No More Learning

S3 It is noteworthy that none of the small American business groups has been able to see any other solution to its problems except to pool resources and behave in imitation of those against whom they are organizing--collusively with respect not to the large concerns or trade associations of the large, but with respect to that por- tion of the public which it may be able to call its own. Conversely, one will search through the records of monopolistic practices of the large combines in vain for instances where the little businessman was left unscathed, even when he was not the direct object of attack.
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Such a classification of the reasons for the growing relative im- portance of the giants in the formulation of business policies does not by any manner of means exhaust the possible listing. But it may possibly cover the most important casbs. A little careful inspection of the voluminous records on which these generalizations are based will show convincing evidence not only that these trends are con- temporaneous and mutually reinforcing, but also that no competi- tive restraints or combination of competitive restraints can any longer be expected to stop or seriously to inhibit the vaulting powers of these great interlinked aggregations of large-scale cor- porate enterprise. Government may be able to do so if, when, and where it is able to shake itself free from direct or indirect manipu- lation by the powers it seeks to control. But so far as it fails to do so, by so much the mantle of political authority is simply shifted de facto from its former popular, or constitutional, base to another which stems from the inner councils of these huge corporate com- plexes. ^* But of that, more later.
CHANGES UNDERLYING POLICY-FORMULATION WITHIN THE CARTELS
The term "cartel" has lost its old precision. Once it stood simply for a contractual relationship, usually enforceable at law, between a number of enterprises which had banded themselves together for a fixed period of time in order the better to regulate prices, or production, or marketing terms, conditions and areas, or some other feature of business relating to a single or a closely related group of commodities produced by its members. Now that the term has come into general circulation, it has come to mean any sort of compact--whether recognized and enforceable by law or not--between two or more concerns for the purpose of manipu- lating one or more of the elements of conducting business to the advantage of the participating parties. Even in the classical home of the cartel, Germany, it has long been difficult to distinguish be-
34 The comment of the Wall Street Journal, April 28, 1941, on recent developments in Japanese "Co-prosperity sphere" plans is illuminating: "Recent strengthening of the power of business circles in the Konoye Cabinet will not mean abandonment of Japan's plans for economic regimentation and southward expansion. A good many leading 'liberal' businessmen, including the newly-appointed economic coordinator, Masatsune Ogura, whom some industrialists refer to as Japan's Goring, are toying with the idea of totalitarianism in Japan, only a totalitarianism run by businessmen. "
239
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tween the practices of cartels and those of many of the more power- ful trade associations such as the Federation of German Machine Building Associations (VDMA) or the Association of German Iron and Steel Industrialists. British writers use the terms "trade as- sociations" and "cartels" more or less interchangeably. In France the members of the Comite des Forges have entered into many dif- ferent "comptoirs," but what of the Comite des Forges itself? Many of its activities have long been of a distinctly cartel-like character. ^^ Thurman Arnold of the Anti-Trust Division uses the term to apply to any American trade association pursuing policies which bind its members to behave non-competitively. ^^
More than mere loose thinking is involved here. Actually, a vast and complicated system of collusive practices has come into being since the First World War having the effect of cartel agreements; it appears under a multiplicity of guises and is given effect through a wide variety of associational forms. To the economist the realities of practice, not the fictions of law or the accidents of terminology, must occupy the center of the stage. And from this point of view, it is probably not too far from the truth to say that practically all of the swiftly proliferating meshwork of trade associations found in all capitalistic countries of the world perform one or more func- tions of a distinctly cartel-like character. Adam Smith's dictum ap- plies to the usual, not the exceptional case. And even those which are economically functionless seem on investigation to be going through motions, like the wind-up of the pitcher before delivery of the ball, prefatory to more forceful and purposive action.
A couple of examples will serve to show how pervasive cartel- like policies have become. In Germany, none of the laws commonly called "Cartel Laws" apply singly and solely to collusive groups formally recognized in law as Cartels. For example, the famous "Law Against the Abuse of Economic Power" ("Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen"), passed in 1923, ap- plied to "Syndicates, Cartels, Conventions and Similar Agree-
35 See, in particular, Bezard-Faglas, Les Syndicats patronaux de I'industrie metal- lurgique en France.
86 Compare Arnold, op. cit. with the report on cartels prepared by Theodore Kreps and presented before the Temporary National Economic Committee. The Kreps view, which seems to have shared in the thinking of Mr. Leon Henderson of the TNEC, inclines quite favorably towards good cartels, while frowning--not very severely--at the bad.
J.
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ments. " The text of the law (as of those which followed in July, 1930, August, 1930, August, 1931, December, 1931, and July, 1933) refers but incidentally to those combinations as "Cartels. " The last-named law (1933), "Concerning the Forming of Compulsory Cartels," places the cartel at the center of the discussion only be- cause it refers to all agreements entered into under authority of pre-existing laws by the generic term "cartel. " ^^ The Cartel Bu- reau (Kartellstelle) of the old National Federation of German In- dustry (Reichsverband der deutschen Industrie) handled cartel problems as specialized activities of its members, separately grouped in the Federation by industry and trade categories and organized as trade associations. The left hand took care of cartel problems; the right hand managed the larger interests into which
cartel practices were dovetailed. ^^
There can be no question but that the National Federation of
German Industry and all of its member bodies were engaged di- rectly or indirectly in the exercise of cartel controls. And, as has been pointed out elsewhere,^^ the organizational network of pre- Nazi Germany, brought together and centralized in the Spitzen- verhdnde, was well-nigh all-inclusive by the time the new regime took over. Not far behind Germany of that date stand England, France,*? and the United States of the present. Fascist Italy and post-Nazi Germany ^^ have seen the web of cartel-like controls still further extended.
