Omitting
the Irving Trust Co.
Brady - Business as a System of Power
And, in the sec- ond place, this proposal was to unite all employers throughout the nation in all fields of business, whether industry, commerce, or finance.
William Frew Long, manager of the Associated Industries of
dominated labor union corresponds to the Social Catholic concept of "mixed syndi- cates" (Chapter II). The comparable idea of "parallel" or "collateral syndicates" has been advanced a number of times in the United States. One of the most recent of such proposals was to establish "A National Independent Labor Organization in the Steel Industry" in the late thirties, a plan backed by the NAM. See LaFollette Com- mittee Reports, Part 17, p. 7451.
51 A secret committee of ten large American corporations, organized in 1919 under the apparent leadership of the Standard Oil of New Jersey, for the purpose of evolv- ing a common labor-relations program for American industry.
52 An organization established by the Rockefeller interests to promote the "welfare capitalism" ideas expressed in various speeches of John D. Rockefeller, Jr. , following "Bloody Ludlow," and elaborated in his book. The Personal Relation in Industry (New York, 1923).
53 LaFollette Committee Reports, No. 6, Part 6, pp. 58-59.
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Cleveland, succeeded in defeating the Rees plan on the first ground, but was faced with a curious difficulty in the second. If the NAM and its affiliated bodies were to expand their membership to in- clude these additional business interests, how could it remain the exclusive representative of the manufacturing interests of Amer- ica, as had always been its claim? And if it did not so expand, how could it defend its position as spokesman for the "business point of y'igw as a whole," which it likewise claimed to be?
From the available literature we cannot infer precisely what stand the NAM will take on this issue; Long's reply argued, how- ever, that the various affiliates of the NIC were established for just such purpose as Rees had in mind, and that they were sufficiently inclusive of various types of business interests to really speak for "the community as a whole" on local affairs. In support of this contention, an inspection of the available records, reveals mem- bership and connections which include practically every local in- terest in the various affiliated employers' associations (organized on a city-wide basis), and in many of the state industrial associa- tions. It does not apply, of course, to the third group made up of national, manufacturing trade associations.
The controversy settled one issue: there was to be no splitting up of the organization of industrial employers into functional groups such as obtains, for example, in England. Whether or not the NAM will attempt to expand its functions so as to represent all employers on a national basis, as its functional NIC affiliates do on a local basis, remains to be seen. ^*
Before leaving this description of the expansion of the NAM network, two other items should be mentioned. First, that its local and regional affiliates attempt to organize and attach to themselves the whole of their separate territories, just as the NAM attempts to do on a national basis. The state associations are particularly ef- fective to this end, and in some areas they appear to have succeeded
54 There is some evidence of willingness of the NAM to take in banking, financial, shipping, advertising, and similar interests. It is interesting in this connection to note that the proposal of Mr. Almon E. Roth, President of the San Francisco Employers' Council, for "one-big-Union-of-Eraployers" and "industry-wide collective bargain- ing," presented before the Industrial Relations Section of the Annual Meeting of the Chamber of Commerce of the United States, May i, 1940 (mimeographed) inevita- bly leads to the industry-wide compacts which require that organized labor speaks for all labor as in the famous French "Matignon Agreement" (see pp. 139-45).
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in making their associational dragnet almost loo percent com- plete. *^^
And second, that the NAM has to date shown little disposition to surrender any of its power and influence to any superior body similarly designed to coordinate the activities of industry, trade, finance, and other fields, on behalf of business interests as a whole. At one time, apparently, it hoped for something of this nature from the organization of the Chamber of Commerce of the United States. Serious difficulties arose, attested by the withdrawal of the NAM from the Chamber in the early twenties. More recently, amicable relations have been established; but the Chamber is still far from serving the various associations of associations as a cen- tral, policy-coordinating body, in the manner of the NAM and the American Bankers' Association in their respective fields.
CENTRALIZING AND STRENGTHENING THE STRANDS OF CONTROL WITHIN THE NAM
In estimating the degree of centralized power within the NAM to manipulate business policies, and the extent to which such poli- cies may in effect be implemented, it is necessary to call to the mind of the reader certain familiar facts. These may be detailed seriatim:
1 . With minor exceptions the NAM and its affiliates through the NIC are made up of corporations. Correlative with expansion of the nam's influence throughout the manufacturing community has gone the cumulative transformation of business enterprise from a simple ownership to a corporate footing. Including all forms of American economic activity, business and nonbusiness alike, it has been estimated that the corporate share in 1929 was approxi- mately 57 percent. ^^ It is doubtless higher today. The very fact that change has been made from the simple individual business enter- prise or partnership to the corporation represents in itself cen- tralization of policy-determining power within the ranks of owner- ship. All property rights represented by bonds " and nonvoting
65 See La Follette Committee Reports, Parts 20 and 21, for discussion of the or- ganization of the Associated Industries of Cleveland.
56 Twentieth Century Fund, Big Business, p. 16.
57 1 am ignoring the accounting distinction in this connection which excludes bonds from equity holdings. Suffice it to say that these constitute accumulated capital funds which are employed under this peculiar legal and accounting form, but are no less property, despite such identification.
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shares are ipso facto separated from any voice in management and the determination of policy.
2. Within voting-share ranks, power to participate in the deter- mination of policies is probably narrowed by as much again through the various devices analyzed in such studies as that of Berle and Means. ^^ The "property atom" is further split through blocked voting interests, through devices like the holding company, and through the special influence of various interests operating through interlocking directorates, special trust funds, and financial circles. The result is to divide corporate property holders, so that progres- sively fewer of them participate in the formation of policies, and to concentrate in extremely small inside groups the policy-forming control. ^^ The rest of the stockholders possessing voting rights fall into the same class as the nonvoting shareholders and bondholders, and go to make up a large and rapidly growing "rentier" (R)? class. The larger the corporation, typically, the more significant this shift.
3. The swift growth in the relative importance of the corporate form and in the further "splitting of the property atom" is paral- leled historically by continued extension of the combination move- ment noted at the beginning of this chapter. With the close of the World War, combination began on a new and higher scale than ever before. "During the ten years, 1919-1928, there were 1,268 combinations in manufacturing and mining," involving "the union of 4,135 separate concerns and the disappearance of 5,991"; and so on throughout practically every field of business enterprise. Dur- ing the same period, 3,744 public-utility companies disappeared through consolidations. *^ Chain stores, chain-department and mail- order systems, chain and branch banking, and similar types of enterprises expanded with unprecedented speed.
58 The Modern Corporation.
59 For some rather spectacular examples of the power of small inside groups simi- lar to those outlined by Berle and Means, in the hitherto quite unexplored field of life insurance, see the report of the TNEC Investigation of Concentration of Eco- nomic Power, Part 4, "Life Insurance. "
60 The term originated with the French government bond called the rente. The rentier class, made up of several million small bondholders who live largely by clip- ping coupons, and who, as bondholders, possess absolutely no rights over the source of their income, constitute a model which the holder of the American private cor- porate security is rapidly approaching. See p. 228.
61 Twentieth Century Fund, Big Business, p. 32.
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The results of this rather spectacular concentration of corporate
holdings have been pretty well publicized. Speaking before the
Temporary National Economic Committee, a representative of
Dun and Bradstreet cited a few of the better-known examples.
From various governmental sources he found that the output of
automobiles was dominated to the extent of 86 percent by three
companies; 47 percent of the beef products business by two com-
panies; 20 percent of the bread and other bakery produced by
three companies; 90 percent of the can output by three companies;
40 percent of cement by five; 80 percent of the cigarettes by three;
78 percent of the copper by four; 95 percent of the plate glass by
two; 64 percent of the iron ore by four; 60. 5 percent of the steel by
three; and so on. ^^ yj^^ National Resources Committee found that,
using three criteria of size, the hundred largest companies under
each respective heading "employed 20. 7 per cent of all the man-
power engaged in manufacturing, contributed 24. 7 per cent of all
the value added in manufacturing activity" and "accounted for
32. 4 per cent of the value of products reported by all manufactur-
(R)^
ing plants. "
4. The real significance of such concentration is found less in
the exercise of direct monopolistic powers ^* than in the position of leadership of these giant concerns in their respective fields. This leadership is applied in two principal ways. First, by such devices as "price leadership," "sharing the market," "price stabilization," "non-price competition," and the like; (R)^ these devices the smaller concerns are unable to oppose successfully, and must either "fol- low the leader" or face a variety of pressures which experience demonstrates they cannot possibly hope, in the normal course of affairs, to survive.
The second class of devices are those subsumed under the actions of the leading trade associations. As pointed out above, the effect of
62 TNEC Hearings, Investigation of Concentration of Economic Power, Testimony of Willard Thorp, Part I, p. 137.
63 National Resources Committee, The Structure of the American Economy, Part I (June, 1939), "Basic Characteristics," p. 102.
