Science in 1940, on Legislative and Administrative Impediments to Production. The purpose of this biographical review is not to establish myself as an authority in this field, where there are many authors and few authorities, but to make clear that my views are those of a student and not those of a partisan advocate. I do not speak for any client or for any class interest. But, as a lifelong student, I do pray that the day may come when Congress will write antimonopoly legislation, not to protect or to favor big business or big labor, and not to make big government bigger and more paternalistic. I pray for legislation enacted for the single purpose of protecting a free economy from the foes of its own household, who, ambitious for personal power, seek to gain monopolistic controls of industry which inevitably prepare the way for the political controls and tyrannies of national socialism. The CHAIRMAN. We are very grateful to you indeed, Mr. Richberg. Mr. RICHBERG. Thank you very much for the opportunity to appear. The CHAIRMAN. The Chair wishes to state that on Friday next our witnesses will be Thurman Arnold and Prof. Harold Toulmin, renowned author, on the subject of antimonopoly legislation. Unless there are some questions, the meeting will now adjourn. (Whereupon, at 12:35 p. m., an adjournment was taken until 10 a. m. Friday, July 29, 1949.) STUDY OF MONOPOLY POWER FRIDAY, JULY 29, 1949 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON THE STUDY OF MONOPOLY The special subcommittee met, pursuant to adjournment, at 10:05 a. m., in room 346, Old House Office Building, the Honorable Emanuel Celler (chairman), presiding. Present: Representatives Celler (chairman), Denton, Wilson, Michener, and Keating. The CHAIRMAN. The subcommittee will come to order. Our first witness this morning is the distinguished former head of the Antitrust Division in the Department of Justice, and now an attorney in Washington, D. C. He is Thurman Arnold, and we will be very happy to hear from him. STATEMENT OF THURMAN ARNOLD, ATTORNEY AT LAW, WASHINGTON, D. C. Mr. ARNOLD. Mr. Chairman, I have a prepared statement, but it does not bother me to be interrupted with questions if any occur to you. Just prior to the World War, the United States had become seriously concerned with the problem of concentration of industrial power. A system of concentrated economic control had grown up which was siphoning the Nation's wealth to a few industrial centers and drying up the income-producing capacity of local communities. Absentee ownership of local industries even down to amusements had become the prevailing pattern of American economy. For example, in my home town the movies are owned by Fox and the money paid for admissions does not remain behind in the form of local profits. The local oil refinery has been absorbed by a great oil company and closed. The local plaster mill was purchased by a Nation-wide concern and has been shut down. The local telephone company is owned by A. T. & T. The local lawyers no longer have independent clients. The principal merchandising is done by absentee-owned chain stores. Independent local capital and independent local purchasing power is gone. Local opportunity for expansion has been destroyed except in a few minor lines. A successful free competitive economy is one that increases the purchasing power of outlying communities instead of draining it off.. The CHAIRMAN. Mr. Arnold, do you mind interruptions? Mr. ARNOLD. No. The CHAIRMAN. Could you give us an illustration of some of these few minor lines where competition still exists? Mr. ARNOLD. There are retail merchants competing with the chains. The CHAIRMAN. Aside from retail merchants? Mr. ARNOLD. Aside from the retail merchants, we have the cattle. industry, which is dependent entirely for its market on Government support-I mean tariffs and Government support. We have some agriculture. Well, I cannot think of anything of importance in the town that is not absentee-owned. The CHAIRMAN. In other words, aside from agriculture, when you come to industry, there are not many even minor lines that are open to free competition? Mr. ARNOLD. I put the minor lines in to protect myself in case I had forgotten something, and that is the only reason it is in there. The operation of the absentee ownership of the local industry, in my view, was the principal reason why the depression continued in spite of Government attempts at pump-priming. The West and South had lost their purchasing power. There was no way in which these areas could recover it. Centralized industry continued to take more out of local communities than it put back in, and the deficit had to be made up by Government spending. It took us a long time to accept the inevitability of Government spending under these peculiar monopoly conditions. During the depression the policies of the New Deal were attacked on every hand both by the Republicans and conservative Democrats, but only between elections. When election time rolled around, it was difficult to distinguish between the parties with respect to the principal objectives of the New Deal. However, though we accepted the necessity of Government intervention in our economic life, we never felt either comfortable or secure about it. This role of Government in business was alien to every American tradition. It was this feeling of insecurity that led. I think, to the President's monopoly message in 1938, to the studies made by the Temporary National Economic Committee, and to the granting of appropriations to the Antitrust Division in excess of any thing that had ever been granted before for the enforcement of the Sherman Act. We began to take the monopoly problem seriously for the first time since the Wilson administration. What would have happened if the war had not intervened, no one knows. But when the war came the problem of centralized business control and absentee ownership of local industries disappeared from the public consciousness, and, even after the war was over, there seemed no need to be serious about the monopoly problem because of the great and unexpected prosperity due to the accumulated demand for every sort of consumer goods. Everybody who had anything to sell was making money-the inefficient as well as the efficient. When this accumulated demand began to disappear, there came the "cold war" with Russia and with it the realization we were obligated to rehabilitate the economies of friendly nations. Instead of withdrawing from business, the Government became a greater purchaser and distributor of goods than any government in the history of the world. Many of our principal business concerns now are dependent