No More Learning

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? BUSINESS AS A SYSTEM OF POWER
? BUSINESS AS A SYSTEM OF POWER
By ROBERT A. BRADY
New York : Momlngslde Heights COLUMBIA UNIVERSITY PRESS 1943
? Copyright 1943
COLUMBIA UNIVERSITY PRESS, NEW YORK
Foreign Agents: Oxford University Press, Humphrey milford, AMEN house, LONDON, E. C. 4, ENGLAND, AND B. I. BUILDING, NICOL ROAD, BOMBAY, INDIA
MANUFACTURED IN THE UNITED STATES OF AMERICA
This Study was made possible in part by funds granted by Carnegie Corporation of New York. That Corporation is not, however, the author, owner, publisher, or proprietor of this publication, and is not to be understood as approving by virtue of its grant any of the statements made or views expressed therein.
? To
WESLEY CLAIR MITCHELL
who, without knowing it, has had much to do with the writing of this book
? FOREWORD
MEN HAVE ALWAYS EXPERIENCED difficulty in pcrcciving the thrust of deeper tendencies beneath the surface phenomena of their day. Particularly when long-established institutional sys- tems have been breaking up under them have they tended to mis- take symptom for cause and to greet predictions of major change with incredulity and aversion. In the main, they wrestle with ob- vious immediacies in familiar terms; for the rest, the deeper tend- encies, they prefer to wait and see. If such a policy has seemed to be not without some justification in more leisurely eras of change, it is today nothing less than disastrous. For we are living through one of the great climactic eras of history, a major faulting of the institutional crust. A symptom of the extent of current change is the extreme ideological confusion. Fascist monopoly capitalism adopts "National Socialism"; organized industry opposes organized labor in the name of "democracy"; and ideological opposites fight side by side for goals that sound alike only because they are left vague. In such a time, when men and their most cherished concerns are being dragged headlong at the heels of confused events, the one chance for constructive recovery of control lies in the diagnosis of
underlying causes.
In this book Dr. Brady cuts through to the central problem dis-
rupting our world, the most dangerous issue democracy faces. This problem is not basically created by Adolf Hitler and the Axis na- tions, but by the organized economic power backing the Hitlers in nation after nation over the industrial world as a device for shoring up for yet a while longer a disintegrating economic system. And while this war against the immediate Axis Hitlers must be fought and won as a necessary step in the reestablishment of a democratic world, we citizens of the United States and of other democratic na- tions would better learn, and quickly, to focus our strategy on the fact that the war is an episode in the world-wide counter-revolution
? viii FOREWORD
against democracy; for, win, lose, or draw in the military war, democracy will be lost unless it also wins, even as it fights the Axis nations, its internal political conflict.
This is a book about power and the organization of power around the logic of technology as operated under capitalism. The charac- teristic thing about democracy is its diffusion of power among the people. That men have recurrently had to have recourse to revolu- tions in order to assert such a pattern of power attests the inveterate presence within society of a contrary tendency. Power is no less "political" for being labeled "economic" power; for politics is but the science of "who gets what, when, and how. " Alexander Hamil- ton advocated and Jefferson opposed the effort of clotted economic power to substitute concentrated minority class power for diffused power. Lincoln referred to this same tendency when he wrote in
i860, "Soberly, it is now no child's play to save the principles of Jefferson from total overthrow in this nation"; and he went on to speak of "the miners and sappers of returning despotism" engaged in undercutting democracy. The preponderant weight of economic power in the Constitutional Convention, while conceding the out- ward forms of political democracy, went on at once to curb the exercise of the very power it had just granted; it crippled the force of democratic power at the source by parceling up this power by a marvelously dexterous system of barriers to its expression. Thus political equality under the ballot was granted on the unstated but factually double-locked assumption that the people must refrain from seeking the extension of that equality to the economic sphere. In short, the attempted harmonious marriage of democracy to cap- italism doomed genuinely popular control from the start. And all down through our national life the continuance of the union has depended upon the unstated condition that the dominant member, capital, continue to provide returns to all elements in democratic society sufficient to disguise the underlying conflict in interests. A crisis within the economic relations of capitalism was bound to precipitate a crisis in the democratic political system.
Democracy in the era of economic liberalism has viewed power as a thing to be feared, rather than used; and this disposition, coupled with the checks on democratic action written into the Con- stitution, has prompted American democracy to state the problem
? FOREWORD IX
of power negatively. It has been casual, to the point of recklessness, about the positive development of its own authority. Formally, de- mocracy has held all xhe aces. But actually, as Laski has pointed out, "The disproportion in America between the actual economic con- trol and the formal political power is almost fantastic. " Despite intermittent guerilla warfare between state power and private eco- nomic power through all our national life, democracy has slurred over the challenge to its very existence inherent in growing eco- nomic power. This has been due to a number of factors, (i) The fact that the issue between the two types of power has been so heavily cloaked under the sectional issue between the agrarian and the
Eastern industrial states has diverted attention from the fact that capitalist economic power constitutes a direct, continuous, and fundamental threat to the whole structure of democratic authority everywhere and always. (2) The appearance of the Industrial Revo- lution simultaneously with political democracy distracted men's at- tention from the perennially unfinished task of building democ- racy. Equipped with a new and marvelously growing technology and with a raw continent beckoning to be exploited, Americans turned their attention all down through the nineteenth century to
the grand adventure of getting rich. Democracy was taken for granted as substantially achieved, or at most requiring only to be defended. And a naive and dangerous popular faith has grown, notably since the Civil War, that democracy and capitalist enter- prise are two aspects of the same thing, so that the progress mani- festly occurring in industry must also be happening in the demo- cratic political system. Since democracy itself thus failed to throw constantly new goals ahead to catch the imagination and to evoke
the energy of its citizens, men thus deprived of anything bigger to work for have in the main vindicated the cynical view that they are motivated only by selfish personal interests. Under such a distorted view of democracy, in which the state and society are nothing and the individual everything, democracy has become increasingly identified with the protection of one's personal affairs; and this has steadily sapped its vitality. (3) Because this "American way" has worked so seemingly opulently, and because of man's need in the
rough and tumble of an increasingly insecure world to feel im- mutable security somehow back of him. American citizens, preoc-
? X FOREWORD
cupied with everything but the affairs of democracy, have increas- ingly imputed to the Constitution, the central symbol of American democracy, an extravagant finality. If this great and mysterious It were but defended, democracy remained unchallenged.
