Mr. DENTON. Is that not true now? Mr. ADAMS. No. Mr. KEATING. Not in advance. The CHAIRMAN. Not in advance. Mr. ADAMS. This would be a long step in the direction of curbing the same concentration from taking place in the future which occurred in the past. With the exercise of proper care in the enforcement of this policy, we can approach the shore dimly seen-the goal of maintaining competition. (3) One way of dealing with size is by attacking it directly as outlined above. Another way, supplementary to the first and enjoying the advantage of greater pragmatic feasibility, is by protecting those who are engaged in an unequal struggle with it. Here the Government can take various positive measures to favor the small businessman, assuring him, as far as possible, of relatively free entry into markets and free access to raw materials. (a) The Government might create special, self-liquidating credit institutions for the express purpose of correcting the inequalities which at present characterize the capital market. Given the same ability as big business to acquire needed funds, and at comparable cost, the small-business man might be encouraged to enter on many new ven tures in competition with large-scale concerns. Mr. KEATING. We have the RFC loaning money now. Mr. ADAMS. Yes, sir, but that is not primarily geared to the needs of small business, and, besides, I do not think it is conducted on a large enough scale for the small-business man to take advantage of. Mr. KEATING. Well, their loans are almost entirely to small busi nesses, are they not? Mr. ADAMS. Yes. But I think what you need is a credit institution open to the small-business man located in various sections of the country, of which the small-business man can conveniently take advantage. where he can borrow money to finance his needs. Mr. KEATING. The Government credit institutions Mr. ADAMS. Yes, sir. Mr. KEATING. In competition with the local banking community! Mr. ADAMS. Well, in many cases they would not be in competition with the local banking community, because the small-business mar does not have the same access to needed funds as large business, at comparable costs. That is the point. The CHAIRMAN. Then, too, what you want are long-term loans, not bankable loans. Mr. ADAMS. That is right. That is the essential difference. Mr. KEATING. How long do you think it would be if there was a Government bank which opened up in every hamlet in the countryhow long do you think it would be before they would be making short-term loans, too? Mr. ADAMS. Well, that is the entering-wedge argument. I think. exercising proper care, of course, one does not necessarily follow the other; that is, you can feasibly restrict these Government credit institutions to long-range projects without necessarily allowing them to make short-term loans as well. Mr. MICHENER. That is the theory and the practical matter to which I referred a little while ago. Mr. ADAMS. Yes, sir. The CHAIRMAN. You do not have to set up Government credit banks in every hamlet or community. Would it be sufficient, along the line of your suggestions, to widen the scope and the activities of the Reconstruction Finance Corporation? Mr. ADAMS. That could be. The CHAIRMAN. And permit an increase of its capital and have a statement made by Congress encouraging small loans to small-busi ness men? Mr. ADAMS. Very definitely. Mr. BRYSON. They have the regional offices, now. The CHAIRMAN. They have regional offices, as our good friend from South Carolina states, and they might probably open more regional offices, but they must have additional authorizations, I think, and they would have to have an expanding of their capital. Mr. ADAMS. It is a question of money again. Mr. BRYSON. With the coming of the governmental loaning agencies through the years, the past couple of decades, instead of hurting the private banking business, it has helped it, because the banking business is good today. Mr. ADAMS. It does not seem to have suffered in recent years anyhow. Mr. BRYSON. No. They have more money, and they are just bulging with money. The CHAIRMAN. Let us conclude this soon, because we have only 15 more minutes. Mr. KEATING. I just must interrupt at that point and say that whether the banks are getting along, is not determined by whether they are bulging with money. The question is whether they can put he money to a useful purpose. Mr. BRYSON. I think, in the main, they are prosperous. Mr. ADAMS (continuing with prepared statement). (b) The Government might weight the tax structure in favor of the small-business man, and take under consideration, perhaps, an undistributed profits tax on large concerns, say, with a $25,000 exemption. (c) The Government might subsidize research in certain selected fields and encourage the development of specialized engineering and consulting firms. These could be of inestimable service to smallbusiness enterprises and thus deprive mammoth concerns of their present advantage in the field of research. (d) The Government might prevent the future preemption of certain strategic materials. Where private ownership of basic materials reserves has already been achieved, techniques should be devised of assuring equal access thereto by potential competitors. (e) The Government might overhaul its system of bidding on GovCernment contracts with a view of assuring small-business men (without powerful lobbies or other connections in Washington) equal opportunities with the "big boys." 1: Mr. KEATING. They have this already under these "5 percenters" operating here. You have heard about them, have you not?" Mr. ADAMS. Yes, sir. That is what I mean by "other connections in Washington." Perhaps, we can open the doors to the small-business men without the "5 percenters." Mr. KEATING. Well, it is alleged that the Government has already opened up the doors to them through the 5 percenters.. Mr. ADAMS. Yes. The thing is they should have the same opportunities without paying 5 percent. That is the point. Even if action is taken on all these proposals, there will still remain some substantial obstacles in the way of newcomers. Little can be done, for example, to counteract the advantage which an established large firm enjoys due to experience, trade connections, elite of personnel, and so forth. Especially vexing is the problem in such industries as breakfast foods, cigarettes, drugs, toilet articles, and so forth. where the dominant firms devote large advertising expenditures to their sales effort. Perhaps improved informational services, consumer education, stricter surveillance of advertising claims and similar measures can correct this handicap in time. A definite limitation on a firm's advertising budget could probably create greater competition in many industries overnight. Such a policy, however, is subject to so many pitfalls and dangers, that its