37 For texts of these laws, and an exhaustive commentary on the history of cartel policy in post-war Germany, see Callman, op. cit.
38 See Max Metzner, Kartelle und Kartellpolitik (Berlin, 1926), and Wagenfiihr, Kartelle in Deutschland.
39 See Brady, The Rationalization Movement in German Industry (Berkeley, Calif. , 1933), Chapter V, and The Spirit and Structure of German Fascism (New York, 1937), Chapter IX; also, W. F. Bruck, Social and Economic History of Germany from Wil- helm II to Hitler, i888-ip^8 and Franz Neumann, Behemoth.
40 The "new" corporative order recently announced in conquered France seems much less revolutionary when viewed in light of the reorganization of the Con- federation Gen^rale du Patronat Fran^ais, following conclusion of the Matignon Agreement in 1936, with the Confederation Gdnerale du Travail. The new group- ings, the new tone, and the new policies which followed the Agreement were en- tirely in keeping with Nazi and Fascist patterns.
41 "Only transitorily and superficially did the beginnings of the new relationship between the state and the economy appear hostile to cartels. The development of National Socialist cartel policies during the last year shows a replacement of rigorous cartel supervision by policies designed to guide the economy and regularize markets with and through the cartels. This is readily shown in the law and in legal inter-
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A second example may be taken from the building industry in the United States. According to Assistant Attorney General Ar-
*2
nold:
Producers of building materials have fixed prices either by private arrangements or as the principal activity of trade associations. Owners of patents on building materials have used them to establish restrictive structures of price control, control of sales methods, and limits upon the quantities sold. . . . Some of these patent holders have taken ad- vantage of their control over patented products to require their licen- sees to give them control of unpatented products also. By the use of basing point systems and zone price systems, various building materials industries have established by formula a rigid structure of uniform prices throughout the country; and in some of these industries such price formulas have encouraged the wasteful shipment of products to great distances. The use of joint selling agencies has been another means by which some of these groups have undertaken to maintain their prices. In some groups the various producers have subscribed to the theory that every member of the industry should have a definite share of what- ever business there is to be done, and that no concern should try to get more than its share by price competition.
Supplementing these various devices for keeping the prices of build- ing materials high have been a series of other devices used to discipline competitors who are unwilling to play ball. In one industry the means is cutting off the supply of raw materials. In another it is starting a series of harassing lawsuits. In a third it is the harassment of distributors by selling through the seller's own factory branches at prices lower than those at which the distributor is permitted to resell. In a fourth it is the maintenance of orthodox channels of distribution by concerted refusal to sell to groups representing new methods of sale or new price policies.
But this is only the beginning. In addition, "there is a growing concentration of control in many of these industries" through combination, merger, communities of interest, and the like. This holds for the distribution of building materials, and down through all the various systems of contracting and subcontracting charac- teristics of the industry. *^ Nor are the data local; the situation is ap-
pretation of the law. " Fritz Ruble, "Kartellpolitik und Weltbewerbeordnung," Zeitschrift fiir Betriebswirtschaft, 1938, pp. 337-49- See also Bruck, op. cit. , pp. 222-26 and, particularly, Neumann, op. cit. , pp. 261-73.
42 In an address before the National Association of Purchasing Agents at the Fairmont Hotel, San Francisco, California, May 22, 1939. Department of Justice news release.
43 In some of these efforts the trade unions are alleged to have cooperated freely.
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parently typical of the building industry throughout the entire country. ** Yet the situation within this industry is in no wise unique. In approaching the problem of cartel-like controls within the California food industries, for example, the Anti-Trust Divi- sion is faced with a situation so far advanced along the road of what the London Economist calls "feudalistic cartel controls" *^ that prosecution is faced with only one alternative to passing up the whole matter as beyond redemption, and that is to issue a blanket indictment against the entire industry. *^ Similarly with the petro- leum, movie-production, electric household-appliance, and milk industries,*^ and many if not almost all of the other important indus- trial groupings of America.
See, e. g. . Civil Action No. 698 in the District Court of the United States for the Western District of Pennsylvania, the United States vs. the Voluntary Code of he Heating, Piping and Air-Conditioning Industry for Allegheny County, Pennsylvania, et al. , Dec. 8, 1939.
44 As shown by the effort of building materials dealers in "41 federated units located in approximately 32 states throughout the United States" (FTC Docket No. 2191, Dec. 30, 1937) the local, regional, and in some respects the national markets for building materials are governed by cartel agreements affecting the bulk of the industry. Though enjoined from further such practices by the FTC in 1937, it would not appear from the statement by Mr. Arnold, nor from the numerous indictments handed down by the Anti-Trust Division in 1939 and 1940 against the building in- dustry, that monopolistic practices were checked nor even seriously impeded by the FTC action. "The housing investigation [conducted by Mr. Arnold] resulted in the indictment of 1,358 defendants" (New York Times, November 25, 1940), and the evidence adduced was such as to encourage belief that Mr. Arnold had even then but barely scratched the surface. In fact his economic advisor, Corwin D. Ed- wards, has clearly so stated in his illuminating discussion, "The New Anti-Trust Procedure as Illustrated in the Construction Industry," Public Policy, II (1941), 321-40.
45 "The Economic Front," Economist, Dec. 9, 1939. See also the article "The Cartel- lisation of England," in the Economist, March 18, 1940.
46 Under the California Pro-Rate Act, for example, 65 percent of the producers by number and product may cause a state of "emergency" to be declared by the State Agricultural Commissioner, after which a Pro-Rate Commission can be estab- lished possessed of power to establish crop quotas, crop surpluses, length of the canning season (14 to 16 days for peaches, for example), grades, grades that are marketable, etc. Costs of administration, such as advertising, are collectable through the state tax machinery, and failure to pay is regarded as the equivalent of tax de- linquency. Numbers of farmers are not accurately known in most crop districts, and in many cases the farmers are either tenants of processors and distributors or of banks, or in debt to concerns such as American Can and Continental Can; for all practical purposes the agreements are completely controlled by nonfarmer inter- ests.
