42 PLANNING, REGULATION, AND COMPETITION which promote competition if antitrust plays its proper role of preventing powerful concerns from sustaining or creating market power, where it is unnecessary. This is what has happened in the postwar years. Antimerger policy prevented what had been happening previously. For example, before 1950, every time big steel's position was being eroded, a merger or two during a decade was enough to replenish its market position. As a result, from 1901 until the time the Bethlehem-Youngstown merger case was brought, in 1956, the top four's position had remained about the same. Since these kinds of mergers have been stopped, we have had erosion set in. We have not accomplished everything by any means. But even in steel, we have had this kind of erosion occur. So I am unwilling to concede that we will never solve the problem of GM. But, even if we do not solve the auto industry problem, this is no basis for abandoning antitrust policy. After all, it is a very small part of total American antitrust experience. Senator MORSE. Thank you very much. Professor Adams? Dr. ADAMS. To come back to what Professor Galbraith said during his last comments, and also in his book, I would observe that again, his great virtue is in focusing on the real issue, which is the problem of power in an advanced industrial society. But if he is correct, as I think he is, in describing the size and shape of this new power, then he would conclude that what we have here is a state within a state. We have an imperium in imperio. And I think it is unrealistic and romantic and quixotic to assume that this state is somehow operating within a hermetically sealed world which is completely separate from and does not have any influence over Government. Indeed, I think this is one of the major problems that we have to face up to. If we permit this proliferation of giantism in the economy, how long will it be before that new industrial state controls the Government itself and where will that countervailing power, which Professor Galbraith relies on in advocating some systematic price controls in oligopolized industries, where will that discipline of Government action come from? I think the virtue of the much-discredited competitive market is precisely in the decentralization of power which is implicit therein, the system of checks and balances that is built into the structure, and, therefore, that society is protected through this dispersion of power so that no one vested-interest group can take advantage of society at large. I think this is not only an American faith, however romantic it may be. I think it is a pragmatic necessity for the survival of democratic institutions. Senator MORSE. Senator Long has a question. Senator LONG. Let me just say, before I get to my own question, that Senator Baker came here with a letter from an outstanding young antitrust lawyer who poses a number of questions which are directed, really, to Dr. Galbraith. They are challenging questions, 16 in number. I would hope that Dr. Galbraith might look at this and comment on them at such time as he sees fit. That would have to be done, I would PLANNING, REGULATION, AND COMPETITION 43 assume, after the conclusion of this hearing. We just would not have time to go into it in the time remaining today. But I think Senator Baker intended you to answer some of them. They are all challenging inquiries.2 May I say that your statement is very challenging and thoughtprovoking, because it does recognize our failure to move effectively in a number of these fields. Frankly, I have tortured myself wondering about this very problem, whether we are really going to achieve what we had hoped to do by means of the antitrust approach, or whether we should address ourselves to the facts of life in this area. I want to direct this question to Mr. Turner. Here is a quotation from Dr. Galbraith's book, page 187. Incidentally, I had to learn how to use ordinary, everyday words in order to get by politically, and it is sort of hard for me to adjust myself back to the vocabulary I learned in college. You say, Dr. Galbraith: If a large and puissant corporation has 40 or 50 percent of the market for some steel, chemical, drug, vehicle, or other product, and is expanding its own share vigorously, it is regarded by the law with a benign eye. But if two smaller competitors unite and the resulting union has more than a mere 15 percent of the market, there is every likelihood that the law will be invoked. Again, the law exempts those who possess the market power and concentrates on those who try to possess it. The form is prosecuted; the substance is exempt. We discriminate against those who, as a result of numbers and weakness, must use crude or overt methods to control their markets in favor of those who, because of achieved size and power, are under no such compulsion. May I say that I have found myself applying that same general philosophy about the ITT-ABC merger, with the feeling that all we are doing here is putting ITT in the same competitive position Radio Corp. of America is in already. What is your