Cartels, Trusts and Government in 1930's Japan

Abstract

In 1931 the Law regarding the Control of Important Industries was enacted. Under this law the government, the Ministry of Commerce arid Industry was given powers, both to compel non-members of cartels to abide by cartel regulations and also to prevent any abuses of monopolistic power. The purpose of this paper is to make clear the administrative policy of this "Law of Control" and its revision in 1936. Some conclusions are as follows. (1) After 1933, when a trend of price increases began to appear, the administrative policy of government regarding "Law of Control" shifted from encouraging cartels during depression to protecting the public interest. In highly oligopolic Industries, such as paper, sugar and beer manufacturing, the government often supervised the productions, sales and prices policies of cartels. On the other hand, in competitive oligopolic Industries, such as carbide, and sulfuric acid manufacturing, the government intentionally maintained competition between cartel members and non-members, although cartel members demanded that the government compeled non-members to abide by cartel regulations. In the cement industry, which many new enterprises entered and existing companies invested in plant and equipment in spite of law rates of capacity utilization, the government intervened on the basis of the "Law of Control" with the aim of optimizing distribution of resources. (2) In terms of effect, the warnings of the government against highly oligopolistic Industries achived its aim. After this cartels began to hesitate in implementing price rises and production restrictions. At that time it should be noticed that the big businesses which led the cartel activities intended these low prices as a way to increase demand and to prevent new entries. But in the cement industry such intervention failed. Competition became greater in spite of intervention aimed at restricting competition and the enlargement of capacity by outsiders in Korea and new entries were not stopped. As a consequence of this the rate of capacity utilization became quite higher than before. (3) In 1936 the "Law of Control" was revised with the purpose of solveing the problems mentioned above. The points of revision were (i) to enlarge the enforcement district to Korea and Introduce regulations of new entries and investment in new equipment, and (ii) to apply the "Law" to the trusts which were established during recovery period. By this revision, the intervention of government became more positive and effective. But after the outbreak of the war with China in July 1937 the role of the "Law of Control" was gradually reduced because obstructive factors in cartel activities were no longer outsiders, but the lack of raw materials, and inflation made price manipulation by cartels ineffective. For this reason, government controls stronger and more derective than the "Law of Control" were urgently needed. Lastly we should 'mention that the intervention of the government on the basis of "the Law of Control" was a "prototype" for the Industrial policy of Ministry of Industry and Trade in the post-war period.