Mr. BALLINGER. Mr. Chairman, before calling the first witness, I want to take up a request of Mr. E. M. Welliver, an officer of the American Trucking Association, who desires that an excerpt from a pamphlet entitled "A Decade of Motor Carrier Regulation-What 10 Years Under the Interstate Commerce Commission Has Done to America's Trucking Industry," be inserted in the record. I have read the excerpt, and I think it is pertinent to the committee's inquiry. Mr. STEVENSON. We will be glad to have it put in at this point. Mr. BALLINGER. The excerpt is as follows:

IV. COMMON OWNERSHIP AND INTEGRATION

The first part of this question is of such general nature that it is liable to develop answers which are either unsatisfactory or misleading. It speaks of the "carriers" and apparently would apply to all forms of transportation. But these forms of transportation are different in their characteristics and what might be beneficial to one form would not be to the other and, consequently, not in the public interest.

As just one illustration, the recent report of Division IV of the Interstate Commerce Commission, approving the plan of the reorganization of the Alton Railroad and its acquisition by the Gulf, Mobile & Ohio, points to savings on equipment that should be made. The report observes that studies of the Alton equipment situation would indicate that any reorganization as an independent carrier would entail heavy expenditures for additional equipment. It is indicated that much of this expense can be eliminated or postponed by unification with the G. M. & 0. As the latter road is carrying out a program to equip its present lines with Diesel electrical locomotives in all services, it could release its existing steam power for use on the Alton, replacing poorer equipment now in service on that railroad. It was likewise pointed out that a large number of company-service coal cars not requiring Diesel power, and other out-of-date boxcars now in service on the G., M. & O. would be turned over to the Alton for low-grade traffic on that line.

Because of the nature of motor-carrier operations, and because of the short life of motor equipment, there is little or no opportunity for savings of this kind. Nor is it probable that a unification of control of the various forms of transportation would render any greater service to industry and the traveling public. This program, in fact, if accepted by the public and carried into execution, would mean a decided weakening of the force and role of competition between the forms of transportation, if not the elimination of that type competition from our transportation system. It would result in a division of traffic between the

instrumentalities and hold competition within narrow boundaries. compete with himself?

Who would

The average man has had dinned into him the claim that consolidations and mergers result in lower cost to the public and greater earning for the combined enterprises. Many economists have argued in favor of this point without too much factual information to back their assertions.

It is interesting to note, however, that the contrary was found to be true in a study made under the auspices of the Federal Trade Commission for the Temporary National Economic Committee, Seventy-sixth Congress, third session, pursuant to Public Resolution 113, authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production and distribution of goods and services.

This study was published by the TNEC as a monograph No. 13-Relative Efficiency of Large, Medium-Sized, and Small Businesses. The study covered 15 industries-cement, blast furnaces, steel mills, farm machinery, petroleum production, petroleum refining, milk distribution, butter, canned milk, flour milling, baking, motor vehicles, chemicals, fertilizers, and rayon. The figures derived from these industries and companies within them were compared from almost every known angle. In summarizing this report, the Federal Trade Commission said:

"In the 233 combined tests, large-sized, whether represented by a corporation, a plant, a group of corporations, or a group of plants, showed the lowest costs or the highest rate of return on invested capital in only 25 tests. In these combined 83019-49-9

tests, medium size made the best showing in 128 tests and small size in 80 tests Thus, large size was most efficient, as efficiency is here measured, in approximately 11 percent of the total tests, medium size was most efficient in approximately 55 percent of the tests, and small size was most efficient in approximately 34 percent of the tests."

We particularly commend to the committee that portion of the TNEC report, beginning on page 95, wherein is discussed the Fundamental Disabilities in sizes from the Standpoint of Efficiency. Here are a few pertinent excerpts from the report:

Frequently large corporations in American business were not created for the purpose of promoting business efficiency. Generally, the great corporations in American business did not attain their size by growth through the reinvestment of the profits of their efficiency under a system of fair competition where the soundness of every stage of such growth was thoroughly tested by competitive opposition. They attained their size mainly through the processes of financial merger and combination. Such processes make possible immediate and frequently tremendous growth in the size of business, but it is important to determine whether the resulting size of the business was achieved primarily for the purpose of promoting business efficiency. It is well known that there are many motives which have actuated promoters to merge and combine businesses which are not concerned in the least with promoting increased business efficiency. Suppression of competition and the desire for promotional and underwriting profits have often been the chief lure for creating size in business. Some members of industry are only too willing to relinquish the competitive struggle if monopoly profits can be achieved.

They know that if a consolidation is large enough it will be able to establish a price leadership in an industry which small competitors in the industry dare not challenge. Profits through price stabilization seem easy, whereas profits through cost reduction are hard.

For predatory promoters and underwriters, the creation of great size in business has many times afforded a royal road to riches. The bigger the business, the easier it is to magnify its prospects and to sell to the public its securities at inflated values. Promoters and investment bankers may naturally be expected to be more interested in bonuses and commissions than in the promotion of business efficiency.

