Ekonomisk-historiska mtet i Uppsala 2009 Work in progress. Please do not quote without permission of the author.

Susanna Fellman University of Helsinki

The Finnish model of capitalism and transforming competition police: from independence until the first cartel legislation in 1958.

Point of departure

The Finnish model of capitalism has had much in common with the other Nordic countries, although it at closer inspection also has shown some distinct features. One such distinction has been particularly rapid regime shifts and sharp breaks in the model, often at time of crises. 1 At the same time, certain traditions and institutional settings have been both persistent and deep-rooted. For example, the Finnish economic model has been labelled as strongly collaborative, marked by extensive cooperation both across and within sectors. One manifestation of these collaborative traditions were a heavy presence of cartels and other types of cooperation between firms in order to restrict harmful competition prevent new entrants on the market, fight imports or advance Finnish exports. This lasted up until the 1990s, when Finland became a member of the European Union. Until the 1980s cartels could work fairly openly, as competition policies and legislation was until 1980s by no means prohibitive, but at the most anti-abusive. In the inter- and postwar period Finland has also from an international perspective been ranked as one of the most cartelised economies in the world. 2 Until the change of the 1990s, cartels and collusive behaviour also persisted both over more liberalistic and more regulative and coordinated periods. This is per se not surprising. Cartels are not necessarily something contradictory to economic liberalism or competition, but can exist also in systems which could be labelled as

On the Finnish model of capitalism, see Susanna Fellman, Growth and Investment: Finnish Capitalism, 18502005. In Fellman, S., Iversen, M., Sjgren, H. & Thue, L. (eds.) Creating Nordic Capitalism The Development of a Competitive Periphery. Palgrave-Macmillan 2008. In print. 2 Schrter, Harm, Cartelization and Decartelization in Europe, 1870-1995: Rise and Decline of an Economic Institution. The Journal of European Economic History Vol. 26 No.1 1996

liberal market economies.3 During the fairly liberal era of the interwar period in Finland liberal in the sense that the State was to interfere as little as possible in the economy4 the prevailing doctrine was that firms should organise their activities as they found best and, thus, also cartels was a legitimate way to organise. Selfregulation was the principle. Cartels were able to operate more or less openly, resulting in rapid cartelisation particularly in the export sector, which were actually seen also work in the interest of the nation. Although Finland has been classified as a highly cartelised economy, it has to be stressed that the strong presence of cartels before WWII was nothing exceptional at the time, but an international phenomenon. The Great Depression and the protectionist tendencies of the 1920s and 30s, provided in many countries a breeding ground for firms to cooperate. As e.g. Wyatt Wells has pointed out, the prevailing doctrine at the time was that cartels and cooperation were a higher form of economic organisation, replacing brutal competition with more civilised ways of handling uncertainty and risks. 5 Contrary to governments in some other European countries, the Finnish government or authorities, did not, force cartelisation. On the other hand, it can be claimed that cartels in the export sector at least had the governments quiet support. The post-war era has been seen as the start of decartelisation and the gradual adoption of antitrust policies also in Western European countries. In Finland, this appears not to have been the case until the 1980s. During the period from end of WWII to the early 1980s, the Finnish economy was marked by an elaborate collaborative and coordinated economic model marked by strong State intervention and heavy regulations in certain segments of the economy, and in this model cartels fitted well, although cartels and cartel behaviour of course were to be monitored and controlled. A first cartel law was passed in the late 1950s, coming into force in 1958.
3

Fear, Jeffrey, Cartels. In Joens. G. & Zeitlin, K. (eds.) The Oxford Handbook of Business History. OUP 2008, 268292. Competition also exists within cartels, for example as firms prepares for the next round of negotiation about quotas, a factor easily observable within the big Finnish paper cartel and the cotton cloth cartel. However, cartels change the modes of competition, and moderate and control competition between the firms in the cartel. Fear, Jeffrey, Cartels. In Jones. G. & Zeitlin, K. (eds.) The Oxford Handbook of Business History. OUP 2008, 268292. On the cotton cloth cartel and on-going struggle for quota, see Kallioinen, Mika, Kesytetty kilpailu. Puuvillateollisuuden myyntikartelli 1910 1939. Turun Yliopisto. 2006. 4 The liberalism of the inter-war period is a complex issue, as the State became more active on the markets, especially by the emergence of the first influential state companies in key branches. 5 Wells, Wyatt, Antitrust. The Formation of the Postwar World. Columbia Studies in Contemporary American History. New York 2002, 9.

