I would like to quote the following from his book: What are the territorial differences in freight rates? On the average, goods subject to class rates, so important to industrial development, must pay rates 37 percent higher in the South than for a comparable service in the East; and in the West these rates are 46 to 71 percent higher than in the East. And this condition exists despite the fact that the unit cost of railroad operation is approximately the same in the South and in the East, and only a little higher in the West, than in the East. Mr. ERICKSON. We are following this antitrust action against the railroads, which is pending in the Federal court in Nebraska. Mr. PATMAN. What effect will this Bulwinkle bill have on that case? Mr. ERICKSON. Mr. Chairman, I am afraid I would launch into oratory if I talked about the Bulwinkle bill. It seems to me it is the most unjust piece of legislation, designed apparently Mr. PATMAN. I am not asking you about the merits of the act. I personally was against it, but people just as honest in their views as I am were for it. What effect will it have on that case? Mr. ERICKSON. It may have the effect of tossing the case out. That may be the end of our hopes to get relief. Speaking of this discussion of the hierarchy set-up in the railroad industry, I have had a good deal of experience in the railroad industry from another angle. I realize it is a complicated industry and inevitably must have a considerable organization. When I hear of difficulties of dealing with Government agencies and the complicated run-arounds that occur, I sometimes think the railroads may have set the original pattern and the Government is keeping it up to some extent. Mr. BALLINGER. Sometime back I was talking to a manufacturer in Atlanta. He said: "If you will look at the map you will find the cost of transporting textiles from Atlanta to New York is twice as high as transporting them from Portsmouth, N. H., to New York." He told me that he had gone to the railroad and told them it would he good business if he could get his goods into the New York market, that he would get more business and they would get more business. He started through the various parliaments and he got stopped very badly. Then he said he took the matter up with the Interstate Commerce Commission and received a letter back from the Secretary stating that he was now on the informal docket of the Commission. He then told me that he waited and waited and then finally he was notified that he was turned down on the informal docket but that he could now go on the formal docket if he wanted to but that it was necessary to know some pertinent facts before that was done. Of course, that might have cost him anywhere from $20,000 to $25,000, including a cost accountant and around $12,000; then the Commission would take about 3 years to determine the case. Then there was the long road of judicial appeals that might have to be traveled, which might make it run from 5 to 10 years, but if he wanted the rate, that is the way to go after it. Mr. PATMAN. Have you finished this part of the testimony? Mr. ERICKSON. Mr. Curtis would like to file the part of his testimony, a letter which he wrote to the Rural Electrification Administration. Mr. Goza. The independent merchants of Montana. Mr. BALLINGER. From whom? Mr. Goza. Principally from the larger operators. Mr. BALLINGER. By "larger operators," what do you mean? Mr. Goza. The chain-store group, principally. Mr. BALLINGER. Would you describe briefly to the committee this act? Mr. Goza. The act has for its purpose the prevention of what had become a most vicious competitive practice in the small-business field. That was the loss-leader business, where a certain item would be selected by a large operator for an extremely low price, a price his competitors could not possibly beat, while at the same time other merchandise was either selling at a decent profit or at an excessive profit. Mr. BALLINGER. You mean that they did this to get the people into the store? Mr. Goza. Yes, sir. Mr. BALLINGER. You heard the testimony this morning of grocers and meat men who said that they have suffered from loss of leaders. Why does not this law apply? Mr. Goza. It does. I do not understand their attitude in that respect, because the law itself has been very successfully administered. The procedure is relatively simple. Under the statute, 10 or more merchants in any retail business can come in and petition the commission for a cost survey in any particular trade area. In Montana, the areas were divided geographically. As the applications were received, the machinery provided by the statute was put into effect. That was simply this: After the petition had been received, notices were published in the papers in each county to be affected. Everyone was advised, both by the public press and by personal letter, to attend the hearings. At the hearing, the commission had testimony from all of the merchants and they were questioned specifically as to their cost of doing business. The statute establishes what shall be considered in establishing that cost. After the commission had taken it under advisement, it established in each trade area what it considered the lowest efficient cost of doing business. As a specific example of that, there is docket 247 in which a cost survey was actually established. That establishes the cost of doing business at 10 percent. Now, the Unfair Trade Practices Act works in this fashionMr. BALLINGER. You mean the cost of doing business at 10 percent above inventory? Mr. Goza. Inventory