Further evidence of the real motives behind most consolidations and mergers is their timing. Too many of the large corporations have been organized during the upswing of the business cycle when the stock market could readily absorb new securities issues. If consolidations and mergers could really effect substantial economies in business, it would be expected that mergers and consolidations would certainly occur during hard times, when economies are most needed in business. But, when hard times come along, the merger-and-combination movement practically ceases. In summary, it may be said that if the motives for size attainment in business were motives not connected with promoting business efficiency, one would not expect the resulting large size in business to be accidentally efficient. Moreover, there is considerable evidence to the effect that promoters employing the processes of merger and consolidation have often been very careless about the efficiency of the companies and plants brought into the combination or merger. One of the chief safeguards to the salutary operation of competitive economy is that the elimination of high-cost, inefficient producers be not deferred. In many mergers and combinations the reckless inclusion of high-cost properties has insured their survival through the protecting influence of price maintenance. #

Large busniess frequently necessitates absentee management. American business today is often so big as to defy human ability to manage it efficiently. The paralyzing effect of such giant size in business is further aggravated by an apparent reluctance on the part of directors and even presidents of corporations to confine their managerial activities to their own corporations. The leaders in American industry, entrusted by their stockholders with the control of many great companies, are perhaps the last specialized men in the business world. They serve as directors in many companies in addition to the ones they are supposed to direct. Many of them know little or nothing about the varied affairs of the corporations which they are supposed to manage. Most of them are frankly interested in only a small part of their general responsibility as directors and managers of enterprises. They almost exclusively confine their

attention to the financing of their companies, which activity is only one phase of a much broader, more difficult problem of efficiently managing business. The result is that the managers of very large corporations often totally neglect the most fundamental basis of real efficiency in business-the effective supervision of men, machines, and material so as to eliminate waste and achieve lower operating costs.

The TNEC report points out that there have been two important. merger movements in the United States. The first period was from 1890 to 1904, and the second from 1919 to 1928. "Through the merger process," according to the report, "many thousands of originally independent establishments disappeared, narrowing in all directions the field of competition and enlarging the domain of monopoly."

In 1921, the report continues, Prof. A. S. Dewing, then at Harvard University, made a study of the notable mergers that had occurred in the first merger period (1890 to 1904). Commenting on Professor Dewing's study, the report states:

Thirty-five industrial combinations were chosen which met the following six conditions: The combination must (1) have been in existence at least 10 years before 1914; (2) have been formed as a combination of at least five separate and competing plants; (3) have been of national rather than mere sectional or local significance; (4) have published financial reports in which at least some degree of confidence could be placed; (5) have available published or acceptable financial reports covering the separate plants prior to the time the combination was effected; and (6) the group as a whole represented a wide diversity of industries.

Roughly, the promoters of these consolidations believed or professed to believe that the mere act of consolidation would increase the earnings about one-half. In actual results, the earnings of the separate companies before the consolidations were nearly a fith graver (18 pere nt) than the earnings of the consolidated companies for the urst year after consolidation. The promoters expected the earnings to be a half greater than the aggregate of the competing plants; instead, they were about one-fifth less.

Nor were the sustained earnings an improvement, for the earnings before the consolidations were between one-fifth and one-sixth greater than the average for the 10 years following the consolidations. In 23 of the 35 consolidaitons, the earnings in the next 10 years were less than the earnings of the constituent companies before the merger; and, in half of these, less by from one-third to nine-tenths. In the aggregate, the earnings of all 35 consolidations were nearly one-fifth less than those of the separate competing establishments prior to consolidation, and this in spite of the inclusion in the latter period of earnings of large additions to capital and plants of new financing, the amounts of which could not accurately be estimated. Even the United States Steel Corp. earned only about 85 percent as much in its first 10 years (1901-11) as the previous earnings of its constituent companies.

The TNEC report observes that the success or failure of an enterprise is in fact usually determined by one man, and that there is a very definite limit to what one man can do. It is pointed out that a salaried employee, a manager or superintendent, is hardly likely to give such close personal attention to a plant in which he has no large interest as an individual who owns the plant. In this connection, the report recalls that Charles R. Flint, who recorded himself in the American Who's Who as "the father of trusts," testified frankly before the Industrial Commission:

One of the fundamental difficulties of the managment of these corporations lies in the fact that the managers have a smaller percentage of interest in the operations that they are conducting under the plan of an industrial combination than they had when it was an individual property, or when they had a large interest in a small corporation. That is fundamental. There is no way in which that condition can be changed.

Another interesting viewpoint recorded in the TNEC report may be found in the following statement made by Alfred P. Sloan, of the General Motors Corp., to a meeting of the company's sales committee, held July 29, 1925:

General Motors should be more progressive in this and other directions. In practically all our activities we seem to suffer from the inertia resulting from our great size. It seems to be hard for us to get action when it comes to a matter of putting our ideas across. There are so many people involved, and it requires such a tremendous effort to put something new into effect, that a new idea is likely to be considered insignificant in comparison with the effort that it takes to put it across.