reaction, Mr. Turner, to this quotation? I am not going to ask you about that merger; I am talking about this argument that Dr. Galbraith makes. Mr. TURNER. I endeavored to deal with this to some extent, Senator, in my comments and conclusions about the presentations by other members of the panel. Let me endeavor to go at it again. First, we do not look necessarily benignly at the situation first described that is, of corporations that have a very high proportion of the market. We are indeed limited to varying degrees in the ways in which we can get at this. The fact that we cannot in some instances get at it, does not mean that we are viewing them benignly. One of the reasons why we cannot deal with some of the situations is that some positions have been acquired in perfectly legitimate ways, and it has been thought, up to this date at least, that when corporations acquire a position simply by being better or winning the race, they have not thereby in that way alone violated the antitrust laws. But setting all that aside, the question as to whether a merger of smaller companies is necessarily something to be permitted is not an easy question at all. In substance, what Mr. Galbraith is saying is that it does not make any sense to stop mergers of smaller companies if they are smaller than the big guy. See App. A, p. 47. 44 PLANNING, REGULATION, AND COMPETITION My answer to that is: I disagree. This is a very difficult question. There may well be situations where to permit the merger of small but substantial competitors is very likely to make the industry performance worse than it otherwise would be. I gave one example. It happened to be the steel industry. I am sure there are others, in which companies, those smaller than the market leaders, are at least as efficient, at least as able to compete, at least as able to provide a real competitive force, and, therefore, it makes perfect sense under the antitrust laws to prohibit a merger which would eliminate one of them, which will make the situation worse rather than better. I would, of course, not want to comment at all in detail or even in generalities on the ITT-ABC case. But abstracting from the facts of that case, I would say again that the mere fact that you have one company which is in a certain position in an industry does not necessarily mean that you should encourage the other members of that industry to reach the same position. The question as to whether that will benefit competition or not benefit the competition in the industry is a question of fact. It is not something that can be readily assumed. There are, of course, instances where companies are indeed extremely small and it would be ridiculous to attack them if they were proposing to merge. And we have hosts of examples of that. There were various mergers of smaller companies in the automobile industry. They were not attacked by the Antitrust Division and I do not think anybody had the idea they should be attacked. But that was a case where it was so clear that the companies were operating under severe disabilities and that, if there were any prospects for them to survive, merger was one of the ways they could. Unfortunately, not even merger enabled a few of them to do so. Senator LONG. It seems to me that the failure of the Government, and I think even the regulatory agencies, to use the power available to them has not even been fair. I recall we made this decision about color television. I say "we." It was made by the FCC. CBS had a portfolio of patents and so did Radio Corp. of America, NBC. Now, whichever system was chosen caused the other fellow's patents to be worthless. One company would be left with a worthless patent portfolio-a whole series of patents it could not use. For the life of me, I cannot see why the Federal Communications Commission, when it accepted the proposal of NBC, could not use that leverage and say, there will be a very modest fee for anybody who wants to manufacture this or anybody who wants to use it, rather than that we select one system or the other. It seems to me when they had these two vying for it, they could very well have used that leverage to have achieved a very good deal for the public and a good deal for competition. What is your thought about that? You were not here at the time, so I hope you would be free to comment on it. Mr. TURNER. Two things. Whether the Commission could have lawfully imposed conditions of that kind, I simply do not know. That may have posed a problem. PLANNING, REGULATION, AND COMPETITION 45 As to whether they ought to have been able to impose conditions in a situation of that kind, I agree that they should. The situation which you describe can be generalized. There are many situations in which the Government can give a position of enormous advantage upon the person selected. The FCC did that every time it gave a television station to a particular applicant and did not give it to anybody else. The problem will come up in auto safety regulations in the particular standards that are laid down, where they can be met only by the patented product of a particular holder that is of enormous