out of our replacement cost, whichever is lower. The cost of doing business was at least 10 percent. Any merchant in that area finding a competitor advertising a product for sale, or advertising it for sale at a cost which the merchant knows is less than the inventory or replacement cost to the vendor, plus the minimum of 10 percent for doing busines, can file a complaint with the commission. The offender is cited to appear before the commission, a hearing is had and if, in the opinion of the commission a violation was intentional for the purpose of harming competitors it can issue and have issued in many instances, a cease-and-desist order. Under our statute, after three cease-and-desist orders have become effective, the merchant who has three of them is no longer in business. He is denied the right to a license. Mr. BALLINGER. After what? Mr. Goza. After the third offense. Mr. BALLINGER. How does this law work? Is it a 10-percent increase in the price above the cost of inventory? Mr. Goza. Yes, sir. Mr. BALLINGER. How does your cost survey fit into that? Mr. Goza. The cost survey establishes the cost of doing business by the most efficient operator in the trade area. Mr. BALLINGER. You mean on a particular product? Mr. Goza. No, on everything he handles. Mr. BALLINGER. You mean to say that in connection with a grocery store you get down to the cost of selling oranges and the cost of selling eggs? Mr. Goza. No; but we can find out what it cost him to sell eggs, cereal, and other sales by a relatively simple process. He is called in and put on the witness stand. He is asked to state from his record how much his overhead is on all of the various items that go into the cost of his doing business. Mr. BALLINGER. In the grocery business there are certain items known as staples that move at a very much lower market. Mr. Goza. That is not taken into consideration. No attempt is made to segragate dry cereals or dry foodstuffs, as you have said, from the canned goods and everything else. Mr. BALLINGER. They all get a uniform mark-up? Mr. Goza. They all get a uniform mark-up so far as the commission is concerned. Mr. BALLINGER. Does not that raise the cost of living to the poor? Mr. Goza. On the contrary it does not. Mr. BALLINGER. Why? Mr. Goza. Because the most efficient operator is not operating at 10 percent. He is operating at a great deal more than 10 percent. Mr. BALLINGER. Îf in normal times in a grocery store staples move at a 1-percent mark-up under competition, and you are going to apply a 10-percent mark-up, there is going to be a hike to the cost of living, is there not? Mr. Goza. That is not the way it operates. A grocer does not mark up every item in his store, acording to his overhead. He cannot. For instance, he cannot sell a package of cornflakes at his inventory cost plus his cost of doing business, because the people will not buy it. So he takes a lesser mark-up on that item. He has to make it up on some other foodstuffs all in a competitive situation, which brought this thing about. He is not permitted to buy coffee at 57 cents and attract customers to his stores by selling it at 57 cents. Mr. BALLINGER. That still does not answer the point I have in mind. The Federal Trade Commission made many surveys of these unfair practices acts and it was the conclusion of the commission. that they tended to raise the cost of living. Mr. Goza. They cannot tend to do that. Mr. BALLINGER. Why not? Here you allow an over-all 10-percent mark-up under competition, whereas your staples might move at a Mr. PATMAN. That may be done. Mr. ERICKSON. The letter is as follows: RURAL ELECTRIFICATION ADMINISTRATION, Washington, D. C. CURTIS POLE CO., Helena, Mont., July 29, 1948. (Attention: Mr. J. K. O'Shaughnessy, Chief Design and Construction Division; Mr. W. J. Neal, Deputy Administrator; Mr. Joe O'Brien, Chief Technical Standards Division.) GENTLEMEN: It was a great satisfaction and pleasure to meet with you gentlemen in Butte on July 1. We feel that a great deal of good was accomplished and that more frequent contacts would result in harmony and a better understanding of the problems of the pole producers and pole distributors. The main points of discussion at this meeting were as follows: First. That, all the pole-treating plants in Montana were built as a result of continuous and vigorous propaganda by REA expediters in this territory. Mr. Oaas, Sr., produced a notebook in which were estimates given him by Expediter Daugherty and by Major Kelly, of Missoula. In these notes, figures were mentioned to show the tremendous continuous need of poles by REA for several years to come. Mr. Roger Oaas, superintendent of the Anaconda Copper Mining Co. mines at Butte, after talking with Expediter Daugherty and Major Kelly, was, therefore, so impressed with the needs of REA that he started his son in business under the name of Montana Pole & Treating Plant at Butte, Mont. Timbermen were urged to produce lodgepole pine poles in Montana to meet this demand. After seven pole yards were established in Montana at a cost of several hundred thousands of dollars, the dealers were confronted with the fact that REA engineers throughout the Northwest were instructing various co-ops that only pressure-treated poles could be used. As a result of this preference and favoritism for pressure-treated southern pine, two treating plants in Montana have discontinued business and all others are operating only part time, and at a loss. Mr. Oaas, Sr., stressed the unfairness of this action by field engineers of REA, who were