There was first formed the Mississippi River Corporation to
exchange
stock with it, and this company now owns 94.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
Presidents John F.
Kennedy and Lyndon B.
Johnson, seeking to rebuild Franklin D.
Roosevelt's synthesis of electoral support, have been allowed to engage in much social-program maneuver.
And the finpols have been conceded many of their demands--removal of
price controls, lower taxes, etc. President Johnson, like President Eisenhower, has professed great admiration and respect for the finpols who are, after all, under the equal application of the laws entitled to as much consideration as, say, the ordinary workman. The finpols, then, are an integral part of "The Great Society," in which there is obviously a great deal of lucre to be made filling profitable government contracts for cement, steel, aluminum, copper, textbooks, rockets, space machines, tanks, recoilless rifles, schools, hospitals, sanitoria and bird baths.
In place of the Church today, there are the Intellectuals. In so saying I realize that my remarks lose credibility for many American readers, for intellectuals are not highly esteemed in the American mass-media or, presumably, among most of the populace. As I don't want to take the space to lay down a detailed argument supporting my case for the Intellectuals as a domestic Third Force let me, aiming right between the eyes of the dubious, simply remark that Karl Marx and V. I. Lenin were intellectuals. So, for that matter, were Winston Churchill, Albert Einstein, Thomas Jefferson. , Benjamin Franklin and John F. Kennedy. Not all intellectuals, to be sure, have attained comparable eminence. But they are nevertheless present in their various ways.
It is the intellectuals, as a group, who preside and wrangle over the undulating frontiers of ideology, philosophy, scholarship and science, in all of which they may be said to have, by popular default, a vested interest. Most broadly (and abstractly) they preside in some disorder over values. And although their concrete power today is not comparable with the power of the medieval churchmen (themselves the intellectuals of their day, supported by the propertied and psychological power of the Church), it is nevertheless implicit. It is the general task of the intellectuals to make sense out of the established order, if that is possible; but the more the established order fails to make sense in the minds of the intellectuals the nearer it is to ultimate rejection or modification. If a basic political operating rule is that all men are entitled to the equal protection of the law and Negroes and others are flagrantly denied such protection, it is the intellectuals who are most sensitive to the contradiction between rule and action and who therefore deny that the system is what it virtuously claims to be. By the test of its own rules, by the way, ours is not an operationally virtuous system.
The fact of the importance of the intellectuals as a class has nothing at all to do with the strength or virtue of the intellectuals as individuals but has everything to do with the ultimacy of systematically applied thought. Hitler threw the intellectuals out of his system, preferring to rely upon what he called his intuition. As a consequence he lost, among many other things, priority in the matter of the atom bomb. The currently split and diminished Reich stands as a monument to his folly. The Russian politicians, supposing Leninism to be ultimate political revelation rather than a restricted set of tactics, keep the intellectuals under close restriction; the expression of free thought is not permitted in contemporary Russia. Nevertheless, the Russian intellectuals do maintain some under-the-surface ferment in the Soviet Union. They are a force, however feeble, but of vast potential.
One of the latter-day difficulties of the finpols and the finpolities on the American scene is that since 1929 they have lost the sympathy of a considerable segment of intellectuals. Far fewer today than in the 1920's believe that what's good for General Motors is good for the United States. Much about the specific enterprise of General Motors, indeed, increasingly fails to make human sense in the minds of intellectuals, despite the herculean labors of public relations men. And in view of the emergence of a vast hereditary establishment of property, it is blindingly clear that huge money rewards are not merited compensation for some overpowering social contribution as in the creation of an industry. If Carnegie, Rockefeller, the original Du Ponts, Westinghouse, Ford, Hartford and other nineteenth-century men made such a contribution, a debatable
point in itself, it is certainly plain that their heirs have not. Today, the biggest money rewards in the American system come from simply sitting and listening to the reading of a will, which can scarcely be construed as a social contribution. Intellectually, it looks medieval.
It is a mistake, though, to suppose that it was the post-1929 denouement alone that caused the defection of many intellectuals from the old and easy ways of thinking. It was the literary intellectuals more particularly, committed to humanistic values, who reacted most strongly to the national experience after 1929. But public policy with respect to the new weaponry, from the atomic bomb onward, raised increasing doubts about the direction of events among scientific intellectuals, many of whom now look upon the joint policies of the government and the finpolities with an increasingly dubious eye.