64 "Monopolies in the crude sense of single sellers of products for which there are no nearby substitutes are extremely rare. " A. R. Burns, The Decline of Competi- tion (New York, 1936).
65 For an elaborate, careful, and meticulously detailed discussion of these policies a reading of Burns, op. cit. , is indispensable.
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NRA was to transform a large number of the leading trade associa- tions into "cartels," possessing either de facto or de jure^^ powers along one or more lines similar to those of their European national and international prototypes. Many of the trade associations have advanced so far along this line as to approach in function the higher states of combined action which lead to the syndicates ^^ and com- munities of interest. ^^ Such leadership, possessing in many cases some degree of coercive power to compel conformity to policies laid down, is found more frequently in manufacturing fields than elsewhere. Hence the peculiar significance in this respect of the NAM, designed to serve as a policy coordinator for all industrial operations in America.
5. The leading concerns in the principal trade associations ap- pear simultaneously in the testimony of Thorp before the TNEC, in the investigations of Berle and Means and the National Re- sources Committee, and on the membership rolls of the NAM. Within the NAM this same small coterie of giant concerns are able to dominate, fairly completely, policies which affect to some ex- tent all fields and functions of American industry. In evidence of this fact, the La Follette Committee findings disclosed that while the NAM claimed approximately 4,000 corporate members for the year 1938, all of its directorships together, for the period 1933-
1937 inclusive, represented only 127 individuals from 89 firms. Adding to these figures some 118 additional concerns that con- tributed $2,000 or more in at least one of the five years, we obtain some 207 companies which "comprise approximately 5 per cent of the total estimated membership" and "whose contributions total $572,711 or 48. 9 per cent of the total. It would . . . appear . . . from this analysis," said Mr. Robert Wohlforth, testifying before the Committee, "that about 207 companies, or approximately five
66 De jure powers exist through the efforts of the lobby which succeeds in placing onto the statute books--federal, state, or local--laws under which recalcitrants may readily be forced into line. An example is the Robinson-Patman Act. The same holds true for most of the other federal and state "fair-trade practices" legislation.
67 "Syndicates" are central selling agencies for cartels. Close American equivalent is the now widespread practice of central allocation of all sales through manipulation of bidding schedules.
68 "Communities of interest" involve working arrangements so close as to consti- tute monopoly action. In Europe this is commonly regarded as an equivalent, and an immediate predecessor, to complete monopoly through formal combination.
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per cent of the National Association of Manufacturers, are in a posi- tion to formulate the policies of the association. " (R)(R)
6. This small minority represents very largely giant concerns, as can be seen from a perusal of the lists of the boards of directors for different years, of the affiliations of the leading committee members, and of financial contributions. ^^ Even within this small minority the machinery of organization provides for a still higher degree of centralized power. All policies are determined by the Board of Directors, elected by member bodies, but only after can- didates are sifted through a nominating committee, which is, in turn, appointed by the president and approved of by the existing Board of Directors. Of the 66 members of the Board of Directors, nine are direct presidential appointees. The direction of the NAM is in the hands, consequently, of a group who are able to act in effect as a cooptative body, to perpetuate their influence indefinitely with the passage of time, and so to compel consistency of policy with a view to long-run interests.
7. The NAM in turn dominates the National Industrial Coun- cil. It is enabled cumulatively to strengthen its power to influence NIC membership, because of three cardinal facts. First, the asso- ciations belonging to the NIC are typically organized along lines similar to those outlined for the NAM. As indicated above, such organizations (a) permit a high degree of centralization in organiza- tional control, (b) allow such centralized control to perpetuate it- self cooptatively over time, and (c) provide a milieu in which the large concerns readily and typically rise to positions of command- ing importance. Second, the leading firms in the associations af- filiated with the NAM via the NIC are, with rare exceptions, mem- bers of the corporative "elite" who belong to the NAM. Thus
6>>LaFollette Committee Reports, Part 17, pp. 7385-87. Also Exhibit 3799, p. 7540. "Among the corporations that have retained directorships for 5 years are the Ameri- can Rolling Mill Co. , of Middletown, Ohio; the General Mills, Inc. , of Minneapolis, Minn. ; the International Business Machines Co. , of New York; the Lambert Pharma- cal Co. , of St. Louis, Mo. ; The Standard Oil Co. , of Ohio; and the Eastman Kodak Co. , of Rochester, New York. " Among those which have had the same directors for four and three years continuously are to be found additional large-scale corporations.
70 Among these for the five-year period are E. I. Dupont de Nemours and Co. , |i16,800; Standard Oil, $76,800; General Motors, $65,295; National Steel Corp. , $42,050; Westinghouse Electric, $39,927. 50; United States Steel, $37,500; Monsanto Chemical Co. , of St. Louis, $36,775. Other contributors were the American Cyanamid Co. , Chrysler Co. , American Smelting and Refining, General Foods, Heinz, Pittsburgh Plate Glass.
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instrumentation of NAM policies is facilitated through the central controls of the several associations indirectly subsidiary to it. And third, the NIC itself functions through an hierarchical series of policy controls which lead from the bottom to the top, through what are known as "pyramided conferences": Local and trade con- ferences lead to state and regional conferences and to industry conferences, and from thence on through to the national confer- ences held in conjunction with the officialdom of the NAM. These ''pyramided conferences" do not constitute an expression of demo- cratic sentiment within the business community; on the contrary, inspection of available records show that they provide means for (a) gaining information concerning movements, sentiments, and interests in the industrial world in order the better to (b) manipu- late the "climate of opinion" and instrument policies emanating from on top.
8. By avoiding dual-functional organization throughout the complex machinery of the NAM and its affiliates, policies have been more highly centralized than they would otherwise have been. The group that directs business and political policies for the in- dustrialists of America also manages social and labor problems.
9. The importance of these two points is heavily underlined when it is recalled that the history of the NAM has shown that, except for certain short intervals, its overshadowing interest has been in labor relations. A common interest in opposing organized labor has served to hold the membership together, to dominate the motives in organizing and perfecting the machinery of the NIC, and to provide a never-failing bond of opposition to liberal-social legislation of the New Deal variety.
It appears to be likewise true that the position taken by the NAM and its affiliates on labor matters has been formulated by an ex- tremely small number of "inside firms" amongst the "insiders" who appear increasingly to dominate its policies. The Special Con- ference Committee, mentioned above, was organized in 1919 by ten giant concerns; ^^ it has held monthly meetings since that
71 The original corporations "cooperating" in this endeavor are Bethlehem Steel Co. , E. I. DuPont de Nemours and Co. , General Electric Co. , General Motors Corp. , Goodyear Tire and Rubber, International Harvester Co. , Irving Trust Co. , Standard Oil Co. (of New Jersey), United States Rubber Co. , Westinghouse Mfg. Co. Subse- quently two other concerns, the American Telephone and Telegraph Co. (1925) and
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time ^^ for the purpose of formulating common labor-relations pro- grams for all American industry, and has led in systematizing the promotion of policies consistently pursued by the NAM since its formation.
Not only are most of the member corporations of the Special Conference Committee at once members of the inner controlling group of the NAM and the leaders among American industrial giants in their respective fields,/^^ but also they represent a secret coalition in direct furtherance of the specific forms of company union fathered by the Colorado Fuel and Iron Company. Since its inception, the Committee has met at the offices of the Standard Oil of New Jersey, central unit of the gigantic Rockefeller oil, mining, banking, real-estate empire. "Two members of the staff of Industrial Relations Counselors, Inc. , a firm which specializes in advising corporations on problems of industrial relations, have served individually as members of the committee. " ^* From its
the United States Steel Corp. (1934) were added. LaFollette Committee Reports, Part 45, p. 16783.
72 Monthly meetings of personnel executives; semiannual meetings of corporate executives.
73 The Irving Trust Co. alone is not a member of the NAM. "The Committee con- sidered the desirability of enlarging its membership through the inclusion of repre- sentatives from corporations in additional industries. However, investigation led to the decision that this would be inadvisable because other corporations which were outstanding leaders in their respective industries in the same degree as the sponsors of the Special Conference Committee could not be found.
Omitting the Irving Trust Co. , in 1937 the corporations represented on the Special Conference Committee em- ployed more than 1,300,000 persons and paid total wages and salaries of more than $2,400,000,000. At the end of 1937 these 11 corporations claimed total assets in excess of $13,500,000,000. The American Telephone and Telegraph Co, has almost a com- plete national coverage in the public utility field which it serves. The United States Steel Corp. and the Bethlehem Steel Co. rank first and second, respectively, in the steel industry--with Bethlehem, through its subsidiaries, also ranking first in ship- building. E. I. DiiPont de Nemours and Co. is easily first in chemicals, and the General Motors Corporation maintains an approximately, similar position in the motor car industry. The Goodyear Tire and Rubber Co. and the United States Rubber Co. rank first and second, respectively, in their industry. The International
Harvester Co. is the outstanding manufacturer of farm equipment. The Standard Oil Co, of New Jersey is not only the largest of the Standard Companies; it is also regarded as the largest oil company in the world. The General Electric Co. is the largest producer of electrical equipment, while the Westinghouse Electric and Manufacturing Co. is next in rank . . . the United States Steel . . . through its subsidiaries is the largest producer of coal in the country and also largest producers of iron ore in the United States. " La Follette Committee Reports, Part 45, pp. 16781,
16783-84.