Although declaring some forms of cartels as illegal, the new law can not, be seen as a beginning of decartelisation in Finland, or as some sort of anti-trust legislation or reflecting anti-trust legislation. The main aim with the legislation was not to forbid or prevent or even to any greater extent limit cartels activities, but to make cartels public by demanding certain cartels to notify the authorities and register. In this way, authorities could control and monitor them and the market situation, and also interfere in case of adverse or harmful outcomes.6 However, the first law was toothless with respect to the first target and totally ineffective with respect to the latter one. The law was already after a few years renewed, and after that at regular intervals amended and tightened, particularly with respect to notification and registration. But the stricter legislation did not lead to any visible decartelisation. It even appears that in spite of a stricter legislation, there was an increasing cartelisation until the late 1970s (see appendix), although it is difficult to draw any definite conclusions, as the database based on the cartel register is problematic from this respect As a result of the swift and somewhat abrupt regime shift in the Finnish model in the 1980s and 90s brought about by outside and inside pressures, the view towards cartels changed and a period of decartelisation and active promotion towards liberalisation and the promotion of competition on the Finnish market. The EUmembership (1995) strengthened and speeded up this development, marked by a radically different competition legislation, which came into effect in 1992. However also after the radically transformed competition legislation in the early 1990s, unlawful cartels and other kind of collusion has been revealed from time to time in Finland. Old practices still persist.

The target of the paper

This paper is part of a longer paper, dealing with competition policies in Finland in the 20th century. In that paper, the Finnish competition policies and competition legislation are analysed against transformations in the broader economic and institutional setting and in a long time perspective. Here we will focus on the first decade until the first cartel law coming into force in 1958. As Tony A. Freyer
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Susanna Fellman & Janne Itkonen, Domestic Models, International Influences and Outside Pressures - Cartel Legislation in Finland, 1958-1992. Paper presented at the annual EBHA conference, Geneva 2007.

concludes, in order to understand a countrys antitrust policies, the policies have to be put into the institutional and historical context.7 Antitrust policies and doctrines have been an international phenomenon in the post-war period, but national policies have also been deeply embedded in the local ideological, political and economic context. It is evident that the Finnish competition legislation and the prevailing doctrines and attitudes towards cartels were closely linked to the Finnish economic and institutional environment. 8 Competition policies and cartel legislation is at the same time also a tool to reach a deeper understanding of the model of capitalism. Competition policies reflect views on across and within sector cooperation and of coordination as a unique window through which the model of capitalism can be investigated. I will also discuss the motivation behind transformations in competition policies and in the cartel legislation, by looking at the parliamentary debates and the government officials views and opinions primarily by looking at the preparatory work which was done in committees preparing legislative reforms. I will analyse the targets of legal and institutional reforms and policy shifts. This will be reflected against transformations in economic thinking and in the model of capitalism. Significant transformations occurred in the attitudes towards cartels and other forms of voluntary cooperation between firms occurred in the post-war period. As Wyatt stresses, prevailing economic thinking and doctrines are important in order to understand anti-trust/competition policies at various time periods.9 In the next phase I will be studying also other pressure and interest groups influencing the process. In addition to get a better understanding about the environment in which the competition and legislation transformed, prevailing doctrines and attitudes (among governments, authorities, business groups, lobbyists and individual company managers) will also lead to a better understanding of the corporate sectors and individual companies responses to changing regime shifts and to transforming market conditions.10

Freyer, Tony A. Antitrust and Global Capitalism 1930-2000. Cambridge University Press, 2006, 25 Kuisma Markku, Government Actions, Cartels and National Corporations. The Development Strategy of a Small Peripheral Nation during the Period of Crisis and Economic Disintegration in Euroepa. Scandinavian Economic History Review vol XLI, no 3 1993; Susanna Fellman & Janne Itkonen, Domestic Models, International Influences and Outside Pressures - Cartel Legislation in Finland, 1958-1992. Paper presented at the 11th annual EBHA conference in Geneva 2007. 9 Wyatt 2002. 10 Freyer 2006, 4
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For instance, the rapid shift towards a negative attitude towards cartels and a positive view on anti-trust policies in Finland in the last decades of the 20th century has often been connected to EU membership. The membership application obviously forced through - or speeded up the legislative reform to meet with EU competition policies, which were radically different from the prevailing legislation and also the prevailing doctrine. The transition in anti-trust doctrines and a favourable view on competition was also a result of the broader regime shift in the Finnish model of capitalism occurring in the 1990s and 1980s. Already in 1980s long before EUmembership was thought of not to mention spelled out a more negative view on cartels, on monopolies and the exploitation of dominant market position can be observed. 11 A favourable view on competition had gradually taken root, at least since the early 1980s. Today, competition is promoted with a fairly strict legislation and an active competition authority. The self-regulation of the inter-war era has in todays environment been supplemented with the view that in order to promote competition and avoid harmful effects for consumer and the distortion on the markets, a competition or anti-trust legislation is needed. The paper is part of an on-going research project on competition policies, cartels and cartel organisation in post-war Finland, where legal cartels registered in a cartel register, which existed during the period 19581988, will be made use of. Based on this register an extensive cartel data base has been constructed, leading to a database on some 1600 legal cartel agreements. This data base and other qualitative material from the register will be used in order to study cartels and firm behaviour. Material concerning legislative process and competition reports consists of committee reports, parliamentary discussions and material from lobby and branch organisations and finally material from individual company and cartels.