Yet it is the relations between the finpols and the pubpols or public politicians that occupy the foreground, with the intellectuals kept in enfeebled attendance under steady public disparagement as "long hairs" and "impractical theorists" rather than in forthright restriction as in Russia. Finpols and pubpols are generally bedfellows, the latter probably the more ardent in the relationship, but increasingly there are signs of strain as the pubpols recognize, with some bewilderment, that in many ways their interests are incompatible. Can it be, they seem to ask themselves in dismay, that what is good for General Motors is not always good for the administration in Washington? What Big Business wants, in short, no longer always seems to harmonize with what the White House believes is required. The naive king, friend to all men, begins to feel that the barons are perhaps plotting against him.
The divergence of interests, not wholly closed since it widened under Franklin D. Roosevelt in the 1930's, seems likely to grow wider in the course of world change. The pubpols, like the medieval kings, may be obliged to struggle against the baronage, a prospect few of them can relish in view of their not too secret admiration for them. But as interests diverge and strains grow greater, the central government (like the medieval Crown, simply by reason of its wider responsibilities and inherent powers) seems bound to triumph, although by that time the central government may have been transformed into a more viable version of the Corporate State than was ever seen in Italy and Germany prior to 1945. There is indeed a discernible swing toward such a Corporate State, of which the finpolities would be integral and guaranteed formal parts (with big ownership stakes assured under some saving, perhaps socialistic, formula), and most of the smart money would no doubt bet on its emergence. Yet, in the time remaining before its advent, will the intellectuals look upon its coming with favor?
Informally, we are already well into the era of the Corporate State, of which the Warfare State is only a subdivision. Practically, it already exists as long as the pubpols find their interests running parallel with those of the finpols. A difficulty for the latter, though, is that the pubpols are sometimes obliged by the far-scattered facts confronting them to interpret the general situation differently, as President Kennedy did in the case of steel prices and as President Johnson did in the case of aluminum, copper and steel prices.
Although AT&T is a finpolity, a vast dukedom little short of a full polity, the domain over which it presides is parochial in comparison with the relatively universal domain of the United States government. AT&T is, comparatively, narrowly specialized in its interests.
And it is the narrow specialization of profit-interests of all the finpolities that, at times, makes their acts and policies inharmonious with those of the government of the United States, whose necessary task is to harmonize, at least roughly, a wide variety of foreign
and domestic problems and interests. The government, often to its distaste, must deal with a far more complicated situation than any finpolity deals with.
Such being the case there is always the potentiality of a clash--perhaps a serious clash--between the central polity and all or some of the finpolities. There can be no doubt which way the hand would go if all the chips were ever down. A question that arises at this point, unanswerable yet, is this: will the intellectuals be able to come forward with some solution or set of solutions more attractive than the looming and gradually emerging Corporate State or ultimate finpolity?
Although the medieval Crown won out in its struggle with the barons and the intellectuals of the day, when it attained its final victory it was by no means the same Crown. It had been modified and battered in the struggle. For the intellectuals in the course of time caused it to be changed almost beyond recognition, most dramatically in the French Revolution. While much remains the same today, as the effort to re-establish something like the Holy Roman Empire in the guise of a United Europe, the content, the outlook and the methods of the European governments are all different, largely owing to the efforts of the now secularized intellectuals. The slogan "Liberty, Equality and Fraternity," which exploded the emotions of men, did not come from king, nobleman, soldier, peasant or businessman. it, like modern science as a whole, came from the intellectuals.
No suggestion is intended here that some sort of established script or historical cycle is being followed or even that the same sort of structure confronts us that confronted medieval Europe. It is only that the interactive, usually muted, tug-of-war among government, the big corporations and the intellectuals stirs memories and seems to be at least a dim replica of an earlier internal struggle.
My own view is that although the big corporations and their dominant owners and managers, the finpolities and the finpols, are still unquestionably powerful they are in a long-term slipping position as far as ultimate general dominance is concerned. Too many counter-forces are emerging on the world scene.
That this is so has been shown both by Presidents Kennedy and Johnson, neither of whom was personally hostile to the corporate crowd. President Johnson has appeared to admire it as intensely as President Eisenhower and maintains close relations with it.