74 It was set up by the Standard Oil Company. Offices are now located in Rockefeller
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earliest days this same firm, in turn, has been under the domination of Standard Oil, United States Steel, and the du Pont interests. Its secretary since 1923 has been E. S. Cowdrick, previously associated with the Colorado Fuel and Iron Company in an executive ca- pacity.
The most important line of policies within the NAM, in short, seems to be traceable directly or indirectly to this inside clique within the inner councils of the organization ^^--a conclusion which is especially interesting when coupled to the fact that the original antilabor program was taken over from the heavy indus- tries (National Metal Trades Association, in large part), and that that original program (Parryism) is still the ''Bible" of the NAM. ^(R)
10. As the larger concerns which now constitute the central command of the NAM have come to the fore, the doctrinal position of its business leaders has been further coordinated in the elabora- tion of "public relations" propaganda. Nowhere else is shown so clearly the dominating position in the NAM of concerns such as those which are member to the Special Conference Committee. Public relations techniques were born," nurtured, and brought to flower within these ranks. The specific purpose of the Com- mittee is to coordinate all policy interests of the business com- munity in order to "sell" to the public justification of the position taken by the configuration of those interests on any and all mat- ters. Thus it brings together, into a single, central, and unified propaganda, "labor relations," "legislative relations," "agricul-
Center, New York City. For a number of years its director was A. H. Young, member of the Special Conference Committee as the representative of International Harvester. Leaving Industrial Relations Counselors in 1934, Young became vice-president of the United States Steel Corp. , in charge of personnel relations.
75 At any rate, the policies laid out by the Special Conference Committee are en- tirely coherent with those advocated by the NAM. It seems scarcely conceivable thai the direction of influence could run the contrary direction, from the NAM to the members of the Special Conference Committee--particularly in view of the fact that these same members are the recognized leaders and pioneers in the policies adopted by the two interlaced gioups. This holds for the policy of partial recognition of trade unions as bargaining agents, adopted subsequent to Supreme Court decisions upholding the NLRA.
76 See footnote 26, above.
77 Pioneer was Ivy Lee, the man who is given credit for transforming the elder John D. Rockefeller from the ogre of Ida M. Tarbell's History of the Standard Oil Company and "Bloody Ludlow" into the "seer of Pocantico Hills. " Ivy Lee is still regarded as a sort of Solon of "public relations" technique.
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tural trade relations," "^^ and all other "relations" involving con- tacts with groups whose interests may at any point come in conflict with their own. Employing the techniques, the criteria, and in many ways the services of advertising agencies,^^ the NAM has moved into this field in a big way; this is evidenced by the phe- nomenal increase in public relations expenditures cited on p. 198, above.
THE "scalar principle"
The ten points outlined above do not by any means exhaust the list of ways of centralizing power within the structure of the Amer- ican industrial system. ^^ They do, however, show the principal lines of growth--lines which take on greater significance when it is realized that their effect is additive. These trends are unidirectional and convergent, and their result is to mobilize gradually Ameri- can industry into a pattern of control adapted to the prototype of the corporation.
The principle underlying the organization of the prototype is called by Mooney and Reiley,^^ the "scalar principle. " They define it as follows: "The scalar process is the same form in organization which is sometimes called hierarchical . . . a scale means a series of steps; hence, something graduated. In organization it means the graduation of duties, not according to differentiated functions, for this involves another and distinct principle of organization,^^ but simply according to degrees of authority and corresponding re- sponsibility. For convenience we shall hereafter call this phenom- enon of organization the scalar chain. "
The "scalar chain" is given effect through "1. Leaderships 2. Delegation, 3. Functional Definition. " The first defines the line of direction, as running from the top down, along any given line of policy. The second describes the principles of delegating power
78 Separate bureaus and departments have been set up within the NAM for each of these divisional interests.
79 Young and Rubicam, one of the largest advertising agencies in the world, handle public relations for the NAM.
80 A particularly important omission is the influence exerted on the educational system of the country through the activities of such an organization as the American Management Association.
D. Mooney and A. C. Reiley, Onward Industry! Mooney is an outstanding
81
executive of the General Motors Corp.
J.
82 "Functional organization" as used here refers to division of authority from executive headquarters down.
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down through the hierarchy of command and subordination. The third traces the lines by way of which leadership circumscribes fields of specialized authority through the pyramid of control.
Within the corporation, all policies emanate from the control above. In the union of this power to determine policy with the execution thereof, all authority necessarily proceeds from the top to the bottom and all responsibility from the bottom to the top. This is, of course, the inverse of "democratic" control; it follows the structural conditions of dictatorial power. In so far as the lines of control native to the private business corporation have been kept unsullied by important compromise of principle, they approx- imate those long familiar in the structure of modern military for- mations. Here, what in political circles would be called legislative, executive, and judicial functions are gathered together in the same hands. And these controlling hands, so far as policy formulation and execution are concerned, are found at the peak of the pyramid and are manipulated without significant check from its base.
So far as it is possible to trace trends within the organization of the NAM, they all appear to converge, in order to compress the general policy formulation of American business into the molds evolved by the corporation. Which is to say that just as the giant corporation takes on as an incident to its growth a definite political significance as a wielder of power over increasing numbers of people and their interests, so it is inevitable that the NAM should in its much larger sphere be transformed, as it grows and expands, into a community force ever more politically potent and politically conscious. On the evidence it would appear that three things then begin to happen to the propaganda program. All economic issues are transmuted into terms of social and cultural issues, increas- ingly, as the political implications and the military possibilities of cumulated economic power are realized. Propaganda then becomes a matter of converting the public, or all special divisions of the
public--small businessmen, consumers, labor, farmers, housewives --to the point of view of the control pyramid. This accounts for the vast outpouring of so-called "educational" literature of the NAM, now designed to enter into every nook and cranny of Ameri- can life, economic, political, social, and cultural. ^^ It is a prepa-
ys See in particular the NAM "You and Industry" series, eight in number. These are, seriatim, "The American Way," "Men and Machines," "Taxes and You," "The
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ganda reaching to the roots of the principles which underlie con- temporary capitalistic civilization--that is to say, the propaganda is an ideological outpouring. **
Second, the combination of monopoly powers and competitive privileges (so far as the state is concerned) leads all discussion re- garding undesirable regulation *^ by the government to proposals for "self-management" or "self-government" in business. For the gigantic aggregations of economic power and the centrally manipu- lated, policy-forming pyramids, "self-government in business" rep- resent precisely what laissez faire does for competitive (that is, "unorganized") economics. It became the theme song of NRA: it is the perfect adaptation to the elaborate system of business ad- visory boards originally set up by leading trade associations under the auspices of the Chamber of Commerce of the United States, in connection with the War Industries Board. *^ It visualizes all eco- nomic activity organized in a system of eventually all-inclusive trade, industrial, and occupational categories, each of which will, through its governing hierarchy, establish and administer the poli- cies governing the behavior of its members in all important re- spects. "If business is to rule itself . . . it will be through trade associations," a circular of the American Trade Association Execu- tives announces. Can it be that full national expansion of this idea
American Standard of Living," "The Future of America," "Pattern of Progress," "What is Industry? " "Yardsticks of American Progress. " These are masterpieces of statistical, descriptive, and argumentative exegesis, designed to convert to a point of view. "A united front in presenting the case of industry to federal, state, and local governments and to the general public" is the objective, says a folder of the National Industrial Council (undated), and the techniques are those of the lobby and of ad- vertising applied to the "sale of ideas. " Concerning advertising, see the program of Battan, Barton, Durstine, and Osborn for the du Pont "Cavalcade of America" radio series and the McDonald Cook poster series for the NAM, "Prosperity Dwells Where Harmony Reigns. "
84 "The employer organizes the forces of production. He is the natural leader of his workmen, and is able by instruction, example and fair dealing to bring to bear constantly upon them influences for right thinking and action for loyalty to the common enterprise. " Open Shop Report, Proceedings of the 28th Annual Meeting of the NAM (May, 1923), pp. 156-59. (Italics mine. ) According to the New York Times (Dec. 11, 1940) report of the NAM textbook survey, the NAM found "faith building . . . lacks" in American public schools. These statements are typical of the more recent literature (compare with Italian, German, and Japanese material above).