47 See, in particular, the indictments by the Anti-Trust Division of the Borden Company, et al. , in the Chicago and Detroit districts. Much the same picture as
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ECONOMIC POLICIES
Speaking very broadly, it seems possible to summarize the gen- eral lines of development in this expansion and permeation of cartel policies throughout the national systems of the various capi- talistic countries under the following five points.
1. The line between combinations, mergers, communities of in- terest, intercompany compacts on the one extreme and large na- tional trade associations on the other is, of course, structurally pretty clear. But between the two poles there is an almost infinite gradation of constantly changing forms, techniques, practices and policies. In general, trade associations throughout the world are taking on cartel functions so rapidly that the distinction between different types of cartels and these associations is badly blurred, and in many respects all essential differences are lacking. This is recognized as true by leading authorities in England, France, pre- Nazi Germany, the United States, and Japan. In Fascist Italy and Nazi Germany differences are in part technical and in part func- tional, but in the main cartel-type controls have been accepted as normal and natural for all trades and industries, and the attitude, if not necessarily the detailed forms of their respective "corporate economies," appears to be prototypal for developments in other countries of comparison.
2. It is a characteristic common to practically all leading trade associations and cartels that they seek to eliminate "outsiders" or "free-riders. " The compulsory cartel has achieved this objective in Germany. It is the aim of some of the more closely held British and French cartels, of the various agricultural marketing agreements set up in the United States, Germany, England, and Japan, and of all the trade associations which have succeeded in preserving the leading controls envisaged in NRA, and it is also a motive under- lying the new arrangement of Groups under the Confederation G^nerale du Patronat Fran^ais, and, of course, in general, for the economies of the directly corporate systems. Elsewhere there is a general tendency either to eliminate "outsiders" entirely, or to bring together in the collusive group such an overwhelming major- ity of the industry that "free-riders" would be either of only local
given in these indictments evidently holds for most other large milk-marketing areas. See also Corwin D. Edwards, "Trade Barriers Created by Business," Indiana Law Journal, Dec, 1940, pp. 169-90.
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significance/^ or so small and scattered that they might be forced into line at will upon pain of total extinction.
3. There is a clear and wholly unmistakable tendency for the large concerns to dominate more and more completely all forms of cartels and trade associations. This was clearly shown in the bulk of the leading NRA codes, is evident in most of the national and regional trade associations in America, and appears to be true of all the leading German, French, and British cartels and trade asso- ciations. Frequently, cartel activities have paved the way for com- bination of the horizontal type, as for example in the German and British heavy chemicals industries. Sometimes the way was pre- pared by cartels for vertical integration, with the result that inde- pendent enterprises tended to disappear entirely. *^ Frequently, as in the British salt, thread, chemicals, and armaments industries, trade associations were organized as adjuncts for further extending the monopolistic controls of large combines. ^" The existence of cartel controls not uncommonly enhances the superior bargaining power of large concerns producing goods or using materials not included within the cartel bailiwick, as in the case of the vertically organized German steel combine contrasted with the "pure" col- lieries. The combine, when producing for "self-consumption," was not required to charge profit margins at different stages of produc- tion, with the result that the combine possessed a considerable--at times well-nigh decisive--advantage over nonintegrated competi- tors. ^^ But in nearly all cases, both within the totalitarian countries and without, the lead in the organization and direction of both car- tels and trade associations is typically and increasingly being taken by the corporate giants. The policies of these organizations, that is to say, are being molded to the interests, the outlooks, and the pro- grams of the great monopoly-minded corporate groupings.
48 Even here there is a tendency to force recalcitrants into line on many issues such as labor policies, taxation measures, price maintenance, etc.
49 See Herbert von Beckerath, Modern Industrial Organization (New York, 1933), in particular Chapters II and VIII.
50 There are many American examples, e. g. , the National Glass Distributor's As- sociation, organized by the Pittsburgh Plate Glass Company; the New York Sheet Metal Roofing and Air-Conditioning Contractor's Association, dominated by the Fox Furnace Company; the Associated Milk Dealers of Chicago, dominated by Borden's.
61 Particularly interesting in this connection is the evidence submitted to the Enqueteausschuss, by various industrialists connected with the iron, steel, coal and heavy chemicals industries.
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4. That is why the following trends, clearly discernible within both cartels and trade associations in general, take on such great significance; these organizations are (a) becoming more perma- nent, less easily broken up by the changing fortunes of business cycles, and their contractual or semicontractual obligations are entered into with an eye to longer-run objectives. Simultaneously, (b) interests are spreading out from a single line of control (such as prices, or production, or marketing areas, or conditions and terms of delivery, or patent pooling) to take on other functions, and, in some cases (notably the "compulsory cartels"), the whole range of cartel functions. With this go (c) tendencies for the cartel to resort to some degree of central management of supplies or sales (''syndi- cates"), or labor, or engineering and accounting. This is, in turn, (d) paralleled by a general and well-nigh universal tendency for all these associations--in "proportion" as they take on a more cartel-like character--to band or group together into regional, commodity, and industrial central or peak associations (Spitzen- verbdnde). Finally, (e) there is an almost universal tendency, once this level of development has been reached, for members increas- ingly to try to limit business transactions to members, and for trade associations and cartels to deal with each other as exclusive agents for their respective memberships. The governance of the resulting system of intertrade compacts, agreements, negotiations and rela-
tionships then comes to be one of the principal activities of the Spitzenverbdnde. ^^
5. The relationship between the foregoing tendencies and the correlative rise and universalization of "mercantilistic" practices wherein the normal course of business as usual leans ever more heavily upon a generalized system of state aid--within the several national states, becomes clearly one of mutuality, interaction, and interdependence. The two lines of change have a common histori-
52 See, Bruck, op. cit. and Neumann, op. cit. , pp. 263-65, for a more recent discus- sion of National Socialism. In the 1925 Yearbook and Register of British Manufactur- ers, published by the Federation of British Industries, mention is made of ". . . a strong feeling . . . that so far as possible, members should give each other preference in placing orders, and the system of inter-trading is now rapidly gaining ground amongst members" (p. 23). The Nazis and the Fascists, with their widespread systems of inter-trade compacts, appear as the culmination and logical fulfillment of a process which becomes more and more formal and general as the networks of business spread out, lines of influence are transmuted into frames of control, and powers are gathered up and centralized in peak associations.