I can't help but feel that General Motors has missed a lot by reason of this inertia. You have no idea how many things come up for consideration in the technical committee and elsewhere that are discussed and agreed upon as to principle well in advance, but too frequently we fail to put the ideas into effect until competition forces us to do so. Sometimes I am almost forced to the conclusion that General Motors is so large and its inertia so great that it is impossible for us to really be leaders.

Perhaps it would be safest for us to let the other fellow take the initiative and then be satisfied to follow him as best we can. It seems a pity, however, that, with our resources and ability, we can't be a little more aggressive.

STATEMENT OF SHERMAN P. LLOYD, SECRETARY AND COUNSEL, UTAH RETAIL GROCERS ASSOCIATION

Mr. BALLINGER. State your name for the record.

Mr. LLOYD. My name is Sherman P. Lloyd, secretary and counsel for the Utah Retail Grocers Association.

Mr. BALLINGER. You have a statement you wish to make to the committee?

Mr. LLOYD. Yes, I do.

Mr. BALLINGER. Will you proceed to make it.

Mr. LLOYD. Mr. Chairman, and gentlemen of the committee: My name is Sherman P. Lloyd. I am secretary and counsel for the Utah Retail Grocers Association, the official trade association representing the independent retail grocers of Utah, and at present consisting of an active membership of between 500 and 600 retail food stores. This association is affiliated with the National Association of Retail Grocers, with offices in Chicago and in Washington, D. C. I should like to preface my remarks by stating that the Utah association wholeheartedly supports the action of the national association as represented by Rose Marie Kiefer, national secretary-manager in Chicago, Mr. Tyre Taylor, national counsel, with headquarters in Washington, D. C., and such other representatives as may be authorized.

The national association represents over 50,000 small-business men-retail grocers-and our first request of you gentlemen is that, in your deliberations in Washington, you give the most careful attention to testimony presented by the National Association of Retail Grocers, for they represent the main streets and the neighborhoods of America. They represent the typical small-business man who works out his own salvation without benefit of experts.

Independent retail grocers and their associations have neither the advantage of being exempt from the Sherman antitrust act, as have associations of employees in labor unions, nor do they, as a group of store owners, have the advantage of being interpreted as a single "person" under the law. Thus, while a single corporation-owning,

for example, a thousand stores-may, by the threat of withdrawing its patronage from a supplier, eliminate any practice of such supplier which it may consider unfair or illegal, not even two of the independent grocers can legally unite for the same purpose. Thus, the owner of 1,000 supermarkets may, in effect, blacklist a supplier.

But two owners of two small neighborhood markets may not. As a matter of fact, it is unwise for an association representing these two independent grocers to even disseminate information regarding a practice of questionable legality because of the danger of encouraging a boycott by these two grocers of such practice which might later be proved legal, although inequality of bargaining power between the owner of one or very few stores, and the owner of many stores, because it emphasizes the necessity of public enforcement of violation of illegal practices if such practices are to be eliminated at all.

The testimony which I offer will not be long. It is the feeling of the members of the association which I represent that most of the discriminations and monopolistic practices which can be reached at a national level, are already covered by such legislation as the Robinson-Patman Act; and, if present legislation is enforced properly, the small-business man, including the independent retail grocer, will benefit very materially.

We should like to point out, in this connection, that during and shortly after the war years competition was largely eliminated, many goods were in short supply, and retail buyers were in no position to request or secure favors from their suppliers. Consequently, the protection afforded to independent retailers by such laws as the RobinsonPatman law was not needed so urgently.

In the past year or two, however, the weight has shifted; much new competition has sprung up, supply of goods has increased, and retail buyers are again in the position where they can return favors as well as receive them. Since it is human nature to make the best deal possible, we are once again in the position where the weight of size and volume is being thrown around in efforts to secure these good deals which may hasten the trend to monopoly unless the public, through its elected representatives, checks this trend in the interests of the public welfare. I would like to review briefly the problems which independent retail food dealers have in their attempts to compete on an equal basis with big business. These matters are all covered by the Robinson-Patman Act.

The Robinson-Patman Act provides that it shall be unlawful to discriminate in price, except for differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from differing methods or quantities, and except for bona fide price changes in response to changing market conditions.

The principal monopolistic practice aimed at by this section is the granting of discriminatory discounts. We feel that this law has done much to eliminate unfair discounts, but great and continual vigilance is necessary by the Federal Trade Commission. We have been greatly heartened by the recent decision of the United States Supreme Court in the Morton Salt case, where the Court rules invalid discounts over 5 cents per case. Morton had been giving discounts up to 25 cents per case. As a result of this decision, however, we have received