The Inter-War Period: The Forest Industry Set the Model

As mentioned in the introduction, Harm Schrter has classified Finland as one of the most cartelised European economies in the inter-war period. Although detailed data is impossible to receive, existing sources and previous research supports this argument. Mika Kallioinen claims in a book on the Finnish cotton producers cartel,
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For a good view on transformations in the economic thinking towards a new anti-trust doctrine, see Kilpailutoimikunnan mietint 1982: 48.

that cartels and industrial co-operation was something of a national custom in Finland in the 1920s and 30s.12 On the other hand, the overall picture seems perhaps to be a little more varied than this. According to A. Salonens investigation from the 1950s, cartels were common particularly within the export sector and on the domestic market within the manufacturing sector, while the service sector was less organised due to its structure of many small firms. A large amount of small firms did not make price and other restrictions unnecessary, but made extensive agreements difficult to bring about and enforce.13 The type of cartel agreements concluded also varied extensively with respect to scope and content: everything from loose price agreements (price rings) to joint sales organisations and syndicates, taking care of sales, dividing orders and making decisions about investments, or even trusts, like the sugar trust Finska Socker Ab, can be found. Agreements also changed shape over time, which was typical for instance for the cotton producers cartel, which started as a price ring, but gradually got a stricter form and became finally a joint sales organisation. 14 Based on an investigation carried out by Ferdinand Alfthan in the early 1920s syndicates or joint sales organisations formed a minority of the cartels, and were primarily found in the export sector, while price rings and other forms of loose agreements were more common between the domestic manufacturers.15 The agreements signed did not always cover the whole branch, and many of these agreements only lasted for a short period. Import competition was also in some branches considerable, providing at least some form of competition on the Finnish market.16 Professor Mikko Tamminen, at the time at Helsinki School of Economics, pointed out in 1958 that competition on the domestic market had actually been fairly harsh in the inter-war period. The consumption goods and the retail sector was fairly competitive consisting of many small firms, while consumer co-operatives had a strong position in Finnish society and import competition was not at all insignificant, although the barriers to trade were raised as a result of growing protectionism. The severe crises of the 1930s had as an effect to put pressure on prices downwards.17 The
Kallioinen, Mika, Puuvillateollisuuden myyntikartelli 19101939. Turun Yliopisto. 2006. Salonen, Ahti M. Tutkimus taloudellisesta kilpailusta Suomen nykyisess yhteiskuntaelmss. Helsinki 1955, 111. 14 Cf. Kallioinen 2006. 15 Alfthan 1922, 324. 16 Ibid, 330. 17 Tamminen, Mikko, Kartellilain voimaan astuessa! Kansantaloudellinen Aikakauskirja 1958 no. X.
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1930s depression has in many countries been seen as a driving force behind the increasing cartelisation of the period, and was probably a reason in Finland as well. On the other hand, the importance of the export cartels can not be stressed enough: it has been estimated that around 80% of the Finnish exports during the interwar period was sold through the sales organisations and cartels. 18 This number primarily indicates the big role of forest industry products in the export during the inter-war years: in 1920 forest products stood for 93.7% and in 1938 81.8% of the total exports.19 A development towards increasing industrial cooperation also occurred during the 1920s and 30s a fact already observed by Ferdinand Alfthan in 1922. During the inter-war period the number of cartels working primarily on the domestic market, like the cotton producers cartel, grew rapidly, some of which were fairly effective in fighting import competition and keeping prices and profits high. In the interwar period the wholesale and retail sector also started to cooperate in various ways, primarily by organising into chains. Vertical price fixing agreements became more common as a result of this, i.e. the producers demanded the wholesalers and/or the retailers to sell at a certain minimum price, and also the wholesalers requiring retail sector to sell certain goods at certain prices.20 Although the intensified cartelisation of the inter-war period had some clear domestic explanations, the overall picture in Finland fits well international trends. The inter-war period was, as Schrter has shown, a period of intensified cartelisation internationally. Finnish business leaders followed closely what went on abroad and took models home with them. Moreover, in the same way as the customs war broke out in various branches as a result of increasing protectionism, the cartelisation of the Finnish export industry was often an answer to cartelisation and other protective actions taken abroad. The reason for this tight cartelisation of the Finnish export industry, particularly within the important forest industry, has been put down to incidences connected to the WWI and the Civil War in Finland 1918. Finland gained its independence in 1917. The Russian revolution and the independence declaration meant a full stop of the export to Russia the main export market hitherto while
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Stjernschantz, G. Finlands industrifrbund 19211946. Minnesskrift. Helsingfors 1946. Suomen Taloushistoria 3, 306312; Kuisma 1993. 20 Salonen 1955, 112.
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substituting markets, due to the ongoing war in Europe, were not to be found. At the same time domestic discontent had increased and in January 1918, civil war broke out, which although short was violent and had devastating economic effects. The war ended in April, when the white (i.e. bourgeoisie) side defeated the red side (i.e. the socialists). The victory of the whites as received with military assistance from Germany. This made Finland turn towards Germany politically and economically and as war was till going on in Europe Germany was the only export market open for Finnish products. A trade agreement between the countries was rapidly signed. 21 However, it became soon evident for the Finnish industrialists that the situation for the Finnish paper exporters was awkward to say the least, as the paper producers met with a strong German national purchasing cartel. The answer to this was joint sales and in 1918 the extensive common sales organisation of the paper producers, the Finnish Paper Mills Association (FPMA), or Finpap, was established. The Finnish Paper Mills Association was soon followed by similar export cartels for cardboard and for pulp. 22 This German interlude in the Finnish economy turned out to be short, but the FPMA and the export cartels in the form of a joint sales associations turned out to be useful also for the Finnish export industry also when seeking new markets in Europe and these associations remained a persistent and prominent phenomenon in the Finnish economy up until the 1990s, when the competition legislation and EU membership forced them to be dissolved. There had been strong cartels and/or sales organisations already earlier within paper industry. For example the Finnish paper producers had in the late 19th century cooperated when selling on the Russian markets. During the inter-war period the Finnish paper produces also cooperated actively with competitors in other countries and participated in international cartel agreements, particularly with Swedish competitors through the so called Scan-cartels (e.g. Scancraft, Scannews, Scangrease), which made Finnish and Swedish paper exporters besides agree on prices and division of markets in western Europe, also decided not to compete in the