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cal origin, and they run their parallel courses over the same span of time. In a multitude of ways advance in one leads to advance in the other.
Neither cartels nor trade associations, of course, can any longer be called "children of necessity. " But tariffs, subsidies, subven- tions, government loans without interest, laws allowing resale price maintenance, can, however, be regarded as successful products of the mounting demand of massed special interest groups of busi- nessmen, and their direct, coordinated, and organized efforts to see that governments stand perpetually prepared to grant what- ever aid their several plans and programs require. Without impor- tant exception in any of the major capitalistic countries, the neces- sary enabling laws have been lobbied through by business interests. The Spitzenverbdnde endeavor to see only that the basic laws and the mass of administrative decisions flowing from them generalize the gains and even cut the losses. The rule, as in early mercantilistic times, becomes one of concession, grant, honoraria, "special privi- lege. " Fully rationalized and centrally governed via the Spitzen- verbdnde, organized to the outer limits of trade and industry, the logical result of such generalized Priviligierung is cumulative ap- proximation to the generic conditions of the corporate or "guild" state. *^(R)
THE ECONOMIC POLICIES OF THE SPITZENVERBANDE
This means a great deal more than that the business life of the major capitalistic countries is being organized in ever more closely cooperating, bureaucratically directed, and monopolistic federa- tions of business interests. It means that direction throughout all this vast proliferating machinery is ever more clearly and insist- ently being centered in the hands of the corporate giants. It is not only their interests that dominate in the larger sphere of action, but their manners of procedure, their organizational patterns, their points of view, and their conceptions of the larger objectives of economic policy as a whole. The shape of things present and to
53 This is the term employed by the official Italian propaganda agency in America, the Italian Library of Information, to characterize for American readers the leading features of Fascist social -economic organization. See The Organization of Production and the Syndical Corporative System, an Outline Study.
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come in this universe of motion are, to be true, by no means free of confusion, but the general lines of force are ribbed boldly in view.
The "Industrial Complex. '*--The case is more easily made be- fore the law or to the general public for treating an entire industry, or a series of closely related industries, as a single managerial en- tity where the integrative pressures of technology have led directly to the concept of a single, all-inclusive engineering system--local, regional, national, or continental wide, a system which can only be broken up by going to more primitive methods of production. ^* Falling into this class are the systems of transportation and com- munication: railroad, highway, inland-river and coastwise ship- ping, airplane, bus, truck, telephone, telegraph, cable, postal service, radio, gas, water, pipeline, and power grid (inclusive of production, transmission, and distribution). In all these cases engineering, cost accounting, and management factors all conspire to favor for each appropriate territory a single, unified, and all- inclusive network under a single management charged with the task of organizing the whole with the minimum of duplication and overlapping. In some cases, such as the transportation and the communication groups, similar factors create conditions favorable to mono-management on an interindustrial and interservice basis; thus the railroads are technologically integrated systems, and other industries in these groups are bound together into actual or po- tential one-management systems.
This general category of industries is commonly said to be made up of "natural monopolies," and its members are thought to be peculiarly "affected with a public interest.
" But whether so con- sidered or not, and whether owned and operated as governmental,
84 Developments of this character, combined with the increasing freedom of managerial circles from direct responsibility to the rank and file of property owners, have excited James Burnham to prophesy, in his Managerial Revolution (New York, 1941), that managers will become the new "ruling class" in the place of the capitalists. The whole argument is based on a misunderstanding of the location and source of power of existing managements both here and abroad, and confuses machinery of execution with structures of domination; in the same way, Paul Einzig ("Hitler's 'New Order' in Theory and Practice," Economic Journal, Vol. LI, No. 201, April,
1941) confuses planning and central management with antidemocratic and regional exploitation. But "planning" is a "tool" and "structure" is a "device" and nothing more. The question is not "management" and "planning," but who manages what, by what means, and to what ends.
248
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249
private, or "mixed" enterprises, these industries are all character- ized by the case they present for being organized as single, central managerial systems. ^^ Throughout there is a clear and unmistaka- ble long-run tendency for corporate groupings to be reshuffled so as to correspond to management imperatives--for, in other words, corporate holdings or management controls to become cotermi- nous with industrial, engineering frontiers. ^^ Most backward in these respects are the railroad systems of the United States," Eng- land ^^ and France; the telegraph and radio systems of the United States; ^^ the power systems of Germany,^? the United States, and
56 Which does not, of course, preclude a high degree of regional or functional de- centralization of a system functioning as a single managerial entity. The A. T. and T. , perhaps the best example outside of the postal services in the United States where corporate and network frontiers are almost entirely identical, has also been the leader in the development of methods of managerial decentralization.