Yet situations arose which showed that, when the chips were down, a president who knows his own mind and interests can and must quickly bring the finpolities to heel. It has been demonstrated, in brief, that a political leader with a firm knowledge of the mechanics of government and the balance of forces in society can successfully assert the priority of the general interest over the special interests. Franklin D. Roosevelt did it most spectacularly, able as be was to act in the name of an unquestioned emergency. But neither Presidents John F. Kennedy nor Lyndon B. Johnson needed the excuse of an overriding emergency when they vetoed, only temporarily to be sure, the price increases of some of the most powerful industries. President Johnson, by releasing stockpiled government aluminum and by threatening to reallocate government orders for steel, showed that indirect government counter-action is always possible if the finpolities threaten to run away with any situation. This fact was probably always known to dominant Republicans, for which reason they have shown such marked partiality for a long line of mediocre and subservient presidents from Grant to Hoover and Eisenhower. Not a single Republican president since Lincoln, nor most of the Democratic, causes the pulse of a reader of American history to quicken even slightly. When honest, they were dull and inactive. When energetic, like Theodore Roosevelt, they were fakers; and when stupid they were calamities. No historian of any standing among his peers would deny it.
In a certain sense every big corporation is a hostage to presidential and even congressional ire, which alone explains the Republican partiality for figurehead presidents and congressmen of the worm's-eye view like Dirksen, Halleck, Hickenlooper, Curtis, Mundt and Hruska. Any corporation can be investigated and, in fact, the entire community of wealth can be inquired into via officially mobilized scholarship as was shown in the Temporary National Economic Committee's investigation. And all investigations disclose some state of affairs hitherto unsuspected and deplored by the more intelligent segment of the populace, leading to cries for change.
Trend toward Multi-Finpolity
The finpolities, in any event, are much more than merely large corporations. Indeed, even in their purely functional aspects they are not simply what the public thinks them to be.
AT&T, the man in the street supposes, is devoted to telephony, General Motors to making automobiles, Sears, Roebuck to merchandising, Great Atlantic & Pacific Tea to distributing groceries--all true. But these companies, and others, do much more, and the trend of each corporation now is to become a general enterprise engaging in any and every sort of activity that is profitable, related or not to its original line.
Let us examine a few of these multifaceted corporations, or multi-finpolities, from among the largest corporations, taking as our model one from real life.
What happens, let us first ask, if a big corporation loses its customers, its raison d' e^tre, as the old-time wagonmaking companies lost their customers with the advent of the automobile? Does it then go out of business? As many cases attest, the answer is No. As a huge financial reservoir it merely enters into one or many other businesses, provided they seem potentially profitable. They do this, too, if their original business enters upon a prolonged downtrend. The big corporations, in short, are Protean.
As good an example among many is International Telephone and Telegraph Corporation, the world's tenth biggest industrial employer with 195,000 workers in 55 countries, and the thirty-fifth largest American company assetwise. Its name suggests it to be devoted to international telegraphy and telephony but such is not at all the case. For as the Wall Street Journal justly remarked, it "sometimes seems no more than a scavenger-like monster, madly grabbing up everything in sight, always ready to strike again. " 17
it is difficult to tell precisely what business IT&T is really in aside from the business of making money. In this respect it is like a bank, and all the big corporations are, banklike, large pools of capital; what they produce, aside from profits, is secondary. And if what they produce does not bring in profits they simply switch to producing something else. Nearly all are holding companies, not operating companies as commonly supposed.
IT&T was founded in 1920, originally to run the telephone and telegraph companies of Cuba and Puerto Rico. It expanded into other countries: Spain, Belgium, Rumania, Australia, Latin America, the Philippines, etc. It also built up a manufacturing arm second in its field only to Western Electric.
But international political upheavals and wars deprived it of much of its operating territory. IT&T was quite literally forced out of business in many places.
