CONCENTRATION RATIOS IN MANUFACTURING INDUSTRY,

1958

INTRODUCTION

This report was prepared by the Bureau of the Census at the request of the Senate Subcommittee on Antitrust and Monopoly and consists of a presentation of concentration ratios for manufacturing based on the 1958 Census of Manufactures and other years. Through years of usage the term "concentration ratio" has come to mean the share of the total activity or resources of a given segment of the economy accounted for by its largest companies. In order to avoid disclosure of the operations of any individual firms, concentration ratios based on census data are presented in groups of four or more companies, that is, the four largest, the eight largest, and so forth.

In this, as in similar previous reports, no attempt is made to interpret the significance of the concentration figures. The ratios are not used as the basis for an analysis of either the causes or effects of concentration. The report consists merely of a presentation of the ratios themselves.

In this respect the report is in the tradition of four previous presentations. The first of the tabulations was made a quarter of a century ago. Based on the Census of Manufactures for 1935, the Census Bureau prepared for the National Resources Committee concentration ratios for all manufacturing industries. From the 1937 census, concentration ratios were derived for a large sample of individual products.2 Partly because of the demands upon the Bureau of the Census for other types of data necessary for the conduct of the war effort, no concentration ratios were derived from the 1939 census. But from the 1947 census, which was the first full census following the war, concentration ratios were again derived and issued by the Department of Commerce. For the 1954 census the project was continued by the Bureau of the Census in cooperation with the Senate Subcommittee on Antitrust and Monopoly, and companion reports were issued. The preparation of the 1958 ratios thus represents merely a continuation of what has become a well-established program, the results on which are being jointly issued by the Bureau and the subcommittee.

Unconsolidated and consolidated reports

The concentration ratios based on census data have consistently been prepared on what is known as an unconsolidated basis, and, indeed, represent the only sources of concentration figures prepared in this manner. Virtually all other tabulations have been prepared on

1 National Resources Committee, "The Structure of the American Economy," (1939) app. 7, pp. 239–262. Temporary National Economic Committee, Monograph No. 27, "The Structure of Industry" (1941). 3 Letter of Secretary of Commerce Charles Sawyer to the Honorable Emanuel Celler, Dec. 1, 1949. U.S. Department of Commerce, Bureau of the Census, "The Proportion of the Shipments (or Employees) of Each Industry, or the Shipments of Each Group of Products Accounted for by the Largest Companies as Reported in the 1954 Census of Manufactures" (1957); 85th Cong., 1st sess., Report of the Subcommittee on Antitrust and Monopoly to the Committee on the Judiciary, U.S. Senate, "Concentration in American Industry," (1957).

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a consolidated basis. The difference is that on the unconsolidated basis the total shipments of a given company are not assigned to just one industry. Instead, they are distributed among the various industries in which they are actually made. This can be done from the census material since the reports are received from individual establishments, or plants, which are grouped by the owning company and distributed by industry. In tabulations made on a consolidated basis all of a given company's activities or resources are in effect consolidated in one industry-the industry in which the concern is principally engaged. Since most large companies are engaged in more than one industry, the consolidation of all of their shipments in one industry may yield a decidedly different concentration figure from that based on the unconsolidated method.

Standard Industrial Classification

In the census of manufactures various plants report their shipments in terms of detailed products, and the plants themselves are then classified by industry. The definitions of products and industries used for this purpose are those set forth in the Standard Industrial Classification, usually referred to by the abbreviation "SIC." This is the system of industrial classification developed over a period of many years by experts on classification in Government and private industry. It is employed by nearly all Government agencies and is the system actually in use in presenting most economic data. Business awareness and use of the system has grown rapidly and will continue to increase particularly in regard to its product classes. For the 1958 census, as was also true of earlier censuses, trade association officials and company representatives from nearly all industries reviewed the classifications for usefulness and consistency with accounting practices.