66 How important these factors may become in future governmental policies toward "trust" developments is shown by Mr. Arnold's dictum, speaking on behalf of the Anti-Trust Division of the Department of Justice, that "the rule of reason is the recognition of the necessities of organization in a machine age. " This he interprets to mean specifically that the government will not proceed against, (1) "combinations which actually contribute to the efficiency of mass production," (2) "concerted action which goes no further than to insure orderly marketing conditions," and (3) those "monopolistic restraints" which, if proceeded against, would involve "economic dis- location in great industries. " Speech before the National Association of Purchasing Agents, San Francisco, California, May 22, 1939 (Department of Justice news release). It is not hard to see how a good combination of ambidextrous legal talent, gifted cost accounting, and clever management engineering might bring almost any com- bination out of the antitrust shoals under shelter of these wide-ranging criteria.
57 It is significant, however, that the ICC has long been committed to the principle of regional amalgamation, fusion of terminal facilities, etc. See in particular, the various reports of Commissioner Eastman during his incumbency as Coordinator of Transportation.
58 The English railroads, over fifty major and several minor lines, were brought together into four major systems in the early twenties. Measures are now being taken to fuse these four into a single rail network.
59 There is not the slightest justification from a competitive or a general economic point of view for the duplicate systems of Western Union and Postal Telegraph. No parallel to this duplication is to be found in any other major industrial country in the world. The American radio system is somewhat more complex, but it is equally out of date.
60 See, however, the plan of Oskar von Miller, Ausfuhrungen des Sachverstdndigen Dr. Oskar von Miller iiber die derzeit wichtigsten Fragen der Elektrizitdtswirtschaft, and Gutachten iiber die Reichselektrizitdtsversorgung (Berlin, 1930). Much of this plan has actually been carried into effect. Under stimulus, however, of a developing war psychology, accompanied by military plans for industrial decentralization of in- dustry, there has more recently developed considerable opposition to a central Ger- man power grid. See, various issues of ETZ from 1932 to 1936, the Archiv fiir Wdrme- wirtschaft, and Elektrizitdtswirtschaft, German journals devoted to the electric power industry; and see also F. Lawaczek, Technik und Wirtschaft im Dritten Reich (Mu-
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France; and the bus, truck, and internal waterways systems of all countries except Germany. ^^ Intertransport systems have been worked out comprehensively only in Germany,^^ ^nd intercom- munications systems only in Germany, Italy, and England. (R)^
A situation somewhat similar to that of the public utilities is found with all those industries which have (a) been growing to- gether, quasi-organically, at the manufacturing base, and to which (b) entrance is controlled through closely guarded engineering and research factors. In the first case there is a tendency for a complex of industries (the Russians use the term "Combinat") and in the second case for entire single industries to be fused together, so that in analysis one is compelled more and more to proceed as though one were dealing with single managerial units instead of collectivi- ties of separate enterprises. Either or both tendencies appear to be pronounced with all those types of enterprises termed "laboratory babies" above (heavy chemicals, plastics, electrical apparatus, pulp and paper, armaments). These industries may possess a common source or series of sources of raw materials, or a series of dovetailed "flow-type" processes, or monopoly of the necessary initial knowl- edge obtainable only from secret sources of information, or basic and indispensable patents on machinery, processes, or products. Such possession enables a single concern or a group of closely co- operating concerns to force entire industries into line, with the effect that one or more of the conditions and terms of conducting
nich, 1932). Plans of the Belgian engineer Oliven for an European-wide superpower grid have fallen afoul of analogous misfortunes.
61 A fair degree of unification has been achieved in the United States in the bus systems operating between major traffic terminals, and in some cases between railroad and bus transport. Steps have been taken by a number of railroads, led by the Pennsylvania, to dovetail rail and local freight trucking facilities.
62 The German intertransport network is not altogether complete, but it has be- come very nearly so with simultaneous over-all organization of each of the separate types, and then interlinkage step by step amongst them as fast as plans could be worked out. Model systems, in this respect, are the long-distance rail, short-distance bus, the rail, airplane, and postal bus passenger service, the Rhine water and rail freight traffic, and the rail and truck pick-up and delivery system in Berlin. The initial efforts of the giant Hermann Goring VS^orks to unify the Danubian water transport system foreshadow extension of the networks for the whole of the European mainland. See Lachman, op. cit.
63 Most complete are those of Germany and England, where all communication services are centered in the post office. The Italian and Japanese are not far removed from a like level of development.
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business are centrally managed and controlled throughout the entire industry. *'*
Certain of the conditions peculiar to the "laboratory babies," of course, are rapidly coming to govern the vast majority of the leading industries throughout the world. But in the absence of such pressures, the effect of partial managerial control may be had through the pooling of resources by the establishment of central cooperative facilities, such as laboratories, market information services, and joint management committees of one sort or another dealing with standards, grades, advertising, apprenticeship, fore- manship, public relations. (R)^ Individual firms may seek to depart from this cooperative set-up; but if the information is of critical importance, or if the standards are fundamental to the evolution of a system of interchangeable parts, or if the failure to adhere to the advertising schedule thereby causes a dangerous pyramiding of competitive costs, then firms may be compelled to hew pretty close to the line fixed, and will rarely be able to go far beyond the techniques and practices agreed upon in conference. ^^ The en- vironment, that is to say, becomes favorable for acting as though the association of cartel had become, through close and long col- laboration on vital issues, to some degree or other a single-manage- ment enterprise, and as though the member concerns were branch
6* Perhaps the best examples are to be found in the interests grouped around Standard Oil and DuPont in the United States, Imperial Chemicals in England, and the I. G. Farbenindustrie, Krupp, and possibly the Hermann Goring Works in Ger- many.
