cartel

I've been reading John Perkins' Confessions of an Economic Hitman on my breaks lately, and though so far I haven't found anything too surprising in it--I was expecting a bit more derring-do, frankly--he does a good job of telling our recent history and involvement in various other countries' business in a readable and succinct way. So of course he gets into the formation of OPEC and the oil embargo that was launched by that cartel in the early 70s. Now, I've heard about OPEC for all of my adult life, and I've heard the word cartel because of it, but that doesn't mean I have any idea what a cartel is. Do you?

I mean, I do know that OPEC is a group or a league or an alliance of oil producing countries. But I'm not sure why calling it a cartel makes it something different. Is it something to do with the markets? Is it a financial entity rather than a purely political one? Is it a very specific and legal term, or is it a loose word that can fit a variety of organizations?

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Well, yes, it is a fairly specific and legal term. According to the legal dictionary aspect of the Free Dictionary online, a cartel is an arrangement between competing companies or national monopolies that are in the same resource development field or industry. They join together to take control of this industry or resource and can set (or fix) prices, control distribution, and reduce competition among other things.

The word cartel goes back to the Italian cartello, or placard, which is a diminutive of carta, or card. (Related words are 'chart' and 'charter'.) In the 1550s, it meant a written challenge, but over time came to mean a written agreement between challengers. Its current meaning, however, in reference to a commercial trust, came to us in the early twentieth century from the German Kartell.



Anyone who has been watching Breaking Bad lately will be champing at the bit to add that another use of the word comes in the form of 'drug cartel', and that other functions of a cartel are allocation of customers and the allocation of territories. I'm not sure how Walter White's blue crystal meth factors in to all this, though, because apparently cartels usually work best when they have a homogenous product, not when there is a superior product that one member has that customers are vying for.

Breaking Bad cartel muscle

Of course, this is the problem with cartels. Wikipedia's article on the subject launches right into the games theory view of the subject, citing it as an example of a situation known as the Prisoner's Dilemma. For a cartel, this means that any given member could do better if it were to betray the arrangement by pricecuts or producing more volume, but if everyone does the same, they will all be worse off. If I read him correctly Perkins in Confessions is saying that the U.S. sought to break the OPEC cartel by entering into a complex financial relationship with Saudi Arabia. It was interesting that my first Google hit on Saudi Arabia and OPEC hit upon this much more recent NY Times article , which shows precisely the kind of tempatations a cartel member is subject to.

Cartels are illegal in the U.S., and by now, most other places. Here, this came about through the Sherman Antitrust act of 1890, though this was used effectively only later, beginning mainly with  Teddy Roosevelt in his efforts to break apart various monopolies of the time. "Antitrust" is a bit confusing, as putting money in trusts was a monopolistic tactic of the day. The bill is not actually against trusts, but against the misuse of them for monopolistic advantage.

Despite their efforts to control private cartels, governments often do create them themselves. The U.S.  allowed cartels during the Great Depression in coalmining and oil production. In a public cartel, such as OPEC, the government itself becomes involved in enforcing price-setting and output, and one influential economist, Murray Rothbard, thought that the Federal Reserve itself was essentially a public cartel of private banks.

Sometimes anyway, the worthiness of a cartel is in the eye of the beholder.

I liked this little quote from The Wealth of Nations by Adam Smith on cartels:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.

Cartels, then, are a very human tendency. So apparently are bands that take the names of my theme words.