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.
Brady - Business as a System of Power
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.
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.
3
? EFFORTS TO ORGANIZE BUSINESS
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.
? EFFORTS TO ORGANIZE BUSINESS
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.
5
? 6 EFFORTS TO ORGANIZE BUSINESS
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
7
? 8 EFFORTS TO ORGANIZE BUSINESS
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. "
? EFFORTS TO ORGANIZE BUSINESS
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.
9
? 10 EFFORTS TO ORGANIZE BUSINESS
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.
16 See American Chambers of Commerce, by Kenneth Sturgess (New York, 1915), and "Local Chambers of Commerce, Their Origin and Purpose," issued by the Com- mercial Organization Department of the Chamber of Commerce of the U. S. (Wash- ington, D. C. , undated).
^T Jahrbuch der Berufsverbdnde im deutschen Reiche, (ig^o), p. 43.
18 The cartel is more like the early American "pool"; it has legally recognized contractual standing. More recendy cartel functions have been taken over by many trade associations, particularly the American. See pp. 211, 244.
19 Horst Wagenfuhr, Kartelle in Deutschland (Nurnberg, 1931), p. xiii.
? EFFORTS TO ORGANIZE BUSINESS ii
streamlining, not abolition, of this elaborate machinery. A like generalization holds for Italy, where under four strictly business associations out of a total of nine Fascist Confederations there are to be found 91 separate associational gToupings. ^o
Although comprehensive data on England, France, and Japan are more difficult to obtain, the same trends are observable. And, once again, we find that almost all of this associational machinery is of comparatively recent vintage. Possibly, as with the United States, three-fourths of it is postwar. In Japan most of it appeared after the early '30s. This holds for cartels, both national and inter- national, as well as for trade associations and chambers of commerce.
Of all these multifarious associations, only the cartels have been examined with any considerable care; even here there is a general lack of critical works on individual cartels except in a few highly especialized fields (iron, steel, coal, and potash) and it is becoming increasingly difficult to distinguish between cartel and normal trade-association functions. In the comprehensive survey of "The Economic and Social History of the World War" published under the auspices of the Carnegie Endowment for International Peace,^! there is scarcely a mention of even the more important of these organizations, although again it was the conditions of wartime which provided the major stimuli to their formation and expan- sion. The reports of the British "Committee on Industry and Trade" (Balfour Committee),-- published in the later twen- ties, make only side and quite incidental references to an occasional few. Nor do the monumental reports of the German Committee of Inquiry,-^ concluded but a short while before
the Nazi government assumed power, take this organizational mushroom growth more seriously. As indicated, the TNEC devotes but one very superficial monograph to the trade association,^^ and
20 See Fascist Era, Year XVII (published by the Fascist Confederation of Industrial- ists), pp. 207-12.
21 Running into several hundred monographs, brochures, and abridgments of one sort or another, and including every country a party to the World War on either side.
22 Seven volumes, with a "Final Report" published in 1929.
-^ Ausschuss zur Untersiichung der Erzeugungs- unci Absatzbedingungen der deutschen Wirtschaft (Enqueteausschuss), begun in 1926, completed in 1931, and running well over a hundred volumes.
2tNo. i8, Trade Association Survey. "Superficial" because based solely on answers to questionnaires voluntarily filled out by 1,311 trade-association executives who
? 12 EFFORTS TO ORGANIZE BUSINESS
in other scattered cases makes only side reference to the subject. ^^ But for the most part its writers miss the real significance of NRA and ignore all the mass of data collected through the efforts of the Anti-Trust Division under the leadership of Thurman Arnold. ^^ In only one restricted discussion does it really come to grips with the political powers of the "peak association" at all. ^^
This general neglect becomes all the more astonishing when the growth of trade-association networks is related to two other factors. First is the correlative growth in the preponderance of the "peak association. " Influenced largely by experience with more or less vigorous wartime controls, in their postwar expansion trade- association networks began slowly but cumulatively to show cer- tain definite characteristics which marked them off definitely from prewar types. They ceased growing like Topsy, and began more and more to expand systematically, with an eye to ever more compre- hensive coverage; in an orderly fashion they began to take up each link in a chain of related problems of guidance and control, and to submit increasingly to centralized direction. Before the war, "peak associations" were largely unimportant or wholly lacking, and those in existence only occasionally came to the forefront of atten- tion. 28 After the war, they sprang up everywhere, and shortly began to serve as centralized, coordinating, business-policy boards for vast segments of the several national economies.
