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Rent Seeking or Market Strengthening? Industry Associations in New Zealand Wool Broking

  • Simon Ville (a1)

Abstract

This paper builds on recent conceptual work about associations that is drawn from the new institutional economics. It uses evidence from New Zealand wool broking to indicate the circumstances in which industry associations can operate effectively and in the broader public interest. Through their strong associative capacity and effective specialization of function, wool-broking industry associations developed flexible routines for managing wool auctions, mediated disputes, mitigated opportunism, addressed major market disruptions, and served as a communication channel with government. External pressures and monitoring from other business interests, governments, and a competitive wool market constrained rent-seeking behavior, preventing members from benefiting at the expense of others.

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1 Streeck, Wolfgang and Schmitter, Philippe C., “Community, Market, State—and Associations? The Prospective Contribution of Interest Governance to Social Order,” in Private Interest Government: Beyond Market and State, eds. Streeck, Wolfgang and Schmitter, Philippe C. (London, 1985), 129.

2 Most notably, Olson, Mancur, The Rise and Decline of Nations (New Haven, 1982), and Logic of Collective Action (Cambridge, Mass., 1965).

3 Doner, Richard F. and Schneider, Ben, “Business Associations and Economic Development: Why Some Associations Contribute More than Others,” Business & Politics 2 (2000): 261–88; and The New Institutional Economics, Business Associations, and Development,” ILO Discussion Papers 110 (2000): 125.

4 Also variously known as business, trade, professional, or employer associations.

5 On trade associations, see Schneiberg, Marc and Hollingsworth, J. Rogers, “Can Transaction Cost Economics Explain Trade Associations?” in Political Choice: Institutions, Rules, and the Limits of Rationality, eds. Czada, Roland M. and Windhoff-Héritier, Adrienne (Frankfurt am Main, 1991), 202–4. Yamazaki, Hiroaki, in the introduction to Trade Associations in Business History: The International Conference on Business History 14, eds. Yamazaki, Hiroaki and Miyamoto, Matao (Tokyo, 1988), ix–xviii, provides a typology of Japanese trade associations.

6 Kahn, Alfred E., “Cartels and Trade Associations,” International Encyclopedia of the Social Sciences (New York, 1968), 323–24, identified the entanglement of different motives and outcomes.

7 Schneiberg and Hollingsworth, “Can Transaction Cost Economics Explain Trade Associations?” 223-24.

8 For example, see Toni Pierenkemper, “Trade Associations in Germany in the Late Nineteenth and Early Twentieth Centuries,” and Jean-Pierre Daviet, “Trade Associations or Agreements and Controlled Competition in France, 1830-1939,” both in Yamazaki and Miyamoto, Trade Associations; Fleming, Grant and Terwiel, Dorothy, “How Successful Was Early Australian Antitrust Legislation? Lessons from the Associated Northern Collieries, 1906-11,” Australian Business Law Review 27, no. 1 (1999): 4756.

9 Takeo Kikkawa, “Functions of Japanese Trade Associations before World War II: The Case of Cartel Organizations,” in Yamazaki and Miyamoto, Trade Associations, 60.

10 Carter, George R., The Tendency towards Industrial Combination (Constable, 1913); Levy, Hermann, Monopoly and Competition: A Study in English Industrial Organisation (London, 1911).

11 Sweezy, Paul M., Monopoly and Competition in the English Coat Trade, 1550-1850 (Cambridge, Mass., 1938); Hausman, William J., “Market Power in the London Coal Trade: The Limitation of the Vend, 1770-1845,” Explorations in Economic History 21 (1984): 383405. Alternative perspectives are summarized in Boyce, Gordon and Ville, Simon, The Development of Modern Business (Basingstoke, 2002), 2127.

12 Matao Miyamoto, “The Development of Business Associations in Prewar Japan,” in Yamazaki and Miyamoto, Trade Associations.

13 Louis Galambos, “The American Trade Association Revisited,” in Yamazaki and Miyamoto, Trade Associations; Mclvor, Arthur J., Organised Capital: Employers Associations and Industrial Relations in Northern England, 1880-1939 (Cambridge, 1996).

14 Boyce, Gordon, “A Professional Association as Network and Communicating Node: The Pharmaceutical Society of Australia, 1857-1918,” Australian Economic History Review 39, no. 3 (1999): 277–81.

15 Carnevali, Francesca, “Crooks, Thieves, and Receivers: Transaction Costs in Nineteenth-Century Industrial Birmingham,” Economic History Review, 2nd ser., 57, no. 3 (2004): 533–50.