After World War II it took a new lease on life and became a general holding company for all manner of enterprises. As its president told the Wall Street Journal, its criteria for
buying a company are only two: "The company should be growing faster than ITT. And it should have plenty of room to grow as the industry it is in grows. "
"The executive steps into his Avis rent-a-car," begins the Wall Street Journal account, "drives to his broker's to check on his Hamilton Mutual fund shares, mails the quarterly premium for his American Universal Life Insurance policy, checks on financing some capital equipment through Kellogg Credit Corp. , fires off a cable to Britain and then motors to Camp Kilmer, N. J. , for a session with the purchasing agent at the Federal Job Corps there. It's just a routine morning dealing with a variety of matters, but so far the man's business has been entirely with divisions or operations of the inappropriately named International Telephone & Telegraph Corp. "
IT&T now owns and operates the Aetna Finance Company; the American Universal Life Insurance Company; part of the Great International Life Insurance Company; Hamilton Management Corporation and Hamilton Funds, Inc. ; Avis, Inc. ; Kellogg Credit Company; the Mackey Telegraph and Cable System; Coolerator Company; Kellogg Switchboard and Supply; Kuthe Laboratories, Inc. ; Federal Caribe, Inc. ; Airmatic Systems Corp. ; Haves Furnace Manufacturing and Supply; Royal Electric Corp. ; the telephone system of the Virgin Islands; L. C. Miller Co. ; Jennings Radio Manufacturing; American Cable and Radio; Alpina Buromaschinen-Werke and Edward Winkler Apparatebau of Germany; a large group of Finnish, French, Swiss and English companies; National Computer Products; General Controls Co. ; etc. It owns scores of companies throughout Latin America and Europe in almost everything related in any way to using or producing electrical equipment, as well as many companies without the slightest relation to electrical equipment. It is a credit-insurance-investment-electricaI equipment-general world communications-transportation-chemical-computer- engineering-general service company. You name it, IT&T does it, almost, so long as it is highly profitable.
An extreme case, it will be said, but far less extreme than one might suppose. IT&T is more like a standard model of the emerging Protean finpolity. AT&T itself is not radically different.
General Motors makes automobiles at home and abroad. But it also makes giant Diesel locomotives, industrial apparatus, a full line of household electrical appliances (refrigerators, stoves, washing and drying machines, dishwashers, etc. ), airplane motors, earthmoving equipment and a variety of other items, and it can retool and make anything whatever in the electro-mechanical line. As easily as not, it could make airplanes, intercontinental missiles, submarines or space ships. Whatever it does not make it does not make because it doesn't want to. Thus far its automobile line is its main source of profit. Ford Motor is similarly in the household appliance field and heavily committed to electronics, including TV sets. Both own an assortment of underlying material-supplying companies. Both are really multi-faceted states, and with their credit companies and dealership-franchise arms are not very different from IT&T.
The diversified mixture of products of each was achieved by combining many different existing companies, as IT&T has done in a broader spectrum. In the case of some companies the product mixture has come about gradually. In the case of others the decision to diversify has come suddenly, as though recognizing an opportunity that others stumbled upon earlier. Companies suddenly and radically shift their operating emphases, always in quest of maximum return on capital.
Thus, W. R. Grace and Company, eighty-fifth in corporate size, originally operated ships to Latin America (the Grace Line) but more recently has diversified its activities so that it is now a big chemical and fertilizer producer, banker, Latin-American manufacturer, exporter-importer and oil company. This former ship operator and banker
now derives 65 per cent of its sales and 66 per cent of its pretax earnings from its chemical division. As in the case of IT&T, we may ask of W. R. Grace: What, really, is its business?
Sears, Roebuck and Great Atlantic & Pacific Tea would be defined, correctly, as merchandising enterprises. But each owns a great many supplemental manufacturing and financial enterprises which have been developed or acquired. Each does much more than mobilize, stock and deliver a wide variety of merchandise. A&P, like many of its counterparts, would ordinarily be described as a vast retail grocery chain. Yet it now also carries a big line of cosmetics, pharmaceuticals, household hardware and certain items of clothing (aprons, gloves, etc. ). It and Sears, Roebuck and their smaller counterparts are obviously on the way to becoming general national manufacturing and merchandising enterprises oriented toward the ultimate consumer. Sears, Roebuck is usually thought of as a mail-order house; yet it operates chains of department stores as well, and engages in the general insurance business. In many phases it is a manufacturer. Both are giant transport companies.
What is Du Pont? A big chemical combine, it will be said. But it is also a big manufacturer of synthetic textiles, paints and explosives. It can build, and has built, nuclear energy plants. It could just as easily build cities. The big oil companies are chemical companies as well as huge operators of seaborne shipping, tank-car fleets and continental pipelines, and some of the big chemical companies are becoming to some extent oil companies. What is Tennessee Gas Transmission? A transmitter of natural gas, of course; but it is also a huge chemical, petroleum and fertilizer enterprise as well as other things.
The trend among all the big companies is increasingly toward nonspecialization and to the merging of seemingly incompatible enterprises, as when Columbia Broadcasting acquires the New York Yankees baseball club and IT&T acquires American Broadcasting. Radio Corporation and other electronic firms acquire big book publishers with a view to gaining literary and educational properties. Many big newspaper enterprises also publish books, magazines and operate TV and radio stations, pulp and paper mills, deepwater ships, etc.
