I think that General Motors, on the other hand, once said, or Mr. Sloane was quoted as having said, that as far as he was concerned he never wanted to see General Motors control more than 45 percent of the motor business. i 540 54 There is a great British firm that operates throughout the world- Senator O'MAHONEY. That is right. Mr. Charles Luckman is the American proconsul of that firm. Well, the head of that firm in London about a year ago said that he never wanted to control more than 75 percent of the soap business. Now, there you are. That is the way it progresses. In other words, if this economic concentration proceeds, the tighter it becomes, the more widespread the control, then the more irresistible is the demand for government power to protect the people. The CHAIRMAN. Speaking of soap, in that connection it is well to recall Lever Bros. and Colgate -Palmolive-Peet and Procter & Gamble control over 90 percent of all soap making in this country and about 1,500 small soap makers manufacture the balance. That is a situation which must occupy the attention of this subcommittee, beyond question. Senator O'MAHONEY. Not only is that true, Mr. Chairman, but two or three of these firms control most of the radio time. If you listen to the radio programs on all of the large networks you will find that most of it is bought by three or four of the big soap makers. When that is done the force of advertising shuts out competition. Mr. MICHENER. But the new man comes in. There is not any automobile concern today that uses as much time as Kaiser-Frazer. KaiserFrazer is a newcomer in the field. Senator O'MAHONEY. Mr. Kaiser is a great artist in public relations and in publicity. He can get his name into the papers even more frequently than you or I. Mr. MICHENER. I speak of that because Kaiser-Frazer is in my district. Senator O'MAHONEY. Well, Mr. Chairman, I promised you I would try not to take up too much time. The CHAIRMAN. We do not want to cut you off at all. You have been most familiar with this subject for a good many years, and chairman of this now famous committee, and we do not want to cut off at all. Senator O'MAHONEY. Let me say this word: I spoke about collectivism and appearance of the proletariat. The proletariat is appearing here in the United States as well as in Europe. Dr. Kaplan of the Brookings Institution recently wrote a book on small business at the request of the Committee on Economic Development which, as you know, is a group of private business executives. And in that book he published a table in which he analyzed industrial employment. The figures in his book show that 54 percent of all of the industrial workers of the United States are employed by less than eight-tenths of 1 percent of all the employers. Now, when so large a percentage of the workers is employed by so small a percentage of the employers, millions of American citizens are employed by corporations which are controlled from the top not by their owners but by their managers. And so as the result of that, you have this tremendous labor union development. The CIO is the prodct of the mass-production industry. So, if Congress really wants to serve little business and local business, it has got to find out the manner and method whereby the door of opportunity shall be kept open for the investment of private capital. It has got to find out the way by which these businesses thus established by the investment of private capital shall not be suppressed either by monopoly upon the one hand or by government upon the other.io Mr. McCULLOCH. Do you not think that the taxing policy might be just as important as bigness of monopoly?) rais ging at t Senator O'MAHONEY. I think thaat incentive taxes could do more than almost anything else. For example, Congress grants a concession to the head of a family by allowing a deduction because of the social importance that a man shall support a family. So, the head of the family does not have to pay as heavy a tax as one who is not the head of a family. Now, it is equally important, or similarly important, that we should have new businesses growing up all the time, and therefore it seems to me that there ought to be some sort of a tax concession for new competitive business. The CHAIRMAN. We observe that principle, for example, in the island of Puerto Rico. We have passed an enabling act allowing the government of Puerto Rico to omit income taxes for new and small businesses. Senator O'MAHONEY. It would be very well to do it here in the United States. 7 Mr. McCULLOCH. If I might interrupt again, Mr. Chairman? Mr. McCULLOCH. Going back to the general approach that was made by the gentleman from Michigan, I would not like to see this committee limit its investigation to any narrow field. I think the cause of monopoly is as important as the effect. And again touching upon this question of tax policy, I think it may serve a useful purpose for this committee to have evidence or testimony bearing on that subject, notwithstanding the fact that ultimate legislation which would implement new tax policy might go to another committee. Senator O'MAHONEY. I shall not trespass further upon your time. I am very happy to have been able to respond to your invitation to come over here. I am sorry only that I did not have the chance to prepare a statement as I ought to have done, but there were too many other duties to be performed. The CHAIRMAN. We are very grateful, Senator, and we would like to have the privilege of calling upon you later on if necessary. Senator O'MAHONEY. I will be very happy to have you do so. Mr. KEATING. May I ask a question about the Federal charter system which interests me very much? You would not contend, would you, that such a system would be selfenforcing? In other words, would you not recognize that to establish such a widespread Federal charter system covering commercial enterprises would involve a very large bureau, board, or commission to handle it and perform the necessary functions of visitations and otherwise? Senator O'MAHONEY. I really do not think so. Let me point it out this way: Now, no city exists anywhere in the United States without a charter from the State legislature of the State. Except in a very few instances where, for reasons of one kind 96347-49-pt. 1—8 or another, the State attempts to exercise some sort of fiscal control, in 99.99 percent of the cases the cities are absolutely free to run their own business because their powers are clearly defined and they do what they are authorized to do. Mr. KEATING. But that is not true in the States of business corporations, is it? Senator O'MAHONEY. No, because the business corporations under State charter are given the power to do anything they please by these blanket charters. Mr. KEATING. In other words, you feel the remedy would lie in a more definite and detailed statement of powers and privileges? Senator O'MAHONEY. That is right. And then when that is written into the statute you do not have to have any commission or any large agency to enforce it. I think such a law would be self-enforcing because other corporations which found a given corporation engaging in a business in which it had no authority to engage, for example, would immediately go before the courts. That would be settled in the local courts. In other words, we recognize the fact that a corporation has no power except that which is given to it by some government. My principle is that the State governments should not be permitted to define