16 See Doner and Schneider, “Business Associations,” 270-75.

17 Law, Marc T. and Kim, Sukkoo, “Specialization and Regulation: The Rise of Professionals and the Emergence of Occupational Licensing Regulation,” Journal of Economic History 65, no. 3 (2005): 723–56.

18 Granovetter, Mark, “Economic Action and Social Structure: A Theory of Embeddedness,” American Journal of Sociology 91 (1985): 481510.

19 Nelson, Richard R. and Winter, Sidney G., An Evolutionary Theory of Economic Change (Cambridge, Mass., 1982); Fagerberg, Jan, “Schumpeter and the Revival of Evolutionary Economics: An Appraisal of the Literature,” Journal of Evolutionary Economics 13, no. 2 (2003): 125–59.

20 North, Douglass C., “Understanding the Process of Economic Change,” Institute of Economic Affairs Occasional Paper 106 (London, 1999), 18, refers to the importance of adaptive institutions to the economic development of nations.

21 Doner and Schneider, “Business Associations,” 275-78.

22 Sabel, Charles, “Learning by Monitoring,” in The Handbook of Economic Sociology, eds. Smelser, Neil J. and Swedberg, Richard (Princeton, 1994).

23 Hawke, Gary R., The Making of New Zealand: An Economic History (Cambridge, U.K., 1985), 32.

24 Although the onset of refrigeration in the 1880s encouraged farming of dual-purpose sheep.

25 Rice, Geoffrey W., ed., The Oxford History of New Zealand (Auckland, 1992, 2nd ed.), table 4, 597.

26 Hawke, The Making of New Zealand, 76; Maddison, Angus, The World Economy: Historical Statistics (Paris, 2003), 60, 61, 67, 87, 100, 142, 146, 149, 180, 181, 188.

27 The economic development of the wool industry is detailed in Ville, Simon, The Rural Entrepreneurs: A History of the Stock and Station Agent Industry in Australia and New Zealand (Melbourne, 2000), 713.

28 On the Australian experience, see Ville, Simon, “The Relocation of the International Market for Australian Wool,” Australian Economic History Review 45, no. 1 (2005): 7395.

29 In Australia buyers exerted strong pressure for central salesrooms. See Barnard, Alan, The Australian Wool Market, 1840-1900 (Melbourne, 1958), 154–55.

30 For example, the Otago Woolbrokers Association was established about 1890-91. Angus, John H., Donald Reid Otago Farmers Ltd: A History of Service to the Farming Community of Otago (Dunedin, 1978), 28, 41.

31 Dalgety Annual Wool Review, Noel Butlin Archives Centre, Australian National University.

32 Ville, Simon and Merrett, David, “Investing in Interorganisational Communication: The Melbourne Wool Brokers Association,” in How Organizations Connect: Investing in Communication, eds. Boyce, Gordon, Macintyre, Stuart, and Ville, Simon (Melbourne, 2006).

33 These records were deposited with the Alexander Turnbull Library (hereafter ATL), Wellington, when the New Zealand Stock and Station Agent Association relocated to Christchurch in 1991. Reference: MS-Group-0489. Subsequent references will provide the item number and description.

34 Ville, Rural Entrepreneurs, 196-200.

35 ATL, NZWBA, correspondence, 8 Nov. 1911, 96-223-01.

36 In 1910 the WWBA wrote to NZWBA with a list of fourteen items to discuss regarding the organization of wool sales. ATL, WWBA letterbook, 25 May 1910, MSX 4323.

37 The following wool-brokers’ associations were members by 1911: Auckland, Christchurch, Dunedin, Gisborne, Napier, Timaru, and Wellington.

38 In a ballot, a black-ball vote by an existing member signified opposition to the applicant.

39 ATL, NZWBA. Rules and regulations, in NZWBA minute book, MSY 4135.

40 Details of membership were recorded regularly in NWBA's minute books, which cover 1907-84. MSX 4330, MSY 4133-4141. Periodic updates of its “rules and regulations” also contain membership details.

41 In some years, Pyne Gould Guinness had a larger share than Murray Roberts.

42 ATL, NZWBA minutes, 1911, MSY 4133.

43 Ville, Rural Entrepreneurs, 33,129.

44 See Ville and Merrett “Investing in Interorganisational Communication,” 185-91, for evidence of social ties among members of the Australian associations.

45 Ville, Rural Entrepreneurs, 60-61; Russell Stone, C. J., The Father and His Gift (Auckland, 1987), 123–24; Christensen, Allan L., “Structural and Functional Evolution in the New Zealand Stock and Station Agent Industry” (master's thesis, University of Auckland, 1986), 45.

46 In 1914, for example, WWBA backed down over the issue of bank rebates in the interests of associational unity. ATL, WWBA minute book, MSY 4120.