Ahvenainen, J. & Vartiainen, H., Itsenisen Suomen talouspolitiikka, Suomen Taloushistoria 2. Helsinki. 1982; Kuisma, Markku, Metsteollisuuden maa. SKS: Helsinki. 1992. 22 Heikkinen, Sakari, Paper to the World. The History of Finnish Paper Mills Association. Helsinki 2001.

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other country. Such agreements, although not as extensive, were also signed in other branches, for example in cement and in household ceramics. 23 The Finnish development occurred within and as a response to the changing international environment, but how did this increasing cartelisation relate to the general picture of the Finnish economy? At the end of the WWI the Finnish economy had been in all but good shape, but the inter-war period turned out fairly favourable from a macroeconomic growth perspective, with an average growth of 4.6 per cent during the period 1920-1938. New export markets opened up, exports shifted towards more refined products, and gradually diversified. Finland became, however, at the same time increasingly integrated in the international economy, and thus, also sensitive to the international economy and its fluctuations. The inter-war era was in Finland liberalistic from the perspective of regulation or direct intervention, although it was also an era of a more active State, exemplified by the establishment of the first state companies. Moreover, protectionism flourished. However, this era of liberalism was also marked by the ideology of self-regulation, where freedom of contract was seen as a basic freedom. The cartels and their activity were not restricted and a favourable attitude particularly towards export cartels, which were seen as working in the national interest, is evident. Close relation between state and business has long roots in Finland, but the war years had tightened the close relations between the political and the business elite, which made big business have extensive influence in the economic-political agenda setting later.24 Finland after the independence declaration can be seen as a typical example of a young nation, on the verge of industrialisation, resorting to a strong economic nationalism. Cartels, particularly export cartels, fitted this situation well. According to the historian, Markku Kuisma, an important factor contributing to the rapid economic growth - particularly the forest-based industrial progress - in the inter-war period was a result of a successful set of means consisting of government actions coloured by agrarian interests, the establishment of state-owned industrial

Heikkinen 2001; On the ceramics cartel, see Fellman, Susanna, Samarbete och konkurrens Arabia och Rrstrand under ett sekel. Historisk Tidskrift no 2, 2007. 24 Hjerppe, Riitta & Lamberg, Juha-Antti (2001). The Change of the Structure and Organization of Foreign Trade in Finland after the Russian Rule. I Teichova, A. et al. (eds.). Economic Development and the National Question. Cambridge University Press, Cambridge . Ojala & Karonen 2006

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corporations inspired by economic nationalism and entrepreneurial enthusiasm, and intensive cartelisation, led by the family-firms of the export sector.25

From self-regulation towards the monitoring of cartel behaviour: the first cartel law of 1958

WWII meant an abrupt change in the Finnish model of capitalism. From having been a fairly liberal market economy with little direct intervention, although with collaborative features, the war made way for a strictly regulated war economy, which remained in force well into the 1950s, while some segments of the economy, primarily the financial and capital markets, remained strictly regulated until the 1980s. The overall goal behind the regulation and coordination was to promote growth and industrialisation, by keeping up a high investment rate, by means of a low interest rate. This would especially favour the key export sectors. This led to a strict regulation of the capital markets, as the interest rate was below the market rate. 26 An elaborate stat-led growth model, based on coordination, strong elements of collaboration and corporatism and strive for political and social consensus evolved. The favouring of the export sector made big business got an even more pronounced role in the agenda setting. In addition, trade with Soviet Union became an important after the war indemnities had been paid in 1952. The Soviet trade was of big political significance in the era of the Cold War giving particularly some state companies but also privately owned corporations a key place in the environment and making the relationship between the business and the political elite intimate. Also labour market organisations (both employers and employees) and agrarian interest became influential.