In such an environment, democracy has been largely tolerant of the businessman, for the most part encouraging him with a lavish hand; for upon his restless enterprise the public welfare was con- ceived to rest. The "trust busting" of the turn of the century was a protest against what seemed to be excesses in an otherwise normal system, not a protest against the system itself. Even in recent dec- ades, as business has grown in power until it has become a jostling giant, democracy has largely failed to recognize its political sig- nificance. The world was large and its wealth seemingly unlimited, and if business was growing bigger and more noisily insistent, this was viewed as but a surface manifestation of rugged growth. Down, to the First World War abroad, and until 1929 in the United States,
what businessmen did was regarded as primarily their own busi- ness. Since the fruit of their activities slopped over in taxes, wages, and dividends, it was manifestly contributing to general welfare.
But this nominal division of powers could not be maintained within the structure of capitalist nationalism. As industrialization has spread over the world and competition has increased, the recip- rocal relation between state power and economic power has be- come more apparent. The fundamental import of what has been happening at a quickening tempo since the Russian Revolution of
1917 is the abandonment of the liberal fiction of the separateness of these two kinds of power. Organized business enterprise is less and less willing to tolerate checks on its activities by the state; more and more it needs the state as active ally; and the national state, in turn, having delivered itself over by accepting the definition of its wel- fare as synonymous with the welfare of its business system, needs increasingly the utmost of aggressive efficiency from its business- men. Business is in politics and the state is in business. The state political apparatus can tolerate only the most efficient management of the economic system, since it depends directly upon the latter for national power in foreign relations; whereas the economy must have the political power to extend control, as the Nazis have demon- strated, to the regulation of the social sphere, "not to gratify
? FOREWORD XI
lower-class maudlinness or rapacity but to secure national concord and efficiency" as an essential aid to foreign economic competition. The result is an unmistakable trend toward the monolithic power structure of the totalitarian state.
And the public does not know what to do about this merging of powers up aloft over its head. As business has organized and has begun to state cogently and lavishly the case for its version of such an "ordered society," the popular challenge expressed earlier in the campaign to curb bigness by governmental action has become con- fused and blunted. Big business has carefully disseminated to the little man at the grass roots enthusiasm and pride as an American in the superefficiency of the marvelous assembly lines and other paraphernalia of giant technology that produces his automobiles and other daily conveniences. The little man is puzzled, hypnotized into inaction: if he is not to oppose bigness itself, the bigness of Henry Ford, Du Pont, and the other great corporations that makes these characteristically American things possible, what is he to oppose about big business? The technique of dazzling, confusing, and dividing the opposition, used by Hitler, has been skillfully practiced by the propagandists for big business.
The rapidly spreading web of interindustry organization of this business power is the immediate focus of Dr. Brady's book. We live in an era in which only organization counts; values and causes with unorganized or only vaguely organized backing were never so im- potent. The rapidity of current change creates the need for quick decisions, which puts the organized minority that knows what it wants at a thumping advantage over the scattered and wistful ma- jority. In fact, it is able, as the Nazis have demonstrated, to exploit majority confusions ruthlessly in the name of majority values to minority ends.
One of the most striking conclusions from Dr. Brady's book con- cerns the similarity in type and function of the organization of busi- ness interests from nation to nation, despite seemingly widely dis- similar national backgrounds. This is due primarily to the inner common tendencies within capitalist-controlled technology wher- ever it operates. But it is also due in part to the fact that men oper- ating across the world from each other learn organizational and other tricks of their trade as rapidly as these appear. Major changes
? xii FOREWORD
in the way men live and work together under industrial conditions no longer happen in one industry or one country and then spread at a pace to be measured in decades or generations. Inventions have shrunk physical space and organization has diminished social space. World competition sees to it that a profitable technical or organi- zational device runs around the world of organized interest before common folk in the country of origin are generally aware that it has been developed.
Social organization around functional concerns is normal to hu- man beings. Western liberalism, imputing freedom and rationality to the individual, washed its hands of the problem of securing posi- tive organization; it proceeded on the assumption that, wherever organization was socially desirable, men would recognize the need and forthwith organize themselves. Such a theory not only misread human nature but it failed to take account of the momentum de- veloped within such a cultural complex as machine technology owned and exploited within a legally buttressed system of private property rights. Liberal democracy has never dared face the fact that industrial capitalism is an intensely coercive form of organi- zation of society that cumulatively constrains men and all of their institutions to work the will of the minority who hold and wield economic power; and that this relentless warping of men's lives and forms of association becomes less and less the result of voluntary decisions by "bad" or "good" men and more and more an imper- sonal web of coercions dictated by the need to keep "the system" running. These coercions cumulate themselves to ends that even the organizing leaders of big business may fail to foresee, as step by step they grapple with the next immediate issue, and the next, and the next. Fantastic as it may sound, this course may end by the business leaders of the United States coming to feel, in the welter of their hurrying perplexities, that survival depends on precisely
the kind of thing Germany's big business wants: the liquidation of labor and other popular dissent at home, and a "peace" more vin- dicative than the Versailles Treaty, that will seek to stabilize an Anglo-American feudal monopoly control over the entire world.
