Combination in Industry

COMBINATION IN INDUSTRY. The term combina tion, in its industrial sense, is used to designate the entire process whereby the competition of rival manufacturers or traders has given place, in the evolution of industry, and is still giving place, to concerted or unified business control and action. The word is not a particularly happy one in this usage, recalling as it does, the Combination laws directed against trade unionism, but no better word has suggested itself as capable of covering every phase of the movement whereby the old type of trade competition disappears and something that is certainly not the old competition appears in its place. The simplest, though not necessarily the least sophis ticated, kind of combination is that which occurs where a number of manufacturers or traders, who are rivals in business, meet from time to time and arrive at an "honourable understanding" or "gen tlemen's agreement" as to the prices they shall charge or the districts they shall serve. (See GENTLEMEN'S AGREEMENT.) These are for the most part casual and always informal.

A more organic form of the same kind of combination is the association of manufacturers or traders for the regulation of prices, output, selling areas, etc. (See ASSOCIATIONS, INDUSTRIAL.) These associations are composed of independent business concerns temporarily associated for the particular purpose of limiting com petition and are to be distinguished from permanent fusions or mergers.

An intermediate .type of combination between the association and the permanent fusion is the profit-pooling agreement under which two or more firms may agree for a term of years to share, in a fixed ratio based upon the pre-agreement profits of the several firms, the combined future profits of the group. From these casual or systematic combinations of independent interests one passes almost insensibly to the various types of consolidation, though in the passage from terminable to permanent combination a great gulf is crossed for only in the most extreme circumstances and in the rarest event will a permanent combination ever again break up into its original components.

"Vertical" and "Horizontal" Combinations.—Permanent combinations are termed consolidations, and of these a distinction may usefully be made between "vertical" consolidations formed of a number of firms engaged in the production of a commodity at various stages of manufacture (e.g. coal and iron mining, pig iron, iron and steel, ships) ; and "horizontal" combinations formed of firms engaged in the same line of manufacture at the same stage of production. From this point the terminology becomes arbitrary and overlapping.

The word "trust," which is used as a popular label for any large business or association of businesses which is suspected of using monopolistic powers, was originally an American form of organiza tion in which "trustees" figured as the controllers and directors of a group of financially centralized enterprises. (See TRUSTS for a fuller account and discussion of all kinds of consolidations having monopolistic powers.) In England the term combine is fairly con sistently appropriated in popular speech—it seldom if ever appears in the registered title of a company—to horizontal consolidations of firms that were originally of somewhat the same order of im portance and which, of ter their finances are merged and their direc tion centralized, remain to outward appearances as distinct firms trading under their original names and using their former trade marks.

The Cartel.

Another type of permanent or semi-permanent combination is the cartel, characteristic of but not exclusive to German industrial development (see CARTEL), in which the generic idea around which the organization is shaped is frequently the joint selling agency ; and yet another manner in which ostensibly competing concerns may be brought under collusive direction is by arrangements under which one or more of the directors of one concern serve on the board of a rival concern and vice versa.

"Holding Company."—The particular mariner in which a consolidation is effected and afterwards operated gives rise to another range of terminology. "Trust" has already been referred to. "Holding company" is another term in the same class and de notes an arrangement whereby a new limited company is formed to purchase the whole of, or a controlling interest in, the share capitals of each of the companies which are to be merged into one interest. "Absorption" is preferably confined to cases in which a large firm purchases outright a smaller concern, which thereupon disappears as a separate entity, its custom and goodwill passing as far as may be to the purchasing firm.

A very different type of organization from any of the above, yet one that partakes of combination in a reflex sense is the co-opera tive society (see CO-OPERATION) in which consumers associate to establish stores and to a lesser extent factories and workshops from which they can purchase the goods they require, the surplus profits being returned to the members in the shape of dividends on pur chases. From the present point of view of concentration and cen tralized control the co-operative movement must take its place as a part of the general movement from competition towards com binations.

Combinations and the Community.

In the growth of com bination as a ruling factor in the conduct of industry and trade, two distinct though related elements may be seen. One is concerted control determining the levels of production and price which were previously the fortuitous resultant of the pursuit of gain by com peting individuals; the other is the substitution of a few big busi nesses for many small businesses and the emergence in the eco nomic field of that concentrated power—over sources of supply, over instruments and processes of production, over the channels of trade, over public policy—that bigness gives. The emergence of conscious control and concentrated financial power in industry has created a new order of problem for the industrial communities of the world, for "the law of demand and supply" can no longer be relied upon to insure that prices and supplies will be about what they ought to be ; nor can "the law of struggle and survival" be relied upon to ensure that the industrially more fit will succeed against the industrially less fit. Intelligent control has tremendous advantages over blind struggle if used in the best interests of the producers themselves and the community generally ; the problem for the future is whether and how far concerted control and con centrated power will 'be used aright, and how far it will prove de sirable and practicable to control the controllers. For a fuller examination of the social and political problems of combination see TRUSTS, also MONOPOLY. H.) For bibliography, see that under TRUSTS.