In the second place, though here the timing varies greatly from
naturally would not and did not answer significant questions relating to the exercise of cartel-like functions, though the listings of activities given in Table 25, p. 373, might have caused its authors to take notice that the Anti-Trust Division has found these associations almost everywhere exercising such functions.
25 No. 34, Control of Unfair Competitive Practices through Trade Practice Con- ference Procedure of the Federal Trade Commission, a rather bad whitewash of the FTC; No. 35, Large Scale Organization in the Food Industries; No. 39, Cofitrol of the Petroleum Industry by Major Oil Companies (section on the American Petroleum Company); and No. 43, The Motion Picture Industry--A Pattern of Control (section on the Motion Picture Producers and Distributors of America).
26 See almost any of the several dozen indictments of the Anti-Trust Division is- sued from the beginning of 1939, particularly those relating to the food, construc- tion, metals, and machinery industries and to patent pooling. See also numerous speeches of Assistant Attorney General Thurman W. Arnold, and his Bottlenecks of Business (New York, 1940).
27 No. 26, Economic Power and Political Pressures.
28 They were most highly developed in Germany, but were still largely in germinal form. In manufacturing, centralized peak associations were found in England, the United States, Switzerland and a number of other smaller manufacturing countries. None of any importance were to be found in France, Italy, and Japan.
? EFFORTS TO ORGANIZE BUSINESS
one country to the next, the rise of peak associations has been gen- erally paced by the movement of the business giants to the centers of the spreading webs of control. In Germany, and to a lesser extent in England, the two tendencies went pretty much hand in hand. The same was true also of Japan, though here both tendencies ap- peared very late. In the United States the latter was not clearly evidenced until the advent of NRA. But by the late thirties, the industrial and financial giants had practically without exception moved into the citadels of peak-association power all over the world.
These two tendencies take on an added significance when they are paired with two other well-known developments within the business world of the corporate giants. One is the fact that through a multitude of familiar devices (interlocking directorates, patent- pooling and other cartel-like agreements, holding companies, inter- corporate ownership of securities) ^^ the ties that bind the giants to- gether have long been growing so close, so mutually reinforcing that within, and to a certain extent amongst, the several capitalistic countries they have come as a whole to take on the characteristics of unified, more or less compact, and internally homogeneous groups. ^^ And the other is the fact that, within the several corporate segments of this almost consanguineous community of interests, de facto control has gradually been narrowed down until it is now typically held by very small, almost entirely self-perpetuating and largely non-owner directorial and managerial cliques. ^^
29 See TNEC Monograph No. 9, Taxation of Corporate Enterprise, Chapters III and IV.
30 Of particular interest in this connection, aside from those cited in footnote 31, below, is a series of studies published at intervals by Die Wirtschaftkurve (a monthly publication of the Frankfurter Zeitung) after the stabilization (1924) of national and international intercorporate affiliations of various British, French, American, Ger- man, Belgian, and other combines. See the "Electronics Chart of the Sound Picture Industry of the World," reproduced by H. A. Toulmin in Trade Agreements and the Anti-Trust Laws (Cincinnati, 1937); Robert Liefmann, Beteiligunge und Finanzie- rungs Gesellschaften (Jena, 1921); and the TNEC Monograph No. 36, Reports of the Federal Trade Commission on the Natural Gas, Gas Pipe, Agricultural Imple- ment, Machinery, and Motor Vehicle Industries.
siAdolph A. Berle, Jr. , and Gardiner C. Means, The Modern Corporation and Private Property (New York, 1933); National Resources Committee, The Structure of American Economy; Robert A. Gordon, "Ownership by Management and Control Groups in the Large Corporation," Quarterly Journal of Economics, May, 1938; TNEC Monograph No. 11, Bureaucracy and Trusteeship in Large Corporations, Part I.