The preparatory work Within this regulative and coordinated environment, the first law regulating cartel behaviour or actually the law concerning the surveillance of competition
Kuisma Markku, Government Actions, Cartels and National Corporations. The Development Strategy of a Small Peripheral Nation during the Period of Crisis and Economic Disintegration in Euroepa. Scandinavian Economic History Review vol XLI, no 3 1993. 26 On the Finnish post-war economic model until 1980 in English, see e.g. Pekkarinen, Jukka, Scandinavian Models. In P. Hall (ed.) The Political Power of Economic Ideas. Princeton University Press, 1988.
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restrictions (fi: laki talouselmss esiintyvien kilpailurajoitusten valvonnasta) was passed in 1958. Already in the 1930s a law to regulate the activities of cartels had been on the agenda in the Parliament. Such legislative reforms could be observed in many other countries an in 1927 a consumer co-operative (Kulutusosuuskuntien Keskusliitto), which had close relations to the labour movement, had raised the issue of legal restrictions on rings and trusts. However, such initiatives and discussions died out, in the era of non-interventionist policies and freedom of contract.27 The law of 1958 was a result of a work starting already in 1948. The same consumer co-operative raised again voices about the devastating effects from the monopolistic tendencies. The organization also published a pamphlet on the theme, written by Antero Rinne This time the time was ripe, particularly as such legislative reforms was going on in Sweden, where the first cartel law was passed in 1946. The left-agrarian coalition government in power at the time set up a committee in June 1948 to draw up the framework for a new law to improve the control of companies and business groups activities to restrict competition (fi: yritysryhmien kilpailua rajoittava toiminta), and to prevent improper and reprehensible restrictions of competition in 1948. The committee consisted of representatives from various lobby and interest groups, mainly from trade and industry, the cooperative movement, the agrarian producers and labour market organizations, and, finally, some civil servants. The committee work was fairly slow and the report was submitted only in 1952. The committee had carried out investigations of the situation in other countries and various anti-trust traditions. The committee was not unanimous, neither about the actual need of such a law, nor about the principles. In addition, the period was a period of instable political situation, with short-lived governments. The committee also stressed the importance of progressing cautiously. And although the report held a draft for bill, the committee did not stand unanimously behind it, but several dissenting opinions had been attached to the proposal. The proposed law followed the Swedish model, where the basic principle was not a ban on cartel, but to prevent harmful effects from cartels and other restrictions of competition. The authorities were to receive information about cartels operating and in case it was needed to make them public. A register of certain cartels

27

E.g. Annala, Vilho. Vhittishintojen sidonnaisuus. Kansantaloudellinen Aikakauskirja. 1953, 49.

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was suggested to be established. No ban on cartels was to be set.28 Competition was seen as the ideal, but the report stressed that there are in reality many variations to this. Cartels might even be of advantageous. This was particularly the case with the export cartels, but it was seen that the consumers might also benefit from not having to search for best offers. The existence of price agreements decreased search costs of the consumers and bettered the service, as the firms did not engage in fierce price cutting policies. It was stressed that cartels and cooperation even could be of advantage for the whole economy: by spurring rationalisation, by preventing unnecessary over investment and improving technological development. 29 The committee report was sent to various interest groups and organisations for comments. The co-operative movement and organisations representing small-scale manufacturers and handicraft (ksi- ja pienteollisuus) were in general in favour of such a law, while big business and representatives from commerce and retail was of the opinion that no such law was needed. They did not directly object to such law, only to the publicity principle and the registering of cartels.30 However, apart from this clause, the committees proposal did not consist of much else which would have affected them. The interest of these influential circles in restricting their own activities was meagre In 1954 the government proposition was finally submitted to parliament. The proposition was based on the principles outlined in the committees draft , but amended with clauses that some cartels seen as particularly harmful, like tender cartels and vertical price fixing, were to be declared illegal. A social democraticagrarian coalition was in power, i.e. a coalition in general more favourable to restricting the behaviour of big business. In addition, while Finnish politicians and civil servants were doing their ground work, Sweden had received a new cartel law in 1953, where both tender cartels and vertical price fixing had been declared illegal. 31 The Finnish minister of trade and industry Penna Tervo, social democrat, had followed closely the transformations in the Swedish legislation going on simultaneously.

Ehdotus laiksi. Kartellitoimikunnan mietint. Komiteanmietint A 1952. KM A 1952, 3 30 Rissanen, Kirsti, Kilpailu ja tavaramerkit, 1978, 42. 31 Konkurrensbegrnsningslagen 1953. This law was again tightened in 1956. Cf. Lundqvist 2003, 20. The awareness of the Swedish law of 1953 is evident, as it was mentioned several in the Finnish the parliamentary debate.
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Actually, before he became minister in May 1954, he had as an individual MP put forward a legislation bill to a cartel law, jointly with a social democratic colleague, MP Viljo Virtanen. Their bill also included the banning of price fixing and tender cartels. The proposition and the independent bill were transferred for further work to the parliaments commerce committee without any bigger debates. The work in the parliament commerce committee was fairly slow. The commercial committee heard several representatives from various interest groups, mainly from trade, retail, and manufacturing and producer cooperatives. Also economic and legal experts were heard, although it was later after the law was passed, professor of economics Mikko Tamminen claimed that the economic knowledge had not been taken into consideration he had been heard by the parliament, but apparently his opinions had born little weight.32 The proposition was somewhat changed, especially the clause concerning the price fixing was changed so that only vertical price fixing agreements seen as harmful were to be declared illegal on the initiative of the authorities. The commerce committee was however not unanimous, and several dissenting opinions were amended to the report, finally submitted back to plenary. 33 Also in plenary debate, the vertical price fixing clause was the issue for most tense debate when the commerce committees report was debated. For example the social democratic MP Veikko Helle strongly supported the banning of vertical price fixing. Helle was also active within the left-wing cooperative movement, i.e. the association originally driving this issue. Also several left-wing socialists (SKDL) MPs wanted the banning on vertical price fixing from the original version to be put back into the proposal. 34 Other groups, especially the conservatives stressed that it would be better to be cautious and see what the Swedish ban on vertical price fixing would lead to. It was also stressed the Finnish trade and retail sector worked under much more demanding conditions and that such a clause could lead to unreasonable effects for the producers.35 Another issue which was debated heatedly was the publicity principle. Such a principle, also adopted in Sweden was based on the firm belief that by making cartels
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Tamminen was one of the front line economists sin Finland at the time. One of his areas of research was theories on competition. 33 Talousvaliokunnan mietint. TaVM 1956:5, 7-8. 34 Eduskuntakeskustelu, ensimminen ksittely 30.5.1956, toinen ksittely 13.12.1956 ja kolmas 17.12.1956. 35 Mp.

