drug firms have expanded into such fields as baby foods, baking mixes, waxes and polishes, dyes, paints, and insecticides.

The report concludes that the ultimate significance of this loophole in the law lies in the question of the public interest. It closes with these words:

No great stretch of the imagination is required to foresee that if nothing is done to check the growth in concentration, either the giant corporations will ultimately take over the country, or the Government will be impelled to step in and impose some form of direct regulation in the public interest. In either event, collectivism will have triumphed over free enterprise, and the theory of competition will have been relegated to the limbo of well-intentioned but ineffective ideals. This is a warning which the Commission has repeated time and again, and one which some of those who have the most to gain by the preservation of competition seem determined to ignore.

The Commission believes that the economic forces, on which it has been basing its warnings, require that a definite choice be made. Either this country is going down the road to collectivism or it must stand and fight for competition as the protector of all that is embodied in free enterprise.

Crucial in that fight must be some effective means of preventing giant corporations from steadily increasing their power at the expense of small business. Therein lies the real significance of the proposed amendment to the Clayton Act, for without it the rise in economic concentration cannot be checked nor can the opportunity for a resurgence of effective competition be preserved.

INTERNATIONAL CARTELS

During the fiscal year 1947, the Commission published studies of the operation of international cartels in the copper and sulphur industries. To those studies there have been added during the past year reports on cartels in the steel and electrical equipment industries.

The term "cartel" applies to a type of combination in restraint of price competition and production which is implemented through agreements among enterprises maintaining separate identities and separate ownerships, stock controls, and managements. From the viewpoint of operation, cartels may be classified as (1) local, (2) national, or (3) international. The Commission's studies have concentrated on agreements among international cartels involving the export trade of the United States, particularly in those types of industries in which cartels can be especially effective, namely, those in which there is a high degree of concentration and control.

INTERNATIONAL STEEL CARTELS

Numerous cartel agreements relating to steel were adopted between World War I and World War II. Certain American companies participated in these agreements, which were both national and international in scope. The international agreements allotted quotas to the different national groups, fixed prices in the export trade, and established reserved and unreserved areas.

These restrictive agreements were of two general classes: (1) Agreements relating to specific classes of steel products, such as steel rails, wire rods, wire products, structural shapes, merchant bars, steel pipe (tubular products), tinplate, etc.; and (2) general agreements, embracing all steel products.

In Europe international agreements of the latter class sometimes attempted to restrain competition both in domestic and international markets by limiting the total tonnage of crude steel to be produced, and by assigning to each national group a fixed tonnage quota.

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The Steel Export Association of America was organized on April 21, 1928, as a Webb-Pomerene Export Association. Its organizers were the United States Steel Products Co. and the Bethlehem Steel Export Co., export subsidiaries of United States Steel Corp. and Bethlehem Steel Corp., respectively. By December 31, 1928, 10 other leading steel companies had been admitted to "limited membership." The Steel Export Association of America began active participation in international steel cartels, or "comptoirs," as early as July 26, 1928, when it became a member of the so-called Two-Party Oil-Country Goods Agreement. Up to the outbreak of World War II, when all international steel agreements were suspended, the Steel Export Association was an active participant in at least 21 out of 25 international steel commodity cartels. In addition, the Steel Export Association actively cooperated with a general, world-wide policy-making cartel including, as participants, the British Federation of Steel Industries and Entente Internationale de l'Aciers, the Continental European steel cartel. This participation followed an understanding arrived at in December 1937.

The International Railmakers Association, formed in 1925, and joined in 1929 by the American group, was a fairly typical "individual product" steel cartel. One of the main objectives of this cartel was to assign to each national group definite percentage quotas which included the total exports from each country both by cartel members and nonmembers. The export markets for the world were divided into "reserved areas" and "unreserved areas." A reserved area was one into which only companies belonging to a particular national group were permitted to sell steel rails. For example, export sales in Cuba and the Republic of Panama were reserved for the American group, unless it had equaled or exceeded its export quota.