upon the Government orders. No one likes the idea, but we can't seem to stop. We are prosperous. We have convinced ourselves that there can be no depression like that of 1929 because the Government says it will step in with even more spending. Nevertheless, we have little confidence in an economy so largely based on Government spending. That, I think, is the reason why, in an era of great profits, industrial stocks have been selling at such a low level. It is significant that at this time a congressional committee has again taken up an intensive study of the problem of monopoly and the concentration of industrial power. It is an indication, I believe, that the committee realizes that we can't indefinitely go on in a world where free competitive trade scarcely exists. We realize that we are not going to be able suddenly to stop our spending. But we want to give that spending a direction which it does not seem to have today. We want some sort of comprehensive plan which will lead to the substitution of private capital for Government activities in world trade. We have more private capital available than any nation ever had before in history. The problem now is how to put it to work to create a - constantly expanding production and distribution all over the western world. In studying this problem, I think we should recognize at the outset that the pattern of competition in the twentieth century is not going to be that of the nineteenth century. The number of enterprises which can be carried on effectively only by concerns of tremendous size has increased to such an extent that some people believe that centralization of industrial power controlled and guided by Government is inevitable. I have never agreed with this view. I believe that America can achieve a pattern for large business organizations which can prevent absentee ownership of local industry instead of encouraging it, which I can increase the independent capital and income of outlying areas instead of diminishing it, and which can make American business more competitive instead of less competitive. The monopoly problem today is the problem of how to encourage the type of great industrial organization which will achieve these results, and to prevent the type of industrial organization which during the depression was draining the wealth of the West and South into a few industrial centers. So far I have dealt only in generalities. Now, I would like to apply these generalities to a concrete industrial situation. The chairman has asked me to give him an example out of my experience as a practicing lawyer, specializing in antitrust problems, of the kind of organization I have in mind as a pattern for the competitive development of American industry. He has asked me to give him a concrete example of a concern of large size and great potential power of control over prices and production, but which, nevertheless, has an economic policy which promotes decentralization and encourages local industry. In answer to that question, I am forced to select one of my clients because my clients are the only concerns about which I have intimate knowledge. I, therefore, select the Coca-Cola Co. as my example. May I interpolate that nothing I say in here is anything with respect to my opinion on the law. I am simply looking at the problem from an economic point of view, because I take it that the committee is studying the problem to see whether there are any changes in the law that are necessary. The soft drink industry, in which Coca-Cola is the leader, is as good an example of the change which has taken place between the competi 96347-49-pt. 1-27 tion of the nineteenth century and the competition of the twentieth century as any I know of. Fifty years ago there were thousands of soft drink manufacturers and distributors. The profits were small but anyone could go into the business with very little capital and a fair chance of success. There was no dominant product, the market was open for anyone who wanted to get in. The demand was small. The profits were small. It was untouched by the problem of mass production and distribution. Today the opportunity for the little fellow to get into the soft-drink industry is gone. Mr. KEATING. Mr. Arnold, there is up in my home city a beverage company that is making a great success of a soft drink. It has a relatively local distribution, but they have a soft drink that tastes a little bit like 7-Up. They claim that 7-Up got their formula from them, or something like that. Mr. ARNOLD. Well, perhaps Mr. KEATING. They are making a success of distribution in that area of this soft drink, which is sold on a quality basis. It is a very good drink. It seems to me that there are a number of smaller soft drink companies that are reasonably successful. Mr. ARNOLD. There are, I suppose, a few. I still think that our difference of opinion is not very great. I still stick to my original proposition that it is pretty tough to compete with Coca-Cola and Pepsi-Cola in the advertised products. Mr. MICHENER. You mean on the quality? Mr. ARNOLD. No, because of the advertising. Mr. MICHENER. You are giving personal experiences, and I can cite up in Michigan a number of these little soft drink concerns that started up. Mr. ARNOLD. All right. Mr. MICHENER. But they cannot compete with Coca-Cola, because with Coca-Cola you get the habit, and nothing else tastes like it. [Laughter.] It is a question of nothing but habit. Mr. ARNOLD. I think there is nothing in what you say, with all due respect, because it is not a habit-forming drink. It is nothing but sugar and water. The CHAIRMAN. What is nothing but sugar and water? Mr. ARNOLD. Let us assume-let us assume here-there has been a tremendous change The CHAIRMAN. Did you say that Coca-Cola was nothing but sugar and water? Mr. ARNOLD. That is what it is, plus flavoring. Mr. MICHENER. If you will go over here to our restaurant in this building where the clerks go, where they have 7-Up and Coca-Cola and all the rest, if you see all these clerks, they taste one, but they all get back to Coca-Cola, and they take it because of the quality. Mr. ARNOLD. Well, I guess we just differ; but, at least, I am using this simply as an illustration of a change; at least, this is true. There has been a tremendous change in the pattern of the soft-drink industry similar to the change in all other goods, where the great organizations have a tremendous advantage which they did not have before. That is the point that I am trying to bring out, using this as an illustration. I was interested, for example, in talking to the owner of a great department store, and he told me that they were having sales recently |