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public, it would have a prohibitive effect. However, the ways and what to be made public was under discussion. ..The law was finally passed in the form of the commerce committee had given it, with minor technical adjustment, in December 1956. It was ratified by the president in January 1957 and came into force 1st of January 1958.

The law and its content In the final version, tender cartels were declared illegal, unless given an exemption order by the cartel authorities. Vertical price fixing, on the other hand, was not declared illegal, but could be banned by the authorities in case they were particularly harmful for the public, the Parliament decided for the more permissive formulation in the end. According to the law, cartels and other types of firms voluntary agreements to restrict competition were also to be notified and registered with the authorities and the content of the agreement made public. Such notification was to be done on the authorities request. All types of cartel agreements, i.e. loose recommendations about prices and quantities, strict written agreements, both horizontal and vertical, and all kinds of sales associations were in principle covered by the law. Moreover, monopolies and agreements giving a dominating market position were also covered by the law.36 Export cartels and other types of cartel agreements having only affects on foreign markets were, on the other hand, not covered by the law. However, in case such cooperation also had consequences on the domestic market, they should be registered. For example, several of the export cartels and sales association had departments for taking care of sales on the domestic market and as such cases they had to register. The law was based on a principle of publicity: by notifying the authorities and making agreement public, would lead to increasing transparency and knowledge about various price and other agreements, and as such the law would work as a deterrent. As already the committee stressed, the firms themselves would abstain from

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Employers federations and trade unions were not covered by the law, while agrarian cooperatives and central organisations were included, something that the strong agrarian interest organisations strongly criticized.

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unscrupulous agreements as a consequence of compulsory notification.37 In case of illegal agreements (tender cartels, or harmful price fixing agreements), the cartel members could be fined or even sentenced to 6 months imprisonment. Labour market organisations were excluded by the law, as was organisations within agrarian production. It has been seen that the reason behind this watering down, originated from the obstruction from business circles and interest organisation. For instance, the big role of the export sector was later evaluated as an important motivation for the permissive attitude towards cartel and industrial co-operation in various forms.38 It was also later pointed out that the committee members represented primarily government authorities, business interest organisations (trade, co-operatives, manufacturing) and agrarian interest organisations, while consumer representatives had had little to say. These interest groups had not particularly interested in an effective anti-trust/cartel legislation. However, as Peter Sandberg in the case of Sweden has stressed, the manufacturing sector or the labour movement can not be seen as homogenous groups, which had within themselves one joint opinion in the cartel debate.39 The role of these groups will be evaluated later. Simultaneously, a law on the monitoring of these cartels was passed. To take care of the surveillance function and the registration and publicity activity, a Cartel Agency (fi: Kartellivirasto) was to be established. The Agency was to take care of the notifications, keep up a cartel register and in general monitor the market situation and carry out branch investigations and research. Also an Advisory Board (fi. Kartelliasiain Neuvottelukunta) with representatives from various interest organisations and group was established. This Advisory Board was to provide statements and advice for the Agency.

