STATEMENT OF JOHN M. BLAIR, FEDERAL TRADE COMMISSION-Con. Question of whether an individual acquisition is desirable or not depends upon the facts of each case. Oligopoly coupled with price leadership gives same undesirable economic results of market control, prices, sales, etc., yet may be legal under law. There is competition between Ford and General Motors. Each case of oligopoly must be determined upon its own unique facts. Number of cases where antitrust and FTC broke up collusion only to find that result was accomplished through consolidation. Thus a lot of antitrust is waste motion. Presents chart showing effect of consolidation of United States Steel, which started in 1901 with 170 subsidiaries in mining, manufacturing, transportation, gas, etc. Since loophole exists, FTC now takes no action on acquisitions, feeling it a waste of taxpayers money. Prior to consolidation, objective of controlling steel market achieved through pools. He reads a pooling agreement of 1887. Pools were not effective because Andrew Carnegie, a "bull in a china shop" insisted on competition. Therefore, consolidation. Consolidation has quickened since World War II. There were three great merger periods in United States: First between 1890 and 1904; second during middle and latter twenties; third is now. First chart shows these merger periods. Little incentive to merge during depression. After war, great increase. Between 1919 and 1947, some 11,700 mergers took place. of companies merged since 1940 have been absorbed by corporations with assets of 50 million dollars another 40 percent by corporations with assets between 5 and 49 million dollars. Chart showing horizontal merger, acquisition of company in same general line of business. Chart shows Borden acquisition (between 1940 and 1948). More mergers between 1940 and 1948 have been horizontal than any United States Steel has bought two oil-well machinery companies, Government lost Consolidated Steel case, seeking to prevent merger. Cases to be put in record where FTC started to bring suit on stock purchase only to be frustrated by the purchase of assets of corporation. FTC would have had better chance to win had it been able to proceed under amended section 7 of Clayton Act. Department of Justice proceeded under Sherman Act. Chart showing vertical backward acquisition or acquisition of raw American Home Pro ucts bought up Bisodol, Kolynos, Anacin, Old This type especially dangerous, since in competing with smaller Blair will put other charts into the record. Page 228 229 230 231 231 233 STATEMENT OF ADOLPH BERLE, PROFESSOR OF LAW Fundamental question is concentration and resulting power which can dominate and revolutionize American way of life. Bigness may reach stage where it has to be accepted as dominant, regulated as a servant, or socialized. Countries where concentration is unlimited turned to socialism. This is the most fundamental problem we face today. Certain specific problems: 1. What do we want from trust laws? 2. Are there areas where laws cannot or should not apply-railways, communications, etc? 3. Are trust laws designed to prevent bigness as such? 4. Do we want unlimited competition, including selling below cost which Congress has already prohibited? 5. Can there be some clear-cut rules which business can follow? The facts of concentration proven by Blair, and See Monopoly Trends in American Business, 20th Century Fund, by Stocking and Watkins. The thesis of Berle's Book, the Modern Corporation and Private Property, has never been challenged. There are only a few corporations where ownership and control go hand in hand-e. g. Ford, Mellon interests. Have been cases where management thrown out because of tide of Berle says nothing serious would happen if we do amend section 7, From 1919 to 1947, United States accumulated 770 billions of capital; 34 percent came from profits and reserves made in business and not distributed as dividends. That was the largest single block and was mainly in big concerns. Of the 262 billions (34 percent) accumulated by business, this remained Page 233 234 235 236 237 238 239 240 STATEMENT OF ADOLPH BERLE, PROFESSOR OF LAW-Continued Also, tax laws make it harder for small business to get capital than for Though would not need services of investment banker, since directors Berle recites the tale of how Rockefeller spent three quarters of a million Where stock dispersed, much Not sure an independent slate would give better boards of directors. ance. Berle says the insurance company leaders are good men; fault lies in all the people if they do not like the situation. Mr. Celler says that he has criticized some features of insurance, but he would have done same thing probably; fault lies in failure to regulate these matters. In New York, insurance companies taking equity risk have built The big concerns which generate their own capital are going to grow Venture capital for expansion of enterprise is saved almost entirely by Big business savings are used to buy up existing businesses as well as In response to question by Dr. Blair, he says he does not oppose amend- This encour There should be a way for the small man to convert his assets to securities so that there is liquidity upon death to pay inheritance taxes. One solution is to permit large corporation to buy up small and then turn it loose within a period of years. Mr. Celler says that we ought to canvas tax problem if we have time, especially if mergers are result of tax evasion. Mr. Celler says this committee intends to come up with legislation. But we will not have enough time or money to investigate everything. Page 241 242 243 244 245 246 247 248 249 250 251 STATEMENT OF ADOLPH BERLE, PROFESSOR OF LAW-Continued If section 7 is amended, it would naturally restrict certain potential concern. It is silly, however, to bar sale of stock and permit sale of assets at the Mr. Wilson again emphasizes hardship in that section 7 under proposed Mr. Celler admits the problem; but all equities should be weighed, and Congress should determine tax incidence problem. Mr. Denton points out that the little men were in favor of amending section 7 and perhaps concern over hardship is excessive. Mr. Celler says that the little men know all about this bill. Berle says there is twofold problem: 1. Of large company which is selling to large concern-with which FTC is concerned, 2. the small independent wishing to sell that can only sell to big company. Berle says that only where small business sells to large one which approaches maximum point of concentration would section 7 be involved. Even if we adopt a policy against concentration, may be frustrated by There was a cartel agreement between American concerns and N. V. Navy Department set out list of proscribed corporations with whom The North American Philips Co. received a citation for war production by Navy. Armed services requested other firms not to deal with some of these Berle helped get Philips people here. Stock is owned by Hartford District court says they ought to compete. At the same time, executive Mr. Celler suggests that the law forbids procurement divisions of the Berle says hard to supply armed forces if eliminate concerns that Berle reads from forthcoming study by Stocking and Watkins pointing Page 251 252 253 254 255 265 266 STATEMENT OF ADOLPH BERLE, PROFESSOR OF LAW-Continued Directors of du Pont and AT&T had no idea they were violating the Top limit would differ in each industry; point where it threatened to Except in public utilities which are natural monopolies, there is a top Compare geographical limit on public utility holding companies under Quasi-public regulation should occur in industries where high degree of United States itself should channel its own buying power in the course of the policy adopted by the legislature. Alternatives-1. Can leave present law as is and let courts determine results. 2. Empower FTC to inquire whether size or degree of concentration in any industry restrains trade, results in unduly high prices, etc., with power to find a top limit on percentage of control and allowing Government to require dissolution in case concern transcended that size. 3. After finding of FTC, Congress might permit commission to impose public utility responsibility upon the industry. He prefers to allow choice of company to break up or to assume responsibility. 4. If capital market is unable to provide credit and equity capital for 5. Study should be made of measures giving tax advantage of relief Mr. Berle's prepared statement substantially as given above appears STATEMENT OF ELLIS ARNALL, Former Governor of GeorgiA Surest way to preserve free competition is to smash monopoly. Trend has been toward monopoly As soon as railways were forced into corner, Congress passed Reed- Fallacy of Reed Act is that the Thirty to forty thousand rates They are approved without action of even subordinate employees. Unless shipper objects, rate is never reviewed. Railroads now have carte blanche to violate spirit and purpose of antitrust laws. |