartelized state-dictated “integration” rather than the only kind of integration reconcilable with efficiency and freedom. Let governments remove the international trade barriers they have themselves set up. Permit producers to make and sell as much coal or steel as they can. Permit consumers to buy coal or steel or whatever they want wherever they can get the lowest price. Let the relative efficiency and profitability of individual enterprises, and the relative demands of consumers for products of every kind, determine how much capital is invested, where, and in what. It is the restoration of free markets and free trade that will do most to increase world production, raise living standards, and promote peace.

It is indeed encouraging that France, on its own initiative, has made a sweeping proposal for economic cooperation with Germany. But in the long run no step can be really constructive unless it moves in the direction of freedom.