evidently acting on the instructions of REA officials in Washington, D. C Second. Discussion brought out the fact that engineers are now and have been designing REA lines which specify the use of practically all one size of pole, viz, class 735. Trees, in the woods, do not grow all of one size and a producer could not economically produce all of one size, nor would the Forest Service of the Department of Agriculture permit the cutting of trees that would make only class 735's. A dealer, therefore, is compelled to buy woods run poles or not at all. The result is that the dealer eventually has his money tied up in many sizes that, under the above-mentioned circumstances, he cannot sell. To relieve this situation, the suggestion was made that poles of various sizes and lengths be used. Mention was made that 35-foot poles were specified to allow for ground clearance of the sag in wire. Suggestion was made that a relative sag allowance could be provided for by using a silghtly greater number of poles per mile where 30-foot poles are used and likewise a less number of poles per mile, if 40-foot poles were used. Also, it was suggested that a greater variety of sizes should be used, viz, classes 8, 7, 6, and 5 in 30-and 35-foot lengths and classes 6, 5, and 4 in 40-foot lengths. Third. Considerable discussion was devoted to the fact that REA field engineers have discouraged the use of poles treated by nonpressure method. Many instances of this practice were cited of engineers in Kansas, Nebraska, and Colorado, We were informed that subsequent to J. Oscar Blew's research work in the Northwest, all field engineers were notified by the head office of REA at Washington that nonpressure poles, if properly treated, were acceptable. Regardless of any such notice some engineers are still advocating the use of pressure treatment only. The following quotation from a letter from Cam-Wall Electric Corp. of Selby, S. Dak., under date of July 26 is a recent example: "In reply to your letter of July 19, your bid was rejected because of the nonpressure method.” Also quotation from another letter dated July 27, 1948, from North Central Electric Cooperative, Inc., at Bottineau, N. Dak.: "It is our intention to construct section E with full pressure-treated Douglas fir poles. Earlier we had planned on using butt-treated larch." Mr. O'Shaughnessy made the statement in the meeting that, in his opinion, it made no difference by what method the penetration and retention of preservative was secured. Mr. Neal and Mr. O'Brien concurred in this opinion. The pole dealers feel that they are entitled to some conclusive evidence and proof that field engineers have been definitely instructed and notified that nonpressure treatment is acceptable to REA, provided the penetration complies with requirements. The new specifications for lodgepole which were to have been mailed out about July 10 have not yet been received. It is our understanding that these new "specs" will not be effective before January 8, 1949. However, we understand that, on new contracts, special permission to use the new "specs" will be granted. We assume that field engineers will be instructed accordingly. Fourth. Some discussion occurred on the subject of the use of Douglas fir poles treated by nonpressure method. As quoted above, the consensus of opinion seemed to be that if the same penetration and retention were secured as is required by pressure method, such poles would be acceptable to REA. Without a doubt, field engineers will be instructed accordingly so that these engineers will no longer tell the co-ops that if Douglas fir poles are used they must be pressure-treated. The use of Douglas fir poles should greatly add to the available supply of sizes suitable for REA construction. We might add that the larger utility companies show a preference for Douglas fir poles treated by nonpressure method, for the reason that these poles do not bleed and linemen do not rebel against climbing them. We have attempted herewith to summarize the main points of our discussion with you. If any statements herewith are not correct, we will appreciate word from you advising us to the contrary. We trust that some of these suggestions can be put into effect immediately before it is too late to solve some of the problems with which the pole men have been confronted and over which they have had no control. If by this time you gentlemen have any new suggestion that may help solve our probelms, we will appreciate same. Very sincerely yours, CURTIS POLE CO. OMAR C. CURTIS, President. ROBERT R. CURTIS, Secretary-Treasurer. Mr. PATMAN. The committee will recess until 2:30 p. m. (At 12:30 p.m. the committee recessed until 2: 30 p. m. of the same day.) AFTERNOON SESSION (The committee reconvened at 2:30 p. m.) Mr. PATMAN. The committee will come to order. STATEMENT OF SAM D. GOZA Mr. BALLINGER. Give your name for the record. Mr. Goza. Sam D. Goza. Mr. BALLINGER. What is your business? Mr. Goza. I am counsel for the Montana Trade Commission. Mr. BALLINGER. What is the Montana Trade Commission? Mr. Goza. The Montana Trade Commission is a commission set up by the legislature for the purpose of administering the provisions of the Unfair Trade Practices Act. Mr. BALLINGER. The Unfair Trade Practices Act? Mr. Goza. Yes, sir. Mr. BALLINGER. When was that act passed? Mr. Goza. In 1937, originally. I have here a copy of the act and its amendments and the regulations of the commission. Mr. BALLINGER. Who were the parties behind the passage of the act? I am asking this because of a previous investigation. |