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Mr. WILLIS. The changes manufacturers are making may not necessarily be in violation, but they may be an improvement. And I didn't say horrible examples, may I make the correction, and I have no horrible examples, I have no examples. The examples were submitted to your committee.

Senator HART. I agree you did not use the term "horrible examples". There are two categories, both of which we are curious about. You say a half dozen which you felt had been presented to this committee which were in violation of the law. But it was my understanding, and here again I will hope that we will get clarification, that you described, after you had alerted top management to review their packages and labels, that in your files, there were many changes that were made or are being made. It is this latter category which we are interested in, because I have been trying to find out what specific kinds of changes were made as a result of this hearing.

If you can't tell us that now, then send us the materials on which you base the statement.

I am not prejudging them. I won't assert that they are or are not in violation of the law. One of my complaints is that the law is sufficiently vague to make it very difficult to pass such a judgment in many instances. I am just trying to find out what it is that was changed.

Mr. WILLIS. I will send it to you.
Senator HART. Mrs. Goodwin?

Mrs. GOODWIN. Yes, Mr. Chairman.

Mr. Willis, in your statement in the second paragraph, you mentioned one of the original purposes of your organization is to assist in the enactment of laws. Is it true that you also work against proposed laws that you do not like?

Mr. WILLIS. To me that is a "Have you stopped beating your wife?” question. I don't know what you are driving at.

Senator HART. Why don't you reread that question?

(Question read.)

Mr. WILLIS. Sure. If we don't like them, we express ourselves to that effect.

Mrs. GOODWIN. Thank you.

Is it within the normal activities of your position to influence editorial departments of leading publications?

Mr. WILLIS. No, ma'am; no, ma'am. We do no lobbying or any work of that kind, or try to influence trade papers.

Mrs. GOODWIN. I have before me a copy of a speech which you made in New York at the Waldorf-Astoria on November 16, which apparently was printed in its entirety in Sponsor magazine of November 26, 1962. In this speech, you referred to the rising cost of advertising. You said that the industry is spending $1.2 billion annually on advertising. In your reference to the rising cost of advertising, you are suggesting ways of getting a better return on your dollar. And you say advertisers should get more editorial cooperation so that—

As readers turn the pages and come across an interesting article, they will react more favorably to the advertisement and be more inclined to purchase the product.

I am quoting you still. You say:

Last year, we met with 16 top management people of national magazines.

Down further, I am still quoting you:

We can point with pride to some of the things that have happened since our visit.

Look magazine ran an article explaining the cost-of-living index published monthly by the Government.

Readers' Digest, an article on "Why Our Food Is a Bargain."
American Weekly, an article on "Are Food Prices Too High?"
This Week magazine, "The Greatest Food Show on Earth."
Saturday Evening Post, an article exposing the food faddists.

Good Housekeeping magazine, on labeling.

Ladies' Home Journal, a series of articles on food.

Life magazine, several institutional ads, and is devoting its total November 23 "Thanksgiving" issue to food.

We could mention many other consumer and business magazines that carry frequently favorable articles about this industry.

Family Circle, Women's Day, Food Field Reporter, and so on.

I would like to repeat the question, Mr. Willis: Is it within the normal activities of your position to influence editorial comments in leading magazines?

Mr. WILLIS. The answer is "No"; qualified.

When I met with the magazine people, I tried to point out to them that in our opinion there were many fine articles which would have a public and reader interest. They might consider taking a look at, like "Food Is a Bargain."

You mentioned some of them and the magazine people looked at them. They felt that such subjects had a reader interest and they ran the articles. There were no strings tied to it; there were no commitments requested; there was no insinuation that could be construed in any way that their advertising revenue would be affected.

The only thing I said was that if they ran articles of this kind, it naturally would reflect very favorably upon the food industry itself, period. Which I think is wonderful.

I think it was a big service to the readers to explain the cost-ofliving index which the Government issues monthly. Wasn't it one of the magazines that did that job?

Mrs. GOODWIN. Yes.

Mr. WILLIS. We had nothing to do with writing the article. We simply suggested some subjects and they thought they were good, so we used them.

