The International Tin Cartel

John Hillman

• Publisher: Taylor & Francis
• Year: 2010
• Print ISBN: 9781138989474
• eBook ISBN: 9781135151317
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

For most of the twentieth century, tin was the site of new forms of international regulation which became a model for other commodities. The onset of the depression of the 1930s saw a collapse in commodity prices, and governments of tin producing countries decided to form a cartel to return the industry to comparative prosperity. This is a detailed study of how the tin industry found itself in difficulty and how the cartel developed its policies of control over production and stocks, together with its enduring legacy after World War II.

This study of a cartel brings together two levels of analysis that are normally kept separate; international cooperation, and national organization, and demonstrates how each affected the other. It is based on a comprehensive review of a wide range of archival sources which are sufficiently rich and frank that they provide an insider's sense of how a cartel actually worked.

1
Introduction

On United Nations Day, 24 October 1985, Pieter de Koning, Manager of the Buffer Stock of the International Tin Council, informed Ted Jordan, Chairman of the Committee of the London Metal Exchange, that he was no longer in a position to meet his financial obligations.¹ Overnight, £900 million in paper assets vanished and the price of tin dropped from £8,900 to £5,500 per tonne. Bankruptcies of dealers and miners followed in its wake and the economy hardest hit of all, Bolivia, sought relief in the production of cocaine.

International commodity agreements are always fragile but none had ever collapsed in such a dramatic fashion. Over most of the three decades of its effective history (1956–1985) the International Tin Council had been regarded as offering a solution to the difficulties created by markets in primary commodities. With its demise any enthusiasm for such agreements as an integral part of the creation of more equitable and prosperous international economic order evaporated.² The ‘obvious’ lesson was drawn by the British government whose representative, Alan Clark, stated that:

Experience with the tin agreement and other commodity agreements has shown that market intervention provisions such as buffer stocks and quota arrangements have severe defects: at best they are of doubtful benefit to producers and consumers and at worst they distort markets fundamentally and carry the risk of disastrous failure … The Government’s general policy towards commodities is based upon the premise that the best way to assist producers and consumers is to enable markets to work efficiently. We therefore support liberal arrangements and deregulation. We seek to work with our European Community partners to put these principles into practice both in relation to commodity agreements and in the current round of multilateral trade negotiations in GATT which will have an important bearing on wider commodity trade questions of interest to both developed and developing countries.³

The International Tin Council was the last in a series of intergovernmental agreements which regulated the tin market over most of the twentieth century. Yet the operation of a deregulated market, which has produced both extremely low and high prices, does not appear to have been a superior method of coordinating the activities of producers and users of this indispensable metal. The failure of the International Tin Council should not be taken as a licence to dismiss the experience of commodity control.

International control of tin began in response to the first economic crisis of the interwar period, 1921–1922 and was resumed in response to the second, 1929–1931. On both those occasions, the problem was sufficiently severe that governments set aside market orthodoxy and co-operated in rescuing their producers from its travails.

The first of these interventions, the Bandoeng Pool, was short-lived, being made redundant by the boom of the mid-1920s and is relevant only to the history of tin. The second, the International Tin Restriction Agreements, 1931–1946, were more durable since they had to address the challenges posed by the depression of the 1930s and World War II. They were also far more significant, not only in the history of tin but in the whole history of primary commodities, especially during the crisis of the 1930s.

Tin was the first intergovernmental agreement which gave its regulatory authority, the International Tin Committee (ITC), the power to control production. This was seen not only as a solution to the problem of tin but also as a model that could be adapted to deal with other troubled commodities. Tin was followed by intergovernmental agreements for sugar, tea, wheat and rubber.⁴ Expectations were even higher since rescuing these sections was seen as making a major contribution to the recovery of the overall international economy. It is therefore not surprising that tin has been at the centre of many of the more general debates about primary commodities.

When a small group of individuals determines the overall level of production their decisions are inevitably controversial, especially when they do so in the name of governments. These controversies engaged several different groups. Specific decisions of the ITC directly affected members of the industry, miners, smelters, brokers and industrial users. Their responses, together with the decisions themselves, were subject to extensive scrutiny and commentary by journalists⁵ and politicians.