Liberal democracy likewise never solved the problem of bigness; but it alternately fought and condoned it in a confusion of incon- sistent policies. A cultural system drenched with the artisan spirit
? FOREWORD xiii
of small enterprise found difficulty in accepting the facts that mod- ern machinery demands integration and that productive enterprise, released from making a pair of shoes for a known local customer and set to making standard goods for an impersonal and theoreti- cally unlimited "market," likewise demands organization. Hence the recurrent efforts to curb bigness. But both bigness and monop- oly are normal antecedents to the stage of planned provision for the needs of society which we are now entering, and there is no longer any point in attacking either. The only relevant questions today are: Who controls these productive facilities, and to what ends? and How effectively are they organized to achieve these ends? Or, stated in another way: Will democratic political power absorb and use economic resources, bigness and all, to serve its ends, or will big economic power take over state power?
The modern phase of business as a system of organized power began with the spread of the corporate organization of industry after the i86o's. The world of 1870 did not speculate much about the grip which corporate business was to have on the lives of all of us a half-century later. Corporate organization, like the monop- olies it made possible, was viewed as the exception, unadapted to general business. The precise significance of Dr. Brady's book is that he takes this same organizational tendency within industrial society--now become the rule rather than the exception and moved
along to its contemporary stage of organized inter-monopoly con- trol--and shows us where the logic of such a centrally organized system of power is carrying us. For synchronized monopoly directed by a peak all-industry strategy board is but corporate business come of age. The difference between the early and the mature stages is that, whereas corporate organization completed the taking of the instruments of production out of the hands of the laborer and strengthened economic power in its challenge to democratic politi- cal power, the mature stage Dr. Brady describes is moving on to wrest even the formal political means of curbing economic power from the hands of the citizens of democracy. Corporate organiza-
tion pocketed production; its giant offspring is pocketing the na- tion, including the entire lives of its citizens. And organized busi- ness is extending this anti-democratic web of power in the name of the people's own values, with billboards proclaiming "What's Good
? ^^
1
xiv FOREWORD
for Industry Is Good for Your Family," and deftly selling itself to a harassed people as "trustees," "guardians," "the people's man- agers" of the public interest.
The large identities in problem and in organizational form to meet these problems in nation after nation suggest with startling emphasis that we in the United States are caught in the same major coercions that industrial capitalist nations everywhere face. We, too, have no choice as to whether economic and state power shall be merged; for there will be no survival for nations that seek to perpetuate the economic wastes and frictions and the social anarchy entailed in the operation of state power and economic power as
^rivals. The sheer fact of the emergence of the phenomenon of ef- fectively planned nations has, because of the logic of organization inherent in modern technology, outmoded at a stroke the old sys- tem under which all our American national life has been lived. In the United States, the present stage of organized, centralized busi- ness power, already reaching out in control of schools, media of communication, public opinion, and government itself, provides more than a broad hint of the direction events will take, if present tendencies remain unchecked. In England, longer in the war than ourselves and closer to the choice that must be made, the same power tendencies are at work, despite optimistic reports of surface democratic manifestations. As this is written, the London New Statesman and Nation for August 15, 1942, carries a review of a book by an English businessman, N. E. H. Davenport. "He shows, in effect," says the review, "that what has happened is that the vested interests of monopoly capitalism have, for all practical pur- poses, taken over the government of the country. Behind the facade of political democracy they are preparing the economic founda- tions of the corporate State; and, to no small extent, they are being aided and abetted in this task by the powerful trade unions. . . .
[Mr. Davenport] has made it clear beyond discussion that unless we are able very soon to persuade or compel the Prime Minister to swift and profound changes in his economic policy, we shall de- feat Hitler only to be delivered into the hands of the same type of men for whom a Hitler is a necessary instrument. "
In this really desperate predicament, American democracy is un- prepared fully to assert itself. We are organizing--belatedly--to
? FOREWORD XV
fight a war for "democracy," but we are rendered gullible by our traditions as regards the precise thing for which to fight. We speak vaguely of "the Four Freedoms," and yet we do not go on to give these war aims, at home and abroad, the full-blooded, realistic con- tent so essential if men are really to be quickened to fight for de- mocracy. Such muting of democratic objectives creates the blurred confusion which can provide the perfect setting for the strong men who know what they want. Born as a nation coincidentally with the upsurge of the Industrial Revolution, situated in a rich continent which we have built up with the bodies of cheap foreign labor, protected by the accident of location during the years of our fum- bling growth, we have through all our national life been borne for- ward by a favoring tail wind. This past we view, quite characteristi- cally, not as a stroke of luck but as the vindication of the superior rightness of "the American way"; and this makes for complacency. Growing out of this is our blindness to any way of conceiving our national future other than in terms of the simple extension of our expansive past. Our national naivete about organization is disas- trous in the present crisis. We are called "a nation of joiners," but the individual still holds the focus of our national imagination. With all the flotsam and jetsam of our "joining," we have little pop- ular belief in or experience of the hard-bitten type of relentless organization for power ends; and where we see it, for instance, in the Tammany type of politics, we deplore it even as we condone it as a special case and a somehow necessary evil. Of all the Western industrial nations, we are the least class-stratified psychologically and the only one without an active labor party or its equivalent in our national political life. And, again, this is not because "the American way" is fundamentally different, but primarily because the American ideology as regards capitalism is less sophisticated than is that of any other Western nation.
