Cartels

Cartels are associations of independent business firms or nations usually involved in the same industry. Their purpose is to regulate the production, pricing, and marketing of goods by their members. Cartels aim to increase market share. They have been particularly common in the mineral sector. In market economies such as the United States, cartels are carefully monitored because of possible collusion and price fixing. As a result, noncartel nations fear unfair comparative advantages. Some market analysts consider cartels as monopolistic and guilty of triggering price distortions in commodity trading. By forcing prices up collectively, members of cartels avoid direct competition with each other yet maintain high market share and profits.

Cartel agreements identify how, when, where, and at what price a given commodity will be exploited. Perhaps the most renowned cartel is the Organization of Petroleum Exporting Countries (OPEC). It was established in 1960 to manage the network of oil production and distribution as well as to ensure tighter control over the price of crude oil. The tripling of oil prices by OPEC in 1973 demonstrated the full force that cartels can impose on the global economy and[Page 27] cast that particular organization as a powerful political and economic force.

Although much attention has focused on OPEC, it is a relatively new cartel. Older mineral cartels such as the one for tin were designed by suppliers to keep prices high. However, the high prices of tin during the first half of the 20th century led to tin recycling that, in turn, curtailed demand for this nonferrous metal. Competition from other materials such as aluminum and plastics also kept tin prices relatively low.

If the aim of these consortia is to control the supplies and prices of their minerals, their effectiveness has been uneven. Cartels for mercury and bauxite, for instance, have had mixed results. The record shows that when minerals are more geographically concentrated (e.g., oil in the Middle East), cartels tend to be more effective at establishing global prices and supplies than when mineral operations are more dispersed.

Cartels can afford member nations a way in which to countervail the forces imposed by transnational corporations such as Exxon, Shell, and Alcoa. Multinational corporations' first allegiance is to investors and not the needs of the exporting nations. Nonetheless, it would be inaccurate to characterize all national members of cartels as benevolent market economies; recent controversies in Saudi Arabia, Russia, and Venezuela suggest otherwise. So long as labor costs for mineral extraction help keep mineral extraction in developing nations lower than comparable sites in more developed nations, cartels will exercise considerable power, especially in the hydrocarbon sectors (oil and gas).