The system operates in such a manner that the definitions become progressively narrower with the successive addition of numerical digits. Thus at one extreme are the 20 very broad 2-digit major industry groups and at the other 7,500 individual 7-digit products. In between are approximately 440 4-digit industries and 4-digit product groups and about 1,000 5-digit product classes. An example of the increasing particularity achieved with the addition of digits is provided by the meat products field, which is part of the 2-digit major industry group, "Food and Kindred Products":

1 Where shipments of products are aggregated into 4-digit totals, without regard to the industry classification of the plants making such products, the term used is "product group.'

1 An establishment is a single physical location where business is conducted or where services are performed. Where a single physical location comprises 2 or more units which maintain separate payrolls and inventory records and which engage in distinct activities for which different industry categories are provided by the Standard Industrial Classification, each unit is treated as a separate establishment. The term "establishment" connotes what is referred to by the term "plant," and the 2 are used interchangeably in this report.

In essence, the system seeks to establish spheres of economic activity which are unique and distinguishable from other spheres because of a composite of similar characteristics which they have in common. These characteristics include similarity of products in terms of their uses and the bringing together of plants which specialize in making these products and account for a significant proportion of their total shipments. They also include similarity of processes, similarity of materials used, and the bringing together of a group of plants which are economically significant in terms of their number, value added by manufacture, value of shipments, and number of employees. These standards flow very largely from the actual structure in to which American businesses have grouped themselves and it is these characteristics that make it the best single system for the largest number of uses. In the great majority of instances an industry is comprised of producers of similar goods or services. Usually, but not always, the products are made of similar materials and by similar processes and the producers usually compete with one another.

For the purpose of measuring concentration the fact that the classification system is not based exclusively on the usage of the product is somewhat of a limitation, since in the economic concept of the market it is immaterial whether products which are substitutable for each other are produced by the same processes, made from the same materials, etc. In some cases the industry and product definitions are too broad, i.e., there are included in the same category products which do not serve the same function and are thus not substitutable for each other; in other cases they are too narrow, i.e., a single category fails to include products which are substitutable, e.g., metal and glass containers.

Another limitation is the fact that the classification's industries and products are regularly being redefined. The need for redefinition arises particularly from the introduction of new products, the declining importance of older products, the introduction of new technologies, the growth of small fields into important industries, and similar dynamic developments. While necessary to keep the classification abreast of the changing nature of the economy, an inevitable cost of redefinition is the loss of comparability for many categories over

time.

The latest revision of the "Standard Industrial Classification" was made in 1957 and used in the 1958 census. The application of these revisions would have made it impossible to compare for a considerable number of industries their concentration ratios in 1958 with those of 1954 and 1947. Because of the importance of showing for as many industries as possible the change in concentration over time, it was decided to derive the concentration ratios within each industry according to the classification system as it existed in 1954. As a result, historical comparability from 1947 to 1958 has been maintained for virtually all of the approximately 440 4-digit industries shown in tables 2 and 3.

Concentration ratios for the 1,000 5-digit product classes were computed for the first time in 1954. Since there was thus far less need for maintaining historical comparability, the 1957 revisions in the classification were used in deriving the 1958 concentration ratios for the

product classes, which are presented in table 4. Within table 4, concentration ratios for 1954 are shown wherever the product class or group is directly comparable with the 1958 definition.

Industry and commodity approaches

Under the industry approach each plant is assigned to one or the other of the approximately 440 4-digit industries. This is done primarily to secure needed information on payrolls, man-hours, cost of materials, value added by manufacture, and other matters which relate to the operations of the entire plant. As part of this process the entire shipments of the plant are also assigned to a particular industry. This will include not only its output of products classified in the industry (primary products) but of products classified in other industries as well (secondary products). Thus, on the industry basis, the concentration ratios are derived by calculating the total shipments of plants belonging to the largest companies as a percent of the shipments of all plants in the industry. The industry approach is used in the preparation of tables 2 and 3 (on the old SIC basis) and in tables 5 and 6 (on the new SIC basis).

The ratios in table 2 were derived by aggregating the value of shipments (including primary products, secondary products, and miscellaneous receipts) for the establishments under a common ownership or control which were classified in each industry. The companies were arrayed by size and aggregates were obtained for the 4, 8, 20, and 50 largest companies. The total value of shipments for each of these groups was divided by the total value of shipments for the entire industry. In table 3, the same procedure was followed in calculating the shares of the largest companies of the total employment of each industry.