Mrs. GOODWIN. Well, you point with pride at your accomplishments, Mr. Willis.

Mr. WILLIS. That is right.

Mrs. GOODWIN. The things that had happened since your visit. Don't you think that the average person feels that an editorial in a leading publication is a matter of objective reporting rather than the result of industry's pressures on the editorial department in reminders that there was $1.2 billion spent on advertising?

Mr. WILLIS. No; there was no pressure. You would be interested in learning about the cost-of-living index; you would be interested in reading this story.

Any time Reader's Digest writes an article, there is no industry that can persuade Reader's Digest to print anything except what they think is news to its readers.

They ran an article on "Why Food Is a Bargain"-wonderful. I think that is great for the food industry.

Mrs. GOODWIN. Mr. Chairman, I would in all fairness suggest that the speech in its entirety be placed in the record, in order that it not appear that I misrepresented it.

Senator HART. It will be so ordered.

(The material referred to may be found on p. 479.)

Mr. WILLIS. Then the entire speech should be in. I can send you a copy of my speech made before the soap organization in New York, whatever date it was.

ers

Mrs. GOODWIN. This was made before the television broadcast

Mr. WILLIS. That is another one.

Mrs. GOODWIN. (continuing). In which you are urging the television people to give you the same type of editorial cooperation you have been given by the publishers.

Mr. WILLIS. It was a complete misstatement on the part of the magazine and we have totally ignored it because they were so inconsistent with what my statement was.

Senator HART. Will you send to us, in order that we may put into the record, the speech made at the television meeting?

Mrs. GOODWIN. They say that they are printing it in full, Mr. Willis. If they are saying anything that is in error here, it should be pointed

out.

Mr. WILLIS. I don't know what is in there, but I can tell you what I said and I will be glad to send you a copy of a speech.

Mrs. GOODWIN. Sponsor reprints it here in full, with an editorial comment on the page.

Senator HART. I suggest you send us the speech, and if there is a discrepancy, the committee will note it.

Mrs. GOODWIN. I would suggest also that the editorial be made a part of the record, because I feel it would be pertinent. And there is about a half-page story in March 1963 issue of Changing Times in this connection that I would like to be made a part of the record.

Senator HART. They will both be made a part of the record.

(The editorial referred to may be found on p. 483, and the article in Changing Times may be found on p. 496.)

Mr. RAITT. Mr. Chairman?

Senator HART. Mr. Raitt.

Mr. RAITT. I get the distinct impression from what counsel has been asking that there is something wrong about articles about a product of an industry appearing in periodicals. I am aware that often, articles about new cars appear and in many industries this certainly is commonplace.

I am sure counsel did not mean to infer there was anything unlawful, unethical, or anything improper about this. I just wanted to clear up the record.

Senator HART. I don't know what was in counsel's mind. The record will speak for itself.

Mr. RAITT. This was my impression. Maybe I was in error. But I seemed to detect this inference. I wanted the record straightened out for the benefit of its readers.

Mr. WILLIS. Mr. Chairman, to complete this record, would you be interested in having letters from the magazines and get their reactions to my visit with them, to which this reference is made, and let them tell you whether or not there was any insinuated pressure put on them?

Senator HART. Why don't you send such mail as you think would be relevant? If in the judgment of the committee it is relevant, we will make it a part of the record.

Mr. WILLIS. I think in fairness to the total picture, we should have the whole picture presented and not a bobtailed one, or a prejudiced

one.

Senator HART. Any further questions?

(No response.)

Senator HART. Thank you very much for your patience.

Mr. WILLIS. Thank you, Mr. Chairman. I seem to enjoy coming here visiting with you.

I would like at this time to introduce our general counsel, Mr. Frank Dierson. While Mr. Dierson appears in the capacity of general counsel of GMA, it might be of interest to note that he is also editor of the Food, Drug and Cosmetic Law Journal; secretary of the Antitrust Law Section of the New York State Bar Association and an officer of the Food, Drug, and Cosmetic Law Sections of the American Bar and the New York State Bar Associations.

