The Schuman Plan: A Blow to Monopoly
A lawyer and a man of action, WILLIAM J. DONOVAN,Chairman of the American Committee on United Europe, rises in defense of the Schuman Plan. Colonel of “The Fighting 69th" in the First World War, he was three times wounded and was decorated with the Congressional Medal and the Légion d’Honneur. He has explored China on his own, distributed relief in Poland, and traveled in Siberia. In 1940 he went on the first of the secret missions for President Roosevelt which were to lead to his command of the OSS.
by WILLIAM J. DONOVAN
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THE future of Germany is the central issue in Kurope. German industrial and military power represents a tremendous force for either good or evil. If German energies can be harmonized with the purposes of the Western world, the problem of ensuring peace and a high standard of living is on the way to solution. If no way can be found to make Germany an effective partner of the Western democratic nations, then the future of the West will remain uncertain.
The Schuman Plan represents the only practicable means for releasing the tremendous industrial energies of the German people to the benefit not only of Germany but of the entire Western world. France has suffered too long and too often from German aggression to consent to the unsupervised revival of German industry and its concomitant war potential. Germany, on the other hand, will not suffer a long-term restriction of production without developing a deep grievance against the West. This could result in the kind of covert industrial activity which followed the Versailles Treaty. The Schuman Plan breaks this impasse. By placing all Western European coal and steel enterprises under the regulation of a common supranational body, it assures France that German industry will not become the servant of German aggressive ambitions; at the same time, it offers to German enterprises an equality of treatment with their competitors in other Western European countries.
These considerations are fundamentally political. The history of the last few decades has emphasized again and again, however, that political objectives cannot be achieved without sound economic conditions. Such economic conditions cannot be created so long as Europe remains organized in a multiplicity of national markets. These markets are a last vestige of nineteenth-century technology. In the mass-production system that we know today, they not only smother initiative but prevent normal economic growth.
During the period between the two wars, the European coal and steel industries subjected themselves to tight regulation within their respective national markets by highly developed domestic cartels. For a large part of the period, international trade in steel was also rigidly controlled by an international steel cartel. The Second World War did not eliminate cartels; it merely intensified the conditions which breed cartelization. With the development of import and export quotas, currency controls, double-pricing practices, and freight rate discriminations, national boundaries have become economic barriers far more effective than in the days when tariffs were the principal instruments of protectionism, Confined within limited national markets, the basic industries have become more than ever the willing victims of cartelization, frequently made mandatory by national law. Markets have been allocated, production restricted by the assignment of quotas to individual enterprises, and prices fixed either by national law or by cartel edict. Investment in new equipment has been made subject to cartel permission. Purchasing and selling are largely managed by cartels. The cartels seek to establish a price and market structure that permits some profit even to the most inefficient enterprise in the industry. Competitive adventure has been superseded by the ideal of easy living for the entrepreneur. Expansion and modernization have been discouraged not only by the direct control of investment but by the removal of incentive. As a result the taxpayers and consumers have virtually subsidized many marginal plants within their countries.
This is the situation which characterizes the Western European coal and steel industries today. Sooner or later, the European ultimate consumer — the voter and taxpayer who buys the goods from coal and steel — will take steps to remedy this situation. In Germany the pressures for steel nationalization are very strong. Nationalization, however, merely carries the process of concentration to its ultimate limit, although in public rather than private hands.
In the United States we are so accustomed to the existence of antitrust laws that we sometimes forget that they have not been universally adopted. No country of continental Western Europe has what we would seriously call an antitrust law. Cartels, far from being outlawed, are in many countries required by law. There is no effective legislation limiting the ability of enterprises to dominate the market either alone or in combinations with other enterprises0. European economists and businessmen have grown accustomed to regard antitrust laws and the concept of free competition on which they are based as an American phenomenon, quite unsuited to the European system, Regulation, as under the Schuman Plan, seems the only practical remedy consistent with the liberal economic tradition in which we Americans believe.
Under the Schuman Plan a single Continental market will be created for both the coal and steel industries. This market will consist of 150 million people, approximately as many as make up our single market in the United States. Within that market any purchaser will have access to coal and steel on the same basis as any other purchaser, subject to differences in freight rates which result from the distance from the source of supply. All national barriers will be eliminated; all rigidities resulting from cartelization will be wiped out.
The Schuman Plan is both political and economic in conception. Its most significant feature is that it represents the first decisive step toward a European federation. All previous attempts in the direction of unifying Europe by peaceful means have taken the form of international rather than supranational organizations. These organizations have lacked power to act without full agreement among the member states. They have, as a consequence, been instruments for mediation and compromise rather than instruments for government. The Schuman Plan, on the other hand, represents the first attempt to create a set of institutions that can act independently of the will of the component governments — institutions that have the power not only to make decisions but to enforce those decisions by penalties directed either at the component states or at the individual citizens within those states.