In unreserved areas the cartel management committee fixed the minimum prices to apply to all export orders, except in case of competition from nonmembers, in which case the price was fixed by the London committee. Whenever, in order to prevent a nonmember from obtaining an order, a cartel member was directed to offer a price lower than the cartel figure, he was compensated for the difference out of the cartel reserve fund. Thus, the steel rail cartel was so operated that it united the combined financial resources of the members against nonmembers to eliminate price competition from the world's steel export market.

It would appear that at least in some respects the cartel agreement worked against long-run interests of the American producers. For example, while the Steel Export Association of America limited the sales by its members in the internal markets of European member groups, it avoided the imposition of like restrictions in the cartel agreements with other nations respecting imports into the United States-apparently for the purpose of complying with the provisions of the Webb-Fomerene Export Act.

INTERNATIONAL ELECTRICAL EQUIPMENT CARTEL

The high degree of economic concentration in the electrical equipment industry, which exists in each of the important industrial nations, has been particularly conducive to the establishment of effec

tive international cartels. As early as 1923, the two leading American companies produced 72 percent of all types of large power equipment made in this country, with the degree of control ranging from 58 percent in the case of direct-current generators to 96 percent for railway motors. Similarly, in the other important electrical equipment producing countries of Europe and in Japan, three or four interests generally dominated the industry in each country.

In 1928 the Federal Trade Commission called attention to the economic importance and significance of patent agreements between the dominant domestic and foreign electric equipment companies, stating:

Not only is direct foreign competition in the United States eliminated, but the possibilities that other manufacturers will obtain the right to use important foreign patents, trade secrets, and manufacturing information and experience is also forestalled to the extent that the contracts give exclusive rights in America to the two large companies from whom they must be obtained if they are to be used by any other American company.

A world-wide international cartel in the electric equipment export market was executed December 13, 1930, with the adoption of the International Notification and Compensation Agreement. It included as members the principal British, German, and Swiss electrical equipment manufacturers. Export subsidiaries of General Electric and Westinghouse tentatively became members, but when they were advised by counsel that the execution of the cartel agreement in this manner probably constituted a violation of the antitrust laws, there was organized on February 4, 1931, a Webb-Pomerene Export Association known as the Electrical Apparatus Export Association. Its original members were International General Electric Co. and Westinghouse Electrical International Co. Later, other manufacturers of widely diversified types of electrical apparatus and appliances were admitted to membership in various commodity sections organized within the parent association.

The primary functions performed by the Electrical Apparatus Export Association were those of allocating the export business among its members and of agreeing on the prices to be charged for export shipments. The association also served as the agency through which agreements and understandings were entered into with foreign cartel members. In practice the export business of the members was conducted by the member companies, themselves, except in those cases where two or more American companies contacted the same foreign project. In such cases, agreement was reached through the association as to (a) which company should make the sale, or (b) the proportion allotted to each company, and (c) the sale price.

The "section" agreements typically included an agreement respecting export prices. In the case of electrical appliances, such as refrigerators, ranges, or washing machines, where rival manufacturers maintained different prices in the United States, no attempt was made to establish uniform export prices. However, each member was supposed to furnish his price lists to every other member, and each member was required to adhere to his listed prices until the lapse of a specified time after he had notified the association "supervisor" of a price change.

MANUFACTURE AND DISTRIBUTION OF FARM IMPLEMENTS

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Many of the agreements on items other than electrical appliances provided for uniformity of export prices, which were based either on domestic price lists, subject to agreed modifications to cover packing for export and transportation to port of shipment, or on agreed discounts from the domestic price lists.

MANUFACTURE AND DISTRIBUTION OF FARM IMPLEMENTS

In addition to the reports on mergers and cartels, the Commission also completed a report on the production and distribution policies of large manufacturers of farm machinery, bringing down to 1947 information respecting a number of important developments and trends in the industry discussed in earlier reports of the Commission.

