Antitrust and the Formation of the Postwar World

Columbia Studies in Contemporary American History

by Wyatt Wells

Today antitrust law shapes the policy of almost every large company, no matter where headquartered. But this wasn't always the case. Before World War II, the laws of most industrial countries tolerated and even encouraged cartels, whereas American statutes banned them. In the wake of World War II, the United States devoted considerable resources to building a liberal economic order, which Washington believed was necessary to preserving not only prosperity but also peace after the war. Antitrust was a cornerstone of that policy. This fascinating book shows how the United States sought to impose—and with what results—its antitrust policy on other nations, especially in Europe and Japan. Wyatt Wells chronicles how the attack on cartels and monopoly abroad affected everything from energy policy and trade negotiations to the occupation of Germany and Japan. He shows how a small group of zealots led by Thurman Arnold, who became head of the Justice Department's Antitrust Division in 1938, targeted cartels and large companies throughout the IG Farben of Germany, Mitsui and Mitsubishi of Japan, Imperial Chemical Industries of Britain, Philips of the Netherlands, DuPont and General Electric of the United States, and more. Wells brilliantly shows how subsequently, the architects of the postwar economy—notably Lucius Clay, John McCloy, William Clayton, Jean Monnet, and Ludwig Erhard—uncoupled political ideology from antitrust policy, transforming Arnold's effort into a means to promote business efficiency and encourage competition.

Genres: Law, Economics

289 pages, Kindle Edition

First published December 19, 2001

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In popular culture

In Gravity's Rainbow (1973), Thomas Pynchon wrote about 'Byron the Bulb', an anthropomorphic eternal lightbulb who fights against the Phoebus Cartel. Pynchon's novel has been credited with bringing the Phoebus Cartel to the public eye.

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The Phoebus cartel was an international cartel that controlled the manufacture and sale of incandescent light bulbs in much of Europe and North America between 1925–1939. The cartel took over market territories and lowered the useful life of such bulbs.

Corporations based in Europe and the United States, including Tungsram, Osram, General Electric, Associated Electrical Industries, and Philips, incorporated the cartel on January 15, 1925 in Geneva, as Phœbus S.A. Compagnie Industrielle pour le Développement de l'Éclairage.

[French for Phoebus plc Industrial Company for the Development of Lighting]

Although the group had intended the cartel to last for thirty years (1925 to 1955), it ceased operations in 1939 with the outbreak of World War II.

Following its dissolution, light bulbs continued to be sold at the 1,000-hour life standardized by the cartel.

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History

Osram, Philips, Tungsram, Associated Electrical Industries, ELIN, Compagnie des Lampes, International General Electric, and the GE Overseas Group created and joined the Phoebus cartel, holding shares in the Swiss corporation proportional to their lamp sales.

Osram founded a precursor organisation in 1921, the Internationale Glühlampen Preisvereinigung.

When Philips and other manufacturers entered the American market, General Electric reacted by setting up the 'International General Electric Company' in Paris.

Both organisations co-ordinated the trading of patents and market penetration. Increasing international competition led to negotiations among all the major companies to control and restrict their respective activities in order not to interfere in each other's spheres.

The Phoebus cartel's compact was intended to expire in 1955, but it was instead nullified in 1940 after World War II made coordination among the members impossible.

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Purpose

The cartel lowered operational costs and worked to standardize the life expectancy of light bulbs at 1,000 hours (down from 2,500 hours), while raising prices without fear of competition.

The reduction in lifespan has been cited as an example of planned obsolescence, but this has been called into question by UK government regulators and some independent engineers because there are some good engineering reasons to reduce the lifespan of a bulb.

A longer life bulb of a given wattage puts out less light (and proportionally more heat) than a shorter life bulb of the same wattage.

Nevertheless, both internal comments from cartel executives and later findings by a US court suggest that the direct motive of the cartel in decreasing bulb lifespan was to increase profits by forcing customers to buy bulbs more frequently.

The cartel tested their bulbs and fined manufacturers for bulbs that lasted more than 1,000 hours.

A 1929 table listed the amount of Swiss francs paid that depended on the exceeding hours of lifetime.

Anton Philips, head of Philips, said to another cartel executive,

"After the very strenuous efforts we made to emerge from a period of long life lamps, it is of the greatest importance that we do not sink back into the same mire by paying no attention to voltages and supplying lamps that will have a very prolonged life."

In 1951, the Monopolies and Restrictive Practices Commission in the United Kingdom issued a report to Parliament, which disputed the idea that the Phoebus cartel engaged in planned obsolescence, stating that

"there can be no absolutely right life [of light bulbs] for the many varying circumstances to be found among the consumers in any given country, so that any standard life must always represent a compromise between conflicting factors".

In 1949, the United States District Court for the District of New Jersey found General Electric to have violated the Sherman Anti-Trust Act, in part because of their activities as part of the Phoebus Cartel.

As part of the decision, while acknowledging that "it should be borne in mind that the life of a lamp is inextricably related to the power of its light", it nonetheless found that because of General Electric's dominant industry position and lack of competition it had the power to determine bulb lifespan across the entire industry, and that General Electric's main consideration in setting the lifespans of bulbs was profit.

The court used this as one of the factors for ultimately determining that General Electric had violated the Act.

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