MONOPOLISTIC AND UNFAIR TRADE PRACTICES FRIDAY, SEPTEMBER 3, 1948 HOUSE OF REPRESENTATIVES, Butte, Mont. The subcommittee met in the Federal court room, United States Post Office Building, Butte, Mont., Hon. Wright Patman, presiding. Also present: Willis J. Ballinger, economic counsel; James W. Foristel, executive director. Mr. PATMAN. The subcommittee will please come to order. Congressman Walter C. Ploeser, the distinguished chairman of the House Small Business Committee, and Congressman William Stevenson, subcommittee chairman in charge of this hearing, intended to be with us today but were unavoidably prevented from coming. I consider it a privilege to represent them in their absence, and will read a statement from Chairman Ploeser: Ladies and gentlemen, this is the first of 12 scheduled hearings to be conducted by the Select Committee on Small Business of the House of Representatives in its study and investigation of the problems of small business resulting from monopolistic and unfair trade practices. The committee between now and October 12 will visit also Casper, Wyo.; Salt Lake City, Utah; Kansas City, Mo.; Omaha, Nebr.; Minneapolis, Minn.; Madison, Wis.; South Bend, Ind.; Detroit, Mich.; Louisville, Ky.; Oklahoma City, Okla.; and Houston, Tex., in that order. The purpose of the committee's hearings can be simply stated: For more than half a century Congress has had upon the statute books laws intended to provide fair play in business. These laws were designed basically to protect and preserve the most essential features of the American way of economic life. We live in an economic system called capitalism. The motor of this system is free and fair competition. When competition is not free, monopoly replaces competition. Monopoly means restrained trade, the creation artificially of scarcity, the destruction of jobs for workers and ultimately lower standards of living for the people. When competition is unfair, men lost their businesses and feel that the system is unjust. Only when competition is both free and fair is the system workable and justifiable-it then provides a maximum amount of production, jobs and prosperity for the people and that necessary loyalty to the system itself. It is our important job to keep the system workable. It is a fact that for many years small-business men have been complaining that the antitrust laws of the Nation have failed dismally to accomplish the purpose for which they were intended. Small business has clamored that these laws have failed to halt the onward march of monopoly and concentrated economic power. Small business has charged that unfair and destructive trade practices have flourished, though such practices were prohibited by existing laws. The purpose of the committee's hearing is, therefore, of great importance. Why have the antitrust laws failed? What must be done to make them effective? 1 Because of prolific complaints received from small-business men regarding the failure of the antitrust laws, the present inquiry of the committee was launched in May of this year supported by trade groups whose aggregate membership exceeds 2,000,000 small-business men. The complaints of so many small-business men in themselves testify convincingly of the seriousness of the problem. At the conclusion of these hearings and probably others to be scheduled later, the committee will write a report to the Congress making recommendations as to what must be done to vitalize the antitrust laws The House Small Business Committee was specifically charged by the Congress in its creation with the duty of protecting the welfare of small business. Numerically, small business is the foundation and backbone of our economy. There are more than 3,500,000 small-business enterprises in the Nation accounting for the employment of millions of workers and the transaction of trade running into many billions. In all these communities that the committee will visit, we earnestly ask all small-business men, in defense of their own interest, to come forward and tell the committee their problems. Upon your testimony will depend in large measure your own salvation. Mr. PATMAN. We have with us the executive director of the committee, Mr. Jim Foristel, and the economic counsel to the committee, Mr. Willis Ballinger. Mr. Ballinger, I presume it will be in order for you to call the first witness, and the subsequent witnesses, you to first interrogate them, then if I desire to ask any questions after you have finished each witness, I will ask them; then Mr. Foristel, the executive director, will ask any questions he desires to ask. Is that the regular order? Mr. BALLINGER. Yes. Before I call the first witness. I have a letter here I would like to put in the record from the National Federation of Small Business, which is one of the largest organizations of small-business men in the country. It is from the director in charge of the Washington office, and is addressed to the chairman of the committee, the Honorable Walter Ploeser. I would like to read this letter and have it appear in the record: At the start of the initial hearings of your subcommittee on the problems facing small business, I am instructed to advise you that the National Federation of Small Business, Inc., which