Portrait of a Monopoly: The British Match Industry (1953)

From the July 1953 issue of the Socialist Standard

“The arrangements we have described above form a complete and integrated monopoly . . . and the system as a whole operates, and is likely to operate, against the public interest as respects the supply both of matches and of match-making machinery.”

In these forthright terms the Monopolies Commission sums up its report on the British match industry, the sixth and latest of its investigations into restrictive practices in the United Kingdom.

The information now made public by the Commission throws revealing light on the way monopolies develop and operate, and on how they are maintained. It shows also what profitable ventures they can be for those capitalists able to form them and keep them going successfully. Drawing on the Commission's report, and using it to illustrate the practices common to all monopolies, let us examine the monopoly that has grown up inside the British match industry.

The Foundations of Monopoly

The first objective of any company seeking to carve out a monopoly must be to obtain control over the production and distribution of the particular commodity it is interested in. It must make itself, for all practical purposes, the only firm in the industry. In the British match industry, one company has succeeded in doing this.

This company is the British Match Corporation, otherwise known as B.M.C. Formed in 1927 as a holding company from the amalgamation of Bryant and May (and its subsidiaries) with Masters. Ltd., it is today responsible for almost the whole of the British home output of matches—about two-thirds of total consumption.

Linked with B.M.C. is another monopoly—the Swedish Match Company. Older readers may remember it in connection with the activities of Ivar Kreuger, the Swedish millionaire—speculator. It is this combine, with ramifications throughout the world, that provides the. remainder of the matches required in the U.K. These imports, it should be noted, are in turn controlled and distributed in this country by B.M.C. Taking home production and imports together, it is therefore obvious that B.M.C. is in almost complete control of the British market; for the mathematically-minded, the exact proportion is 92 per cent. These figures show clearly that the essential foundation of a monopoly—a stranglehold on output and distribution—has been most successfully obtained by B.M.C.

Also to be noted is the fact that Swedish Match, with 30 per cent. of the Ordinary shares in is actually its largest single shareholder. With this voting power behind it, it can of course wield considerable influence should the need ever arise.

Preserving a Monopoly

It is difficult enough to succeed in establishing a monopoly: it is even more difficult to maintain it and keep it thriving.

First and foremost, there must always be a careful watch for possible rivals. These must be rooted out quickly and dealt with ruthlessly. The record shows B.M.C. and Swedish Match to have been adept at this and it is most interesting to see how both partners have played their part in dealing with the threats of competition that have arisen from time to time.

On the home front, B.M.C. has made use of two methods, both very simple and both very effective. The first has been to undersell its competitors by offering cheaper brands of imported matches at reduced prices in selected areas whilst keeping the general level of its prices unchanged. In this way it has succeeded in keeping down competition at very little cost to itself. The second and perhaps even better method has been to charge its competitors high prices for essential raw materials, of which it again happens to be the sole controller. On this particular point the Commission found that B.M.C. was charging its competitors 77 per cent. more for certain chemicals than its own subsidiaries.

The part played by Swedish Match has been just as effective, by virtue of the fact that in its turn it has a monopoly over the machinery used in match-making. This has been more than enough to keep potential large-scale competition in check, as the following will show.

In its report the Commission mentions that two attempts have been made by other firms to start manufacturing matches on a large scale. The first of these was the Co-operative Wholesale Society, which in 1932 thought of setting up its own factory. In the subsequent negotiations in which Bryant and May became involved, the Society was actually offered some shares and Debenture stock in B.M.C. This offer was not taken up, and in 1936 the Society came to a definite decision to begin the manufacture of matches on its own account. Its efforts in this direction were completely unsuccessful as it found itself unable to obtain the necessary machinery. In 1938 it approached Bryant and May for permission to use certain machinery the rights in which, it understood, were held by that firm. The reply, which can hardly have been unexpected, was: “we hardly think you can expect us to assist you to obtain machinery which is destined to replace some, at least, of the goods we have hitherto supplied to the Societies.” Instead they proposed a deal between the Society and one of their subsidiaries, whereby profits would be divided between the two. This proposal was rejected by the Society, and it made a further attempt to get the necessary machinery. It was again unsuccessful.

Yet another concern tried for five years prior to 1934 to start manufacture on a commercial scale, again without success. In this year a most remarkable letter was sent to B.M.C. from the President of the Diamond Match Company of America (he was also a director of B.M.C. and of Bryant and May) reporting that he had arranged for some “friends” to employ an American technical expert who happened to be already under contract to this concern. The agreement reached with this expert included an understanding that he would “tactfully and earnestly work to discourage” the concern. His “consideration” for this agreement was $600 per month, to which Diamond had agreed to contribute one third, and the letter asked B.M.C. to make a contribution. This letter is so revealing of what goes on behind the scenes where monopolies are concerned that it is worth reproducing in full:—