The 1958 law in its context 1958 can be seen as fairly late, from a European perspective. The process has also been recognized as having been fairly slow: the committee work started in 1948, and it took 10 years until the law came into force. In Swedish the law of 1946 was revised twice, while the Finnish process was going on. The reasons were partly
Kartellitoimikunnan mietint. Komiteanmietint A 1952:33,19 Kilpailutoimikunnan mietint 1982: 48, 8. 39 Sandberg, Peter, Kartellen som sprngdes. Svensk bryggeriindustri under institutionell och strukturell omvandling. Gteborg 2006, 64.
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political and administrative. However, until the abolishing of the war regulation, such a law had actually not really been needed, as the economy was tightly controlled and monitored. And in combination with sever shortage of goods and heavy restriction of imports, the real problems for the public and the consumers laid elsewhere. At the same time the emergence of such a law, and the form it took, is also easy to understand against the background of the 1950s. The gradual abolishment of the war regulation and the opening up since mid-150s did not mean a turn back to economic liberalism. As Vilho Annala stated in 1953, the state regulation had been supplemented by the companies and retail sectors own regulations.40 Instead, many regulative elements persisted and cooperation within and between branches grew. Some of the regulative elements which continued to exist were also transferred to branch associations and new organisations and associations were formed. As A. Salonen concluded, the benefits from cooperation and collaboration became evident for the entrepreneurs and the companies.41 Mikko Tamminen concluded that the cartel law became a logical consequence of the increasing formalisation of co-operation and collaboration in the economy. 42 According to another contemporary analyst, the legal framework was also part of policies supporting the general economic environment,43 that is, the highly coordinated market economy of the time, where the policy aimed to promote investments and growth. The origins to this first law were also to be found in the international development. Many European countries had received a cartel or competition legislation already in the inter-war period. The authorities and politicians could observe what was going on in other countries. The American influence after the war in Western Europe put pressures on stricter anti-trust legislation as well. Particularly Swedens cartel law from 194644 influenced Finnish authorities to see a need for something similar. In the report of the Finnish cartel committee, the legal situation in other countries was described and their possible implications for Finland evaluated, but the Swedish law of 1946 also stood as model for the first Finnish law. Not

Annalla, Vilho, Vhittishintojen sidonnaisuus Kansantaloudellinen aikakauskirja 1953. Salonen 1955, 8190. 42 Tamminen,1958, 8. 43 Paakkanen, Jouko, Kilpailulainsdnnn yleiset tavoitteet ja keinot. Kansatantaloudellinen Aikakuskirja 1960, no X. 44 Lag om konkurrensvervakning. Sweden had a Monopoly law (swe: Monopollag), which had come into force in 1925. See further Lundqvist, Torbjrn, Konkurrensvisionens framvxt. Institutet fr Framtidsstudier, Stockolm 2003.
41

40

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surprisingly, as Finland has often followed Swedish institutional models closely. 45 As one contemporary legal expert concluded, both the birth of the law and the content of it was more or less a copy of the legal work done in Sweden.46 The notion that Finland followed Sweden strictly on this respect is also found in the Swedish sources.47 Interesting enough, it was, however, the law of 1946 that finally stood as the model, although the Swedish law had been revised in 1953, i.e. prior to the Finnish Government proposition to the Parliament. For example a total ban on vertical price-fixing was studied and discussed by using research and argumentation carried out in Sweden. 48 In the Government proposition some details from the revised Swedish law of 1953 was included, but the Finnish Parliament diluted the proposition. The ban on tender cartels was a straight copy from Swedish law. Mikko Tamminen actually pointed out that the suddenly extremely negative attitude towards tender cartels was somewhat peculiar. Firstly, the law in all other perspectives so permissive, but, secondly, there was actually no evidence whatsoever about the extent and prevalence of such agreements or they formed a great problem on the Finnish market in comparison to other types of cartel cooperation. There were much more research available on e.g. vertical price fixing, and on horizontal agreements on price and quantities. According to Tamminen, the ban on tender cartels was included only because this was the case in Sweden. The cartel register to be established was also to be seen as a Scandinavian feature, first adopted in the Norwegian law of 1926 and in Sweden since 1946, although later adopted in many other countries as well.

The effect of the 1958 law It can be concluded that the target of the Finnish law of 1958 was not to forbid cartels or other agreements to restrict competition, but to control and monitor them and keep track of the overall market situation. Only in the most flagrant cases the

It has been - wrongly - claimed that the British anti-trust law worked as a model for the Finnish law of 1958. See e.g. Schrter, Harm, Small European Nations. Cooperative Capitalism in the Twentieth Century. In Chandler, A., Amatori, F. & Hikino, T. (eds.), Big Business and the Wealth of Nations. Cambridge University Press. 1997. Schrter is relying on Finnish sources, where this misinterpretation has been presented. 46 Eerola, Niilo, Kartellilain soveltaminen Suomessa. Kansataloudellinen Aikakuskirja 1961, X 47 Ny Konkurrensbegrnsningslag SOU 1978:9. Stockholm 1978. 48 Tamminen 1958, 14.

