STUDY OF MONOPOLY POWER ; I WEDNESDAY, JULY 27, 1949 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON THE STUDY OF MONOPOLY POWER Washington, D. C. The special subcommittee met, pursuant to adjournment, at 10:10 a. m., in the caucus room, Old House Office Building, Hon. Emanuel Celler (chairman) presiding. Present: Representatives Celler (chairman), Bryson, Denton, Wilson, Michener, Keating, and McCulloch. - The CHAIRMAN. The meeting will come to order. The first witness this morning to be heard by the subcommittee will be a very eminent attorney, who is the head of the Antitrust Division of the Department of Justice, Mr. Herbert A. Bergson. Mr. Bergson, we will be glad to hear you. STATEMENT OF HERBERT A. BERGSON, ASSISTANT ATTORNEY GENERAL, IN CHARGE OF THE ANTITRUST DIVISION, DEPARTMENT OF JUSTICE; ACCOMPANIED BY HERBERT BORKLAND, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE Mr. BERGSON. Mr. Chairman and gentlemen of the committee, before starting with my statement, I would like to introduce my associate here, Mr. Herbert Borkland, who is the second assistant in the Antitrust Division. I appreciate the opportunity of appearing before this subcommittee in its study of what is, perhaps, one of the most serious problems facing our country today, the concentration of economic power. Its importance is demonstrated by the fact that President Truman himself has publicly expressed his full support of your efforts and has asked the members of the Cabinet and other leaders in the executive department to give you their help. The Attorney General told your committee 2 weeks ago that the fundamental issue is whether the economy of this country is to remain free and competitive, or whether it is to be subjected either to private regimentation through monopoly control or to some equally objectionable form of governmental control. Neither President Truman nor the Attorney General has overstated the importance of your undertaking. As Assistant Attorney General in charge of the Antitrust Division, I have observed at close range the increasing tendency toward concentration of economie power. Unless this trend is reversed, the traditional competitive system which has contributed so tremendously to our progress stands in danger of being lost. 96347-49-pt. 1--24 361 Excessive concentration of economic power shackles the free play of competitive forces; and when competition goes out, totalitarianism comes in. I need not belabor this. The Attorney General pointed it out. Other witnesses have pointed it out. You have seen it happen, time and time again, in other countries of the world. The underlying cause is always the same. If we permit our Nation to follow the path of these others because of an increasing concentration of economic power, it will not be because we have lacked warning. Leader after leader has pointed to these dangers. Today we are strong-economically, politically, and socially. We must preserve that strength. The root of that strength and of our lasting prosperity is freedom of economic opportunity. The constitutional guaranties of spiritual and individual freedom are hollow and meaningless unless we preserve our economic freedom, and our economic freedom will be preserved only if we live by and live up to the antitrust laws and the principles they express. You have heard that the antitrust laws have failed to eliminate all monopolies. Suppose they have. The laws against burglary have also failed to put an end to theft. The real question to ask, in gaging what the antitrust laws have accomplished, is what would be the situation if we had no antitrust laws. We find the answer in those countries which have done without them. The CHAIRMAN. At that point, are there any countries which have antitrust laws similar to our own? Mr. BERGSON. None that I know of, Mr. Chairman. England has just adopted an antitrust law-an antimonopoly law-which is vastly different from ours, and I think Germany had some antitrust laws which they never enforced. Mr. KEATING. Do you attribute the rise of socialism in Britain, in large measure, to the lack of antimonopoly legislation there? Mr. BERGSON. I do not know whether I would say in large measure. but I would certainly say in some measure to it. Mr. KEATING. You think it has been one of the factors? We alone, of all the great powers, have retained both our strength and our liberties, both our political and our economic freedom. There is more than coincidence in this fact. Political and economic freedom stand together-and fall together. I, for one, find it most pleasant to sit here today and ask the question, "What can we do to make our competitive system work better," instead of asking, as they are asking in other countries, "Now that free enterprise is gone, what shall we substitute for it." As to the causes of concentration, there is some variation in the opinions of the witnesses who have already appeared before you. Some ascribe it to the war, some to the exigencies of complex technological development, some to the inadequacy of the merger laws, some to the existence of tremendous capital surpluses, and some to the structure of our tax laws. Much of your future efforts will no doubt be directed to ascertaining the extent to which these and other factors contribute to the trend toward concentration. It is only when you have ascertained what causes the disease that you can act intelligently in curing it. Since your inquiries will probably be directed to both the economic and the legal factors leading to concentration of power, I would like to talk a few moments about these, not from the standpoint of suggesting answers-it is much too early for that-but from the standpoint of pointing out what, in my opinion, would be the more fruitful lines of investigation. From the economic standpoint, obviously what comes first is an inquiry into the specific factors that bring about excessive concentration. What are the various factors that cause companies to achieve a dominant position? To what extent does it result from natural growth and expansion? I have no doubt that many companies have achieved their position simply by selling more goods, broadening their lines, extending their markets, and so on. This is highly commendable and completely within the American tradition and the fundamental concept of a competitive economy. It is my guess, however, that you will find, more often than not, that other factors less clearly identified with the traditional competitive concept contributed to their dominance. Probably more important than any other single factor in the trend toward excessive concentration, are the mergers, consolidations, and acquisitions that have taken place in recent years. You have already been told about these. You will undoubtedly hear much more about them. We all know they exist. The problem that faces your committee is to determine why this trend, whether it is justified, what its effects are and what to do about it. It has been suggested that one of the contributing factors is the huge amount of capital available for investment in the hands of the big corporations. May I suggest that this leads to two additional questions: First, what are the circumstances that have permitted the accumulation of such large profits that some corporations have millions of dollars on hand for such investments even after the payment of dividends? Secondly, from the standpoint of the economic health of this country, is it a proper function of corporations to use their profits to buy up competitors or other businesses