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Ekonomisk-historiska mötet i Uppsala 2009

Work in progress. Please do not quote without permission of the author.

Susanna FellmanUniversity of Helsinki

The “Finnish model of capitalism” and transforming competitionpolice: 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 co-

operation 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 post-

war 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

1 On the Finnish model of capitalism, see Susanna Fellman, Growth and Investment: FinnishCapitalism, 1850–2005. In Fellman, S., Iversen, M., Sjögren, H. & Thue, L. (eds.) Creating NordicCapitalism –The Development of a Competitive Periphery. Palgrave-Macmillan 2008. In print.2 Schröter, Harm, Cartelization and Decartelization in Europe, 1870-1995: Rise and Decline of anEconomic Institution. The Journal of European Economic History Vol. 26 No.1 1996

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‘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. Self-

regulation 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 government’s 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, 268–292. Competition also exists within cartels, for example as firms prepares for the nextround of negotiation about quotas, a factor easily observable within the big Finnish paper cartel and thecotton cloth cartel. However, cartels change the modes of competition, and moderate and controlcompetition between the firms in the cartel. Fear, Jeffrey, Cartels. In Jones. G. & Zeitlin, K. (eds.) TheOxford Handbook of Business History. OUP 2008, 268–292. On the cotton cloth cartel and on-goingstruggle 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 themarkets, 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 ContemporaryAmerican History. New York 2002, 9.

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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 EU-

membership (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

6 Susanna Fellman & Janne Itkonen, Domestic Models, International Influences and Outside Pressures- Cartel Legislation in Finland, 1958-1992. Paper presented at the annual EBHA conference, Geneva2007.

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concludes, in order to understand a country’s 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

7 Freyer, Tony A. Antitrust and Global Capitalism 1930-2000. Cambridge University Press, 2006, 2–58 Kuisma Markku, Government Actions, Cartels and National Corporations. The Development Strategyof 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 EU-

membership 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 today’s

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 1958–1988, 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 Schröter 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 producer’s cartel,

11 For a good view on transformations in the economic thinking towards a new anti-trust doctrine, seeKilpailutoimikunnan mietintö 1982: 48.

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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. Salonen’s 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 producer’s 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

12 Kallioinen, Mika, Puuvillateollisuuden myyntikartelli 1910–1939. Turun Yliopisto. 2006.13 Salonen, Ahti M. Tutkimus taloudellisesta kilpailusta Suomen nykyisessä yhteiskuntaelämässä.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 inter-

war 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 Schröter 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

18 Stjernschantz, G. Finlands industriförbund 1921–1946. Minnesskrift. Helsingfors 1946.19 Suomen Taloushistoria 3, 306–312; 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

21 Ahvenainen, J. & Vartiainen, H., Itsenäisen Suomen talouspolitiikka, Suomen Taloushistoria 2.Helsinki. 1982; Kuisma, Markku, Metsäteollisuuden maa. SKS: Helsinki. 1992.22 Heikkinen, Sakari, Paper to the World. The History of Finnish Paper Mills’ Association. Helsinki2001.

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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

23 Heikkinen 2001; On the ceramics cartel, see Fellman, Susanna, Samarbete och konkurrens – Arabiaoch Rörstrand under ett sekel. Historisk Tidskrift no 2, 2007.24 Hjerppe, Riitta & Lamberg, Juha-Antti (2001). The Change of the Structure and Organization ofForeign Trade in Finland after the Russian Rule. I Teichova, A. et al. (eds.). Economic Developmentand 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

25 Kuisma Markku, Government Actions, Cartels and National Corporations. The DevelopmentStrategy of a Small Peripheral Nation during the Period of Crisis and Economic Disintegration inEuroepa. 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 UniversityPress, 1988.

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restrictions’ (fi: laki talouselämässä 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. Vähittäishintojen 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 (käsi- 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 committee’s 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 committee’s 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 democratic-

agrarian 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.