13
? EFFORTS TO ORGANIZE BUSINESS
Any reader who will stop for a moment and attempt to think through the implications of these several developments when re- lated to each other in such a fashion will see at once that trade asso- ciations suddenly take on a new and almost spectacular significance. So considered in this new light they become at once power entities which may in some cases have the indefiniteness of a Herrenklub/^ and in others the potency of states within states--particularly when viewed as monopoly-minded forces, with a political turn of interest, thus strategically grouped together into centralized nationwide peak associations. But either case shows that everywhere and in every land, business has been "going political" as rapidly as it masses power.
The careful and systematic studies required as a basis for search- ing through the full historical and practical implications of this new massing of organized economic power have nowhere been made. Numerous individuals, including President Roosevelt ^^ and some of his leading subordinates,^* have shown some real appreciation of
32 A club--^similar in social cross-section in some respects to the famous New York Union League Club--of Junker potentates, landlords, industrialists, and military figures who met at fairly regular intervals in a down-town Berlin hotel throughout the post-war interval, and who were largely responsible, via the ministrations of von Papen, Hugenberg and others, for the original compromises and subsidies which led directly to the Nazi assumption of power.
33 "Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people. . . . The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism--ownership of a government by an individual, by a group, or by any other controlling private power. " Message from The President of the United States, Transmitting Recom- mendations Relative to the Strengthening and Enforcement of Anti-Trust Laws, Senate Document 173, 75th Congress, 3d Session.
J.
14
34 "Lest the people learn the lesson of history the dark powers of concentrated wealth choose in each new struggle a new name for themselves, avoiding the old names that carry the historic smell of tyranny. Tyrant, Satrap, Pharaoh, Caesar, Em- peror, Czar, and Kaiser have left their sulphurous trail across the pages of history. Today in Europe they have new names. In America we call the lesser rulers Business Leaders and Corporation Lawyers, the great ones are simply kings--oil kings, match kings, soap kings--hundreds of them. The great Overlord who will draw them all together into a perfect plutocratic dictatorship has not yet appeared. But there are portents in the heavens which betoken his opportunity. " Willis
Ballinger, Di- rector of Studies and Economic Advisor to the Federal Trade Commission, at the opening of hearings before the Temporary National Economic Committee. Again, "The best way to bring home the final results of these pressures is by the concrete example of Germany. Germany, of course, has developed within fifteen years from an industrial autocracy into a dictatorship. Most people are under the impression that the power of Hider was the result of his demagogic blandishments and appeals to the mob. This incorrect diagnosis has been responsible for most of the bad guesses
? EFFORTS TO ORGANIZE BUSINESS 15
the range of issues involved and the size of the stakes in play. But for the most part discussion has run in terms of vague defense or innuendo on the one hand, or a mere superficial glossing over on the other. ^^
The following survey cannot possibly hope to span the gap--it is a far greater void than any one student can hope to bridge--but it may possibly point the way to some more fruitful research to follow.
THE METHOD OF APPROACH
The selections made for the following chapters have been guided by two main considerations. First, and at the risk of sacrificing at a good many points desirable accumulative detail, the plan has been to obtain as wide a cross-section of variations on the major pattern as possible.
England, great industrial pioneer, contrasts with Japan, a late arrival amongst the major capitalistic powers. England as center of the vast British Empire contrasts with the minuscular empire of Mussolini's Italy. Some of the great capitalistic powers never really threw off feudal and autocratic carry-overs from their respective pasts; others, such as the United States, have little memory of these institutions at all. Laissez-faire doctrines and the ideals of free com- petition long dominated both political and economic thinking in England, France, and the United States, but never made much headway in Germany or Japan.
A second consideration was the selection of the field of manu- facturing. The reasons for this choice were several: manufacturing is itself the very heart and soul of the industrial system; singly it is
about German economy since Hitler came into power. Actually Hitler holds his power through the final and inevitable development of the uncontrolled tendency to combine in restraint of trade" Thurman Arnold, address before the Denver Bar Association, May 15, 1939 (mimeographed release, Dept. of Justice), italics mine. Or, again, "Germany presents the logical end of the process of cartelization. From 1923 to 1935 cartelization grew in Germany until finally that nation was so organized that everyone had to belong either to a squad, a regiment or a brigade in order to sur- vive. The names given to these squads, regiments or brigades were cartels, trade associations, unions, and trusts. Such a distribution system could not adjust its prices. It needed a general with quasi-military authority who could order the work- ers to work and the mills to produce. Hitler named himself that general. Had it not been Hitler it would have been someone else. " Arnold, in an address before the American Bar Association, July 10, 1939.