rather than pay those profits to their stockholders for investment by the stockholders themselves? There are still other factors that lead to concentration. Concentration may result from controls over natural resources and raw materials; it may stem from illegal use of patents and trade-marks; it may develop from cartel arrangements or other agreements and combinations in restraint of trade; or it may result from the elimination of competition through the use of unfair competitive practices. Let me emphasize that these are not figments of the imagination. They really happen. I would like, for the purpose of illustration, to describe one actual case that we dealt with recently. The industry in question involved two basic products. Let me call the products X and Y, rather than identify them, since I see no reason for holding up a particular industry as an example when its conduct may be no different fundamentally from that of many other industries. Here is what happened: I will take product X first. Seventeen manufacturers of product X formed a trade association and fixed prices. Some members cut the fixed prices in order to increase their own sales. To put a stop to this, production was allocated. Some of the smaller manufacturers still violated the agreement. They were then punished by eliminating less-than-carload shipments, thereby discriminating against the smaller manufacturers. Then the major companies devised a scheme of a joint exclusive selling agent for the small manufacturers. However, independent operation by some of them, the smaller ones, still continued to prevail. The major elements in the industry were apparently dealing with unreconstructed rebels who did not understand about "cooperation" as distinguished from "competition." The time had come for more drastic steps. It took this form: The three largest producers stayed in the field. Of the remaining 14, 1 of them bought up all but 3 of the others and dismantled most of the plants. It and the remaining three small manufacturers formed a joint exclusive sales agency; thus, in the competitive market, they acted as one. The net effect was four companies, one of which was a combination of four small producers. The final step was the expected, logical one. From that time on each of the four received a constant share of the market, the two major producers each being allocated approximately 30 percent and the two smaller producers each getting 20 percent of the market. As to product Y, the method was different, the death throes of competition were shorter, but the end result was the same. Of seven original companies in the field, three were eliminated by mergers. One of them was eliminated by a cartel agreement whereby it agreed to stay out of the United States market and the remaining three agreed to stay out of Europe. On a couple of occasions, competition threatened the remaining three, but this was quickly eliminated by price wars. Further protection resulted from cross-licensing of patents between the two major producers, each refusing to license others. The result was an industry with three producers, two of them producing over 90 percent and the third producing the remaining 10 percent. I do not suggest that all economic concentrations arise in this manI do suggest, however, that one cannot accept the proposition that dominance is a merit badge. The economists will tell you, and have told you, that businesses reach an optimum size beyond which efficiency does not increase with growth, and may even decrease. I confess I am skeptical of the claims of superefficiency that are made for some of our mammoth concentrations, particularly where they run 10 and sometimes 100 times the size that may be recognized as adequate for efficient operation, and even more particularly where they represent, not a single integrated coordinated unit, but a conglomeration of separate plants operating independently of each other in every respect except that of ownership. One of the matters which this committee may want to examine is the relationship between efficiency and size. In this connection, I wish to point out that unless you find that efficiency is a concomitant of large size, little is left of the argument that concentration is an inherent, natural technological development, rather than a matter of financial maneuvering, grasping for power, and ruthless elimination of competition. Do not misunderstand me. I am not condemning bigness as such. We have never attacked bigness as such and our enforcement program does not contemplate such an attack. Certain industries are of such a nature that their units must be big if they are to operate effectively. Mr. KEATING. Would you care to state to what types of industry that applies? Mr. BERGSON. Where bigness is necessary? Mr. KEATING. Yes. Mr. BERGSON. Well, I have no particular one in mind, Mr. Keating, but I can visualize in the steel industry, for example, that it is important to have a very large steel plant; it is important to have large plants. I can visualize other industries where small units could operate just as effectively as, or more effectively than, a large unit could operate. I do not have any particular industry in mind. Mr. KEATING. Did you have in mind a class of industries? In other words, a basic industry? Mr. BERGSON. The heavy industries? Mr. KEATING. Those industries we normally speak of—— Mr. KEATING. The heavy industries. Mr. BERGSON. Yes, sir. The CHAIRMAN. Just a minute, Mr. Bergson. I am interested in your statement "We have never attacked bigness as such and our enforcement program does not contemplate such an attack." How do you reconcile that with the Aluminum case and the Tobacco case? Mr. BERGSON. I think, if you will let me continue, Mr. Chairman, I will answer that in my prepared statement at a more appropriate place, perhaps, than this. Even when a plant passes to the point where increase in size means increase in efficiency, I see no reason to object, on that ground alone, any more than I object to a man living in a mansion when a threeroom apartment is all he needs. What I do say is bad-and here is the answer to your question-both economically and legally, is when one reaches the point where he alone, or in conjunction with two or three others, is in a position so to dominate an industry that there is no longer room for competition, and he, rather than the economic laws of supply and demand, controls prices and production. Nor is it material that he refrains from asserting his power or asserts it in a benevolent fashion. It is the power, not the use of it, that is the controlling test. We would not allow Russia to establish an air force or a garrison of troops in the center of the United States and permit them to remain there as long as they minded their busiNo more should we permit a monopolist to continue unchallenged in our midst. ness. The CHAIRMAN. Is it not the same as saying that you do attack bigness more or less in and of itself because all bigness is accompanied-I should say in most instances, not always-with the very attributes that you mention? Mr. BERGSON. Well, when bigness achieves a point that it does have that monopoly power, the power to control prices and production without paying any attention to normal competitive factors, then we think that a monopoly has been achieved. Bigness and monopoly are not synonymous, in my opinion, but when you achieve a monopoly or monopoly power, then, I think, that the forces of the antitrust laws come into play. The CHAIRMAN. You mean it is a degree of bigness? |