85 "Undesirable" in terms of the needs, interests, and aspirations of the dominating elements in the business world.
86 See Mary van Kleeck, Creative America (New York, 1936).
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will lead here, as it surely has abroad, directly, to employ the medie- val expression, into a "corporatively organized society? " (R)^
In the third place, the obverse face of "self-government" in busi- ness appears clearly to seek for coordination of political policies to the requirements of monopoly-oriented business. Internally the NAM program favors maintenance of all domestic markets free from foreign competition. Externally it has always sought the maxi- mum of aid from government in the promotion of interests abroad. Rationalization of the internal emphasis would seem on all the evidence, to date, to lead directly to autarchy ^^ and the companion use of the government for the purpose of suppressing antagonistic social elements. (R)^ Externally it has already led to the business vari- ant of "Hemisphere Unity," a blocking out of the world into what
the Germans call Grossraumwirtschaften (and the Japanese, "Co- Prosperity Sphere")--literally, "great-space economics" for im- perial expansion. (R)^ Both these programs have evolved naturally
87 The pressures can lead directly to the type of proposal recently elaborated (Feb. 9, 1940) by sixteen Catholic prelates meeting in Washington, D. C. , in which they proposed a "Guild or Corporative System" for America, (a) At no point is this pro- posal at odds with the propaganda of NAM; (b) the proposal is practically identical with that of the papal encyclical Quadragesimo Anno (1931), which formed the basis of Chancellor Schuschnigg's Austrian variant of "Clerical Fascism. "
88 "Autarchy" is commonly applied as a term of derision to the "self-sufficiency" program of the Third Reich. But an examination of the elements of this "autarchic" program will merely show that some bad calculations have been made in regard to self-sufficiency as an argument for promoting higher tariffs, monetary and exchange controls, systems of subsidies and subventions, etc. , which are in no sense of the term new. Since the end of the Bliitezeit of laissez faire with the introduction of the Bis- marck tariff of 1879, programs along all these lines have been adopted by all the major industrial countries of the world. And, once these programs get well under way, there has been a long-run increase in their range of application, the severity of
their controls, and the political implications of their continued pursuit. "Buy British" or "Buy American" are just as clearly "autarchic" sentiments as anything the Nazis have devised. See also pp. 252-53.
89 See the "Labor Program of the NAM," formulated in 1903, and the speech of President David M. Parry in support thereof. See also a novel written by David M. Parry, called "The Scarlet Empire," which ran serially in American Industries in 1913--the story of how society goes to pieces through failure to suppress ideas and programs which run counter to the interests of the business public. See, further, "Industrial Strife and the Third Party," a special pamphlet of the NAM which states its whole doctrinal position on labor; and see also the NAM's more recent "Sentinels of America" campaign "on behalf of the private enterprise system," a program that calls for a modern private system for reporting "misstatements"--somewhat remi- niscent of the system of "delation" evolved by the Roman Emperor Tiberius, and copied so frequently in recent times by organized private espionage agencies of one sort or another.
90 These are seen in the future to be, respectively. Great Britain and the British
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out of the lines of emphasis laid down in the original program of the NAM. Since then there has been no fundamental departure at any time from the tenets those proposals are based upon. Govern- ment, in this view, becomes an aid, an ally, a means for the instru- mentation of the interests of this transformed system of interlock- ing business-control pyramids,^^ and the indispensable means for dissolution of the national and ideological forms of its detractors.
Empire, France and her African and overseas possessions, Japan and hegemony of the Chinese, Siberian and Korean mainland, Italy and hegemony of the Mediter- ranean, and Germany with hegemony of Mittel-europa. More recently, the British have been talking of a "greater Turkey," to include parts of Iran, all of Turkestan, Azerbaijan, and other Turkish-speaking peoples of the Near and Central East.
91 See the discussions in the NAM publications centering around such topics as its interest and participation in the formation of the Department of Commerce and Labor; the Panama Canal; the formation of the War Industries Board; the infor- mational and promotion services of the Department of Commerce; tariff policies; NRA; the participation of its leading members in the Industrial Mobilization Plan; and the constitution of the new higher command of "National Defense" headed up by Mr. Knudsen. Whatever else may be the outcome of the current struggle, it is probably safe to say that American efforts will eventually mean the complete dis- placement by American interests of German, Italian, Japanese, and possibly the win- ning of British holdings throughout the two Americas.
? Part III
COMPARISON AND CONTRAST OF TRENDS IN BUSINESS POLICY FORMATIONS
? Chapter VII
ECONOMIC POLICIES: MONOPOLY, PROTECTION, PRIVILEGE
THE LEADING economic resultant of the evolution of centralized policy-forming power in business might simply be termed: Promotion of Monopoly. ^ Interpreted broadly, such an identifica-
tion would be consistent with the records, yet it also greatly over- simplifies the picture. For present purposes, the better to show the changed sources, nature, and interconnections among the principal carriers of monopoly powers, analysis may be broken down to deal with the collusive practices of:
the industrial, commercial, and financial giants in the corporate world; cartels, rings, pools, syndicates, and trade associations which may have
taken on one or more of the several cartel functions; and
trade associations, cartels, and similar federations of business interests when grouped or banded together into confederational, central, or
"peak" associations (Spitzenverbdnde).
Most analyses of monopoly trends deal primarily or exclusively with the first of these three. The more theoretical treatments cen- ter around problems in the mechanics of price manipulation under circumstances showing some determinate departure from perfectly or purely competitive norms. ^ Other writers confine themselves to
1 Compare pp. 7-10, above.
2 The Federal Trade Commission, in its Report to the Temporary National Eco- nomic Committee, ". . . Re Monopolistic Practices in Industries" (TNEC Hearings, Part 5-A, p. 2305) summarized under this head all cases centered around "acts and practices [which] are . . . calculated and tend to interfere with the natural play of normal competitive forces, with a resultant increased concentration of private eco- nomic power in the hands of private and limited groups, and in the imposition of unnatural limitations and restrictions on trade with consequent injury to the pub- lic. " I have italicized the obvious jokers, but more questionable still is the identifi- cation: decline of competition = corresponding rise of monopoly powers. Strictly
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*
'trust," combination, and "conspiracy policies" of the corporate giants as these "affect the public interest," or as they constitute objects of legislative and regulatory control by the government. The former consider monopoly problems solely within the eco- nomic frame of reference; the latter typically ignore both the eco- nomic and political frames of reference.
In the present connection, we wish to present a third--and par- tially overlapping--set of issues relating to the monopolistic poli- cies of organized business in which political and economic facets are inextricably interwoven. First, what are the long-run changes in the structure, functioning, and "balance-of-power" relationships within and amongst the great combinations which at once narrow and concentrate leadership within their own immediate corporate frontiers, while enhancing further their power to shape the larger destinies of the looser forms of business organization which are sub- sumed under the other two headings above? How far and how gen- erally are the "trusts" enabled to pose the issues for these other federations of business interests, and what is the nature and "direc- tion" of the issues they pose? In what manner and by what means are they enabled to implement policies advocated for the trade, the industry, and the economic system as a whole? And in what respects do the nature of the policies advocated on the one hand, and the means for partial or full instrumentation outside of their own immediate corporate frontiers on the other, become altered as interests broaden to the wider horizons?
It will not be possible to offer here more than a rough classifica- tion of the reasons for such a relative increase in the manipulative
speaking, of course, "imperfect competition" and the exercise of monopoly powers through "monopolistic competition" cannot be used as though the terms are inter- changeable, as implied in the above FTC statement; see J. M. Clark, "Towards a Concept of Workable Competition," American Economic Review, XXX Qune, 1940), especially pp. 244-45). ^"^ ^^ ^^ only in an abstract, classificatory sense of the terms that competition and monopoly can be kept antiseptic to each other (cf. Robinson, Introduction) under the best of circumstances--perhaps not even then; and in general it is true that historically the decline of competition is practically coter- minous and coextensive with the advance of some one or more collusive controls which controls, to be true, may actually heighten the level and sharpen the edge of competition. But the new competition is cumulatively of a different type; it com- plies with different procedural rules, and pursues greatly altered ends, as compared with the old type, the cogent and witty Mrs. Robinson to the contrary notwith- standing.
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? ECONOMIC POLICIES 225
powers of big business. ^ Nor is there need in the present connection for much more. The chief interest centers in the bearing such power has on the policies of looser types of business organization now growing with such amazing speed in numbers, influence, and range of interests throughout the capitalistic world. Similarly, pres- ent attention focuses on the activities of what might be called inter- mediate, or perhaps better, transitional, forms of collusion com- monly known as cartels, rings, pools, syndicates, and the like. Some writers, notably Germans following in the path blazed by Lief- mann, have devoted a great deal of attention to the monopoly features, trends, or results of these contractual and semicontractual devices for exercising controls similar to those long employed by several of the corporate giants.
