Power and Market: Government and the Economy

Compulsory cartels are a forcing of all producers in an industry into one organization, or virtual organization. Instead of being directly barred from an industry, firms are forced to obey governmentally imposed quotas of maximum output. Such cartels invariably go hand in hand with a governmentally imposed program of minimum price control. When the government comes to realize that minimum price control by itself will lead to unsold surpluses and distress in the industry, it imposes quota restrictions on the output of producers. Not only does this action injure consumers by restricting production and lowering output; the output must also be produced by certain State-designated producers. Regardless of how the quotas are arrived at, they are arbitrary; and as time passes, they more and more distort the production structure that attempts to adjust to consumer demands. Efficient newcomers are prevented from serving consumers, and inefficient firms are preserved because they are exempted by their old quotas from the necessity of meeting superior competition. Compulsory cartels furnish a haven in which the inefficient firms prosper at the expense of the efficient firms and of the consumers.