The root of collusion is deep and wide. The first recorded cartel was the Egyptian merchants' price fixing of wool in 3000 BC. During the reign of the Roman Emperor Diocletian (244-311, r.284-305) all over the Roman Empire price fixing was widely practiced. In 301, the emperor issued an Edict on Maximum Prices, which set prices for goods by law. Merchants had conspired to raise prices and the law was enforced to control them. However, having once enjoyed high profit margins, the merchants ignored the edict and the practice of price fixing continued.
Different countries and different people handle cartels differently. The United States has the strictest standards. In 1890, the Sherman Anti-Trust Act was passed and became the first of its kind. In contrast, Germans liked to mingle and was generous toward collusion. In 1897, their law defined collusion as part of the freedom of business. The Japanese characteristically dislike behaving differently from other people and that trait contributes to their tolerance for collusion. The government was so tolerant that Kazuhiko Nagase derided the Japanese Fair Trade Commission as a "dog that does not bark" in his book, Easy Economics for Rabbits.
Koreans are also very good at collusion. They confer based on family ties, regional networks and alumni relations. Some say Koreans have a special gene for collusion. When the Fair Trade Law was passed in 1981, the Fair Trade Commission received many complaints and reports, the majority saying a certain store was selling goods at a lower price than others in the neighbourhood. The most deep-rooted collusion was the price fixing of wheat flour. In 1963, 19 companies formed a cartel and made undue profits by charging more than 5 times the price set by the government. They gave a portion of the profits to politicians and it developed into a social issue. The so-called ‘Three Powder Scandal’ served as an impetus for the Fair Trade Law.
The person who set up the 1 March golf game for the prime minister turns out to be the chairman of a milling company. The company was recently sentenced for colluding with other millers to raise the price of flour and take unreasonable profits for 6 years. It was fined 3.5 billion won (US$ 3 million) and has been indicted by the prosecutors. There is a speculation that the chairman arranged the golf game with the prime minister in order to settle the situation.
In The Wealth of Nations, the Scottish political economist Adam Smith (1723-1790) identified millers as the most notable example of companies profiteering from price fixing. The insight of the Scottish economist from 250 years ago is once again confirmed today in ‘dynamic’ Korea.
Different countries and different people handle cartels differently. The United States has the strictest standards. In 1890, the Sherman Anti-Trust Act was passed and became the first of its kind. In contrast, Germans liked to mingle and was generous toward collusion. In 1897, their law defined collusion as part of the freedom of business. The Japanese characteristically dislike behaving differently from other people and that trait contributes to their tolerance for collusion. The government was so tolerant that Kazuhiko Nagase derided the Japanese Fair Trade Commission as a "dog that does not bark" in his book, Easy Economics for Rabbits.
Koreans are also very good at collusion. They confer based on family ties, regional networks and alumni relations. Some say Koreans have a special gene for collusion. When the Fair Trade Law was passed in 1981, the Fair Trade Commission received many complaints and reports, the majority saying a certain store was selling goods at a lower price than others in the neighbourhood. The most deep-rooted collusion was the price fixing of wheat flour. In 1963, 19 companies formed a cartel and made undue profits by charging more than 5 times the price set by the government. They gave a portion of the profits to politicians and it developed into a social issue. The so-called ‘Three Powder Scandal’ served as an impetus for the Fair Trade Law.
The person who set up the 1 March golf game for the prime minister turns out to be the chairman of a milling company. The company was recently sentenced for colluding with other millers to raise the price of flour and take unreasonable profits for 6 years. It was fined 3.5 billion won (US$ 3 million) and has been indicted by the prosecutors. There is a speculation that the chairman arranged the golf game with the prime minister in order to settle the situation.
In The Wealth of Nations, the Scottish political economist Adam Smith (1723-1790) identified millers as the most notable example of companies profiteering from price fixing. The insight of the Scottish economist from 250 years ago is once again confirmed today in ‘dynamic’ Korea.
Giorgio Olivotto
Seoul, Korea
October 3, 2010
Seoul, Korea
October 3, 2010
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