28 Ehdotus laiksi…. Kartellitoimikunnan mietintö. Komiteanmietintö A 1952.29 KM A 1952, 330 Rissanen, Kirsti, Kilpailu ja tavaramerkit, 1978, 42.31 Konkurrensbegränsningslagen 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 theparliamentary 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 parliament’s 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 committee’s 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

32 Tamminen was one of the front line economists sin Finland at the time. One of his areas of researchwas theories on competition.33 Talousvaliokunnan mietintö. TaVM 1956:5, 7-8.34 Eduskuntakeskustelu, ensimmäinen käsittely 30.5.1956, toinen käsittely 13.12.1956 ja kolmas17.12.1956.35 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

36 Employers’ federations and trade unions were not covered by the law, while agrarian cooperativesand central organisations were included, something that the strong agrarian interest organisationsstrongly criticized.

15

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

37 Kartellitoimikunnan mietintö. Komiteanmietintö A 1952:33,1938 Kilpailutoimikunnan mietintö 1982: 48, 8.39 Sandberg, Peter, Kartellen som sprängdes. Svensk bryggeriindustri under institutionell ochstrukturell omvandling. Göteborg 2006, 64.

16

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 sector’s 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

Sweden’s 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

40 Annalla, Vilho, Vähittäishintojen sidonnaisuus… Kansantaloudellinen aikakauskirja 1953.41 Salonen 1955, 81–90.42 Tamminen,1958, 8.43 Paakkanen, Jouko, Kilpailulainsäädännön yleiset tavoitteet ja keinot. KansatantaloudellinenAikakuskirja 1960, no X.44 Lag om konkurrensövervakning. Sweden had a Monopoly law (swe: Monopollag), which had comeinto force in 1925. See further Lundqvist, Torbjörn, Konkurrensvisionens framväxt. Institutet förFramtidsstudier, Stockolm 2003.

17

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

45 It has been - wrongly - claimed that the British anti-trust law worked as a model for the Finnish lawof 1958. See e.g. Schröter, Harm, Small European Nations. Cooperative Capitalism in the TwentiethCentury. In Chandler, A., Amatori, F. & Hikino, T. (eds.), Big Business and the Wealth of Nations. …Cambridge University Press. 1997. Schröter is relying on Finnish sources, where this misinterpretationhas been presented.46 Eerola, Niilo, Kartellilain soveltaminen Suomessa. Kansataloudellinen Aikakuskirja 1961, X47 Ny Konkurrensbegränsningslag SOU 1978:9. Stockholm 1978.48 Tamminen 1958, 14.

18

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

49 This receives support also from contemporary sources. Tamminen presented the same view in hisfairly critical article of the outcome of but also the planning work and the motivations behind the firstcartel law. Cf. Tamminen 1958.50 Komiteanmietintö A 1962:4, 21, 2551 H. Ojajärvi, 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 mietintö 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, Torbjörn, Statens stryning av näringlsivet via konkurrens.

21

Appendix

Figure 1.

Horisontal cartels in Finnish cartel register, 1958-1992

050

100150200250300350400450500

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

Year

Cc

Source: Database based on registered cartels in Finland.

Figure 2

New and abolished cartels in Finnish cartel register, 1958-1992All types of cartels.

0

10

20

30

40

50

60

70

80

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

Year

New registrationsAbolished

Source: Database based on registered cartels in Finland.

Note on the database used as basis for the figures:

22

This database consists of registered cartels in Finland 1958-1988. The results arepreliminary. Basically, the database consists only of cartels notified to the authoritiesin accordance to legislation. I.e. it consists ONLY of legal cartels, AND only cartelswhich were required to register. Thus, the rise in the number of cartels partly reflectschanges in the legislation. For instance a substantial share of the existing cartelagreements remained outside the register before 1973, as it was not until thencompulsory to register for only certain types of cartels. It was, however, well knownby the authorities that also many cartels which should have been required to registerfailed to do so. At times of legal reforms, also some cartels were abolished andimmediately replaced by a new one, seen as a “new observation”. As a result of thechanges in legislation, some clauses had to be changed and they became formally newcartels..

In addition, as many cartels registered only upon request, extensive delays betweenthe registration date and the signing of the cartel agreement. The big variations in thenumber of new registrations (Fig.2) originate thus in “peaks” in the registrationactivity, not in a sudden wave of cartelisation. Several cartels within the same branchwere registered at the same time as a result of the cartel authorities’ branchinvestigations.

Finally, the number of abolished cartels removed from the register is also a somewhatproblematic figure, as the authorities did not follow closely changes occurring withinthe cartel agreements. As the cartels often forgot to inform the authorities about theabolishment or changes in the agreements, the removal from the register oftenoccurred after a certain lag.