65 There are several dozen trade-association laboratories in the United States (e. g. , the Electrical Testing Laboratories of the Edison Electrical Institute and the National Electric Manufacturers Association, and the American Gas Association's laboratories in Cleveland), in England (e. g. , the British Cotton Industry Research Association and the Research Association of the British Rubber and Tire Manufacturers), and in Germany. A particularly interesting development in the latter country is the evolu- tion of a chain of industry-government supported industrial laboratories known as the Kaiser Wilhelm Gesellschaft, covering nearly every branch of industry in every field. Also of particular interest is the Reichskuratorium fur Wirtschaftlichkeit, a central "rationalization" coordinating body. (See Brady, The Rationalization Move- ment in German Industry. ) A similar body has been set up in Japan but appears to have met with indifferent success. Standards bodies, to be found in every manufactur- ing country, provide also a very interesting method of bringing industrial establish- ments together. (See Industrial Standardization, National Industrial Conference Board, New York, 1929); but the methods here are legion.
66 Such is the case in all "simplification," "typification," fits and gauges, dimen- sional standards for interchangeable parts, methods of testing and rating, standards for control instruments, etc. See TNEC Monograph No. 24, Consumer Standards.
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or regional offices rather than independent business units--for be- having, in short, as though central direction had been given over to a "syndicate" or a "community of interests," or a formal combina- tion (as in the case of the great German dye trust).
Here again, the position of the Spitzenverbande has been uni- formly to foster, promote, and encourage. This is shown not only by the detail of the activities on which they center their attention, but also by the industrial groupings of their membership. The Grand Council of the Federation of British Industries bears more than a superficial likeness to the National Council of Confedera- tions of the Italian Corporate State and the Gruppen arrangement under the Chamber of Commerce and Industry in Nazi Germany. The grouping of the Confederation Generale du Patronat Fran- ^ais appears to be a compromise between the German and Italian models, and the new plans for France's industrial reorganization under the Vichy regime appear to require but relatively small changes in that pattern. In all cases and with increasing clarity, the industry is the unit and associational forms are expected more and more to adjust their activities to these frontiers.
Privilege and protection. --Paging through the literature of the several central manufacturing associations of the various major capitalistic countries, the patterns of privilege and protection, varying greatly in detail, appear to be cut from the same cloth. They do not require great elaboration here, for already a vast literature has been written around them. However, in juxtaposi- tion with the foregoing discussion and each other, they help to show how strongly and deeply the current is running towards what
the Germans call Ordnungswirtschaft (ordered, bound up, organ- ized, directed). The elements that make up the pattern are as fol- lows.
1. Atrendtowardprotectionagainstforeigncompetitionreaches back to the Bismarck tariff of 1879. Definitely protectionist and "autarchic" in all countries, its basis of autarchy is not the nation, but the maximum area of empire or sphere of influence. Protective tariffs are to autarchic programs as youth is to age; autarchy might be regarded as generalized and rationalized protection, and the basis is imperial, or continental (Grossraumwirtschaft) self-suffi- cient systems. All nations now have systems of "imperial prefer-
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ence," of which the British scheme worked out at Ottawa is only the better known and more spectacular. The long-run changes over time are the following: (a) tariff walls have been heightened and generalized to meet the needs of every organized interest grouping; (b) the forms of protection and aid have been multiplied to meet every peculiar need; (c) the whole of the network of na- tional protection and aid has gradually been articulated into a more or less rationalized system of economic-political aggrandize- ment; (d) administration has been placed in the hands of admin- istrative bodies given wide latitude in the use of the tools for the advance of national economic interests both at home and abroad Machtpolitik; (R)^ (e) these administrative bodies may be publicly owned, privately owned (as with British industrial reorganization schemes for coal, shipping, retail trade and textiles), or "mixed" (as in the case of the Hermann Goringwerke, the British Cen- tral Electricity Board, the leading Japanese "development com- panies" in Manchuria, North China and the South Seas). But in any case, they tend to become all-inclusive monopolies in a sense analogous to the early mercantilistic trading companies.
2. The second element is protection against competition at home. Appearing under the common euphemism, "fair trade practice," laws cumulatively circumscribing and hedging competition about with a multitude of controls and administrative rules are now to be found in every major capitalistic country. Promoted by business pressure-groups, and growing in number and range of importance with amazing speed, these laws all tend to promote--^after the models of the exclusive monopoly and cartel--some degree of price fixation, systems of discount, brokerage fee allowances, circum- scription of marketing areas, conditions and terms of delivery and sale, and the like. The Programs of the Robinson-Patman Act, the
Miller-Tydings Bill, the Agricultural Marketing Act, the Capper- Volstead Act, the 45 or more state price-maintenance laws, and a vast supporting, corollary, supplementary, and elaborating out- pouring of federal, state and local legislation and administrative
67 This interest--protection from foreign competition--was the major force behind the organization of the National Association of Manufacturers, one of the predecessor bodies of the Reichsverband der deutschen Industrie, the Confederation G^n^rale de la Production Fran^aise (predecessor body to the Confederation Generate du Patronat Fran^ais, and the Federation of British Industries.
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rulings can be duplicated now in every country of the world. (R)^ The differences here between policies advocated by the Spitzenver- hdnde and their supplementary pressure groups in the United States on the one hand, and in the totalitarian countries on the other is one of degree, not of kind or method. ^(R) The Nazis, for ex- ample, understood NRA at its inception to be in keeping with the corporate ideas of "stabilized business" advocated by the Nazi state/*^ War has a tendency to accelerate the pace, not to alter the lines of growth/^
68 It should be noticed, however, that the growth of internal trade barriers is not necessarily in harmony with these other trends--may, in fact, break down efforts to block out different types of special trade or interest controls. Cf. , the equivocal posi- tion of the Automobile Manufacturers' Association to state resale price-maintenance, antidiscrimination, antitrust, below-cost and motor-vehicle dealer licensing laws (outlined in a series of charts, 1937).