William Frew Long, manager of the Associated Industries of
dominated labor union corresponds to the Social Catholic concept of "mixed syndi- cates" (Chapter II). The comparable idea of "parallel" or "collateral syndicates" has been advanced a number of times in the United States. One of the most recent of such proposals was to establish "A National Independent Labor Organization in the Steel Industry" in the late thirties, a plan backed by the NAM. See LaFollette Com- mittee Reports, Part 17, p. 7451.
51 A secret committee of ten large American corporations, organized in 1919 under the apparent leadership of the Standard Oil of New Jersey, for the purpose of evolv- ing a common labor-relations program for American industry.
52 An organization established by the Rockefeller interests to promote the "welfare capitalism" ideas expressed in various speeches of John D. Rockefeller, Jr. , following "Bloody Ludlow," and elaborated in his book. The Personal Relation in Industry (New York, 1923).
53 LaFollette Committee Reports, No. 6, Part 6, pp. 58-59.
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Cleveland, succeeded in defeating the Rees plan on the first ground, but was faced with a curious difficulty in the second. If the NAM and its affiliated bodies were to expand their membership to in- clude these additional business interests, how could it remain the exclusive representative of the manufacturing interests of Amer- ica, as had always been its claim? And if it did not so expand, how could it defend its position as spokesman for the "business point of y'igw as a whole," which it likewise claimed to be?
From the available literature we cannot infer precisely what stand the NAM will take on this issue; Long's reply argued, how- ever, that the various affiliates of the NIC were established for just such purpose as Rees had in mind, and that they were sufficiently inclusive of various types of business interests to really speak for "the community as a whole" on local affairs. In support of this contention, an inspection of the available records, reveals mem- bership and connections which include practically every local in- terest in the various affiliated employers' associations (organized on a city-wide basis), and in many of the state industrial associa- tions. It does not apply, of course, to the third group made up of national, manufacturing trade associations.
The controversy settled one issue: there was to be no splitting up of the organization of industrial employers into functional groups such as obtains, for example, in England. Whether or not the NAM will attempt to expand its functions so as to represent all employers on a national basis, as its functional NIC affiliates do on a local basis, remains to be seen. ^*
Before leaving this description of the expansion of the NAM network, two other items should be mentioned. First, that its local and regional affiliates attempt to organize and attach to themselves the whole of their separate territories, just as the NAM attempts to do on a national basis. The state associations are particularly ef- fective to this end, and in some areas they appear to have succeeded
54 There is some evidence of willingness of the NAM to take in banking, financial, shipping, advertising, and similar interests. It is interesting in this connection to note that the proposal of Mr. Almon E. Roth, President of the San Francisco Employers' Council, for "one-big-Union-of-Eraployers" and "industry-wide collective bargain- ing," presented before the Industrial Relations Section of the Annual Meeting of the Chamber of Commerce of the United States, May i, 1940 (mimeographed) inevita- bly leads to the industry-wide compacts which require that organized labor speaks for all labor as in the famous French "Matignon Agreement" (see pp. 139-45).
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in making their associational dragnet almost loo percent com- plete. *^^
And second, that the NAM has to date shown little disposition to surrender any of its power and influence to any superior body similarly designed to coordinate the activities of industry, trade, finance, and other fields, on behalf of business interests as a whole. At one time, apparently, it hoped for something of this nature from the organization of the Chamber of Commerce of the United States. Serious difficulties arose, attested by the withdrawal of the NAM from the Chamber in the early twenties. More recently, amicable relations have been established; but the Chamber is still far from serving the various associations of associations as a cen- tral, policy-coordinating body, in the manner of the NAM and the American Bankers' Association in their respective fields.
CENTRALIZING AND STRENGTHENING THE STRANDS OF CONTROL WITHIN THE NAM
In estimating the degree of centralized power within the NAM to manipulate business policies, and the extent to which such poli- cies may in effect be implemented, it is necessary to call to the mind of the reader certain familiar facts. These may be detailed seriatim:
1 . With minor exceptions the NAM and its affiliates through the NIC are made up of corporations. Correlative with expansion of the nam's influence throughout the manufacturing community has gone the cumulative transformation of business enterprise from a simple ownership to a corporate footing. Including all forms of American economic activity, business and nonbusiness alike, it has been estimated that the corporate share in 1929 was approxi- mately 57 percent. ^^ It is doubtless higher today. The very fact that change has been made from the simple individual business enter- prise or partnership to the corporation represents in itself cen- tralization of policy-determining power within the ranks of owner- ship. All property rights represented by bonds " and nonvoting
65 See La Follette Committee Reports, Parts 20 and 21, for discussion of the or- ganization of the Associated Industries of Cleveland.
56 Twentieth Century Fund, Big Business, p. 16.
57 1 am ignoring the accounting distinction in this connection which excludes bonds from equity holdings. Suffice it to say that these constitute accumulated capital funds which are employed under this peculiar legal and accounting form, but are no less property, despite such identification.
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shares are ipso facto separated from any voice in management and the determination of policy.
2. Within voting-share ranks, power to participate in the deter- mination of policies is probably narrowed by as much again through the various devices analyzed in such studies as that of Berle and Means. ^^ The "property atom" is further split through blocked voting interests, through devices like the holding company, and through the special influence of various interests operating through interlocking directorates, special trust funds, and financial circles. The result is to divide corporate property holders, so that progres- sively fewer of them participate in the formation of policies, and to concentrate in extremely small inside groups the policy-forming control. ^^ The rest of the stockholders possessing voting rights fall into the same class as the nonvoting shareholders and bondholders, and go to make up a large and rapidly growing "rentier" (R)? class. The larger the corporation, typically, the more significant this shift.
3. The swift growth in the relative importance of the corporate form and in the further "splitting of the property atom" is paral- leled historically by continued extension of the combination move- ment noted at the beginning of this chapter. With the close of the World War, combination began on a new and higher scale than ever before. "During the ten years, 1919-1928, there were 1,268 combinations in manufacturing and mining," involving "the union of 4,135 separate concerns and the disappearance of 5,991"; and so on throughout practically every field of business enterprise. Dur- ing the same period, 3,744 public-utility companies disappeared through consolidations. *^ Chain stores, chain-department and mail- order systems, chain and branch banking, and similar types of enterprises expanded with unprecedented speed.
58 The Modern Corporation.
59 For some rather spectacular examples of the power of small inside groups simi- lar to those outlined by Berle and Means, in the hitherto quite unexplored field of life insurance, see the report of the TNEC Investigation of Concentration of Eco- nomic Power, Part 4, "Life Insurance. "
60 The term originated with the French government bond called the rente. The rentier class, made up of several million small bondholders who live largely by clip- ping coupons, and who, as bondholders, possess absolutely no rights over the source of their income, constitute a model which the holder of the American private cor- porate security is rapidly approaching. See p. 228.
61 Twentieth Century Fund, Big Business, p. 32.
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The results of this rather spectacular concentration of corporate
holdings have been pretty well publicized. Speaking before the
Temporary National Economic Committee, a representative of
Dun and Bradstreet cited a few of the better-known examples.
From various governmental sources he found that the output of
automobiles was dominated to the extent of 86 percent by three
companies; 47 percent of the beef products business by two com-
panies; 20 percent of the bread and other bakery produced by
three companies; 90 percent of the can output by three companies;
40 percent of cement by five; 80 percent of the cigarettes by three;
78 percent of the copper by four; 95 percent of the plate glass by
two; 64 percent of the iron ore by four; 60. 5 percent of the steel by
three; and so on. ^^ yj^^ National Resources Committee found that,
using three criteria of size, the hundred largest companies under
each respective heading "employed 20. 7 per cent of all the man-
power engaged in manufacturing, contributed 24. 7 per cent of all
the value added in manufacturing activity" and "accounted for
32. 4 per cent of the value of products reported by all manufactur-
(R)^
ing plants. "
4. The real significance of such concentration is found less in
the exercise of direct monopolistic powers ^* than in the position of leadership of these giant concerns in their respective fields. This leadership is applied in two principal ways. First, by such devices as "price leadership," "sharing the market," "price stabilization," "non-price competition," and the like; (R)^ these devices the smaller concerns are unable to oppose successfully, and must either "fol- low the leader" or face a variety of pressures which experience demonstrates they cannot possibly hope, in the normal course of affairs, to survive.
The second class of devices are those subsumed under the actions of the leading trade associations. As pointed out above, the effect of
62 TNEC Hearings, Investigation of Concentration of Economic Power, Testimony of Willard Thorp, Part I, p. 137.
63 National Resources Committee, The Structure of the American Economy, Part I (June, 1939), "Basic Characteristics," p. 102.
64 "Monopolies in the crude sense of single sellers of products for which there are no nearby substitutes are extremely rare. " A. R. Burns, The Decline of Competi- tion (New York, 1936).
