a growing industry, we decided on a course of branch-warehouse distribution until we operated the following warehouses: Indianapolis, Cleveland, Buffalo, Atlanta, Philadelphia, Baltimore, and Pittsburgh. I mention this background to show my experience operating a chain of warehouses. The Clark business was sold in 1929 to a manufacturer of plywood. Then for 6 years I served as Chicago branch manager for a manufacturing firm which distributed its own plywood. When they sold their business to a chain, I quit, and in May 1937 with a partner, Arthur Schwanke, established Aetna Plywood & Veneer, a partnership which we incorporated in March 1947. It was my thinking in 1937, and still is, that our country would be better off if we had more businesses owned and run by resident owners, rather than chain organizations run by branch managers. Having wide acquaintance in various markets through my former connections, Aetna started right out to distribute its plywood over considerable distances from Chicago. We priced f. o. b. Chicago, but delivered free in what was known as the Chicago trucking zone, about a 40-mile radius area. We used salesmen, direct mail, and trade paper advertising to get business. Since we started in 1937, other warehouses, including in many instances chain warehouses, have gone into business in these areas that we had been serving. Therefore, we have, in some markets, found it necessary to deliver at the price going in that market-that is, we had to equalize freight with that market to hold our trade. For instance, we had some business in Detroit. A chain organization bought out a warehouse business there which had been owned by another chain organization and managed by one of my former Clark Veneer employees. The new owner consolidated the two warehouses and discharged him. He got in touch with us, and we hired him, established a sales office there, and using the overnight-truck delivery into Detroit, we put him in position to serve his trade practically as well as he had before by allowing the freight to Detroit and selling at the Detroit price. This was lower to the trade than our f. o. b. Chicago price plus full cost of trucking from Chicago to Detroit. Our Detroit customers got cheaper prices than they had been paying for our plywood. The increased volume we got cut down our overhead costs, thus making the change of benefit to us and our Detroit customers. This practice has now been in continuous effect for nearly 10 years. The free delivery in the Chicago zone has been the custom of the main Chicago plywood distributors for all 27 years of my plywood-business experience in the Chicago market. I don't know when it was started. It is necessary to continue this to be on a competitive basis. All of our customers within that 40-mile radius have the same, equal basis of cost for their plywood requirements. Our large volume and centralizing of operations reduces our unit overhead cost very materially. As a result, we can remain competitive not only in Chicago on all items we handle, but in various other markets at considerable distance from Chicago, we can also market many of our items on a competitve basis. Since this new Cement case decision has been made, we are at sea as to the application of the principles involved to our pricing and delivering practices, which I have illustrated in the Detroit example and the Chicago delivery zone. If we are compelled to change our pricing practices it will mean a substantial decrease in volume with a corresponding increase in overhead, requiring us to increase our prices or go out of business. Our other alternative would be to try to establish branch warehouses with duplicate stocks in these competitive markets that we have been serving, and to do it at a time when warehouse space is short and building costs the highest they have ever been. Either contingency, we believe, would be an injury to the public. During the war, a distributor in Grand Rapids, who had been in business for many years, liquidated his business. We had a substantial volume in that market, and in order to protect the business we had there, decided to make an experiment by putting in a warehouse to serve that trade and to forestall the danger of losing our business to a competitor or competitors who might spring up there and be in more active competition than we had faced before. That was done about 1945. Our experience has shown that it has cost more money to serve this Grand Rapids market than it would have cost us could we have been assured of the same volume and handled the shipments from Chicago. At the same time, we could have given our customers just as good, or better, service had we continued to ship from Chicago. As I stated earlier, we have no desire to establish a wide chain of branches, but prefer to keep our business on a smaller scale which we can handle efficiently from our central Chicago warehouse. We have been able to give our customers the service they needed and to supply them the kinds, sizes, quality and quantity of plywood they wanted at prices fair both to them and to us. We feel these results could not be accomplished readily, if at all, were we compelled to adopt a uniform pricing method based upon either an f. o. b. our warehouse or an f. o. b delivered basis. Either leads to the same results if either basis is made mandatory. Either would restrict our marketing area and curtail our volume, thereby automatically