Thus our traditions conspire to make us unable to read the mean- ings behind the organization Dr. Brady describes. We are opaque to the political import of this massing of business power, and we still insist on regarding it as primarily a concern only of the busi- nessmen. Meanwhile, the lawyers with their convenient conception of the role of the law, the public-relations men, the press, and all the other pliant agents of organized business go busily about on cat
? xvi FOREWORD
feet as they spread the net and tighten the noose for those so abun- dantly able to make it "worth their while. " Burnham's plausible thesis of the "managerial revolution" has been seized upon by busi- ness, and a powerful medium like Fortune proclaims itself in its new editorial policy as the organ "for the managers of America. " But behind the fiction of the "manager class" so conveniently steri- lized from the taint of special interest stands the same old power. "The voice is Jacob's voice, but the hands are the hands of Esau. "
If the American rank and file--the upwards of four fifths of the nation who are working-class and small-business folk--are thus illiterate in the language of contemporary power, the case is almost as bad with those experts, the professional social scientists, whom society supports because they profess to know about men's institu- tions. It is no accident that, as Dr. Brady points out, a world of scientists who comb their fields for important problems for research have left the problem of the power organization and politics of big business so largely unexplored. For the most part, contemporary social scientists still exhibit toward the changing business world the encouraging moral optimism of Alfred Marshall. Nor are we helped by the fact that the crucial science of economics derives its data within the assumptions and concepts of a system conceived not in terms of such things as "power" but of blander processes such as the automatic balancing of the market.
American public opinion tends to reject out of hand any answer to the question "Where are we going? " that is not couched in the familiar optimistic terms. As we fight the present war, involving an unparalleled tangle of ideological inconsistencies, the popular mood encouraged by government and sedulously sponsored by bus- iness is to ignore controversial questions and to concentrate on win- ning the war. But the First World War gave interindustry coordi- nation of big business rapid acceleration; post-war conditions gave it its opportunity and successful foreign precedents; and the man- agement of the present war has been taken over by representatives of big business. And this time they may be in Washington for keeps. We shall emerge from this war well on our way to having a per- manently planned and managed economy; and if business controls the goals of that planning, that will mean management also, from top to bottom and from center to circumference, of all relevant so-
? FOREWORD xvii
cial and cultural life. The fresh, growing shoots of new life in our American culture will either be destroyed or ruthlessly grafted to the main trunk.
The thing we do not realize, or are prevented from realizing, is that we are building the structure and accompanying animus of the post-war world by the manner in which we fight the war. The al- ready half-accepted formula that "You can't fight this war demo- cratically" is both factually incorrect and a one-way ticket to Amer- ican fascism. If democracy is suspended now, it will not reappear at the peace conference. If during the war we avoid the develop- ment of genuine democratic organization and participation, if we curtail the partial organization of labor we now have instead of moving forward to its thoroughgoing democratic extension, we can know for certain fact that democratic people's organizations will be similarly frustrated after the war. Both during the war and after,
the issue is identical: Who controls, and to what ends? An answer to that question has been preparing in the organization Dr. Brady describes, and it is crystallizing in the staffing and manner of opera- tion of current wartime controls in Washington.
As things stand, the fight is not an equal one. On the one side is abundant good will but lack of organization and channels of com- munication, some suspicion of the way business is fencing in the war for itself, divided counsels in organized labor and middle-class suspicion of labor, large confusion as to the issues, and a tendency to trust that "they" in Washington will somehow bring us through the war and then everything will be all right again. On the other side, effective organization and the crisis nature of the present, re- quiring quick decisions and encouraging decision in terms of blunt short-run objectives, favor those who seek to exploit the war to make the United States safe for big business. The de facto power of big business is reflected in the fact that the Government itself is, for
the most part, timid and afraid of what big business will do if the war is not made "worth its while. "
One stout weapon remains in the hands of the little people at the grass roots of democracy: no one dares to challenge in frontal attack the basic democratic thesis. (If an American version of fas- cism comes, it will have to come disguised in the full outward trap- pings of democracy. ) The people can seize this remaining weapon
? xviii FOREWORD
and use it offensively and defensively as the price for their participa- tion step by step in the war effort. We live in a heroic time. And democracy will either throw off its lethargy and rise insistently to the stature of the times--or it will cease to exist.
New York City October, 1942
Robert S. Lynd
? ACKNOWLEDGMENTS
THIS BOOK is the first direct product of an extensive and con- tinuing study of the rise of bureaucratic centralism which was begun in 1 934 with the aid of a generous grant from the Carnegie Corporation. The original subsidy, which underwrote basic travel and research expenses, was supplemented by a more recent grant which makes possible prompt publication of this book by the Columbia University Press. I am deeply grateful not only for the financial assistance given by the Foundation, but also for the keen and sustained interest of Dr. Frederick Keppel and his associates
in the work as it has been developed.
So much assistance has been given me in the research, writing
and final preparation for publication that I cannot hope to cata- logue my full indebtedness without fear of serious omissions. Special mention should be made, however, of the assistance given by several experts in the chapters dealing with the development of the "peak associations" in the various countries examined: Dr. Franz Neumann on the German material; Dr. Carl Schmidt on the Italian; Dr. Louis Launay and Mr. Robert Valeur on the French; Dr. William Taylor and Mr. Harry Oshima on the Japa- nese; and Major Leonard Urwick on the British; and various officials of the LaFollette Committee and the Anti-Trust Division of the Department of Justice on the American. I am further indebted to Dr. Neumann for his reading of the entire manuscript.