65 For an elaborate, careful, and meticulously detailed discussion of these policies a reading of Burns, op. cit. , is indispensable.
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NRA was to transform a large number of the leading trade associa- tions into "cartels," possessing either de facto or de jure^^ powers along one or more lines similar to those of their European national and international prototypes. Many of the trade associations have advanced so far along this line as to approach in function the higher states of combined action which lead to the syndicates ^^ and com- munities of interest. ^^ Such leadership, possessing in many cases some degree of coercive power to compel conformity to policies laid down, is found more frequently in manufacturing fields than elsewhere. Hence the peculiar significance in this respect of the NAM, designed to serve as a policy coordinator for all industrial operations in America.
5. The leading concerns in the principal trade associations ap- pear simultaneously in the testimony of Thorp before the TNEC, in the investigations of Berle and Means and the National Re- sources Committee, and on the membership rolls of the NAM. Within the NAM this same small coterie of giant concerns are able to dominate, fairly completely, policies which affect to some ex- tent all fields and functions of American industry. In evidence of this fact, the La Follette Committee findings disclosed that while the NAM claimed approximately 4,000 corporate members for the year 1938, all of its directorships together, for the period 1933-
1937 inclusive, represented only 127 individuals from 89 firms. Adding to these figures some 118 additional concerns that con- tributed $2,000 or more in at least one of the five years, we obtain some 207 companies which "comprise approximately 5 per cent of the total estimated membership" and "whose contributions total $572,711 or 48. 9 per cent of the total. It would . . . appear . . . from this analysis," said Mr. Robert Wohlforth, testifying before the Committee, "that about 207 companies, or approximately five
66 De jure powers exist through the efforts of the lobby which succeeds in placing onto the statute books--federal, state, or local--laws under which recalcitrants may readily be forced into line. An example is the Robinson-Patman Act. The same holds true for most of the other federal and state "fair-trade practices" legislation.
67 "Syndicates" are central selling agencies for cartels. Close American equivalent is the now widespread practice of central allocation of all sales through manipulation of bidding schedules.
68 "Communities of interest" involve working arrangements so close as to consti- tute monopoly action. In Europe this is commonly regarded as an equivalent, and an immediate predecessor, to complete monopoly through formal combination.
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per cent of the National Association of Manufacturers, are in a posi- tion to formulate the policies of the association. " (R)(R)
6. This small minority represents very largely giant concerns, as can be seen from a perusal of the lists of the boards of directors for different years, of the affiliations of the leading committee members, and of financial contributions. ^^ Even within this small minority the machinery of organization provides for a still higher degree of centralized power. All policies are determined by the Board of Directors, elected by member bodies, but only after can- didates are sifted through a nominating committee, which is, in turn, appointed by the president and approved of by the existing Board of Directors. Of the 66 members of the Board of Directors, nine are direct presidential appointees. The direction of the NAM is in the hands, consequently, of a group who are able to act in effect as a cooptative body, to perpetuate their influence indefinitely with the passage of time, and so to compel consistency of policy with a view to long-run interests.
7. The NAM in turn dominates the National Industrial Coun- cil. It is enabled cumulatively to strengthen its power to influence NIC membership, because of three cardinal facts. First, the asso- ciations belonging to the NIC are typically organized along lines similar to those outlined for the NAM. As indicated above, such organizations (a) permit a high degree of centralization in organiza- tional control, (b) allow such centralized control to perpetuate it- self cooptatively over time, and (c) provide a milieu in which the large concerns readily and typically rise to positions of command- ing importance. Second, the leading firms in the associations af- filiated with the NAM via the NIC are, with rare exceptions, mem- bers of the corporative "elite" who belong to the NAM. Thus
6>>LaFollette Committee Reports, Part 17, pp. 7385-87. Also Exhibit 3799, p. 7540. "Among the corporations that have retained directorships for 5 years are the Ameri- can Rolling Mill Co. , of Middletown, Ohio; the General Mills, Inc. , of Minneapolis, Minn. ; the International Business Machines Co. , of New York; the Lambert Pharma- cal Co. , of St. Louis, Mo. ; The Standard Oil Co. , of Ohio; and the Eastman Kodak Co. , of Rochester, New York. " Among those which have had the same directors for four and three years continuously are to be found additional large-scale corporations.
70 Among these for the five-year period are E. I. Dupont de Nemours and Co. , |i16,800; Standard Oil, $76,800; General Motors, $65,295; National Steel Corp. , $42,050; Westinghouse Electric, $39,927. 50; United States Steel, $37,500; Monsanto Chemical Co. , of St. Louis, $36,775. Other contributors were the American Cyanamid Co. , Chrysler Co. , American Smelting and Refining, General Foods, Heinz, Pittsburgh Plate Glass.
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instrumentation of NAM policies is facilitated through the central controls of the several associations indirectly subsidiary to it. And third, the NIC itself functions through an hierarchical series of policy controls which lead from the bottom to the top, through what are known as "pyramided conferences": Local and trade con- ferences lead to state and regional conferences and to industry conferences, and from thence on through to the national confer- ences held in conjunction with the officialdom of the NAM. These ''pyramided conferences" do not constitute an expression of demo- cratic sentiment within the business community; on the contrary, inspection of available records show that they provide means for (a) gaining information concerning movements, sentiments, and interests in the industrial world in order the better to (b) manipu- late the "climate of opinion" and instrument policies emanating from on top.
8. By avoiding dual-functional organization throughout the complex machinery of the NAM and its affiliates, policies have been more highly centralized than they would otherwise have been. The group that directs business and political policies for the in- dustrialists of America also manages social and labor problems.
9. The importance of these two points is heavily underlined when it is recalled that the history of the NAM has shown that, except for certain short intervals, its overshadowing interest has been in labor relations. A common interest in opposing organized labor has served to hold the membership together, to dominate the motives in organizing and perfecting the machinery of the NIC, and to provide a never-failing bond of opposition to liberal-social legislation of the New Deal variety.
It appears to be likewise true that the position taken by the NAM and its affiliates on labor matters has been formulated by an ex- tremely small number of "inside firms" amongst the "insiders" who appear increasingly to dominate its policies. The Special Con- ference Committee, mentioned above, was organized in 1919 by ten giant concerns; ^^ it has held monthly meetings since that
71 The original corporations "cooperating" in this endeavor are Bethlehem Steel Co. , E. I. DuPont de Nemours and Co. , General Electric Co. , General Motors Corp. , Goodyear Tire and Rubber, International Harvester Co. , Irving Trust Co. , Standard Oil Co. (of New Jersey), United States Rubber Co. , Westinghouse Mfg. Co. Subse- quently two other concerns, the American Telephone and Telegraph Co. (1925) and
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time ^^ for the purpose of formulating common labor-relations pro- grams for all American industry, and has led in systematizing the promotion of policies consistently pursued by the NAM since its formation.
Not only are most of the member corporations of the Special Conference Committee at once members of the inner controlling group of the NAM and the leaders among American industrial giants in their respective fields,/^^ but also they represent a secret coalition in direct furtherance of the specific forms of company union fathered by the Colorado Fuel and Iron Company. Since its inception, the Committee has met at the offices of the Standard Oil of New Jersey, central unit of the gigantic Rockefeller oil, mining, banking, real-estate empire. "Two members of the staff of Industrial Relations Counselors, Inc. , a firm which specializes in advising corporations on problems of industrial relations, have served individually as members of the committee. " ^* From its
the United States Steel Corp. (1934) were added. LaFollette Committee Reports, Part 45, p. 16783.
72 Monthly meetings of personnel executives; semiannual meetings of corporate executives.
73 The Irving Trust Co. alone is not a member of the NAM. "The Committee con- sidered the desirability of enlarging its membership through the inclusion of repre- sentatives from corporations in additional industries. However, investigation led to the decision that this would be inadvisable because other corporations which were outstanding leaders in their respective industries in the same degree as the sponsors of the Special Conference Committee could not be found.
Omitting the Irving Trust Co. , in 1937 the corporations represented on the Special Conference Committee em- ployed more than 1,300,000 persons and paid total wages and salaries of more than $2,400,000,000. At the end of 1937 these 11 corporations claimed total assets in excess of $13,500,000,000. The American Telephone and Telegraph Co, has almost a com- plete national coverage in the public utility field which it serves. The United States Steel Corp. and the Bethlehem Steel Co. rank first and second, respectively, in the steel industry--with Bethlehem, through its subsidiaries, also ranking first in ship- building. E. I. DiiPont de Nemours and Co. is easily first in chemicals, and the General Motors Corporation maintains an approximately, similar position in the motor car industry. The Goodyear Tire and Rubber Co. and the United States Rubber Co. rank first and second, respectively, in their industry. The International
Harvester Co. is the outstanding manufacturer of farm equipment. The Standard Oil Co, of New Jersey is not only the largest of the Standard Companies; it is also regarded as the largest oil company in the world. The General Electric Co. is the largest producer of electrical equipment, while the Westinghouse Electric and Manufacturing Co. is next in rank . . . the United States Steel . . . through its subsidiaries is the largest producer of coal in the country and also largest producers of iron ore in the United States. " La Follette Committee Reports, Part 45, pp. 16781,
16783-84.