69 "Under the guise of establishing standards of 'fair trade practice,' competition was sublimated to the extent of virtual extinction. In many industries it forthwith became 'unfair* to utilize existing productive capacity even to the extent that actual orders for goods indicated to be profitable from the standpoint of particular manage- ment and warrantable from the standpoint of the social economy. 'Spread out the business! ' It became 'unfair' to underbid other producers--witness the numerous code provisions requiring the maintenance of fixed margins and the recovery of standard- ized, indeed arbitrary, 'average costs. ' " Myron Watkins, "The Economic Implications of Unfair Competition," Iowa Law Review, Jan. , 1936, p. 269. Since the demise of NRA all these practices have become more or less common throughout American economic life. For Germany, see especially Heinz Mullensiefen, Das neue Kartell-, Zwangskartell- und Preisuberwachungsrecht (1934), and Freiheit und Bindung in der geordneten Wirtschaft (1939). For Italy, any issue of the voluminous and complete, Sindicate e Corporazione, and Helmut VoUweiler, Der Staats- und Wirtschaftsaufbau im Faschistischen Italien (Wurzburg-Aumiihle, 1939). For England, Lucas, Industrial Reconstruction; Levy, Monopolies, Cartels, and Trusts, current issues of the London Economist, and various plans for industrial reorganization of PEP (Political and Economic Planning). For the United States, Burns, The Decline of Competition; Ewald T. Grether, Price Control under Fair Trade Legislation (New York, 1939).
70 They based this judgment, as the author can testify from numerous personal in- terviews with leading German businessmen during 1935, upon such as the following: "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 Com- merce, etc. The whole fabric of business organizations is inter-twined and ready to cooperate with the some 500 industries now under approved Codes and with the National Recovery Administration in all sound 'Business-Government Partnership' plans. " Statement of the American Trade Association Executives, prepared by the Trade Association Section of the Marketing Research and Service Division of the Bureau of Foreign and Domestic Commerce, U. S. Dept. of Commerce, and issued as "High Lights of the NRA, Chart No. 3," July 10, 1934.
71 Practically all the important British food industries, for example, now brought into control boards under Britain's "feudalistic system of cartel control," have behind them "marketing" agreements quite similar to those worked out by the AAA in the United States, and which now govern, under one authority or another, almost the entirety of the highly specialized fruit and vegetable crops of California. A reading
? ECONOMIC POLICIES
3. The third, protection against dissolution and from becoming extra-marginal, takes many different forms--the limitation of ca- pacity, capacity factors, incoming concerns, and provision of public funds for "bailing out" otherwise bankrupt firms. ^^ The fringes of high-cost concerns are lopped-off and at the same time innovations are controlled. In an "emergency," government regulates, "pro- tects," and supplies generous aid. What was once defined as an "emergency" then tends to become a permanent condition, rein- forced, maintained and "stabilized" as a part of business-as-usual (relief disbursements, programs of public works, military expendi- tures, credit controls, government credit, price regulation). In general the effect is that prices are lowered or costs are adjusted so that the least efficient concern is brought into the organized system of protection. ^^ In the patois, average revenues of the firm closest to the margin are "pegged" above average costs. "^* But costs are construed not as sums which add but as categories whose dimen- sions are a function of policies centered in and controlled through the new systems of protection.
4. The fourth element is protection against the business cycle and analogous hazards. The attitude of business is slowly chang- ing from hostility toward programs of armaments (wartime) and
of the "Statutory Rules and Orders" for the potato-marketing agreement, or for pigs, bacon, milk, etc. , based upon the British Agricultural Marketing Act of 1931, will show that the English intended that these boards should be possessed of powers which might readily be expanded to control the several food industries lock, stock and barrel, and with reference to all problems of production and distribution, and for all persons or parties involved therein. In many respects they are scarcely to be distinguished from the Nazi Marktordnungsgrundsdtze for German agriculture.
72 See, in particular, the summary of Code provisions given in The National Re- covery Administration, by Leverett Lyon and others (Washington, D. C. , 1935), which details at great length Code devices for achieving "protection" against all the usual hazards of competitive business. For the period since the demise of NRA, perhaps the best source of information is the various reports of the Institute of Distribution.
73 It was accepted as a ruling principle in the regulated economies of both World Wars that profits should be guaranteed every enterprise participating in war pro- duction. Since all enterprises are thus subject to--and actually have become involved in--war control, this system of compulsory profits has come out to mean as many or almost as many price schedules as there are cost schedules. The NRA codes and the corporate systems of Italy and Germany have applied these wartime principles to many of the processes of peace. But they are applied neither in the totalitarian nor in the "liberal-capitalistic" countries to the tolerated, profitless, outsider fringe. The fringe, however, is not extra-marginal; it is outside the pale of granted privilege.
74 With the tendency, as shown in the NRA Codes, for example, to include a "normal return on investment" over and above interest payments, not as revenue but as cost! See Watkins, "The Economic Implications of Unfair Competition,"
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public-works (peacetime) in times of depression, to one of accept- ance and--particularly so far as armaments are concerned--en- thusiastic support/^ Surpluses of manpower (unemployment), of goods (met by the equivalent of "valorization," market surplus, "ever-normal granary" methods) and of capacity are becoming nat- ural, normal, chronic features of highly developed capitalist civi- lization. It is only a question of time until methods applied par- tially or sporadically in the field of agriculture will be generalized over the entire economic system. All the Spitzenverbdnde seem to agree that these methods can only be administered by central pub- lic authority, by the aid of war, public works and other supporting programs, and under the administration of businessmen who will see to it that the results of such policies, intended to "help busi- ness," are not such as to hurt business as a result of "mistaken idealism," "reformism," or "socialistic" ideas. And all such policies call for protection against the demands of competing interests (that is, little-business and nonbusiness interests). ^*
Centralized Control. --^Without exception--in England, France, Germany, Japan, Italy, and the United States, Belgium, Holland, Czecho-Slovakia, Poland, Sweden, and in all other countries still existing or now submerged, which have central, national Spitzen- verbdnde--all inclusive plans and programs for industry, trade, and interindustry organization are referred to as "self-government in business. " ^^ So far as one may generalize from past trends and present incomplete records of experimentation,^^ the concept of "self-government in business" means something like this: in a fashion somewhat similar to, and possibly patterned in some re-
75 The monthly letters of the National City Bank during 1938 and 1939, make ex- tremely interesting reading in this connection. Government spending for relief, public works, etc. , was regarded as the balance wheel of the economic system, and the arguments employed by the National City Bank are almost identical with those running through German business periodicals and expressed directly to the author by leading German businessmen who dwelt most enthusiastically on the public-work and armaments programs of the Third Reich.