35 As in TNEC Monographs No. 7, Measurement of the Social Performance of Business and No. 11, Bureaucracy and Trusteeship in Large Corporations.
? i6 EFFORTS TO ORGANIZE BUSINESS
the major force making for change in the structure of economic re- lationships; the conflicts of interests are more clearly visualized and more readily focused in this field; the "peak associations" among manufacturers typically came first, or coming later, quickly as- sumed a position of commanding leadership; ^(R) the literature, though largely fugitive, is nevertheless more plentiful than for com- parable organizations in other fields of business activity. In general it may be said that whichever way the manufacturing peak associa- tion goes, so will go not only the trade association and cartel net- work of each country as a whole but also all of their various inter- locking peak associations.
In each case the plan has been, after first briefly following through the historical development of the peak association, to sketch in broad outlines the peculiarities of national institutions, social backgrounds, and political characteristics which conditioned, at each significant step, the functions, membership coverage, struc- ture, and policies of the association. In all cases, particular atten- tion has been paid to relationships with labor and the government. In order to bring certain comparisons and contrasts even more sharply to mind it was decided to separate the countries which have gone over formally to the totalitarian bloc from those which are still moving within the orbit of the liberal-capitalistic system. It is particularly important to note, in this connection, that the so- called principle of "self-government in business"--and some varia- tion on the expression is employed in all countries which have de- veloped peak associations, the better to coordinate networks of business organization--is not abandoned with the transition from a "liberal" to a "totalitarian" basis. In both systems it is now quite generally accepted as unavoidable that large and increasing meas- ures of governmental regulation must be extended over the eco- nomic system as a whole. But what appears in the first as a defensive measure to slow the process down, appears in the second as a tech-
36 Others in the United States are: retailing. The American Retail Federation; bank- ing, American Bankers Association; railroads, American Railway Association; power, Edison Electrical Institute. None of these compares even remotely in importance with the National Association of Manufacturers, and most of them are affiliated directly or indirectly with that organization. The only rival body is the Chamber of Com- merce of the United States, which the NAM helped to found, and whose functions are in turn largely those determined by its manufacturing members--typically be- longing also to the NAM.
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.
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.
3
? EFFORTS TO ORGANIZE BUSINESS
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.
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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.
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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.
16 See American Chambers of Commerce, by Kenneth Sturgess (New York, 1915), and "Local Chambers of Commerce, Their Origin and Purpose," issued by the Com- mercial Organization Department of the Chamber of Commerce of the U. S. (Wash- ington, D. C. , undated).
^T Jahrbuch der Berufsverbdnde im deutschen Reiche, (ig^o), p. 43.
18 The cartel is more like the early American "pool"; it has legally recognized contractual standing. More recendy cartel functions have been taken over by many trade associations, particularly the American. See pp. 211, 244.
19 Horst Wagenfuhr, Kartelle in Deutschland (Nurnberg, 1931), p. xiii.
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streamlining, not abolition, of this elaborate machinery. A like generalization holds for Italy, where under four strictly business associations out of a total of nine Fascist Confederations there are to be found 91 separate associational gToupings. ^o
Although comprehensive data on England, France, and Japan are more difficult to obtain, the same trends are observable. And, once again, we find that almost all of this associational machinery is of comparatively recent vintage. Possibly, as with the United States, three-fourths of it is postwar. In Japan most of it appeared after the early '30s. This holds for cartels, both national and inter- national, as well as for trade associations and chambers of commerce.