74 It was set up by the Standard Oil Company. Offices are now located in Rockefeller
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earliest days this same firm, in turn, has been under the domination of Standard Oil, United States Steel, and the du Pont interests. Its secretary since 1923 has been E. S. Cowdrick, previously associated with the Colorado Fuel and Iron Company in an executive ca- pacity.
The most important line of policies within the NAM, in short, seems to be traceable directly or indirectly to this inside clique within the inner councils of the organization ^^--a conclusion which is especially interesting when coupled to the fact that the original antilabor program was taken over from the heavy indus- tries (National Metal Trades Association, in large part), and that that original program (Parryism) is still the ''Bible" of the NAM. ^(R)
10. As the larger concerns which now constitute the central command of the NAM have come to the fore, the doctrinal position of its business leaders has been further coordinated in the elabora- tion of "public relations" propaganda. Nowhere else is shown so clearly the dominating position in the NAM of concerns such as those which are member to the Special Conference Committee. Public relations techniques were born," nurtured, and brought to flower within these ranks. The specific purpose of the Com- mittee is to coordinate all policy interests of the business com- munity in order to "sell" to the public justification of the position taken by the configuration of those interests on any and all mat- ters. Thus it brings together, into a single, central, and unified propaganda, "labor relations," "legislative relations," "agricul-
Center, New York City. For a number of years its director was A. H. Young, member of the Special Conference Committee as the representative of International Harvester. Leaving Industrial Relations Counselors in 1934, Young became vice-president of the United States Steel Corp. , in charge of personnel relations.
75 At any rate, the policies laid out by the Special Conference Committee are en- tirely coherent with those advocated by the NAM. It seems scarcely conceivable thai the direction of influence could run the contrary direction, from the NAM to the members of the Special Conference Committee--particularly in view of the fact that these same members are the recognized leaders and pioneers in the policies adopted by the two interlaced gioups. This holds for the policy of partial recognition of trade unions as bargaining agents, adopted subsequent to Supreme Court decisions upholding the NLRA.
76 See footnote 26, above.
77 Pioneer was Ivy Lee, the man who is given credit for transforming the elder John D. Rockefeller from the ogre of Ida M. Tarbell's History of the Standard Oil Company and "Bloody Ludlow" into the "seer of Pocantico Hills. " Ivy Lee is still regarded as a sort of Solon of "public relations" technique.
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tural trade relations," "^^ and all other "relations" involving con- tacts with groups whose interests may at any point come in conflict with their own. Employing the techniques, the criteria, and in many ways the services of advertising agencies,^^ the NAM has moved into this field in a big way; this is evidenced by the phe- nomenal increase in public relations expenditures cited on p. 198, above.
THE "scalar principle"
The ten points outlined above do not by any means exhaust the list of ways of centralizing power within the structure of the Amer- ican industrial system. ^^ They do, however, show the principal lines of growth--lines which take on greater significance when it is realized that their effect is additive. These trends are unidirectional and convergent, and their result is to mobilize gradually Ameri- can industry into a pattern of control adapted to the prototype of the corporation.
The principle underlying the organization of the prototype is called by Mooney and Reiley,^^ the "scalar principle. " They define it as follows: "The scalar process is the same form in organization which is sometimes called hierarchical . . . a scale means a series of steps; hence, something graduated. In organization it means the graduation of duties, not according to differentiated functions, for this involves another and distinct principle of organization,^^ but simply according to degrees of authority and corresponding re- sponsibility. For convenience we shall hereafter call this phenom- enon of organization the scalar chain. "
The "scalar chain" is given effect through "1. Leaderships 2. Delegation, 3. Functional Definition. " The first defines the line of direction, as running from the top down, along any given line of policy. The second describes the principles of delegating power
78 Separate bureaus and departments have been set up within the NAM for each of these divisional interests.
79 Young and Rubicam, one of the largest advertising agencies in the world, handle public relations for the NAM.
80 A particularly important omission is the influence exerted on the educational system of the country through the activities of such an organization as the American Management Association.
D. Mooney and A. C. Reiley, Onward Industry! Mooney is an outstanding
81
executive of the General Motors Corp.
J.
82 "Functional organization" as used here refers to division of authority from executive headquarters down.
? THE AMERICAN WAY 217
down through the hierarchy of command and subordination. The third traces the lines by way of which leadership circumscribes fields of specialized authority through the pyramid of control.
Within the corporation, all policies emanate from the control above. In the union of this power to determine policy with the execution thereof, all authority necessarily proceeds from the top to the bottom and all responsibility from the bottom to the top. This is, of course, the inverse of "democratic" control; it follows the structural conditions of dictatorial power. In so far as the lines of control native to the private business corporation have been kept unsullied by important compromise of principle, they approx- imate those long familiar in the structure of modern military for- mations. Here, what in political circles would be called legislative, executive, and judicial functions are gathered together in the same hands. And these controlling hands, so far as policy formulation and execution are concerned, are found at the peak of the pyramid and are manipulated without significant check from its base.
So far as it is possible to trace trends within the organization of the NAM, they all appear to converge, in order to compress the general policy formulation of American business into the molds evolved by the corporation. Which is to say that just as the giant corporation takes on as an incident to its growth a definite political significance as a wielder of power over increasing numbers of people and their interests, so it is inevitable that the NAM should in its much larger sphere be transformed, as it grows and expands, into a community force ever more politically potent and politically conscious. On the evidence it would appear that three things then begin to happen to the propaganda program. All economic issues are transmuted into terms of social and cultural issues, increas- ingly, as the political implications and the military possibilities of cumulated economic power are realized. Propaganda then becomes a matter of converting the public, or all special divisions of the
public--small businessmen, consumers, labor, farmers, housewives --to the point of view of the control pyramid. This accounts for the vast outpouring of so-called "educational" literature of the NAM, now designed to enter into every nook and cranny of Ameri- can life, economic, political, social, and cultural. ^^ It is a prepa-
ys See in particular the NAM "You and Industry" series, eight in number. These are, seriatim, "The American Way," "Men and Machines," "Taxes and You," "The
? 2i8 THE AMERICAN WAY
ganda reaching to the roots of the principles which underlie con- temporary capitalistic civilization--that is to say, the propaganda is an ideological outpouring. **
Second, the combination of monopoly powers and competitive privileges (so far as the state is concerned) leads all discussion re- garding undesirable regulation *^ by the government to proposals for "self-management" or "self-government" in business. For the gigantic aggregations of economic power and the centrally manipu- lated, policy-forming pyramids, "self-government in business" rep- resent precisely what laissez faire does for competitive (that is, "unorganized") economics. It became the theme song of NRA: it is the perfect adaptation to the elaborate system of business ad- visory boards originally set up by leading trade associations under the auspices of the Chamber of Commerce of the United States, in connection with the War Industries Board. *^ It visualizes all eco- nomic activity organized in a system of eventually all-inclusive trade, industrial, and occupational categories, each of which will, through its governing hierarchy, establish and administer the poli- cies governing the behavior of its members in all important re- spects. "If business is to rule itself . . . it will be through trade associations," a circular of the American Trade Association Execu- tives announces. Can it be that full national expansion of this idea
American Standard of Living," "The Future of America," "Pattern of Progress," "What is Industry? " "Yardsticks of American Progress. " These are masterpieces of statistical, descriptive, and argumentative exegesis, designed to convert to a point of view. "A united front in presenting the case of industry to federal, state, and local governments and to the general public" is the objective, says a folder of the National Industrial Council (undated), and the techniques are those of the lobby and of ad- vertising applied to the "sale of ideas. " Concerning advertising, see the program of Battan, Barton, Durstine, and Osborn for the du Pont "Cavalcade of America" radio series and the McDonald Cook poster series for the NAM, "Prosperity Dwells Where Harmony Reigns. "
84 "The employer organizes the forces of production. He is the natural leader of his workmen, and is able by instruction, example and fair dealing to bring to bear constantly upon them influences for right thinking and action for loyalty to the common enterprise. " Open Shop Report, Proceedings of the 28th Annual Meeting of the NAM (May, 1923), pp. 156-59. (Italics mine. ) According to the New York Times (Dec. 11, 1940) report of the NAM textbook survey, the NAM found "faith building . . . lacks" in American public schools. These statements are typical of the more recent literature (compare with Italian, German, and Japanese material above).
85 "Undesirable" in terms of the needs, interests, and aspirations of the dominating elements in the business world.
