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PART III THE ALLEGED INEVITABILITY OF SOCIALISM
SECTION II The Concentration of Capital and the Formation of Monopolies
as Preliminary Steps to Socialism
1 The Horizontal Concentration of Enterprises
The Concentration of Enterprises
The merger of several similar independent establishments into one enterprise may
be called horizontal concentration of production. Here we follow broadly the usage
of writers on cartels, though their definition is not in complete accord with ours.
If the separate establishments do not remain completely independent, if, for example
the management or some departments are amalgamated, there is concentration of establishments.
A mere concentration of enterprises occurs only when the individual units remain
independent in everything except the taking of decisive economic decisions. The
typical example of this is a cartel or a syndicate. Everything stays as it was,
but, according to whether it is a buying cartel or a selling cartel or both, decisions
about purchases and sales are taken unitarily.
When it is not merely the preliminary step to an amalgamation of establishments,
the purpose of these unions is monopolistic domination of the market. Horizontal
concentration originates only in the efforts of separate entrepreneurs to derive
those advantages enjoyed under certain circumstances by the monopolist.
2 The Vertical Concentration of Enterprises
Vertical concentration is the union into one unitary enterprise of independent enterprises,
some of which use the products of the others. This terminology follows the usage
of modern economic literature. Examples of vertical concentration are the union
of weaving, spinning, bleaching and dyeing works; a printing works to which a paper
factory and a newspaper enterprise are joined; the mixed works of the iron industry
and of coal mining, etc.
Each productive unit is a vertical concentration of part processes and of apparatus.
Unity of production is created by the fact that part of the means of production—certain
machines, buildings, the direction of the works—is jointly held. Such joint holding
is lacking in the vertical union of enterprises. Here the essence of the union lies
in the will of the entrepreneur to make one enterprise serve another. The mere fact
that one man owns two enterprises is not in itself sufficient if this will does
not exist. Where a chocolate manufacturer owns also an iron works there is no vertical
concentration. Vertical concentration is usually considered to aim at ensuring an
outlet for the product or safeguarding the source of raw materials and half finished
goods. This is what entrepreneurs reply when questioned as to the advantages of
such combinations. Many economists accept it without question, for apparently they
do not think it is their job to scrutinize what is said by "practical men"; and
after accepting the statement as final they proceed to examine it from the ethical
point of view. Still, even if they avoid thinking about it, closer research into
facts should show them the truth. There is the fact that managers of plants attached
to a vertical combination often have to make complaints. The manager of the paper-mill
says: "I could get much better value for my paper if I did not have to supply it
to 'our' printing works." The manager of the weaving-mill: "If I didn't have to
get the yarn from 'our' spinning works I could get it cheaper." Such complaints
are the order of the day, and it is not difficult to understand why they must accompany
every vertical concentration.
If the amalgamated establishments were individually so efficient that they did not
have to shun competition, vertical combination would serve no special purpose. A
paper factory of the best type never needs to ensure its market. A printing works
which is on a level with its competitors does not need to ensure its paper supply.
The efficient enterprise sells where it gets the best prices, buys where it can
do so most economically. Hence, it does not follow that two enterprises, working
at different stages of the same branch of production and held by one owner, must
necessarily unite in vertical combination. Only when one or other of them shows
itself less able to sustain competition does the entrepreneur conceive the idea
of supporting it by tying it to the strong one. He looks to the profits of the prosperous
business for a fund to cover the deficits of the non-prosperous. Apart from tax
remissions and other special advantages, such as those which the mixed works in
the German iron industry were able to derive from cartel agreements, union achieves
nothing but an apparent profit in one enterprise and an apparent loss in the other.
The number and importance of vertical concentrations is extraordinarily overestimated.
In modern capitalist economic life on the contrary, new branches of enterprise are
constantly forming and parts of those existing are constantly breaking away to become
The progressive tendency to specialization in modern industry shows that development
is moving away from vertical concentration, which, except where it is demanded by
considerations of productive technique, is always art exceptional phenomenon, generally
to be explained by regard for the legal and other political conditions of production.
But even here the break-up of such unions and the re-establishment of individual
enterprise is to be witnessed over and over again.
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