Special mention should be made, however, of the assistance given by several experts in the chapters dealing with the development of the "peak associations" in the various countries examined: Dr. Franz Neumann on the German material; Dr. Carl Schmidt on the Italian; Dr. Louis Launay and Mr. Robert Valeur on the French; Dr. William Taylor and Mr. Harry Oshima on the Japa- nese; and Major Leonard Urwick on the British; and various officials of the LaFollette Committee and the Anti-Trust Division of the Department of Justice on the American. I am further indebted to Dr. Neumann for his reading of the entire manuscript.
In the later stages of the work, I gained immeasurably from an infinity of suggestions and criticisms, major and minor, contributed by Professor Robert Lynd; from the laborious task of checking sources performed by Mr. and Mrs. Joseph Phillips; and from the assistance of Mr. Maynard Gertler, who, at considerable expense of time and effort, has checked detail with the editorial staff of the Columbia University Press from beginning to end. Special mention should also be made of the staff of the Columbia University Press,
? ACKNOWLEDGMENTS
who have managed somehow to turn the otherwise harrowing task of preparing a book for publication into a pleasant and profitable experience for the author.
I wish also to thank the authors and publishers cited for per- mission to quote from their works. For permission to reproduce, with minor alterations, material which previously appeared as arti- cles in their pages, I am indebted to the following: Pacific Affairs, September, 1940 (for Chapter III); the Political Science Quarterly, June-December, 1941 (for Chapters VII and IX); and the Journal of Political Economy, February, 1942 (for Chapter I).
Finally, I wish to acknowledge with thanks the countless aids of my most severe and relentless critic, Mildred Edie.
Whatever merits the book may possess are largely traceable to sources such as these; the faults, I need scarcely add, are mine alone.
XX
Kansas City, Mo. July 15, 1942
Robert A. Brady
1
? CONTENTS
Foreword by Robert S. Lynd vii Introduction: Efforts to Organize Business for Political Action i
I.
II. III.
Part I
THE EVOLUTION OF MANUFACTURING PEAK ASSOCIATIONS IN THE TOTALITARIAN BLOC
The New Order for German Industry. 21
VII. VIII.
The Fascist System of Collateral Syndicates.
56
83
120
Japan: Kokutai and the "Co-Prosperity Sphere. "
IV. France: through Double Defeat to Vichy's "New
Order. "
Part II
MANUFACTURING PEAK ASSOCIATIONS WITHIN THE LIBERAL-CAPITALIST SCHEME
Part III
COMPARISON AND CONTRAST OF TRENDS IN BUSINESS POLICY FORMATIQNS
Economic Policies: Monopoly, Protection, Privilege. 223
Social Policies: Status, Trusteeship, Harmony.
Britain's "Feudalistic System of Cartel Controls. "
V.
VI. TheAmericanWay:"BusinessSelf-Regimentation. " 189
259 IX. Political Policies: Bureaucracy, Hierarchy, Totalitar-
ianism. Bibliography
Index
294 32 331
153
? Introduction
EFFORTS TO ORGANIZE BUSINESS FOR POLITICAL ACTION
A TTEMPTS to unify business on an ever more comprehensive basis JLX- are inevitable. For how else is it possible to cope with the ad- ministrative and managerial problems of an industrial technology which has for decades past been moving toward such a policy?
Intuitively, the most unsophisticated know this part of the story. The breakfast table draws its supplies from the most distant lands. The factory soaks up materials from a continent and sets the fin- ished products flowing along well-grooved channels to the ends of the earth. Finely meshed networks of transportation, communica- tion, and energy bind the whole more closely and rigorously to- gether with each passing day. Within these spreading networks, industrial technology, in an infinity of small ways--hither and yon, endlessly, restlessly, ceaselessly--^weaves tighter and more exact- ingly the multifarious interdependencies which engineers, step by step, wring from the master patterns of the unfolding natural- science "web of reason. " Integration, coordination, planning, these are the very root and marrow, the essence and the spirit of the in- dustrial system as it is being developed in our times. In these re- spects changes are unidirectional, additive, cumulative. From them there is no turning back. And, as the bitterly fought issues of the Second World War--a "total war" which pits entire economic systems against each other--have made abundantly plain, the end is not yet.
POLICY AT THE CROSSROADS
Moving with this trend, however consciously or intuitively, businessmen all over the world are engaged in weaving parallel
? 2 EFFORTS TO ORGANIZE BUSINESS
webs of control. As the separate strands are extended, a point is reached at which, willy-nilly, a choice of direction is forced upon the businessman. One way leads to the shaking off of all popular restraints on such cumulative powers and to shaping the contours and determining the content of economic policies pregnant with far-reaching political, social, and cultural implications. This is the totalitarian road. Organized business in Germany, Italy, Japan, and France has chosen to move in this direction, and has already found that the choice once made is both irrevocable and fraught with dangerous consequences. For it seems that, for better or for worse, what businessmen have taken for the agent of social cathar- sis is no less than a modernized version of Hobbes's Leviathan, whose self-appointed monarchs have learned from the inspired pages of The Prince only a Realpolitik of survival; a Realpolitik which may as readily demolish as resurrect any given structure of preexisting special-interest controls, including--through the pre- carious fortunes of subsequent wars, revolutions, or internal paraly- sis--those of the business interests which fathered, with money, ideas, and leaders, the original coup d'etat.