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authorities could and would intervene. Cartels were not as such seen to be seen something harmful. It appears that the cartel committee did not see cartel agreements as conflicting with the idea of free competition as they were voluntary agreements between firms. Instead, strict cartel legislation could be seen as conflicting with freedom of contracting and as cartels did not restrict market entry - at least not in principle it was less harmful than to ban cartels.49 Soon it, however, turned out that the law was ineffective from the perspective of prohibiting or abolishing harmful agreements. The authorities had in reality little power to interfere in single cases and no real effects came from making cartels public. The bulletin of the cartel authorities had a minimal circulation and in newspapers, cartel cases were just small announcements. What was to be seen as harmful or unjust was never defined, and as a result by 1962 no price fixing agreements had yet been declared illegal on such grounds, while for example, tender cartels, which were illegal, were due to their nature difficult, if not impossible, to disclose.50 According to Tamminen, another problem with the law was that the concept of cartel and monopoly remained vague, not to mention what was meant by harmful. This fact is also reflected in the cartel register, where we can notice that the ways to organise and the extent of cooperation and content of agreements varied extensively, a feature to be dealt with later. Moreover, the law was also ineffective from the control or surveillance perspective, as the registration of cartel agreements was to be done on the request of the authorities, not on the members own initiative. Thus, the registration was slow and ineffective. The cartel authorities were, on the other hand, also fairly active in sending out requests to companies already from the start: by 1962 the authorities had sent out 9750 enquires to firms, and 243 cartels had been registered. This can also be observed from Figure 1: the number of registered cartels is fairly extensive from the beginning. However, no cartel agreement was declared illegal. On the other hand, after the first law, the Finnish foreign trade was rapidly opening up to imports, which at the same time increased competition in general. This was also recognized by the contemporaries, but had little to with cartel legislation.51
This receives support also from contemporary sources. Tamminen presented the same view in his fairly critical article of the outcome of but also the planning work and the motivations behind the first cartel law. Cf. Tamminen 1958. 50 Komiteanmietint A 1962:4, 21, 25 51 H. Ojajrvi, MP for Liberals, in debate in parliament, 11 November 1963.
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Conclusion

The first cartel law in Finland in 1958 can not be seen as the beginning of decartelisation in Finland, as in many other European countries. Such a development started much later in Finland. On the contrary, the decade after the wars until the 1970s was apparently was a period of increasing cartelisation. It is only the strongly prohibitive regulation since the late 1980s and a generally more negative view on competition restriction, which made cartels a less attractive and later an illegal solution, and at the same time promoting other alternatives to gain market control, e.g. consolidation. In Sweden the apparatus of official investigations and research in connection to legislative reforms have been much more extensive, and as such Finland did not only follow the Swedish experience, but also relied strongly on the knowledge and preparatory work done in Sweden. In two reports from 1951 both more theoretical investigations, for example concerning price-fixing (sve: bruttopris) and empirical branch investigations were carried out in Sweden order to have a profound basis for the authorities to work with. Finland made use of this information and it is only after the foundation of the Cartel agency (Kartellivirasto) that branch investigations became regularity in the Finnish case. This supports the claim of Tamminen that Finland adopted clauses just by copying them from the Swedish law, without really investigating, analysing and discussing the need for them. Moreover, it was not only Tamminen who presented such a view but in the committee report of 1987 it was claimed that Finland had adapted the Swedish legal framework without any considerations for Finnish circumstances.52 The Finnish and Swedish institutional environment and economic structure are fairly similar and as such the Swedish legal framework possibly suited the Finnish institutional setting well. Moreover, the law was until 1980s so permissive and vaguely formulated, that it allowed for various policies and practices. Finland chose in the beginning a more cautious line. Interestingly, the similar legislation in Sweden and Finland seems to have had somewhat divergent outcomes in Finland and in Sweden. One key factor could be

52

Kilpailu- ja hintakomitean mietint 1987:4, 1.

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explained by diverging attitudes and views on cartels among e.g. interest groups. In the 1960s there were active debates about the need to increase competition in Sweden.53 It is possible that Sweden had a stronger consumerism movement and that e.g. the unions took a more definitely negative attitude towards cartels. However, another factor is probably also different market structures in the two countries. These questions need, however, to be investigated further, but it is evident that the legal and institutional environment is only a framework within which the firms act.

53

E.g. Lundqvist, Torbjrn, Statens stryning av nringlsivet via konkurrens.

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Appendix Figure 1.
Horisontal cartels in Finnish cartel register, 1958-1992

500 450 400 350 300 250 200 150 100 50 0 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991
New registrations Abolished

Cc

Year

Source: Database based on registered cartels in Finland.

Figure 2
New and abolished cartels in Finnish cartel register, 1958-1992 All types of cartels.
80 70 60 50 40 30 20 10 0 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

Year

Source: Database based on registered cartels in Finland. Note on the database used as basis for the figures:

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This database consists of registered cartels in Finland 1958-1988. The results are preliminary. Basically, the database consists only of cartels notified to the authorities in accordance to legislation. I.e. it consists ONLY of legal cartels, AND only cartels which were required to register. Thus, the rise in the number of cartels partly reflects changes in the legislation. For instance a substantial share of the existing cartel agreements remained outside the register before 1973, as it was not until then compulsory to register for only certain types of cartels. It was, however, well known by the authorities that also many cartels which should have been required to register failed to do so. At times of legal reforms, also some cartels were abolished and immediately replaced by a new one, seen as a new observation. As a result of the changes in legislation, some clauses had to be changed and they became formally new cartels.. In addition, as many cartels registered only upon request, extensive delays between the registration date and the signing of the cartel agreement. The big variations in the number of new registrations (Fig.2) originate thus in peaks in the registration activity, not in a sudden wave of cartelisation. Several cartels within the same branch were registered at the same time as a result of the cartel authorities branch investigations. Finally, the number of abolished cartels removed from the register is also a somewhat problematic figure, as the authorities did not follow closely changes occurring within the cartel agreements. As the cartels often forgot to inform the authorities about the abolishment or changes in the agreements, the removal from the register often occurred after a certain lag.

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