Monday, January 18, 2010
The economic performance of cartels: evidence from the New Deal U.S. sugar manufacturing cartel, 1934-74
Posted by D. Daniel Sokol
Benjamin Bridgman (Bureau of Economic Analysis), Shi Qi (University of Minnesota), and James A. Schmitz, Jr (Federal Reserve Bank of Minneapolis) analyze The economic performance of cartels: evidence from the New Deal U.S. sugar manufacturing cartel, 1934-74.
ABSTRACT: We study the U.S. sugar manufacturing cartel that was created during the New Deal. This was a legal-cartel that lasted 40 years (1934-74). As a legal-cartel, the industry was assured widespread adherence to domestic and import sales quotas (given it had access to government enforcement powers). But it also meant accepting government-sponsored cartel-provisions. These provisions significantly distorted production at each factory and also where the industry was located. These distortions were reflected in, for example, a declining industry recovery rate, that is, the pounds of white sugar produced per ton of beets. It declined from about 310 pounds in 1934 to 240 pounds in 1974. The cartel provisions also distorted the location of industry. For example, it kept production in California and the Far West. Since the cartel ended in 1974, California's share of sugar production has dropped dramatically.