The contrasting choice is to force the growth of a sense of re- sponsibility to democratic institutions, not by transmuting arbi- trary controls into series of patriarchal relationships, however mellowed and benevolently postured, but by steadily widening the latitude for direct public participation in the formulation of economic policies affecting the public interests. How, is not for us to say. But clearly this is the alternative which faces highly organ- ized business in England, the United States, and other scattered countries still moving within the orbit of the liberal-capitalistic system. Here, just as in the totalitarian countries before the fateful decisions were made, business must choose. If it hesitates, choice will be thrust upon it. On the record no further compromise is possible except a compromise moving definitely in one direction or the other. For sovereign power is indivisible, and a house cannot long remain divided against itself.
Considered solely from the point of view of vested interests, this choice is not an easy one for organized business to make. It is diffi- cult not only because one route has thus far led to successive and politically dangerous disasters while the alternative entails a de-
--
? EFFORTS TO ORGANIZE BUSINESS
mocratization reaching to the very roots of the ideology and the institutional sanctions upon which the business system rests as a whole, but also because organized business, however widely it may have cast its webs of influence and however swiftly its leaders may be centralizing authority through machinery of their own or others' devising, still has great difficulty in finding its collective mind. Some businesses are big; some little. Some are interested in contraction, others in expansion; some in local markets, others in national and international markets. Commodities, businesses, trades compete with each other long after conditions of partial or complete monop- oly have been effected in restricted areas. For widely varying rea- sons some favor dictatorships, while others--particularly small
--
Thus even when organized business may have found some traces of collective mind, it faces the greatest difficulty in expressing a col- lective will, in focusing effort on the articulation of an internally coherent business program, in giving membership a sense of direc- tion through promotion of a common social-psychological outlook, and in formulating for the doubtful a common set of simple and realizable goals. Yet, faced with the larger decisions which the trend of national and world affairs have placed before it, without these things business will everywhere be reduced to programmatic futil- ity, and its centralized direction may well find itself without the wit at the critical moment to make even those half-hearted com- promises urged upon it--as a condition to survival on any workable version of the time-honored principles of "muddling through" by its own more vocal bellwether prophets such as Rathenau and Filene.
This is what happened in France, where organized business, un- able to reconcile itself to further extension of democratic controls, sold its birthright for a condition of permanent vassalage to a foe sworn to destroy not business, but France. In the conquered terri- tories, German firms have taken over the assets of resident concerns by right of conquest, not through "business as usual. " ^ And by the
1 As shown, for example in the history of the Hermann Goring Works--modern equivalent of the Stinnes empire--collected out of regrouped former governmental
can survive only in a democratic world. Within this
businesses
newer business world, as often as elsewhere, what is one man's meat may well be another man's poison.
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4
same token, if Britain is conquered one cannot expect the Nazi principle of Britannia delenda est to be softened on behalf of the Federation of British Industries merely because the guiding figures in the Reichswirtschaftskammer learned their first economic lessons from the schoolteachers of Manchester. If German business succeeds in supplying the arms to, and financing the efforts of, a victorious Third Reich, its normal assumption will be that "to the victor belongs the spoils," an assumption followed by the British, in their turn, in South Africa and India. When a country is con- quered, neither the business community as a whole nor any single individual within the inner business-control sancta can be sure of survival.
In the struggle for control over business power, small business is everywhere losing out. 2 Amongst the giants, whoever will not play according to the transformed rules will, upon becoming truly recalcitrant, be expelled by methods which partake more and more of the spirit of the purge. ^ If we can draw any certain lesson from events of the recent past it is surely this, that organized business in one national system will show no mercy to organized business in
industrial properties, as well as concerns taken over in conquered territories, and miscellaneous private enterprises. For further details see pp. 49-50, following. See also current issues of the London Economist for data on French, Belgian, Norwegian, and Rumanian firms taken over by German interests following conquest. Nearly every leading German banking, industrial, commercial, and shipping company has shared in the booty to some extent.
2 See data submitted by Willard Thorp on business failures, in the Prologue of the TNEC Hearings (see note 10, below) data presented in the Census of Distribu- tion (1935), VI, 11; TNEC Monograph No. 17, Problems of Small Business; and data submitted below in chapters on compulsory amalgamation schemes in England, Ger- many, Italy, and Japan. The small become enrolled in control apparatus dominated by the large, shift into highly localized markets or the unprofitable fringes (such as credit and durable goods as against cash and carry, where the risks are higher and the gains through financing are secured and siphoned off by finance companies and the banks), become "sub-contractors" to the large, exist on sufferance for strategic rea- sons in facing regulatory authorities, submit to legislation and administrative con- trols which are the product of organized large-scale business pressure. See Sprague, High Pressure (New York, 1938).
3 What of Thyssen? everybody asks. But also, what of the Jews, what of Polish businessmen when the Germans took over, what of Skoda, what of the Lorraine ore fields, what of the rights of foreign corporations and stockholders? What of "chisel- ers" and "sellers-below-cost" in NRA, of perpetrators of "Unfair Trade Practices"? What of the fact that the Codes and the FTC Fair Trade Practice agreements are typically designed to catch the small-scale violator of business "codes" drawn prima- rily by the large, even though it be the latter which enjoy the almost exclusive at- tention of the Anti -Trust Division?
J.
R.