86 See Mary van Kleeck, Creative America (New York, 1936).
? THE AMERICAN WAY 219
will lead here, as it surely has abroad, directly, to employ the medie- val expression, into a "corporatively organized society? " (R)^
In the third place, the obverse face of "self-government" in busi- ness appears clearly to seek for coordination of political policies to the requirements of monopoly-oriented business. Internally the NAM program favors maintenance of all domestic markets free from foreign competition. Externally it has always sought the maxi- mum of aid from government in the promotion of interests abroad. Rationalization of the internal emphasis would seem on all the evidence, to date, to lead directly to autarchy ^^ and the companion use of the government for the purpose of suppressing antagonistic social elements. (R)^ Externally it has already led to the business vari- ant of "Hemisphere Unity," a blocking out of the world into what
the Germans call Grossraumwirtschaften (and the Japanese, "Co- Prosperity Sphere")--literally, "great-space economics" for im- perial expansion. (R)^ Both these programs have evolved naturally
87 The pressures can lead directly to the type of proposal recently elaborated (Feb. 9, 1940) by sixteen Catholic prelates meeting in Washington, D. C. , in which they proposed a "Guild or Corporative System" for America, (a) At no point is this pro- posal at odds with the propaganda of NAM; (b) the proposal is practically identical with that of the papal encyclical Quadragesimo Anno (1931), which formed the basis of Chancellor Schuschnigg's Austrian variant of "Clerical Fascism. "
88 "Autarchy" is commonly applied as a term of derision to the "self-sufficiency" program of the Third Reich. But an examination of the elements of this "autarchic" program will merely show that some bad calculations have been made in regard to self-sufficiency as an argument for promoting higher tariffs, monetary and exchange controls, systems of subsidies and subventions, etc. , which are in no sense of the term new. Since the end of the Bliitezeit of laissez faire with the introduction of the Bis- marck tariff of 1879, programs along all these lines have been adopted by all the major industrial countries of the world. And, once these programs get well under way, there has been a long-run increase in their range of application, the severity of
their controls, and the political implications of their continued pursuit. "Buy British" or "Buy American" are just as clearly "autarchic" sentiments as anything the Nazis have devised. See also pp. 252-53.
89 See the "Labor Program of the NAM," formulated in 1903, and the speech of President David M. Parry in support thereof. See also a novel written by David M. Parry, called "The Scarlet Empire," which ran serially in American Industries in 1913--the story of how society goes to pieces through failure to suppress ideas and programs which run counter to the interests of the business public. See, further, "Industrial Strife and the Third Party," a special pamphlet of the NAM which states its whole doctrinal position on labor; and see also the NAM's more recent "Sentinels of America" campaign "on behalf of the private enterprise system," a program that calls for a modern private system for reporting "misstatements"--somewhat remi- niscent of the system of "delation" evolved by the Roman Emperor Tiberius, and copied so frequently in recent times by organized private espionage agencies of one sort or another.
90 These are seen in the future to be, respectively. Great Britain and the British
? 2 20 THE AMERICAN WAY
out of the lines of emphasis laid down in the original program of the NAM. Since then there has been no fundamental departure at any time from the tenets those proposals are based upon. Govern- ment, in this view, becomes an aid, an ally, a means for the instru- mentation of the interests of this transformed system of interlock- ing business-control pyramids,^^ and the indispensable means for dissolution of the national and ideological forms of its detractors.
Empire, France and her African and overseas possessions, Japan and hegemony of the Chinese, Siberian and Korean mainland, Italy and hegemony of the Mediter- ranean, and Germany with hegemony of Mittel-europa. More recently, the British have been talking of a "greater Turkey," to include parts of Iran, all of Turkestan, Azerbaijan, and other Turkish-speaking peoples of the Near and Central East.
91 See the discussions in the NAM publications centering around such topics as its interest and participation in the formation of the Department of Commerce and Labor; the Panama Canal; the formation of the War Industries Board; the infor- mational and promotion services of the Department of Commerce; tariff policies; NRA; the participation of its leading members in the Industrial Mobilization Plan; and the constitution of the new higher command of "National Defense" headed up by Mr. Knudsen. Whatever else may be the outcome of the current struggle, it is probably safe to say that American efforts will eventually mean the complete dis- placement by American interests of German, Italian, Japanese, and possibly the win- ning of British holdings throughout the two Americas.
? Part III
COMPARISON AND CONTRAST OF TRENDS IN BUSINESS POLICY FORMATIONS
? Chapter VII
ECONOMIC POLICIES: MONOPOLY, PROTECTION, PRIVILEGE
THE LEADING economic resultant of the evolution of centralized policy-forming power in business might simply be termed: Promotion of Monopoly. ^ Interpreted broadly, such an identifica-
tion would be consistent with the records, yet it also greatly over- simplifies the picture. For present purposes, the better to show the changed sources, nature, and interconnections among the principal carriers of monopoly powers, analysis may be broken down to deal with the collusive practices of:
the industrial, commercial, and financial giants in the corporate world; cartels, rings, pools, syndicates, and trade associations which may have
taken on one or more of the several cartel functions; and
trade associations, cartels, and similar federations of business interests when grouped or banded together into confederational, central, or
"peak" associations (Spitzenverbdnde).
Most analyses of monopoly trends deal primarily or exclusively with the first of these three. The more theoretical treatments cen- ter around problems in the mechanics of price manipulation under circumstances showing some determinate departure from perfectly or purely competitive norms. ^ Other writers confine themselves to
1 Compare pp. 7-10, above.
2 The Federal Trade Commission, in its Report to the Temporary National Eco- nomic Committee, ". . . Re Monopolistic Practices in Industries" (TNEC Hearings, Part 5-A, p. 2305) summarized under this head all cases centered around "acts and practices [which] are . . . calculated and tend to interfere with the natural play of normal competitive forces, with a resultant increased concentration of private eco- nomic power in the hands of private and limited groups, and in the imposition of unnatural limitations and restrictions on trade with consequent injury to the pub- lic. " I have italicized the obvious jokers, but more questionable still is the identifi- cation: decline of competition = corresponding rise of monopoly powers. Strictly
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? 224 ECONOMIC POLICIES
*
'trust," combination, and "conspiracy policies" of the corporate giants as these "affect the public interest," or as they constitute objects of legislative and regulatory control by the government. The former consider monopoly problems solely within the eco- nomic frame of reference; the latter typically ignore both the eco- nomic and political frames of reference.
In the present connection, we wish to present a third--and par- tially overlapping--set of issues relating to the monopolistic poli- cies of organized business in which political and economic facets are inextricably interwoven. First, what are the long-run changes in the structure, functioning, and "balance-of-power" relationships within and amongst the great combinations which at once narrow and concentrate leadership within their own immediate corporate frontiers, while enhancing further their power to shape the larger destinies of the looser forms of business organization which are sub- sumed under the other two headings above? How far and how gen- erally are the "trusts" enabled to pose the issues for these other federations of business interests, and what is the nature and "direc- tion" of the issues they pose? In what manner and by what means are they enabled to implement policies advocated for the trade, the industry, and the economic system as a whole? And in what respects do the nature of the policies advocated on the one hand, and the means for partial or full instrumentation outside of their own immediate corporate frontiers on the other, become altered as interests broaden to the wider horizons?
It will not be possible to offer here more than a rough classifica- tion of the reasons for such a relative increase in the manipulative
speaking, of course, "imperfect competition" and the exercise of monopoly powers through "monopolistic competition" cannot be used as though the terms are inter- changeable, as implied in the above FTC statement; see J. M. Clark, "Towards a Concept of Workable Competition," American Economic Review, XXX Qune, 1940), especially pp. 244-45). ^"^ ^^ ^^ only in an abstract, classificatory sense of the terms that competition and monopoly can be kept antiseptic to each other (cf. Robinson, Introduction) under the best of circumstances--perhaps not even then; and in general it is true that historically the decline of competition is practically coter- minous and coextensive with the advance of some one or more collusive controls which controls, to be true, may actually heighten the level and sharpen the edge of competition. But the new competition is cumulatively of a different type; it com- plies with different procedural rules, and pursues greatly altered ends, as compared with the old type, the cogent and witty Mrs. Robinson to the contrary notwith- standing.
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? ECONOMIC POLICIES 225
powers of big business. ^ Nor is there need in the present connection for much more. The chief interest centers in the bearing such power has on the policies of looser types of business organization now growing with such amazing speed in numbers, influence, and range of interests throughout the capitalistic world. Similarly, pres- ent attention focuses on the activities of what might be called inter- mediate, or perhaps better, transitional, forms of collusion com- monly known as cartels, rings, pools, syndicates, and the like. Some writers, notably Germans following in the path blazed by Lief- mann, have devoted a great deal of attention to the monopoly features, trends, or results of these contractual and semicontractual devices for exercising controls similar to those long employed by several of the corporate giants.