The institutions of the Schuman Plan will be sovereign within the sphere of their responsibility. To be sure, this responsibility, initially at least, will be limited to coal and steel. In this Mr. Schuman made a difficult but inspired choice. He preferred substantial progress along a “limited but decisive front” to the imperceptible progress along a broad front which has been made by the international organizations of Europe.
Any measure so revolutionary as the Schuman Plan will encounter violent opposition from the coal and steel cartelists who see the power they once had to regulate the market transferred to public hands. The opposition from the affected European industries, led by their cartel organizations, has been violent, systematic, and persistent. Threatened by a measure rendering cartels illegal, they have attacked the plan as creating a “grand” or “super” cartel. Confronted with the elimination of rigid control by private agreement, they have attacked the plan as providing for rigid government control by a supranational organization.
German industrialists have denounced the plan as basically anti-German and as a plot by French steel interests to obtain access to Ruhr coal at the expense of Germany. French industrialists, on the contrary, have denounced the plan as playing into German hands.
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IN the October issue of the Atlantic Monthly, Clarence Randall in an article entitled “European Steel: Monopoly in the Making” expressed the conclusion that the Schuman Plan for the creation of a single market for coal and steel in Western Europe, while inspired by excellent motives, would nevertheless “weaken Europe by laying the dead hand of socialism and bureaucracy across its basic industry.”
Mr. Randall bases his conclusion on two fundamental misconceptions: - —
1. His assumption that without the Schuman Plan we could look forward in Europe to a system of free enterprise. This assumption ignores history as well as the present political complexion of Europe. Certainly since the end of World War I the continent of Europe has never had a period of free enterprise as known in America. The history of European industry has never been that of competition by company against company. It has always been that of cartel versus cartel. These cartels are the very opposite of competition.
2. Mr. Randall’s second error is his assumption that the Schuman Plan would be a deterrent to the development of a system of free enterprise. The framework and provisions of the Schuman Plan, far from deterring the development of competition in steel, seek to encourage and ensure such competition.
Mr. Randall concentrates principally on attempting to show that, while the treaty bans cartels, “actually there are embodied in it many of the essential features of a cartel.” While he points out that the treaty “in the most direct language forbids agreement among enterprises that would tend to fix or influence prices; to restrict or control production, technical development, or investments; to allocate markets, products, customers, or sources of supply,”he is afraid that certain of these powers may be exercised by the supranational High Authority.
Mr. Randall seems to base this fear upon two provisions of the treaty. One is a provision permit - ting the Nigh Authority, when it finds the Community faced with a period of manifest crisis, to establish a system of production quotas and regulate the rate of operation of the various enterprises bv making appropriate levies on tonnage exceeding a reference level. The second is a proviso authorizing the High Authority to require enterprises to submit investment programs and, under certain circumstances, to prohibit enterprises from resorting to the capital market for financing programs which it disapproves. In Mr. Randall’s view, these two powers may enable the “ vast new bureaucracy of the High Authority “to bring to knee any recalcitrant producer who during the fifty years for which this commitment is to last may dare to challenge a directive.”
In describing these two powers of the High Authority, Mr. Randall has exaggerated both the possibility of their misuse and their importance in relation to the spirit of the treaty. The first of these powers —the establishment of production quotas — is clearly limited to the extraordinary situation. Production quotas can be established by the High Authority only under very stringent conditions. First, the High Authority must find, in the event of a decline in demand, that the Community is faced with a period of manifest crisis. Secondly, it must find that all means of indirect action available to the High Authority are insufficient to cope with the situation. Thirdly, it must consult with the Consultative Committee, on which the producers are represented equally with labor and the consumers. Fourthly, it must obtain the approval of the special Council of Ministers, on which each member government is represented. Finally, any affected enterprise may appeal the imposition of quotas to the Court of Justice created by the treaty, which is charged with keeping a vigilant eye on all activities of the High Authority.
The second power which Mr. Randall fears is likewise circumscribed. While the High Authority may require enterprises to submit investment programs in advance, it may not, in any event, prevent an enterprise from investing its own money. The most it can do is to prohibit it from external financing, in the event that it finds that such financing would require “subsidies, assistance, protection or discrimination" contrary to the treaty. In other words, it can prevent an enterprise from embarking on an unwise or uneconomic investment program only when it finds that such a program would necessitate support by subsidies or special favors from a national government. Since the creation of the single market necessarily involves putting an end to such subsidies and discriminations, this power seems to be essential. In any event, the utilization of the power is subject to the same review by the Court of Justice as all other powers exercised by the High Authority.