advantage to that holder, and the least, surely, that ought to be done is to make sure that that patented item necessary to fulfill the Government mandate is available to all parties on reasonable terms. In short, I think in any Government regulatory activities of this kind, the Government can and should make every effort to insure that the grant, whatever it may be, does not confer a position of enormous power on a particular party. I agree with you. Senator MORSE. Gentlemen, I am sure we would not run out of observations and arguments for a long, long time to come on this subject. But we have run out of time. I want to thank you very much for the record you have made here this morning. I engage in no flattery when I say it is the best committee seminar I have attended since I have been in the Senate. I want the attention of counsel for the committee a moment. I would like to have the transcript of this hearing submitted to each one of the panelists for corrections and editing. That does not mean the changing of any content, but it does mean perfecting any editing changes that you want to make. As to the letter submitted by Senator Baker in behalf of a constituent who raises a series of questions, I instruct counsel to have copies of the letter made and submitted to each one of the panelists, and, if any of the panelists wishes to make a comment by adding a memorandum to his testimony on any or all of the questions or observations made in the letter, he will be welcome to do so.3 Senator LONG. May I submit a point? It might be more interesting, if each panelist saw what the other panelist had written, so that he could have the opportunity to reply or comment. There are so many challenging questions here. Senator MORSE. My instructions are to leave it to the discretion of the panelists. I do not feel I have the authority to instruct them to exchange views, but I think the Senator from Louisiana makes a good suggestion. I would be glad to have you pass your observations among yourselves if you are so disposed. I close this hearing, again, in behalf of the whole committee, expressing appreciation for the contribution you have made. Senator LONG. I appreciate the opportunity to be a part of this meeting. It has been the most interesting discussion I have heard in committee this year. I have attended some hearings involving a lot of money, but I do not think any more challenging or more interesting than this. I appreciate it. Senator MORSE. We stand in adjournment. (Whereupon, at 1 p.m., the subcommittees adjourned.) 'See App. A, p. 47. APPENDIXES Dr. JOHN KENNETH GALBRAITH,1 APPENDIX A UNITED STATES SENATE, SELECT COMMITTEE ON SMALL BUSINESS, DEAR DR. GALBRAITH: Here is your copy of the letter and the attached questions sent by John A. Rowntree, Esquire, of Knoxville, Tennessee, to Senator Baker. You will recall that Senator Morse directed that this document be inserted in the record of today's hearing and that each of the four speakers be invited to submit answers to or comments on any or all of Mr. Rowntree's points and questions. If you do wish to submit any comments, we shall appreciate very much your courtesy in getting them to us at your earliest convenience, since we hope to publish the hearing record soon. Senators Morse, Long and Baker, and the entire Committee are deeply grateful to you for your immensely interesting and helpful participation in the "seminar." Sincerely, [Enclosures] RAYMOND D. WATTS, Associate General Counsel. FOWLER, ROWNTREE, FOWLER & ROBERTSON, Senator HoWARD H. BAKER, Jr., DEAR SENATOR: Apparently a fundamental re-examination of the antitrust laws is brewing this week in the Senate Select Committee on Small Business, of which, I believe, you are a member. A panel-type hearing will feature Professor Galbraith of Harvard, Mr. Turner of the Antitrust Division and Mr. Mueller of the Federal Trade Commission. I am much interested. It seems to be a most timely and pertinent confrontation. The best I can gather, the principal point of departure as between Professor Galbraith and Mr. Turner is this: Professor Galbraith says it is senseless to have antitrust laws when installed monopoly and concentrated oligopoly go unchallenged, but mergers in areas of less well defined monopoly and oligopoly are under close examination and are frequently challenged. Mr. Turner, on the other hand, says this makes sense because of the framework of the antitrust law-Section 2 of Sherman makes it hard to challenge existing concentration, whereas the Clayton Act makes it possible to challenge mergers which may substantially lessen competition. It seems to me there are more compelling reasons than this technicality in the law for this apparent paradox. I submit to you the following thoughts: 1. Competition is now, and always has been important in our economy. Necessity is the mother of invention, and there never has been anything like competition to make invention necessary. As monopoly and oligopoly more and more take over the economy, competition becomes more and more precious. 1 Identical letters were sent to Dr. Adams, Dr. Mueller, and Dr. Turner. 47 |