the powers which can be exercised in interstate and foreign commerce, because that is the domain that was set aside in the Constitution for Congress. So if Congress defines the power, the result will be, in my judgment, that the economy itself would stabilize the development, and the courts and the competitors and employees would naturally enforce it. Mr. MICHENER. In short, your bill would write the pattern for all corporations engaged in interstate commerce? Senator O'MAHONEY. That is right. Mr. MICHENER. And you would prohibit any State granting a charter that did not embody your pattern? Senator O'MAHONEY. The bill as drafted is that a corporation to engage in commerce must comply with certain provisions. And it also provides that the charter shall be issued when the certificate of compliance is filed, so that no discretion is left in any bureau of the Government to say whether or not the charter should issue. I believe in economic freedom. We just have to develop the rules of the game. We do not have any rules now, and the result of it is the terrible economic chaos in which we find ourselves. And so, Mr. Chairman, I am convinced that the only successful way to bring about a solution of the problem is for Congress somehow or another to call a conference on corporate law which would define what the policy ought to be. I do not pretend to believe I know how to write it. It is the biggest question before business and government. The CHAIRMAN. Thank you very much. The Chair wishes to state that each member will have a copy of Commissioner Ferguson's brochure on decartelization. We will resume our hearings on Wednesday at 10 o'clock when Dr. Clark of the President's Economic Advisory Council will be the witness. (Whereupon, at 12:30 p. m., the committee recessed, to reconvene at 10 a. m. Wednesday, July 13, 1949.) STUDY OF MONOPOLY POWER WEDNESDAY, JULY 13, 1949 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON THE STUDY OF MONOPOLY Washington, D. C. The special subcommittee met, pursuant to adjournment, at 10 a. m., in room 346, Old House Office Building, Hon. Emanuel Celler (chairman) presiding. Present: Representatives Celler, Bryson, Wilson, Denton, Michener, Keating, and McCulloch. The CHAIRMAN. The committee will come to order. Our first witness scheduled for today is Dr. Clark, member of the Council of Economic Advisers to the President. Dr. Clark has rendered splendid service to our Government as an economist and as one of the President's advisers, and we are very happy to hear you, doctor, on the study of the concentration of economic power. STATEMENT OF JOHN D. CLARK, MEMBER, COUNCIL OF ECONOMIC ADVISERS Mr. CLARK. Mr. Chairman, in the interest of brevity, and also in order that it may be clear that the statements are quite deliberate, I have written out the statement I wish to present. In this statement I shall discuss the character of the problem of maintaining competition in our modern economy, and shall then point out certain specific inquiries into the operation of our antitrust laws which are not too extensive for the limits set by considerations of time and of personnel, but which will explore the major issues of policy with which you are concerned. The antitrust legislation which culminated in the Sherman Act of 1890 was initiated when the Senate, on July 10, 1888, adopted a resolution offered by Senator John Sherman in which the economic philosophy of the proposed statute was set out as successfully as it has ever been stated. Trusts and combinations were to be forbidden, it was said, in order "to preserve freedom of trade and production, the natural competition of increasing production," and "the lowering of prices by such competition." Note well that the competition we must preserve, according to the resolution, was not some group of promotional devices and efforts. It is what the Senator called "the natural competition of increasing production." The lowering of prices to which he looked forward is not the final objective of social policy. The prime objective is in creasing production, upon which improvement in material well-being of the people depends. The normal consequence of increased production is the lowering of prices, and this in turn makes possible the distribution of the larger volume of goods without which the whole process would have no social advantages. One would go too far in attributing to Senator Sherman any provision of the problem of competition as it exists today, but the principle he announced is the very foundation of antitrust policy, if that policy is valid. Although it was the enlargement of the volume of production and the consequent activity of competitive effort to market additional goods upon which Senator Sherman centered his attention in his original resolution, he recognized the importance of competition in inducing larger production itself. In the ensuing congressional debates the argument was divided between the discussion of outright combinations and agreements which directly limit production and the discussion of unfair methods of competition, especially discrimination in railroad rates and in prices, which threaten weaker competitors and tend to destroy the competition which leads to larger production. In its final form the statute which bears his name deals with both aspects of the problem. The economic principle announced by Senator Sherman should be kept in mind throughout this inquiry because in it is found the economic justification for our system of free, private enterprise. Our claim of superior productivity for our system is based upon the very argument he then outlined. The elements of strength and progress in this system remain dormant if competition does not press the enterpriser into greater effort to reduce his costs, to improve the quality of his goods, to uncover new markets, and to expand his business. Remove competition and technology languishes, production lags, costs rise, and the economic advantages of our system disappear, leaving the imperfections of which its critics make so much. Twenty years after the Sherman resolution, the first President who made a serious effort to enforce the Sherman Act was ready to abandon the policy in most of its important aspects. In three special messages and in his final annual message to the Congress in 1908, Theodore Roosevelt pressed with his customary vehemence of expression his view that we cannot enforce competitive conditions upon big business and cannot rely upon the forces of competition to control the decisions of corporate managers concerning prices and volume of production. That "it is worse than folly to attempt to prohibit all combinations," and that where prohibition is effective it "works almost as much hardship as good," are statements in his annual message of December 1908. He demanded "that instead of an unwise effort to prohibit all combinations there shall be substituted a law which shall expressly permit combinations which are in the interest of the public, but shall at the same time give to some agency of the National Government full power of control and supervision over them." He made it clear that what he had in mind was control similar to that exercised by the Interstate Commerce Commission. This may, indeed, be the only alternative to the policy of the Sherman Act, and it is because I am deeply reluctant to contemplate such a shift of base that I place such great hope in the success of your effort to bring forth proposals for the strengthening |