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another national system, once conflicts of interest have forced mat- ters to the arbitraments of war. The delegation of the Federation of British Industries in Manchukuo failed once it became clear that Japan was able to consolidate its military victory, just as did a like attempt on the part of the same organization on the day fol- lowing the British catastrophe at Munich. ^
The underlying principles are not new. They are clearly in keep- ing with those long familiar to students of "trust and combination" RealpoUtik in the domestic arena, and to those who have followed the clash of economic imperialism throughout the period leading up to the two World Wars on the larger field of action. The prin- cipal differences which contrast the contemporary with the past are found only in the size and compactness of current organization and in the scale on which the issues are now drawn. There is no differ- ence in the issues themselves.
PARALLELS IN THE EVOLUTION OF BUSINESS CONTROLS
Thus a comparative study of attempts to expand business con- trols within the several capitalistic systems becomes a prime neces- sity for both business and the public. At the outset of such an effort, one is struck by four extremely interesting facts. First, the trans- formations undergone by business organization in those countries which have revamped their national systems along totalitarian lines are fully consonant with, and may be considered the logical out- growths of, previous trends in structure, policies, and controls within the business world itself. Second, along every significant line the parallelisms in the evolution of business centralization within the several national systems, including those within countries still functioning on a liberal-capitalistic basis, are so close as to make them appear the common product of a single plan. Third, all busi- ness policies have been increasingly discussed and formulated in
*The FBI delegation was in Manchukuo during the investigations of the Lytton Commission engaged in negotiations with Japanese interests. They were unsuccessful here, and the Japanese subsequently pushed them out of north and central China as well. During the Munich negotiations which led to the downfall of Czechoslovakia, a committee of the Federation of British Industries was holding pourparlers with the Reichsgruppe Industrie which called for dividing European and world markets between British and German interests through a series of widely expanded cartel controls.
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the face of widespread--in many respects very highly organized and always potentially threatening--popular opposition, whose interests have been coming into conflict with those of organized business in a way which more and more challenges the traditional business view of the proper objectives and the responsibilities of economic leadership as such. And finally, the implications of power in such wide-spreading business controls, together with the popular challenge to business leaders, cause all economic issues to take on a political meaning, and thereby cause the role of the government to grow in importance in a sort of geometric ratio.
It does not follow from the first of these facts that "totalitarian- ism" was the inevitable result of previous trends in business organ- ization within the Axis states, but only that it was inescapable, because those trends were unmodified when circumstances of an eventually revolutionary character forced quick decision within strategically placed business circles committed to no further com- promises with democratic government. It does not follow from the second fact that there was actually such a plan. The reverse is true. But it does follow that there were common sets of forces operating through greatly varying historical environments, with many factors (such as the level of industrial development and the nature of busi- ness organization at the time of rapid adoption of industrial and business methods) ^ differently timed, blended, juxtaposed, or set in conflict, which shaped and posed the issues in similar ways. And from the third and fourth, only this follows, that the issues every- where come to rest not on whether the government was or is to be the coordinator, for that is now truly inescapable, but on whether the government will be able to coordinate and plan economic activi- ties toward popular ends, responsible directly therein to demo- cratic institutions, or toward the specialized interests of self- assertive and authoritarian minority groups.
From these considerations the special question necessarily arises, does capitalist civilization anywhere show any signs of being able or willing to plan means and unify ends on a national scale accord- ing to a workable formula that is still consonant with democratic institutions? We well know what happened in the totalitarian coun- tries where organized business underwrote the antidemocratic re-
's See, in particular, the chapters on Germany, Italy, and Japan.
? EFFORTS TO ORGANIZE BUSINESS
action. Can different results be expected elsewhere? Everyone con- cerned with the present dramatic crisis in world history would like to see this question resolved. Opinions, in reply, already differ as deeply and fundamentally as the status and social philosophies of those who give answer. This much is certain, the attempt--some- times made consciously, but more often in groping fashion--to cope with the problem in some manner or other is being made in every major capitalistic country in the world. Business is becom- ing aware of the range of larger issues, is organizing to meet and resolve them, and its collective efforts to these ends are widening out on an ever more comprehensive scale.
And as it gathers together its forces, it comes everywhere to think politically, begins to come to grips at a thousand and one points with the "social question" in all its bewildering manifestations. So proceeding, organized business has more and more found itself compelled at least to make the attempt to evolve new "social phil- osophies," which will meet the more fundamental challenges divid- ing its own members in the preferred reaches of the social pyramid and at the same time meet those other challenges thrown at it by the leaders of the vast popular ranks becoming increasingly con- scious of their own specific and often opposing interests.
In accomplishing this aim, can business still hope to retain its control over the inner sancta where the fundamental economic de- cisions are made? And if it succeeds in any marked degree in so holding on, will the political and social controls evolved be recon- cilable with continuation of a democratic way of life? These are the fundamental, the critical questions of our times.
LACUNAE IN THE HISTORICAL LITERATURE
Many of the steps by which these issues have been pushed to the fore, and also the history of business methods evolved to meet them, have still to be traced. Most important of all the numerous gaps in the literature, which has laid bare one or more facets of the prob- lems here posed, is that dealing with the specific forms of organiza- tion established by business for the dual purpose of unifying within its own ranks while presenting a common front to all opposition groups. This lack in the literature is the raison d'etre of this study, which in itself can scarcely hope to give more than a sketch of a
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vast terrain that urgently requires careful mapping and systematic investigation.
What has been generally missed by scholars interested in such matters is that these forms of organization, regardless of the initial purposes of their sponsors, rarely confine themselves for long to strictly "economic" matters. As a general rule, the bigger and more comprehensive trade associations and their federational or "peak associations" {Spitzenverbdnde as they are known in the German literature ^) become, the more clearly do social and political poli- cies edge to the fore. Economic problems thus come to be quickly intertwined with these other issues, and the trade association begins to take on an entirely new cast of thought and to hew a line in keep- ing with newly transformed political directives.