increasing our unit cost of handling and forcing us to raise our prices or else go out of business. If we can operate our business without new restraints, we believe we can render our trade maximum service at minimum costs to us and still operate at a profit. Our hope is that we may be permitted under the law to continue to handle the pricing and shipping of our plywood to our trade in the method which has enabled us to build up our substantial business over these 11 years, and which, we are confident, has been done in full compliance with the laws. This Cement case decision creates uncertainty in our minds as to whether we do have to change these policies. We feel that Congress is the source of laws and if the Cement case decision could be construed to make those policies illegal, we appeal to Congress to take action to eliminate possibility of such effect. Mr. RIEHLMAN. You read Mr. Emery's statement to us. Do you agree with his statement yourself? Mr. JONES. I do not wish to comment on that, sir. I feel that I would be drawn into discussion. I want to stick to my original statement that I did not come here prepared to discuss this subject. Mr. RIEHLMAN. Any other questions? Mr. PATMAN. Mr. Chairman, I noticed Mr. McIntyre around here a day or two now. I see him here now. I heard he was going to testify. I have been knowing him a long time, and he is a very able person and a very sincere person. Mr. BALLINGER. He will come here tomorrow morning. Mr. RIEHLMAN. We just discussed that; he will be here tomorrow morning. Mr. BALLINGER. We have a good many witnesses tomorrow, and if it is agreeable to Congressman Patman, could we start at 9:30 instead? Mr. PATMAN. Sure, and if I am not here, you go ahead the same. Mr. RIEHLMAN. We will recess until 9:30 tomorrow morning. (Whereupon, at 3:30 p. m., the subcommittee recessed, to reconvene at 9:30 a. m., Thursday, November 18, 1948.) MONOPOLISTIC AND UNFAIR TRADE PRACTICES THURSDAY, NOVEMBER 18, 1948 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE No. 2 OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D. C. The subcommittee met in room 129, Old House Office Building, at 9:30 a. m., the Honorable William H. Stevenson presiding. Present: Representatives William H. Stevenson, R. Walter Riehlman, and Wright Patman. Also present: Willis J. Ballinger, economic counsel. We will have as our first witness Mr. Wendell Berge. STATEMENT OF WENDELL BERGE, OF THE DISTRICT OF COLUMBIA BAR Mr. BERGE. Mr. Chairman, for the record I might say that my name is Wendell Berge. I am practicing law in Washington as a partner in the firm of Posner, Berge, Fox & Arent. I was first appointed to the staff of the Anitrust Division of the Department of Justice in 1930, served as a member of that staff for about 10 years, and during that period I was alternate member of the Temporary National Economic Committee; and at the beginning of 1941 I was appointed Assistant Attorney General by the President and assigned to head the Criminal Division of the Department of Justice. In the middle of 1943, August of that year, I was transferred by the Attorney General to head the Antitrust Division, and from August of 1943 until I resigned as of May 1, 1947, I was head of the Antitrust Division. Mr. Chairman, there is a strong tradition in this country against mopopoly. This tradition has been expressed in the Sherman Antitrust Act and numerous other Federal laws, as well as in State legislation. We repeatedly assert our faith in free enterprise. We believe in economic opportunity. We are against regimentation of business. We want businessmen left as free as possible to take risks, decide their business policies, and then to succeed in their ventures or fail according to their abilities and the whims of fortune. This is the American philosophy. And yet despite the generality of its acceptance, it has not prevented monopoly from gaining ground. Indeed, concentration of economic control in a sense that a few companies together control the major output of an industry is today the standard pattern of American business. 1007 I shall not burden you with statistics on this point. You are familiar with the many studies of economic concentration which have been made in recent years. The accumulated evidence in antitrust investigations, in the volumes of data which have been compiled by this very committee, by the Temporary National Economic Committee, and by other congressional committees, reveals the vast extent of monopoly control in many of our largest industries-the metallurgical industry, the chemical industry, the electronics and electrical equipment field, the production of pharmaceuticals, the manufacture of precision instruments and machines, the distribution of foodstuffs and tobacco, the petroleum industry, and even investment banking with its vast control over money and credit. This is just a sampling of the industries where monopoly controls are dominant, and it by no means exhausts the list. The war undoubtedly accelerated this trend toward concentration. More than two-thirds of all war contracts went to 100 companies. And the larger companies have shared well in the disposal of surplus plants and property. Since the war numerous corporate mergers have taken place which further emphasize the trend toward concentration and monopoly. Nearly every political platform of both major parties since the passage of the Sherman Act has demanded its vigorous