CONCENTRATION IN MANUFACTURE

As background for study of the effects of production and distribution policies, the report traces the steps by which the principal manufacturers of farm implements have grown to their present positions of size and leadership as manufacturers of long lines. Briefly, each of the seven largest companies began as manufacturers of a single line of implements. From these beginnings, each principal company has grown in size and length of line manufactured, largely through acquisitions and consolidations of previously existing companies. Thus International Harvester Co. was formed in 1902 as a consolidation of previously existing manufacturers of harvesting machinery, and subsequently added other lines, both by acquiring other companies and by itself developing new types of machines. John Deere started as a manufacturer of steel plows and tillage implements, to which it subsequently added-largely by the purchase of other companies-farm wagons, hay tools, manure spreaders, corn shellers, chilled plows, grain drills, gasoline engines, potato machinery, threshers, and deep tillage implements.

Allis-Chalmers, the most recently developed company of the "Big Three," originally made no farm implements. It entered the agricultural field with a tractor in 1915, and since that time has strengthened its position and lengthened its line by acquiring companies making, respectively, tractors, plows and tillage implements, threshers, clover hullers, and deep tillage implements. J. I. Case Co. originally manufactured only threshers, to which it has added, by acquisition, haying, harvesting, threshing, and planting machines. Oliver Corp., originally founded to manufacture chilled plows, has added, by company acquisitions, lines of tractors, feed grinders, potato machinery, threshers, hay presses, corn huskers, and seeding machines. MinneapolisMoline, originally a manufacturer of plow, tillage, and hay implements, has acquired other companies making tractors, threshers, wagons, and seeding machines. Massey-Harris, Ltd., the Canadian parent company of Massey-Harris Co. (Del.), originally manufactured plows and hay rakes, to which it added, by acquisitions, such lines as wagons, manure spreaders, harvesting and haying machines, plows, and tillage implements.

POSTWAR PRODUCTION POLICIES

As early as 1944 farm machinery manufacturers began planning to increase production to supply the backlog of farm demand growing out of restricted wartime production and a total farm income in 1945 that was nearly twice that of 1929. Producing capacity was modernized and increased, and plans were made to put new machines, and new models of older types, into production. However, shortages of steel, copper, and lead, together with labor troubles and other factors, prevented full attainment of production plans for 2 years after the termination of hostilities. Inability to obtain some kinds of materials, such as steel sheets and shapes, often prevented completion of machines actually in process. One large company was unable up to March 1947 to complete even a pilot lot of an entirely new machine, and another, after retooling at large cost, stated in January 1947 that it had the factories, men, and capacity, but could not obtain the necessary raw materials to attain its production plans for the year 1947. This situation continued into 1948, especially for the smaller companies. Notwithstanding these limiting factors, however, the industry actually produced more machines of many types in 1946 and 1947 than were produced in any prewar year, without, however, satisfying the demand.

DISTRIBUTION OF FARM IMPLEMENTS

The farm-implement industry provides a striking illustration of two of the end results of economic concentration. The first is the decrease in the number and importance of independent producers, as one manufacturer after another is bought up by the larger companies. The second is the increased control exercised by the large producers over the activities of independent distributors. The large farm implement manufacturers have practically eliminated the farm machinery wholesaler by establishing their own branch-house distribution to serve independent retailers. Moreover, they have strengthened their control over the retailer by the use of annually renewable retail dealer franchise contracts.

A farm-machinery dealer exists by virtue of a dealer-franchise contract, the value of which increases with the length and popularity of the manufacturer's line in the dealer's territory. The possession of a contract with any particular dealer, however, is not equally important to the manufacturer, who operates in accordance with broad policies to which the dealer must conform. The application of these policies through the manufacturer's interpretation of the dealer contract has given rise to many complaints by dealers. Two principal contentions are (1) that the contracts formulated by manufacturers inadequately define the rights and obligations of the parties, and (2) that the contracts are lacking in mutuality.

The Commission's inquiries point to the conclusion that not all dealer complaints are well-founded and that some are baseless. There are, however, a sufficient number of instances of well-founded complaint to indicate that undue pressures and inequities often exist in the distribution of farm machinery. Their nature and extent varies as between different companies, and even as between different branch