So it is that, if the growth in the relative importance of giant cor- porations is properly termed "concentration of economic power," expansion of trade-association networks means "mobilization of the entire business community. " If the former is defined as "trustifica- tion," "^ then the latter implies "unification" or "synchroniza- tion. " 8 If the former carries with it growing resort to "monopoly practices," the latter calls for increasing "political and social aware- ness. "
The two, of course, are not independent phenomena. As the fol- lowing pages will show they are related in time, in origin and proc- esses of growth, in the logic of circumstances which bind them to each other as historical developments, and in the compulsions they exert for an ever and cumulative widening of governmental regu- lation and control. Herein lies the larger significance of each--an importance that transcends by far the consequences of the two taken separately and by themselves.
Appreciation of the precise nature and the real meaning of such interdependence has been retarded by a curious shortcoming in the body of current economic and political literature. That the two have long existed side by side is now generally recognized. That the larger corporations and dominant business groups have taken an
6 See pp. 29-36 for a description of the pre-Nazi Spitzenverbdnde.
7 See Joseph Schumpeter, Business Cycles (2 vols. . New York, 1939).
8 A summary history of the National Association of Manufacturers is entitled, "The
Nation's Industry Synchronized," which implies a conception of functions one step beyond mere "unification. "
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active, and more recently (since the depression of the '30s) a lead- ing, position in the trade associations has been taken for granted. But the trade association has appeared to be, in the main, relatively unimportant in the formulation and promotion of business policy as a whole. The result has been comparative neglect. A neglect, incidentally, so pronounced that one refers with difficulty to a single outstanding study of any one trade association, or any single line of trade-association policy in the entire economic literature of the last decade. ^
Thus, while "concentration of economic power" has become sufficiently important to merit the entire attention of one of our most noteworthy recent governmental investigations, ^^ and has be- come the subject matter of a vast and swiftly proliferating technical literature on forms of "monopoly" ^^ and "trust problems," the trade association, the intercorporate "institute," and the chamber of commerce have been almost entirely neglected by the learned fraternities. With but minor exceptions--and then only with refer- ence to antitrust proceedings, problems of "civil liberties" or dis- cussions of general "association activities"--they have largely es- caped the dragnet of official inquiry as well. ^^
Yet sixty years after the beginning of the so-called "trust move- ment" in the United States, the Department of Commerce found
9 In American literature there is only one outstanding study of the phenomenon in general, and that. Employers' Associations in the United States, by Clarence E. Bonnett, was published in New York in 1922. Even this excellent survey related only to the labor angle of a few highly specialized (at that time) employer associations.
10 "Investigation of Concentration of Economic Power," made pursuant to Public Resolution No. 113, 75th Congress, "Authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentra- tion of economic power in, and financial control over, production and distribution of goods and services. " Hereafter the investigation and its findings will be referred to as TNEC Hearings.
11 By the term "monopoly" I mean, in the present connection, all those various forms and practices which give some degree or other of power over the conditions and terms of doing business which reach upon the direct limits of corporate control. See Chapter VII.
12 See the various volumes of the Senate Committee on Education and Labor ("La Follette Committee") dealing with the National Association of Manufacturers, the National Metal Trades Association, the Associated Industries of Cleveland, etc. Here- after I shall refer to these materials as La Follette Committee Reports. The National Resources Committee, in its recent publication The Structure of the American Econ- omy (Washington, D. C. , 1939), devotes slightly less than two pages in a 76-page dis- cussion of "The Organization of Economic Activity" to all trade associations and chambers of commerce.
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that "The 'Key' factor in the NRA program is America's 3,500 larger [State and National Trade Associations], and the over 10,000 local Trade Associations, Chambers of Commerce, etc. " ^^ The 1931 edition of Commercial and Industrial Organizations of the United States ^"^ lists 19,000 organizations, "made up of 2,634 ^^ interstate, national and international, 3,050 state and territorial, and 13,625 local organizations. " Even this listing has since been found to be incomplete. Almost the entirety of this swiftly growing business network has been established since 1900, and probably three-fourths of it since the World War.
In 1870 there were not more than 40 chambers of commerce in the United States. Sixty years later, there were an estimated 3,000. These are set up on a local, county, state, or national basis. "Basic Membership" of all such chambers of commerce has recently been estimated to be a million or more. ^^
Equally rapid have been developments abroad. A list given out by the German Economic Ministry in 1930 showed some 2,272 national, district, and local associations affiliated with the Central Committee of German Employers' Associations (Zentralausschuss der Unternehmerverbande). ! ^ Even this list does not appear to be complete. In addition to these, an expert has estimated that Ger- many possessed in 1930 some 2,100 cartels, a type of organization intermediate between the trade association and the combination,! ^ in the manufacturing industries of that country alone. ^^
The changes brought about by the Nazis in Germany meant
13 "High Lights of the NRA, Chart 3," statement issued July 10, 1934, by the American Trade Association Executives, and prepared by the Trade Association Sec- tion of the Marketing Research and Service Division of the Bureau of Foreign and Domestic Commerce, U. S. Department of Commerce.
14 Issued by the Bureau of Foreign and Domestic Commerce, U. S. Department of Commerce, 1931.
15 Of which 2,381 are strictly commercial and business when all trade union, sci- entific, engineering, and professional organizations (253 in number) are excluded from the reckoning.