47 Boyce, “A Professional Association as Network and Communicating Node,” 259.

48 ATL, NZSSAA, minute book, 1 Aug. 1991, MSY 4144.

49 ATL, NZWBA Rules and Regulations, in NZWBA minute book, MSY 4135.

50 For example, ATL, WWBA letterbook, 2 June 1910, MSX 4323.

51 ATL, NZWBA Rules and Regulations in NZWBA minute book, MSY 4135. NZWBA also set charges, commissions, and regulations for sale of skins, hides, tallow, and sundries, although this appears to have been a minor aspect of their work in practice.

52 ATL, WWBA letterbook, 19 July 1909, MSX 4323.

53 ATL, NZWBA Miscellaneous Papers, 96-223-09, contains copies of the conditions-of sale document.

54 ATL, WWBA letter book, 27 Oct. 1909, MSX 4323.

55 Barnard, The Australian Wool Market, 110, suggests a similarity with Australia, as the only significant attempts to restrict output were during the depths of the interwar depression in the late 1920s and early 1930s.

56 Although, in the 1970s, it was proposed that private buying be allowed so long as the price matched that current in the auction system.

57 Abbott, Malcolm J., “Promoting Wool Internationally: The Formation of the International Wool Secretariat,” Australian Economic History Review 38, no. 3 (1998): 260.

58 Although they gradually came to support the idea of a futures market to mitigate price risks.

59 Noel Butlin Archives Centre, Australian National University, Elders N102/9, board minutes, 1925.

60 ATL, WWBA letterbook, 21 Jan. 1916, MSX 4324.

61 ATL, WWBA minutes, 1929, MSY 4128.

62 ATL, WWBA minutes, 28 May 1921, MSY 4126.

63 ATL, WWBA minutes, 24 Nov. 1932, MSY 4129.

64 ATL, WWBA rejected a claim by the Marlborough Coast Settlers Association, “it being an association of farmers handling their own wool.” WWBA minutes, 9 Dec. 1918, MSY 4123.

65 ATL, NZWBA minutes, 28 Aug. 1918, MSY 4135.

66 The records of NZWBA and WWBA are replete with discussions of bank rebates. ATL, WWBA letterbook, 4 June 1931 and 18 July 1931, MSX 4327.

67 ATL, NZWBA minute book, 18 Apr. 1929, MSY 4136.

68 ATL, WWBA letterbook, 6 Jan. 1919, MSX 4325.

69 For example, information about Australian wool for the Japanese market to Mitsui Bussan in 1911 and defending wool against criticisms made by promoters of alternative artificial fibers in the 1930s. ATL, NZWBA correspondence (M-N), 9 June 1911, 96-223-04; NZWBA miscellaneous papers, 6 Nov. 1935, 96-223-09.

70 ATL, WWBA minutes, 19 Nov. 1927, MSY 4128.

71 Tsokhas, Kosmas A., Markets, Money, and Empire: The Political Economy of the Australian Wool Industry (Melbourne, 1990), regarding the National Council of Wool Selling Brokers.

72 ATL, WWBA minutes, 30 Nov. 1921, MSY 4126.

73 ATL, WWBA letterbooks, 1914, 1915, MSX 4323-4324.

74 ATL, NZWBA minutes, 1916, MSY 4134; WWBA minutes, 9 Feb. 1920, MSY 4124, regarding a letter to Prime Minister Massey.

75 Policy was largely permissive and limited in coverage until the 1975 Commerce Act, and was focused on tariff policy and the development of a manufacturing sector. Donaldson, Hunter M., “The Development of New Zealand Competition Law,” in Competition Law and Policy in New Zealand, ed. Ahdar, Rex J. (Sydney, 1991); Jones, Stephen R. H., “Government Policy and Industry Structure in New Zealand, 1900-70,” Australian Economic History Review 39, no. 3 (1999): 191212; Mabbett, Deborah, Trade, Employment and Welfare: A Comparative Study of Trade and Labour Market Policies in Sweden and New Zealand, 1880-1980 (Oxford, 1995).

76 ATL, NZWBA minutes, 1912, MSY 4133.

77 This evolution can be seen in NZWBA minutes, 1907-26, MSX 4330, MSY 4133-36.

78 ATL, WWBA letterbook, 17 Dec. 1914, MSX 4323.

79 Cohen, Wesley M. and Levinthal, Daniel A., “Absorptive Capacity: A New Perspective on Learning and Innovation,” Administrative Science Quarterly 35, no. 1 (1990): 128–52.

80 Tushman, Michael L. and Anderson, Philip, “Technological Discontinuities and Organizational Environments,” Administrative Science Quarterly 31, no. 3 (1986): 439–65.

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