enforcement. Presidential candidates have almost invariably promised to outdo their rivals in enforcing the law. Even President McKinley, who is generally thought of as one of our more conservative Presidents, was vigorous in his vocal denunciation of monopolies. And, of course, the crusades of Theodore Roosevelt and Woodrow Wilson are part of our recent well-known history. But notwithstanding this ideological devotion to free enterprise, and our instinctive abhorrence of monopoly, we have done very little in a practical way toward effective antitrust enforcement. Lack of vigorous enforcement accounts for the Sherman Act's ineffectiveness to stem the rising tide of monopoly control. During a large part of the act's history, enforcement was little more than a token. Only a small staff was possible under the paltry appropriation. Few cases were instituted and no attempt was made to apply the law on a broad front; to make it really effective, really significant as an instrument of economic policy. We hear a great deal about the trust-busting policies of President Theodore Roosevelt. But even when you survey his 7-year administration you find that relatively few suits were instituted. The fame which he attained as a trust buster rests largely on several cases-the Northern Securities case, the Packers case, the Standard Oil case, and the Tobacco case. I do not mean to underestimate the importance of those cases. They were important as landmarks in the judicial interpretation of the law and they were moderately successful, at least temporarily, in attaining economic results within the industries with which they were concerned. But when you consider that these cases were instituted over a 7-year period and that during this very period many of the industrial giants of the future were being formed in other industries which the Department of Justice of that day did not challenge, you cannot reach any other conclusion than that the Sherman Act was not being enforced on a broad front. And how could it have been? In the Theodore Roosevelt administration the average number of lawyers in active service on antitrust matters was five. Five lawyers cannot do very much in policing against the monopoly practices of the whole industry of America. In the Wilson administration when the World War had caused prices to skyrocket, the number of lawyers engaged in this work rose to 18. In the 1920's when corporate mergers proceeded at a fantastic pace, the number of lawyers engaged in antitrust enforcement did not exceed 25. Not until 1938 were as many as 50 lawyers actually employed in this work and not until 1939 did the professional personnel reach 200 lawyers and a half dozen economists. For almost its whole life, the Antitrust Division has been a kind of a corporal's guard. About 10 years ago there occurred something of an awakening as to the significance of the economic concentration that was occurring. The hearings of the Temporary National Economic Committee focused the problem. The Department of Justice adopted a more active policy. Congress appropriated larger funds, and for the first time in history an effort at broad enforcement was made. More antitrust suits have been brought by the Federal Government since 1938 than in the entire preceding 48 years of antitrust history. The war necessarily retarded the momentum of the new policy and hampered its effectiveness. Yet during the past 10 years there has been an increasing awareness of the fact that competition has been rapidly disappearing in many American industries. But even so, I do not think that the American people or the Congress has been sufficiently aroused of the danger that this growing concentration of economic power presents to capitalism and democracy. The capitalistic system and democratic government developed together and in the long run they can exist only together. The historical development of this truth is interesting, but there is not time to sketch it now except to point out that throughout history wherever despotism has existed the economic life of the people has been organized along noncapitalistic lines. Political freedom has only existed for any length of time in countries having capitalistic economic systems. Webster defines capitalism as: An economic system in which the production and distribution of wealth, the employment and reward of human labor, and the extension, organization, and operation of the system itself are entrusted to and effected by private enterprise and control under competitive conditions. The alternative to this kind of system is an authoritarian economic system. The evolution of such a system would probably come about, first, by increasing private controls over production, prices, wages, and all other phases of distribution. These controls would gradually be superseded by Government controls, as popular demand would require that the Government take over. If we are going to have a controlled system, in the long run the people would not stand for private control. Control would ultimately be exercised by the Government itself taking over the regulation of monopolies, resulting in complete Government control of the economic life of the people. I think that no demonstration is needed to this committee that we cannot have an authoritarian economic system without authoritarian government, and the civil and political liberties ultimately vanish when the Government assumes direction of all industry. |