To point to these two powers of the High Authority, as does Mr. Randall, as representing a commitment to dirigisme and supersocialism, which is so much feared on the Continent, is to throw the whole picture out of focus. One has only to read the treaty as a whole to be impressed with the clear determination of its drafters that the objective of the High Authority is not to intervene in the market but to prevent intervention whether by the national states or by private monopolies. Thus, under Article 5 of the treaty “the Sehuman Plan Community" (meaning all the institutions taken together) is directed to “accomplish its mission . . . with limited direct intervention.” One of the duties placed upon it is to “assure the establishment, the maintenance and the observance of normal conditions of competition and take direct action with respect to production and the operation of the market only when circumstances make it absolutely necessary.”Finally, the institutions of the Community are, under the terms of the treaty, to carry out these duties “with as little administrative machinery as possible and in close coöperation with the interested parties.”
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CRITICS of the treaty like Mr. Randall may contend that if the purpose of the treaty is not to control economic forces but merely to deflect them from expressions harmful to the public interest, then positive powers such as the ones he cites are unnecessary. Such a contention might have validity if the treaty were to last for only a short period, but it is to be made for fifty years. The effect of the treaty is to take powers over coal and steel away from national governments and transfer those powers to a supranational authority. Could any responsible state give up for a half century all powers to intervene in the market when emergency conditions required it, without making certain that at least a minimum of those powers reposed somewhere else—in this ease in a supranational authority? Any other conclusion would involve the voluntary renunciation of powers which might, under circumstances not now foreseeable, be needed over the next century to save the Community from unemployment and social unrest. The surprising thing is not that 1 ho drafters of the treaty have reserved to the High Authority certain powers of direct intervention, but that they have limited those powers so strictly and hedged them about with such stringent conditions.
Of course the Schuman Plan is not perfect. However, it does offer the possibility of creating a single free market for the basic industries of Europe. It is unlikely that this would come about if the Schuman Plan were rejected.
We are not starting with a clean slate to set up an ideal economic society. The European coal and steel industries are already regulated to a strangling degree by national governments, by private cartels, or frequently by coöperative efforts of national governments and cartels. These regulations are not subject to the safeguarding conditions which the treaty imposes on the exercise of the limited power of direct intervention it contains. Little new capital is flowing into these industries except through governmental action. The discrimination and rigidities which have developed over the last two decades are becoming more and more crystallized with every day that passes. It will take a drastic change to break and reform the pattern.
Mr. Randall says that “the Schuman Plan by its boldness and its honesty of purpose evoked an emotional response from the weary nations of Europe upon which peace can and should be based.” He states, however, that the plan in its present form represents a remedy that “is too violent,” and he proposes certain amendments which he feels should be made.
The first is that the European nations should “write into the document a declaration against socialization as clear as that against price-fixing.” Why, however, is this necessary? The plan, by its terms, specifically does not affect the method of ownership. Even if an industry within a country is presently nationalized — as is most of the coal industry in France—that industry will still be subject to the provisions of the treaty assuring freedom of competition, and it will still be subject to the directions of the High Authority against acts which might serve to impair competition.
Mr. Randall’s final suggestion is that the term of the commitment be reduced, “making it long enough for a fair trial but not the equivalent of forever. How can one set up a single market for Europe on a trial basis? The difficulties of eliminating national barriers and restrictive practices will be bad enough in any event. The only hope for success lies in the fact that the treaty is a long-term commitment. Those with vested interests in such practices are not encouraged to fight a delaying action for a “trial period” with the hope of returning to a status quo of cartels when that period is completed.
As a last suggestion Mr. Randall would, “to resolve the dilemma,” have “Mr. Schuman’s ideal find expression in a climate of free enterprise, in language drawn by men who understand free enterprise and believe in its power for good.” Yet the men who, Mr. Randall apparently feels, should draft the treaty are European coal and steel producers — man who, he says, think of free enterprise as meaning “the privilege of agreeing with their competitors on prices without government interference.”
As this is being written, parliamentary representatives of fifteen member nations of the Council of Europe meeting here in Strasbourg, France, are debating “A Policy for Europe.” These debates are part of a continuous examination of European problems which has occupied the best minds of Europe for the past three years. Out of these discussions and studies have come the Treaty on Human Rights and Fundamental Freedoms, the Schuman Plan, the Pleven Plan for a European Army, as well as various proposals for European federation.
The future political organization of Europe still is not clear. There are many factors that make for this uncertainty, but it is due in part, at least, to the refusal of the British to participate in a political Federation of Europe and to the reluctance of the Continental countries to attempt such a federation without British participation.
The discussions in the Council of Europe show that it is easier to agree upon principles than to agree upon ways and means. The possibility of achieving European unity is greatly dependent upon the fate of the Schuman Plan and the European Army in the parliaments of France and Germany. These two projects realized would mean a great advance in European unity. The Schuman Plan is the linchpin of a united Europe. Failure to ratify by the parliaments of the six countries that signed it would be a severe blow to General Eisenhower’s demand for a European Army and to present efforts for European unity.