The Aluminium Multinationals and the Bauxite Cartel

The oil embargo of 1973–4, more than any event since the Second World War, stimulated a great deal of interest in international raw material and commodity cartels. Two major lines of scholarly activity have reflected the diversity of this interest. The first takes the part of the developed states and attempts to assess just how vulnerable the Advanced Industrial States (AIS) are on ‘outside’ sources of strategic goods. The emphasis from this perspective is on a simple inventory of who has how much of what commodity and what the particular AIS’s foreign policy should be doing about it.¹ The second line has examined the problem of cartel formation from the producer country perspective and, where the producers are developing countries, the prospects for New International Economic Order (NIEO). The emphasis here is on where, when, and how cartel power is likely to be attained.² Indeed, the success of OPEC stimulated the formation of a series of imitator cartel attempts in bauxite, bananas, iron ore and mercury.

The strategic importance of the oil industry to the world economy has been well established.¹ By comparison to oil, the aluminium industry is largely unheralded. The struggles of the bauxite cartel have received scant media attention though, as this chapter points out, the industry is of crucial significance to the economies of all the AISs and of several Third World states.

The contemporary highly interwoven pattern of connections among the aluminium multinationals has a long history stretching back to 1886 and the simultaneous discoveries in the US and France of a cheap commercial process for the reduction of alumina into aluminium. Both of these processes involved the same electrometallurgical technique used even today but at the time it resulted in a miasma of patent agreements. As noted in the previous chapter, the manipulation of these patents set the basic structure of the infant industry. The French Herout patent (1886) resulted in the creation of two firms: a French firm to exploit the process locally and a Swiss firm to process aluminium in the rest of the world. The Société Electrometallurgique Français (Froges enterprise) entered into competition with the older Pechiney firm. German backing played an important role in the Swiss Metallurgische Gesellschaft (1887) renamed first in 1888 Aluminium Industries AG (AIAG) and then in 1963 Swiss Aluminum (Alusuisse). In the US, the Pittsburgh Reduction Company emerged in 1888 from early battles as the sole producer of American aluminium under the Hall patent. This company later became the Aluminium Company of America (ALCOA) in 1907.

The previous two chapters described the aluminium industry and the major aluminium multinationals. Those chapters traced the history of business cartels and portrayed the industry in the 1970s as a classical oligopoly composed of six majors. In this chapter, the focus is on describing the other set of actors important to the bauxite cartel drama to be described in Chapters 5 and 6: the countries where bauxite is mined.

Chapter 4 demonstrated how the calls for a NIEO resulted in demands for recognition of rights of ownership among the bauxite producers. This objective was usually obtained by either full or partial nationalisation of the mining process. The present chapter traces the bauxite producers’ success on a second NIEO front — the demand for a greater return on the bauxite itself. The chapter concludes with an analysis of the impact of the bauxite producers’ price offensive on the MNCs using a quasi-experimental design to track the changes in their profits. Evidence suggests that by 1977–8 the aluminium multinationals might have found co-operation with the bauxite cartel ‘not unprofitable’.

The success of the Caribbean bauxite producer nations on a second major NIEO front — achieving a higher rate of return on raw material exports — was traced in the previous chapter. For Jamaica and some other IBA members this involved the concerted introduction in 1974 of a tax on bauxite, in effect raising both the price of bauxite to consumers and the revenues for producer governments. As I have shown, the aluminium multinationals seem to have passed on these price increases; so much so that by 1977–8 their profits were at all time highs.

This study has shown the relevance of the aluminium MNCs to the formation of the bauxite cartel of the mid-to-late 1970s. I have suggested that the co-operation of the international companies is crucial in any producer raw material cartel. I presented a model for predicting the response of the MNCs (co-operative, passive, or conflictive) based on the underlying characteristics of the particular industry in Chapter 1. In situations of demand inelasticity and oligopoly, the firms may be most open to government cartel efforts.