Given the overall significance of the tin experiment, it became the subject of much more comprehensive analyses undertaken by professional economists who became drawn into its controversies. They divide into two camps which reflect the predisposition of their respective intellectual cultures. Anglo-Americans were generally very critical of the ITC,⁶ while their continental counterparts were generally supportive.⁷ The arguments from the latter group have been ignored or distorted, whereas those from the former have succeeded in shaping the enduring reputation of the ITC.

The dominant critical perspective not only drew on the theoretical power provided by neoclassical economics but it also found supporting evidence in the vociferous complaints from those who considered themselves adversely affected by the ITC, especially where these were echoed in the mining and financial press. Unfortunately, those who were anxious to build a strong case against the ITC relied on a theory which was ill-suited to deal with a commodity such as tin and overlooked the evidence that would provide a better test of its conclusions.

On occasion, those who were responsible for the administration of the ITC provided a public defense of their actions but they were well aware of the limitations of such a forum as a means of convincing or silencing their critics. Fortunately, they have left behind an extensive record of the way in which they actually came to their decisions which now permits the whole experiment in tin control to be reconsidered.

Analysis of a regulated commodity market is inevitably complex since it must encompass three separate but interrelated dimensions: the structure of the industry, the form of regulation and the normative. The first, industry structure, requires answers to three questions. How is the product used? What are the conditions under which it is produced and how is it marketed? Those answers must take into account the ways in which the patterns of consumption, production and exchange have evolved over time. In the case of metals, such as tin, which have a large number of different end uses and a large number of different kinds of producers and technologies, those patterns of historical evolution are inevitably uneven. At any particular moment in time, each pattern is made up of several features, many of which first emerged millennia ago.

The second dimension, regulation, also requires answers to several questions: who are the regulators, how are they connected to the industry, what are the instruments at their disposal and how are decisions made about their use? Discussion of these issues raises two further major questions. What is the nature of the problem with the industry that requires regulation? How does regulation shape the direction of the overall evolution of the structure of the industry? The last of these turns out to be an iterative one. How does the industry respond to regulation in such a way as to shape regulation itself?

The normative dimension emerges by virtue of the assumption that regulation is an aberrant condition and it addresses the following questions. How well did regulation solve the problem that prompted its formation? Who benefited and who lost? This assumption is not simply one made by those attempting to understand the operation of commodity agreements; it is built into the regulatory process itself, especially into the iterative interrelationship between an evolving industrial structure and the regulatory authority.

Constructing a comprehensive account which addresses all these questions will be done in the following way. Chapters 2 and 3 review the evolution of the structure of the tin industry from its inception to the end of World War I. Chapter 4 examines the way in which the industry developed in the 1920s with a view to identifying the source of the problem it faced in 1929. Chapter 5 continues this discussion and examines the impact of the onset of the depression. These four chapters have a primary focus on the first dimension.

The second dimension is introduced in Chapter 6 which considers the preliminary moves towards production control and the formation of the ITC and is sustained through the next eight chapters. They consider how the ITC and its members developed the instruments of control (Chapter 7), how these shaped policy under varying economic conditions of both peace (Chapters 8 to 12) and war (Chapter 15) and how the industry developed within its constraints (Chapters 13 and 14). The empirical and analytical issues raised by the normative dimension are clarified in Chapter 16. Throughout the entire study there is a continuous underlying tension between ideology, politics and economics, one that is resolved in Chapter 17 which demonstrates how governments decided to terminate the ITC. Chapter 18 offers an overview of the history of the tin industry from 1945 to the debacle of 1985 with a view to demonstrating the legacy of the controversies about the ITC and the ways in which its successor, the International Tin Council, attempted to address the problems it had to face.

The experience of the ITC provides an opportunity to develop a fuller appreciation of the strengths and weaknesses of this form of control over commodity markets. Without it, the whole history of tin control may be prematurely written off as an unfortunate and painful lesson on the road to the current ‘liberal’ wisdom which attempts to ensure that global markets operate on their own logic, unshackled by politics and indifferent to the fate of those whose lives are dependent on them.