implementation at this time seems inadvisable. The CHAIRMAN. If you attempt to limit the firms' advertising budgets, you would bring down fire and brimstone on your head from the newspapers, the radio and television stations, and magazines. and all manner and kinds of periodicals. Mr. ADAMS. I do not think the news would ever leak out, Mr. Chairman. [Laughter.] Mr. MICHENER. You have not been in Washington often, have you! Mr. BRYSON. They have heard about my bill to prevent advertising liquor. Mr. KEATING. Yes, we have heard about it. Mr. MICHENER. We have all heard about it. The CHAIRMAN. You would have a difficult time if you tried to limit the budget for advertising. Mr. ADAMS. Well, I am a young man, and that is why I do not at this time suggest curbing advertising. Mr. KEATING. When you speak of "improved informational serv ices, consumer education," and all that, you mean more bulletins put out by the Government? Mr. ADAMS. I imagine so, both private and public information services. For example, there are some private organizations, such as Consumers' Union, and so on. Mr. KEATING. Let me advise you that one of the booklets put out by the Government is called Mist Netting of Birds in Peru, and there are other articles similar to that, and it is the publication of periodicals such as those, that make me very leary about the Government going into the business of getting out more periodicals on breakfast foods and drugs and toilet articles, and so forth. Mr. ADAMS. The question there is: What are the alternatives? That is, if the Government does not do the job, who will? If you can find a suitable alternative, I will be behind it. Returning to my prepared statement: (4) Our patent laws, which are another important restriction on entry into some industries, deserve to be singled out for special attention. To the extent that they can be abused and turned into a device for exercising or attaining monopolistic control, they are an important element in any plan to strengthen the antitrust laws. The following revisions are sug gested-and, by the way, they are not to apply to the smaller concern which might have a patent or two in its portfolio; they are concerned. with the large concerns that are a problem under the antitrust laws: Patents which are not worked should either be revoked or, better yet, be subjected to compulsory licensing thus making them available to those who will use them. In cases where a patent is abused; that is, where excessive prices or unduly limited supplies are the product of patented technology, the Government should have the right to revoke the patent or invoke compulsory licenisng. Furthermore, where a competitor or potetnial competitor can show that his patent can only be improved by using a rival's patent, he should-upon proper presentation of proof-be permitted to get a license in return for payment of a reasonable fee and promise of a reciprocal license. Where patents are used as a device for perpetuating monopolistic control over an industry, such power should be reduced by the requirement of compulsory licensing on a reasonable fee basis. These measures would simultaneously preserve the incentive which the award of patents hold out to would-be inventors while also depriving the letters patent of its monopolistic features (Cp. Edwards, op. cit., pp. 216-248). (5) Finally I would suggest that the Government subsidize economic research in our universities, as it is now subsidizing agricultural research, so that scholars with an independent bent of mind can investigate the nature of the monopoly problem-its causes, effects, and possible solutions. Fundamental questions such as the relation between size and efficiency, the empirical measurement of demand elasticity for various products, the quantitative effects of advertising, the effect of oligopoly on the allocation of resources and the location of plants, and so forth, might be posed for study in relation to specific industries. Care must be exercised, however, that the initiation of these research projects not be used as a smoke screen for inaction. If public policy iefrains from curbing the concentration of power in a positive manner at this time; if we wait for the results of further research to become available before action is taken, we shall in fact be encouraging, not the status quo in industry but a further concentration of economic power. We shall, in fact, be acting on the assumption-also based on the inadequate data now available-that the existing structure of industry is desirable and that the direction in which it is developing does not merit interference. We must realize that curbing the concentration of power at this time does not preclude the possibility or desirability of amending or reversing our competitive policy if later information should warrant doing so. In conclusion, may I point out that this Congress has the rare opportunity of contributing to the workability of our economic system, thus protecting it against the foreign ideologies which are now challenging its existence. In this connection, we might recall the Marxian philosophy of history which predicted that capitalism was doomed partly because it would result in an ever greater concentration of power which would eventually push the vast majority of our people into the proletariat; and partly because the periodic recurrence of depressions would ultimately lead to the complete break-down of our system. What Marx-an essentially erudite, though misguided, man-failed to anticipate was: (1) The development of active measures to cope with concentrated economic power, measures which were singularly unique in America where the antitrust idea found widespread acceptance; and (2) the possibility of adopting over-all monetary and fiscal measures to stave off, or at least mitigate, depressions. It would seem, therefore, that by pursuing a positive antimonopoly and antidepression policy-that is, by doing exactly what the opposition least expects us to do we can go a long way toward preserving our competitive economic system and the social and political values concomitant therewith. The CHAIRMAN. Dr. Adams, you are from a very splendid institution, Michigan State College. How long have you been teaching at that institution? Mr. ADAMS. I have been at Michigan State for 2 years. The CHAIRMAN. Where were you prior thereto? Mr. ADAMS. I was at Yale University, an instructor for 2 years. The CHAIRMAN. Well, we are very grateful to you for your contribution to this important subject. The Chairman wishes to announce that on Wednesday next, we will hear from Donald Richberg, an eminent lawyer in this town, and Mr. Herbert Bergson, head of the Antitrust Division of the Department of Justice. The meeting will now be adjourned. (Whereupon, at 12:01 p. m., an adjournment was taken until 10 a. m., Wednesday, July 27, 1949.) |