76 These will be dealt with in the following chapter.
77 The German expression alone means "self-management" (Selbstverwaltung). But this is in keeping with German tradition, which always admits at every stage of the game, tighter, more inclusive, and more rigid central control.
78 See, in this connection, the various efforts by NRA to evolve "master plans," "blanket codes," and "blue eagle" dicta; see also the various German and Italian laws (of which the current French "corporate" pattern appears to be a blend) relating to cartels, price control and price supervision.
ECONOMIC POLICIES
257
spects directly after, the systems of managerial decentralization by regions and functions evolved by concerns such as General Motors, the A. T. and T. , Imperial Chemicals, I. G. Farben, and Vereinigte Stahlwerke, trade associations wish to administer or "govern" each and every industry as semi- or wholly autonomous groups within a framework of control laid down by the central authorities. It is a concept not unlike that of corporate guild economy in the medie- val period, except that here leadership is taken by a cooptative elite dominated by the huge corporate combines and communities of interest. ^^ The authority carries with it legal or quasi-legal power to enforce compliance upon the totality of the industry and, fur- thermore, compliance practices are governed by codified rules of the general order of codes of "fair-trade practices," (R)^ which assume a set of directives of an ultimately social and political character. This is the capitalistic equivalent to agrarian states' rights doc- trines as viewed by a champion of planter aristocracy such as John Calhoun.
Compliance by the entire industry with the dicta of the coopted "self-governing" cliques involves a rationalization and systematiza- tion of cartel-like pattern of control for all industry. So far as the economic side is concerned this means that business feels that provisions must be made to (1) prevent "cutthroat competition" within the industry,^^ (2) keep "monopolistic competition" within industries whose products may be partially or wholly substitutable for each other from taking on a similar cutthroat character ^^-- sort of domestication of competition within the central control net- work which shifts a problem of economic warfare into one of in- trigue, cabal, and junta--and (3) require of each industry (as of each member concern within each industry) rigid adherence to the decisions of the central authorities, so far as these decisions touch
79 See the following chapter for an elaboration of the "cooperative" principle.
80 The Group Industrie of the Reichswirtschaftskammer has made an attempt to codify "fair-trade practices" for all German industry. Something of the sort has been attempted by most national and regional chambers of commerce, and by most Spitzen- verbdnde in every major industrial country.
81 "Cutthroat competition" is, of course, the obverse of "fair-trade practices. " "Fair- trade practices" equal, in the main, cartel controls; in practice "cutthroat competi- tion" comes to mean loss to those who, unlike Eugene O'Neill's "Hairy Ape," belong.
82 As when Alcoa attempts to control magnesium (a competitive light metal), or rayon, silk; or butter, margerine; etc.
a
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upon issues which bind them all together into a coherent system of national business administration.
This latter requirement, centering as it does on the issues and the structures of domination, necessarily reaches far beyond the economic issues of a system of self-regulated capitalism. Far more than "free competition" and laissez faire go out the window with the shift from "monopoly competition" to "self-regulated monop- oly. " With this shift goes a gradual taking over of the offices and prerogatives of government. If the Spitzenverbdnde continue to travel along the same paths, government by the business system will find their members pulling together on social and political issues, however restive they may become under controls which they im- pose upon themselves ^^ by their own developing monopoly prac- tices of "self-regimentation. "
83 "We are faced," Mr. Arnold holds, "with a choice of either enforcing the anti- trust laws or drifting in the direction of the self-regimentation of business. " Again, "Since the war a weak government permitted the whole German production and distributing system to be organized from top to bottom by trade associations and cartels. Sporadic attempts prior to 1930 to allow new and independent enterprise a chance were stifled. Industrial Germany became so self-regimented that there was a place for everyone and everyone had to keep his place. The cartel system led only to higher prices. Here was regimentation without leadership and arbitrary power without control. Germany became organized to such an extent that a Fuehrer was inevitable; had it not been Hitler it would have been someone else. " Speech before the Cleveland Bar Association, March 7, 1939 (Dept. of Justice News Release). The implication that the advance of monopoly controls leads to Fascist-type systems cor- responds entirely with the facts. See also Bruck, Social and Economic History of Germany, and the various articles of the London Economist cited above. But there is likewise a dangerous over-simplification in so stating the matter, as will be pointed out in the following chapter.
^
? Chapter VIII
SOCIAL POLICIES: STATUS, TRUSTEESHIP, HARMONY
AS MONOPOLY STANDS at the ccntcr of the new economics, so status l\ is the heart of its appropriate social outlook. The two are com- plementary products of that modernized system of "granted privi-
lege," "special concession," "neo-mercantilism," "generalized pro- tection," and "feudalistic capitalism" ^ being brought about by the growing centralization of policy-forming power which is so com- mon a feature of all major capitalistic economies.