Of all these multifarious associations, only the cartels have been examined with any considerable care; even here there is a general lack of critical works on individual cartels except in a few highly especialized fields (iron, steel, coal, and potash) and it is becoming increasingly difficult to distinguish between cartel and normal trade-association functions. In the comprehensive survey of "The Economic and Social History of the World War" published under the auspices of the Carnegie Endowment for International Peace,^! there is scarcely a mention of even the more important of these organizations, although again it was the conditions of wartime which provided the major stimuli to their formation and expan- sion. The reports of the British "Committee on Industry and Trade" (Balfour Committee),-- published in the later twen- ties, make only side and quite incidental references to an occasional few. Nor do the monumental reports of the German Committee of Inquiry,-^ concluded but a short while before
the Nazi government assumed power, take this organizational mushroom growth more seriously. As indicated, the TNEC devotes but one very superficial monograph to the trade association,^^ and
20 See Fascist Era, Year XVII (published by the Fascist Confederation of Industrial- ists), pp. 207-12.
21 Running into several hundred monographs, brochures, and abridgments of one sort or another, and including every country a party to the World War on either side.
22 Seven volumes, with a "Final Report" published in 1929.
-^ Ausschuss zur Untersiichung der Erzeugungs- unci Absatzbedingungen der deutschen Wirtschaft (Enqueteausschuss), begun in 1926, completed in 1931, and running well over a hundred volumes.
2tNo. i8, Trade Association Survey. "Superficial" because based solely on answers to questionnaires voluntarily filled out by 1,311 trade-association executives who
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in other scattered cases makes only side reference to the subject. ^^ But for the most part its writers miss the real significance of NRA and ignore all the mass of data collected through the efforts of the Anti-Trust Division under the leadership of Thurman Arnold. ^^ In only one restricted discussion does it really come to grips with the political powers of the "peak association" at all. ^^
This general neglect becomes all the more astonishing when the growth of trade-association networks is related to two other factors. First is the correlative growth in the preponderance of the "peak association. " Influenced largely by experience with more or less vigorous wartime controls, in their postwar expansion trade- association networks began slowly but cumulatively to show cer- tain definite characteristics which marked them off definitely from prewar types. They ceased growing like Topsy, and began more and more to expand systematically, with an eye to ever more compre- hensive coverage; in an orderly fashion they began to take up each link in a chain of related problems of guidance and control, and to submit increasingly to centralized direction. Before the war, "peak associations" were largely unimportant or wholly lacking, and those in existence only occasionally came to the forefront of atten- tion. 28 After the war, they sprang up everywhere, and shortly began to serve as centralized, coordinating, business-policy boards for vast segments of the several national economies.
In the second place, though here the timing varies greatly from
naturally would not and did not answer significant questions relating to the exercise of cartel-like functions, though the listings of activities given in Table 25, p. 373, might have caused its authors to take notice that the Anti-Trust Division has found these associations almost everywhere exercising such functions.
25 No. 34, Control of Unfair Competitive Practices through Trade Practice Con- ference Procedure of the Federal Trade Commission, a rather bad whitewash of the FTC; No. 35, Large Scale Organization in the Food Industries; No. 39, Cofitrol of the Petroleum Industry by Major Oil Companies (section on the American Petroleum Company); and No. 43, The Motion Picture Industry--A Pattern of Control (section on the Motion Picture Producers and Distributors of America).
26 See almost any of the several dozen indictments of the Anti-Trust Division is- sued from the beginning of 1939, particularly those relating to the food, construc- tion, metals, and machinery industries and to patent pooling. See also numerous speeches of Assistant Attorney General Thurman W. Arnold, and his Bottlenecks of Business (New York, 1940).
27 No. 26, Economic Power and Political Pressures.
28 They were most highly developed in Germany, but were still largely in germinal form. In manufacturing, centralized peak associations were found in England, the United States, Switzerland and a number of other smaller manufacturing countries. None of any importance were to be found in France, Italy, and Japan.
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one country to the next, the rise of peak associations has been gen- erally paced by the movement of the business giants to the centers of the spreading webs of control. In Germany, and to a lesser extent in England, the two tendencies went pretty much hand in hand. The same was true also of Japan, though here both tendencies ap- peared very late. In the United States the latter was not clearly evidenced until the advent of NRA. But by the late thirties, the industrial and financial giants had practically without exception moved into the citadels of peak-association power all over the world.