has the largest individual membership of any business organization in the Nation, goes on record unreservedly in full support of the committee's undertaking. The head office at San Mateo, Calif., has already bulletined district and division managers, also membership, of the federation in the respective States in which you will hold hearings between September 3 and October 12, to be present in goodly numbers; and more important, small business to take advantage of these hearings to present their problems at the hearings. As we look at the situation, if small business is to be preserved as an important part of our Nation's economy, it can be done with all-out vigorous enforcement of the antitrust laws; and more important, that adequate increased appropriations be made by the Congress in the enforcement of these laws. It is hoped that the committee will receive testimony to the effect from smallbusiness spokesmen that the present actions of the courts in levying fines where these laws have been violated, is no deterrent to that type in industry in preventing violation of the antitrust laws. More severe penalties must be inflicted which will act as a deterrent and will result in saving the life of small business of this Nation. It is the federation's hope that small business attending these meetings will talk freely and lay the facts of the true situation facing them in their respective business operations right on the line. May I request that this message be placed on the record with your committee's initial hearing, and with the further assurance of all-out support by the federation to your important undertaking. (Signed) NATIONAL FEDERATION OF SMALL BUSINESS, By GEORGE J. BURGER, Director. STATEMENT OF IRA SAKS Mr. BALLINGER. What business do you represent? Mr. SAKS. I am president of the Accurate Parts Manufacturing Co. at Cleveland, Ohio. Mr. BALLINGER. Are you speaking here as a representative of your company or as a representative of an association or organization? Mr. SAKS. No, just a representative of my own company. Mr. BALLINGER. Have you a statement you wish to make to the committee? Mr. SAKS. Well, the statement that I want to make will be in several parts, the first part of which I want to say is that as a small manufacturer, speaking for myself, and also, as far as my experience goes, with many other small manufacturers fabricating steel products, it is impossible for a small manufacturer to secure his steel requirements unless he resorts to black-market purchases. Now, black-market purchases, of course, means an increase in the cost of the raw material, ranging anywhere from 25 to 250 percent. That is almost being equivalent with not being able to compete with the products that you are manufacturing in the market. Mr. BALLINGER. Our inquiry today relates to monopolistic practices and other unfair methods of competition. The problem of scarcity is an entirely different problem. How do you relate the subject which you are discussing to this investigation? Mr. SAKS. I relate it in this respect: From my own observation, it is not so much a case of scarcity as it is a case of maldistribution and malpractices in the distribution of steel. Mr. BALLINGER. When you say "malpractice," do you mean monopolistic practices? Mr. SAKS. Yes, sir. Mr. BALLINGER. Explain to the committee what monopolistic practices you refer to. Mr. SAKS. No. 1: You probably know from what you read in the newspapers that a good many large steel users have been out buying up steel mills in order to insure a source of supply for themselves. These mills, when they are purchased by a certain individual, a large manufacturer, the product of that steel is naturally taken out of the market and diverted exclusively to that manufacturer's requirements. In a good many instances small manufacturers have been getting steel from these plants and these sources of supply, and they are naturally cut off. The second practice which has been going on over a period of years is that a good many of the large steel producers have been acquiring what we call fabricating plants producing finished products of their own. They naturally favor their own fabricating plants with their steel requirements, which also makes it difficult for the small-business man to get any steel that he needs. The third practice, of course, is the factor that the large corporations, having the influence that they have, both from the standpoint of their quantity purchases and also from the standpoint of their in terlocking directors and relationships, get the steel. They get plenty of steel. As a matter of fact, I know that there are many steel warehouses at points like Cleveland, Detroit, and Toledo that have reserve steel stored away on which these large corporations are paying storage charges. This reserve steel that they are holding-they have not only enough steel to take care of their own requirements but also enough steel to supply all their parts producers with the steel that they require for their parts. These three factors, plus the fact that there are today in our economy what the Government considers essential industries, such as railroad cars, home heating equipment plants, and so forth, who are allocated a certain amount of