"I have arranged to have friends employ Mr. . . . . on some experimental work that has nothing: whatever to do with the British Match Industry and will not affect to the slightest degree any of the operations abroad in which you are interested. My friends have had to reach a definite understanding and make a confidential agreement with [Mr. . . .]. which under no condition must be given publicity either here or in Britain. They have obligated themselves to pay him S600.00 per month. It is understood that [Mr.  . . .] may be called from the United States to work for . . . Ltd. [an English company]), and if he is called to go to England to do work for these people with whom he has a prior contract, he will not be paid by my friends. It has also been agreed, however, that he will tactfully and earnestly work to discourage . . . Ltd., that he will do nothing to get out of his contract with [. . . Ltd.] which would encourage them to hire some other expert or have machines made for them elsewhere. If he succeeds in discouraging [. . . Ltd.] and in getting out of his obligation to these people, then he will work exclusively for my friends for a period of three years and during this period of time will not do any outside work for any other interest whatsoever. [Mr.  . . .] has told my friends that he personally is tired of the English company, who have been continuously deceiving him, putting him off, and have been unable to date to get responsible people on your side to go forward with matters as promised and outlined. [Mr.  . . .] thinks that in the near future that he will be able to drop all connections with [. . . Ltd.] and that [ . . . Ltd.] will cease to exist as a living match producing possibility.

“In confidence, permit me to say that of this S600.00 my Company will contribute one-third of this monthly amount just so long as [Mr. . . . ] does no work whatsoever for [ . . . Ltd.] or any company interested in match making in Britain or Canada. Do you care to make any contribution in this matter?"—Report, page 120.

The result of this appeal was that B.M.C. also agreed to make a contribution of one-third. It continued making regular monthly payments until May, 1943, by which time, presumably, no further trouble was to be expected from the concern in question.

The Rewards of Monopoly

Finally we come to consider the rewards of monopoly. They are indeed substantial and worth all the effort put in to obtain them. On the manufacturing side, for example, Bryant and May's profit before the war averaged 35 per cent. annually, and that of its main subsidiary (Moreland) 45 per cent. The average profit of Masters was about 26 per cent. In 1950, according to the Commission's calculations, Bryant and May's profit was 16 per cent., Moreland's 34 per cent., and Masters' 30 per cent., the lower figures reflecting the operation of Government price control. On the import side, where distribution only is involved, pre-war profits averaged 10 per cent. dropping to 4½ per cent, in 1950.

The Commission’s strictures on B.M.C's costs and profits were most severe:

"The profit on sales of all three B.M.C. manufactures whose costs were examined was very high before the introduction of statutory price control, and the profit of the two lower cost manufacturers was still very high, having regard to the relative slight trading risk. B.M.C. has told us that it is its policy to make as much profit as it can, and that in its view competition insures that the prices charged are fair. Since it is clear that B.M.C. has taken all possible steps to eliminate competition, with marked success, and there is, in our opinion, virtually no competition in this trade, this safeguard is illusory, and it is not surprising that profits have been high.

“We conclude that there is scope for the reduction of both costs and profits of B.M.C. and that it is unlikely that either would have remained as high as they have if there had been any effective competition.”

The Commission’s Remedy

The remedy put forward by the Commission is, not unexpectedly, a dose of State intervention. Some of its members, however, disagree on the strength of the dose to be administered. Three of them, who state their views in a minority report, are all for a more “drastic” remedy than that prescribed by the other members of the Commission. This, they suggest, should take the form of a Government buying agency, armed with exclusive powers to buy all matches, whether home-produced or imported. In effect, they seek to oppose a monopoly seller with a monopoly buyer.

The majority of the Commission, however, are not impressed by this “drastic remedy.” In their opinion, it would lead to still greater rigidity in the trade and might not result in cheaper matches anyway. This latter Observation is certainly borne out by the results of State interference so far, and should be particularly noted by Labourites who so airily assume that State-control reduces prices. The majority’s preference is for a more thorough system of price-control on the part of the Government. This, they themselves admit, is only a partial remedy, and they agree that it would leave the present market-sharing arrangements between B.M.C. and Swedish match untouched.

Nobody can be very impressed with either of these remedies, not even the most ardent supporter of capitalism judging all issues by the direct and immediate effect they have on his pocket.

The Real Remedy

The Commission’s report is now with the Government, and it will be interesting to see what the Tory defenders of private enterprise and free competition finally decide to do with it. As for the Labour Party, hard up for policy and feeling rather out of things, they will probably do their best to blow it up to be something of much greater importance than it actually is.

For our part, we would make just one point. Monopoly is nothing new to capitalism; indeed it is inseparable from it. It is the logical outcome of the drive for profit, and experience has shown all over the capitalist world that as fast as one monopoly has been suppressed, another springs up elsewhere. The history of “trust-busting” in the United States is a perfect example of this. The remedy of bringing in the State does not put an end to monopoly; all it does is to replace private monopoly by the monopoly of the State. Whatever the advantages a State monopoly may have for the capitalist class, it is nothing for the working-class to get excited about. They should have had enough experience of the workings of State control by now to realise this.

Monopolies will disappear only when capitalism disappears. It is not monopoly, but capitalism, that is the issue. Socialism, the real remedy, will do away with both. When, as seems likely before long, the Labour and Conservative Parties create yet another storm in a teacup over what is to be done with the British match industry, workers should remember this.

Stan Hampson