The commodity basis of measuring the economic importance of large companies avoids the complications of secondary products inherent in the industry basis, since it relates shipments of specific products from the plants of the largest companies to the total shipments of such products irrespective of the industry classification of the plants in which they are produced. It minimizes the changes in ratios which may occur occasionally in the industry tabulations because of changes in the industry classifications of large plants. Such changes in industry classification arise because of minor shifts in product mix of diversified plants and are more likely to take place in industries of relatively low specialization ratios.

The commodity approach lends itself to greater detail than the industry approach since the calculations can be made at any commodity evel: individual products (seven digit), product classes (five digit),

1 A special problem arises from the fact that in addition to the concentration ratios for the 4-digit industries, ratios were derived not only for the 5-digit products but for 4-digit product groups as well. The cov erage of the 4-digit industries is in theory the same as that of the 4-digit product groups, but because the 1957 revisions were used for the product but not for the industry tabulations, any attempt to compare industry totals and product group totals for the same 4-digit SIC number should be made with considerable caution and with reference to table 7 of this report.

As part of the 1958 Census of Manufactures, separate reports have been issued for each industry. In view of the change in the classification system, each establishment report processed in the 1958 Census of Manufactures was first classified and tabulated on the basis of the old SIC industry definition and then classified and tabulated on the basis of the new SIC definition. The preliminary reports MC20(P) through MC39(P) were on the old SIC basis; the final reports of the 1958 Census of Manufactures, however, have been issued on the new SIC basis.

Table 7 of this publication provides a "bridge" between the 2 classification systems by showing how the new SIC industries are related to the old SIC industries. Pt. 1 gives the derivation of each new SIC 4digit industry from the old SIC industries in terms of 1958 data. Pt. 2 is the reverse, showing how the old SIC industries were distributed into the new SIC industries. Table 7 appears as appendix C of the 1958 Census of Manufactures report MC58(S)-4, "Industry Descriptions," which also contains detailed descriptions of the 4-digit industries on the new SIC basis.

and industry product groups (four digit). In the accompanying table 4, the share of the largest companies has been calculated for the five-digit product classes and four-digit product groups. Because secondary products are excluded, the commodity approach more closely approaches the concept of the market.

The difference between the industry and the commodity approach can be illustrated by the example of bolts, nuts, washers, and rivets. While the major share of the output of these products comes from plants which are principally engaged in their production, substantial quantities are also manufactured by plants classified in other industries, such as steelworks and rolling mills and screw-machine products. At the same time plants classified in the bolts, nuts, washers, and rivets industry also manufacture products of other industries. The resultant overlapping is evident from the following table:

1 Includes $56, 000, 000 shipped from industry 3312, steel works and rolling mills; $7,000,000 shipped from industry 3451, screw machine products.

Not specified by kind.

Includes the following: screw machine products, $17, 000, 000; metal stampings, $5, 000, 000; power-driven tools, $5,000,000,

NOTE. These figures are based on the revised 1957 Standard Industrial Classification (new Standard Industrial Classification). Although the bolts, nuts, washers, and rivets industry changed as to number (old Standard Industrial Classification 3494), the content of the industry remained substantially the same. Only 3 establishments with 303 employees moved out of the industry and none moved in as a result of the general revisions in the Standard Industrial Classification,

Thus, it will be seen that of the total shipments of $880 million by plants classified in the bolts, nuts, washers, and rivets industry, $755 million consisted of products of this industry, while $72 million consisted of products of other industries and $54 million of receipts from miscellaneous sources. At the same time, total shipments of bolts, nuts, and related products totaled $860 million, of which $105 million was contributed by plants classified in other industries.

Under the industry approach, the concentration ratio would be based on the figure of $880 representing total shipments of plants classified in the bolts, nuts, washers, and rivets industry; under the commodity approach, it would be based on the figure of $860 representing total shipments of these products regardless of the industry in which they are made.

In order to measure the extent to which industry and product statistics may be compared, two measures have been developed, the

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