Mr. Dierson?

Senator HART. Mr. Dierson, we welcome you. Any reader of the record will be impressed by that title.

STATEMENT OF F. T. DIERSON, GENERAL COUNSEL, GROCERY MANUFACTURERS ASSOCIATION OF AMERICA, INC., NEW YORK,

N.Y.

Mr. DIERSON. Thank you, Senator.

The bill S. 387 proposes much more than the regulation of deceptive packaging and labeling referred to in its title. Powers granted by the bill are so broad and its antitrust purpose so restrictive that in actual operation it is likely to work serious injury to consumers, to industry, and to the national economy.

Members of the Grocery Manufacturers of America, Inc., urge the subcommittee not to risk these dangers of the bill especially since strong, existing legislation is adequate to deal with the practices in question with full protection of consumers and competing manufacurers. We believe that enactment of the bill is unnecessary and unwise for the following reasons.

Both the Federal Trade Commission and the Food and Drug Administration now possess plenary power to prohibit all deceptive and misleading practices in connection with packaging and labeling. Commission Chairman Paul Rand Dixon and Food and Drug Commissioner George P. Larrick testified to that effect before this subcommittee last year.

Furthermore, Federal law is supplemented by similar State statutes which require conspicious labeling and prohibit deceptive packaging. The GMA supported the enactment of these laws and approves their fair and vigorous enforcement.

S. 387, however, would substitute a system of discretionary control for our traditional legal standards. We oppose this change because it violates the essential nature of American law, namely, that the Government shall exercise power only through definite rules based upon explicit general principles. We are also opposed to the bill because

its purpose is inconsistent with antitrust objectives and because it omits fair procedural safeguards.

The bill is offered as an amendment of the Clayton Antitrust Act and is presumably intended to maintain competition. But its operation would actually restrict competition by nullifying the intensely competitive activities of producers in all of the many aspects of competition save the one aspect of price.

The introductory statement on the bill refers to nonprice competition as obscuring price competition and fostering monopoly. Although the term "nonprice competition" does not appear in the antitrust laws it is employed by economists, particularly in discussing a questionable theory of "perfect" competition.

The antitrust application of that theory was urged upon this subcommittee last year by Dr. Ruby Morris. She endorsed it as set forth back in 1933 by Prof. Edward H. Chamberlin, of Harvard, in his book entitled "The Theory of Monopolistic Competition." In that book the author proposed a purely theoretical ideal of "perfect" competition in which all sellers are selling goods of identical type and quality and in which no individual seller can appreciably affect the market price by his own individual sales.

Professor Chamberlin defined nonprice competition as including product differentiation, advertising, and trademarks. He denounced these activities as wasteful and monopolistic and recommended their elimination. Advocates of this theory also argue that America's resources can be better allocated if quality differences among products are eliminated by compulsory standardization.

The foregoing theory has been refuted by eminent scholars who sharply disagree with it. For example: Prof. J. M. Clark, of Columbia, in his book "Competition as a Dynamic Process" (Brookings Institute, 1961) declares that the kind of competition we really have in today's market is much better than so-called perfect competition because it makes for progress.

Prof. Lawrence Abbott in the book "Quality and Competition" (Columbia University Press, 1955) exposes the errors of the "perfect" competition theory by showing that it wrongly ignores the social benefits of nonprice competition as represented by efforts to attract customers through quality differences, quality changes, and advertising. He then proves that no theory of free competition can be formulated without allowing for these nonprice elements.

A final citation-in his book "Individualism and Economic Order" (University of Chicago Press, 1958), Prof. F. A. Hayek takes a simple definition of competition endeavoring to gain what another endeavors to gain at the same time. Then he puts the question:

How many of the devices adopted in ordinary life in that endeavor would still be open to a seller in a market in which so-called perfect competition prevails?

He says:

I believe that the answer is exactly none. Advertising, undercutting, improving "differentiating" the goods or services produced are all excluded by definition-"perfect" competition means indeed the absence of all competitive activ

ities.

This concludes my reference for authoritative rejection of "perfect" competition as a model for reconstruction of our economy.

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