These two tendencies take on an added significance when they are paired with two other well-known developments within the business world of the corporate giants. One is the fact that through a multitude of familiar devices (interlocking directorates, patent- pooling and other cartel-like agreements, holding companies, inter- corporate ownership of securities) ^^ the ties that bind the giants to- gether have long been growing so close, so mutually reinforcing that within, and to a certain extent amongst, the several capitalistic countries they have come as a whole to take on the characteristics of unified, more or less compact, and internally homogeneous groups. ^^ And the other is the fact that, within the several corporate segments of this almost consanguineous community of interests, de facto control has gradually been narrowed down until it is now typically held by very small, almost entirely self-perpetuating and largely non-owner directorial and managerial cliques. ^^
29 See TNEC Monograph No. 9, Taxation of Corporate Enterprise, Chapters III and IV.
30 Of particular interest in this connection, aside from those cited in footnote 31, below, is a series of studies published at intervals by Die Wirtschaftkurve (a monthly publication of the Frankfurter Zeitung) after the stabilization (1924) of national and international intercorporate affiliations of various British, French, American, Ger- man, Belgian, and other combines. See the "Electronics Chart of the Sound Picture Industry of the World," reproduced by H. A. Toulmin in Trade Agreements and the Anti-Trust Laws (Cincinnati, 1937); Robert Liefmann, Beteiligunge und Finanzie- rungs Gesellschaften (Jena, 1921); and the TNEC Monograph No. 36, Reports of the Federal Trade Commission on the Natural Gas, Gas Pipe, Agricultural Imple- ment, Machinery, and Motor Vehicle Industries.
siAdolph A. Berle, Jr. , and Gardiner C. Means, The Modern Corporation and Private Property (New York, 1933); National Resources Committee, The Structure of American Economy; Robert A. Gordon, "Ownership by Management and Control Groups in the Large Corporation," Quarterly Journal of Economics, May, 1938; TNEC Monograph No. 11, Bureaucracy and Trusteeship in Large Corporations, Part I.
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Any reader who will stop for a moment and attempt to think through the implications of these several developments when re- lated to each other in such a fashion will see at once that trade asso- ciations suddenly take on a new and almost spectacular significance. So considered in this new light they become at once power entities which may in some cases have the indefiniteness of a Herrenklub/^ and in others the potency of states within states--particularly when viewed as monopoly-minded forces, with a political turn of interest, thus strategically grouped together into centralized nationwide peak associations. But either case shows that everywhere and in every land, business has been "going political" as rapidly as it masses power.
The careful and systematic studies required as a basis for search- ing through the full historical and practical implications of this new massing of organized economic power have nowhere been made. Numerous individuals, including President Roosevelt ^^ and some of his leading subordinates,^* have shown some real appreciation of
32 A club--^similar in social cross-section in some respects to the famous New York Union League Club--of Junker potentates, landlords, industrialists, and military figures who met at fairly regular intervals in a down-town Berlin hotel throughout the post-war interval, and who were largely responsible, via the ministrations of von Papen, Hugenberg and others, for the original compromises and subsidies which led directly to the Nazi assumption of power.
33 "Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people. . . . The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism--ownership of a government by an individual, by a group, or by any other controlling private power. " Message from The President of the United States, Transmitting Recom- mendations Relative to the Strengthening and Enforcement of Anti-Trust Laws, Senate Document 173, 75th Congress, 3d Session.
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34 "Lest the people learn the lesson of history the dark powers of concentrated wealth choose in each new struggle a new name for themselves, avoiding the old names that carry the historic smell of tyranny. Tyrant, Satrap, Pharaoh, Caesar, Em- peror, Czar, and Kaiser have left their sulphurous trail across the pages of history. Today in Europe they have new names. In America we call the lesser rulers Business Leaders and Corporation Lawyers, the great ones are simply kings--oil kings, match kings, soap kings--hundreds of them. The great Overlord who will draw them all together into a perfect plutocratic dictatorship has not yet appeared. But there are portents in the heavens which betoken his opportunity. " Willis
Ballinger, Di- rector of Studies and Economic Advisor to the Federal Trade Commission, at the opening of hearings before the Temporary National Economic Committee. Again, "The best way to bring home the final results of these pressures is by the concrete example of Germany. Germany, of course, has developed within fifteen years from an industrial autocracy into a dictatorship. Most people are under the impression that the power of Hider was the result of his demagogic blandishments and appeals to the mob. This incorrect diagnosis has been responsible for most of the bad guesses
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the range of issues involved and the size of the stakes in play. But for the most part discussion has run in terms of vague defense or innuendo on the one hand, or a mere superficial glossing over on the other. ^^
The following survey cannot possibly hope to span the gap--it is a far greater void than any one student can hope to bridge--but it may possibly point the way to some more fruitful research to follow.