2
Tin: the foundations of an industry

Quite apart from its site as the commodity which served as a test case for the solution of the one of the major economic problems of the twentieth century, tin has a remarkable history. It is one that ultimately rests on two material features, the very limited geological distribution of its mineral form and the extraordinary versatility of the metal which permits the fabrication of a wide range of products. Since many of these became an integral part of the daily life of several civilizations, they made the mineral comparatively valuable. The history of the metal is therefore one of the changing ways in which that value is realized and distributed.

Tin stands at a critical point in the history of metallurgy. The first distinctive metallurgical skill emerged in the ninth millennium BC as the annealing (alternate heating and hammering) of native copper resulted in a wider range of more reliable artefacts.¹ By the middle of the fourth millennium, a second set of skills had emerged as experience with the application of high levels of heat required to turn clay into pots was adapted to smelt copper from its mineral form and work the molten metal.²

In its pure form, copper is both soft and difficult to cast and the search for ways of overcoming these limitations led in two directions, both of which produced a similar result, bronze. One was to smelt copper-arsenic ores, either found as such or mixed from separate sources.³ The second was more metallurgically significant and that was to alloy two metals, copper and tin.⁴ Only small quantities of tin were required (6–10 per cent) but they provided three major advantages. The resulting product was harder and stronger and much easier to cast. At some point, this paradoxical feature by which the tin makes the molten alloy more fluid but the resulting product more durable was attributed to an unnatural force and tin became the ‘Devil’s metal’.⁵ That reputation of a metal about which there is something quite odd has persisted, expressed less about its metallurgy but rather about its market behaviour. ‘It’s a bloody perverse metal’, summed up the frustrations of at least one metal merchant.⁶

Tin also stands at a critical point in the history of many human societies. Bronze permitted a considerable expansion in the range of ornamental artefacts, together with more serviceable tools and weapons.⁷ Just what weight can be attributed to such tools in raising overall levels of productivity is uncertain⁸ but the effects of the growing cultural and political significance of bronze are unmistakable. Given the limited distribution of the mineral, long-distance trading networks had to emerge to support many of these civilizations of bronze. The history of tin is one of the interplay between three spheres, the social construction of consumption, the political and economic organization of trading relationships and the capacity of producers to locate and extract tin-bearing ores and then turn them into metal.

Since the focus of this study is on a particular form of organization of trading and production, it will be useful to situate that both historically and comparatively. The ITC represented an attempt on the part of producers to regulate a uniform international market, one that arose in the mid-nineteenth century. Of the regions relevant to the operation of the ITC, only two originated in response to the incentives offered by that market. Three others emerged in response to incentives offered by more segmented markets operating around the Indian Ocean from the first millennium AD. Most could trace their formation back to much earlier forms of exchange relationships which were incorporated into the political organization of the civilizations of bronze and which date from the fourth millennium BC.

Over this long sweep of history the Southwest of England was consistently an important, and normally the most important, producer. Such regional continuity is ...

Table of contents

• Routledge Explorations in Economic History
• Contents
• Acknowledgements
• Acronyms
• 1 Introduction
• 2 Tin: the foundations of an industry
• 3 Tin and industrial capitalism, 1815–1918
• 4 The problem with tin, 1919–1929
• 5 The depression: initial responses, 1928–1930
• 6 The formation of the International Tin Committee, 1927–1931
• 7 Constructing the machinery of control
• 8 Rescuing the tin industry, 1931–1933
• 9 Renewing the second agreement, 1933–1934
• 10 Stabilizing the tin market, 1934–1936
• 11 Renewing the third agreement, 1935–1936
• 12 Riding the commodity roller-coaster, 1937–1939
• 13 Development under restriction: the producers
• 14 Tin consumption and research
• 15 The International Tin Committee and World War II, 1939–1942
• 16 The International Tin Committee and its critics
• 17 The demise of the International Tin Committee, 1945–1946
• 18 From the International Tin Committee to the International Tin Council, 1946–1985
• 19 Conclusion
• Appendix: Archival sources
• Notes
• Bibliography
• Index