steel by the Department of Commerce, plus our export of steel, which leaves nothing for the little fellow, except what the big fellows choose to divert into the black market and get high prices for. Mr. BALLINGER. What do you think of our policy of exporting steel? Have you any criticism to make of the existing policy? Mr. SAKS. Yes. I think there are two things the matter with it: In the first place, the Government agencies, for some reason or other, are permitting too much steel to go out and they are not careful about where the steel goes. I believe that a good deal of it, from what I have heard and seen, gets into Russia, when it is originally perhaps sent to other countries. The second criticism I have to make is this: We are now—when I say "we," I mean the United States, Britain, and France-dismantling steel plants and destroying steel plants in Germany. Some of them are being completely destroyed, some of them are being moved to Britain. These plants are located at the source of the ore and coal and could produce steel for Europe. Instead of that we are destryoing these plants and we are using our steel to supplement the production that these plants could produce for European needs. I think these things should be stopped in order to preserve as much steel for our own needs as we can. Mr. BALLINGER. Mr. Chairman, with your permission, at this point I would like to put in some factual information which will tend to substantiate what the witness is saying. This information comes from the research staff of the committee. The staff has found that last year, 1947, we exported twice the amount of steel that we said we were going to export, 100 percent more than we said we were going to export. We also exported 286,000 tons of steel to Sweden which heretofore has never been a steel importing nation, and which last year produced the greatest steel tonnage in its history. The query is where that steel went to after it got to Sweden. Mr. PATMAN. The information may be inserted. Mr. SAKS. As a matter of fact, we have been purchasing certain types of steel from Sweden for years. We have been importing certain types of steel from Sweden. I never heard of Sweden requiring steel from the United States. Mr. BALLINGER. I want to add one more thing: We have been making a collection of newspaper advertisements which are really amazing; namely, that with the shortage which exists in this country, there has been taken a terrible drain from the little fellows who cannot find steel. We have found advertisements in certain American papers which offer you all of the steel you want, but when you look underneath you will find it is from foreign sources. The committee staff is of the opinion this steel is being imported, and kicked back into America in the black market, and we are paying through the nose for our own steel. Mr. SAKS. I believe if your committee could get some way to trace and check the shipments on steel made by the various steel mills, you would have no difficulty in substantiating all of these facts that I have been enumerating, because I know of several instances in Cleveland alone where certain manufacturers have been purchasing steel way in excess of their requirements, diverting it to the black market and making a very substantial profit on it through sale of that excess steel in that way. Mr. BALLINGER. Mr. Saks, you pointed out here that in the steel industry the big companies are acquiring more fabricating plants. Mr. SAKS. Yes. Mr. BALLINGER. And that large manufacturing concerns are acquiring steel mills too. Mr. SAKS. That is right. Mr. BALLINGER. Have you any comment to make upon this practice? Do you think it is a wise thing to allow a further acquisition of fabricating plants in the steel industry by large companies? Mr. SAKS. Well, no, I do not think so because the natural advantage that these plants have, both from the standpoint of the natural advantage that these plants have, both from the standpoint of securing their supplies, plus any advantage that might be passed on to them. For instance, we have a case where a certain steel mill, we have been buying a certain amount of steel from regularly-and we were in the habit of placing our orders from 4 to 6 months ahead of time—when we sent our order in to cover our fourth quarter requirements for 1948, the district sales manage came up to our office and brought the order with him. He said: "Gentlemen, I am sorry we will not be able to take this order any more. We cannot book it." "Why?" Well, he said, "I will be perfectly frank with you. We have just acquired a steel barrel manufacturing plant and that plant is going to require a good deal of the steel that we have been using-that you have been using, and that several other people have been using, and we have to supply this particular plant with the steel." This goes on all the time because these big steel companies are constantly adding small and large manufacturing units to their set-up. Mr. BALLINGER. Do you think some of the steel companies are too large? Mr. SAKS. Well, of course, I do not know how high is up, and I would not want to express any opinion on that, but I think that when certain corporations begin to spread out in all directions and exert too much |