THE METHOD OF APPROACH
The selections made for the following chapters have been guided by two main considerations. First, and at the risk of sacrificing at a good many points desirable accumulative detail, the plan has been to obtain as wide a cross-section of variations on the major pattern as possible.
England, great industrial pioneer, contrasts with Japan, a late arrival amongst the major capitalistic powers. England as center of the vast British Empire contrasts with the minuscular empire of Mussolini's Italy. Some of the great capitalistic powers never really threw off feudal and autocratic carry-overs from their respective pasts; others, such as the United States, have little memory of these institutions at all. Laissez-faire doctrines and the ideals of free com- petition long dominated both political and economic thinking in England, France, and the United States, but never made much headway in Germany or Japan.
A second consideration was the selection of the field of manu- facturing. The reasons for this choice were several: manufacturing is itself the very heart and soul of the industrial system; singly it is
about German economy since Hitler came into power. Actually Hitler holds his power through the final and inevitable development of the uncontrolled tendency to combine in restraint of trade" Thurman Arnold, address before the Denver Bar Association, May 15, 1939 (mimeographed release, Dept. of Justice), italics mine. Or, again, "Germany presents the logical end of the process of cartelization. From 1923 to 1935 cartelization grew in Germany until finally that nation was so organized that everyone had to belong either to a squad, a regiment or a brigade in order to sur- vive. The names given to these squads, regiments or brigades were cartels, trade associations, unions, and trusts. Such a distribution system could not adjust its prices. It needed a general with quasi-military authority who could order the work- ers to work and the mills to produce. Hitler named himself that general. Had it not been Hitler it would have been someone else. " Arnold, in an address before the American Bar Association, July 10, 1939.
35 As in TNEC Monographs No. 7, Measurement of the Social Performance of Business and No. 11, Bureaucracy and Trusteeship in Large Corporations.
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the major force making for change in the structure of economic re- lationships; the conflicts of interests are more clearly visualized and more readily focused in this field; the "peak associations" among manufacturers typically came first, or coming later, quickly as- sumed a position of commanding leadership; ^(R) the literature, though largely fugitive, is nevertheless more plentiful than for com- parable organizations in other fields of business activity. In general it may be said that whichever way the manufacturing peak associa- tion goes, so will go not only the trade association and cartel net- work of each country as a whole but also all of their various inter- locking peak associations.
In each case the plan has been, after first briefly following through the historical development of the peak association, to sketch in broad outlines the peculiarities of national institutions, social backgrounds, and political characteristics which conditioned, at each significant step, the functions, membership coverage, struc- ture, and policies of the association. In all cases, particular atten- tion has been paid to relationships with labor and the government. In order to bring certain comparisons and contrasts even more sharply to mind it was decided to separate the countries which have gone over formally to the totalitarian bloc from those which are still moving within the orbit of the liberal-capitalistic system. It is particularly important to note, in this connection, that the so- called principle of "self-government in business"--and some varia- tion on the expression is employed in all countries which have de- veloped peak associations, the better to coordinate networks of business organization--is not abandoned with the transition from a "liberal" to a "totalitarian" basis. In both systems it is now quite generally accepted as unavoidable that large and increasing meas- ures of governmental regulation must be extended over the eco- nomic system as a whole. But what appears in the first as a defensive measure to slow the process down, appears in the second as a tech-
36 Others in the United States are: retailing. The American Retail Federation; bank- ing, American Bankers Association; railroads, American Railway Association; power, Edison Electrical Institute. None of these compares even remotely in importance with the National Association of Manufacturers, and most of them are affiliated directly or indirectly with that organization. The only rival body is the Chamber of Com- merce of the United States, which the NAM helped to found, and whose functions are in turn largely those determined by its manufacturing members--typically be- longing also to the NAM.
