Cartel – A socialist entity in a competitive economy

While reading the title of the article, one may ponder for a while as to how come cartel and socialism are being discussed on the same platform. Socialism is a political system while cartels are associated with business and economics. But in the past we have seen that economics had played a major role in developing few political thoughts. For example, Karl Marx and Friedrich Engels sowed the seeds of communism after studying the economics of a capitalist market. Similarly cartels too have a small tinge of socialism in them.

Cartel is a group of firms, usually belonging to the same industry, who explicitly collude and coordinate price and output levels to maximise joint profits. In the industry these firms act together as a single seller, thus eliminating competition among them. All firms in an industry are not compelled to join a cartel. But if majority of them join it then a cartel can behave like a single dominant firm and become the price leader in the industry. If strong and stable enough to sustain for longer periods, cartels can change a competitive market into a monopoly or oligopoly.

How does socialism come into play? Profits are shared among all the firms in a cartel rather than just one, similar to the distribution of income and property to the Proletariat in a socialist state. Like socialism, cartel members work non competitively and stick to the quota of price and production that they have agreed. In any other form of economic market such agreements are never allowed because of various anti-trust laws. Also, in short-run both socialist state and a cartel earn immense profits, difference being that the former earns by over-producing while the latter earns by restricting output.

The most successful and powerful socialist state ever in the history of mankind was The Soviet Union. But that too broke down due to various reasons, one of them being that they were unable to increase profits in the long-run and compete economically with its rival, The United States. Similarly cartels fail to increase profits in the long-run because non-cartel firms find ways to increase their output and sell goods at the high price set by the cartel. In a socialist state, the government cannot increase income after a limit or else it will go against the ideals of Socialism. Still there is a tendency to increase income to compete with other emerging economies. Similarly, individual firms in a cartel tend to violate the agreed quota and decrease their price or increase output to gain higher profits than other cartel members. This can lead to disagreements among members and eventual shut down of the cartel, somewhat similar to the Soviet breakdown.

One difference between socialism and cartel is that socialist thinkers wanted more and more countries to follow socialism so that income earned by all countries remain fairly equal and stable. But cartels restrict entry of new firms as they will force down prices and consequently profits will be reduced.

This approach to socialism and cartel is completely theoretical. Cartels can be flexible with their policies and agreements and survive the downward trend in future, just like OPEC did after the 1980s’ slump. But one cannot deny that cartels have to co-exist with non cartel firms and work in a competitive market as a single firm to get benefits. Thus, cartels are a socialist organisations in a competitive economy.

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