AT&T itself, publicly looked upon as "the telephone company," operating about 85 per cent of the nation's telephones, long owned 99. 8 per cent of Western Electric, manufacturer of telephones, switchboards and a wide array of electrical apparatus. AT&T is also heavily committed to research and holds patents relating to the whole electronic field, including computers. It is deep in the satellite enterprise.
What all the expansion reflects is: investment of earnings not paid out. As we have noted, payouts incur additional taxes for stockholders; retained invested earnings are not taxed, are like money in the bank and get accelerated depreciation allowances. As there are not sufficient opportunities at home, the companies are now acquiring foreign enterprises at a great rate--in France, Germany, Belgium, Switzerland, Japan, everywhere--and since World War II have invested abroad about $40 billion. Ownership is preferred over income.
The cases cited are not at all untypical. One could go on for a long time detailing odd combinations of corporate activity. Thus, Hunt Foods & Industries, Inc. , originally the Ohio Match Company, in addition to making and marketing a broad line of food products operates companies in lumber, glass, aluminum, real estate, chemicals, glass and metal containers, gin, paints, varnishes, wallpaper, floor coverings and so on. It has a line of big corporate investments that is every bit as odd as the IT&T labyrinth. It is, first, the largest stockholder in Wheeling Steel, with 8. 8 per cent. It owns 22. 7 per cent of Canada Dry and 35. 8 per cent of the McCall Corporation, publisher of McCall's
Magazine, Redbook, Bluebook and the Saturday Review. It has it 4. 5 per cent interest in ABC-Paramount, giving it a foothold in film-making, radio and television broadcasting.
Let us take a more sober-seeming company, the Mississippi River Fuel Corporation, originally formed to transport natural gas by pipeline from Louisiana to St. Louis.
There was first formed the Mississippi River Corporation to exchange stock with it, and this company now owns 94. 2 per cent of the Mississippi Transmission Corporation, 100 per cent of several cement companies and 58 per cent of the Class A stock of the big Missouri Pacific Railroad. As the change in its name suggests, it is apparently going to concern itself with everything in the Mississippi Valley, perhaps the Valley as a whole.
The Illinois Central Railroad may become its rival, might even merge with it. For the railroad has caused to be formed Illinois Central Industries, Inc. , with which it exchanged 95 per cent of its stock; and Illinois Central Industries has already acquired a big electrical equipment maker. As its name suggests, it is ready to operate anything along its right of way from Chicago to Florida and the Gulf of Mexico.
Operating companies become holding companies and some of the holding companies become general investment companies such as Adams Express Company, until 1918 a leading express and money-order house that sold out its business to American Express and transformed itself into a closed-end investment trust. The chief difference between a standard investment trust and a heterogeneous holding company is that the latter holds a dominant to 100 per cent interest in companies in which it plays a directorial role; the investment trust has only a fractional position in each company and is not involved in the management. The investment trust is a pure rentier.
The time, then, is near at hand when a company's name will give no clue at all to its line of business apart from the business of making money.
Studying the reasons for the crazy-quilt expansion, the Federal Trade Commission in 1955 noted them as follows:
Building new capacity adds to existing capacity and intensifies competition; but by buying, a manufacturer acquires additional capacity without adding to total capacity and may also reduce some external competition. "These competitive considerations are especially important if he is diversifying into products new to him, but in the production of which others are well established. "
Selling companies are motivated to sell because they lack the financial resources for expansion. Here lies the opportunity of the resource-rich company.
"The same factor is to be noted in instances in which a company having surplus cash not immediately needed in its operations invests it in the securities of other companies, either in the same or an unrelated industry. Such investments may subsequently prove to be the initial step in acquisitions carried out either as further investment and diversification of the acquirer's business, or as a means of salvaging the investments already made.
"Tax savings possible under various provisions of the Internal Revenue Act granting more favorable rates on capital gains as compared with the rates applicable to operating profits of corporations and personal incomes of individuals, the provisions covering tax- free exchanges of stock, and the provisions governing the carrying forward of past operating losses as credits against future earnings are also important factors. " 18
Said the Federal Trade Commission stiffly: ". . . the economic forces and motives discernible are not per se different from those upon which all business judgments are based respecting the ownership and exchange of property in a free economy. The operation of these forces on a large scale, however, carries with it such adverse
economic effects on third parties, and on the economy as a whole, as to bring their unrestrained operation into conflict with public policy and law. " 19
What is happening may perhaps be better depicted by showing it as a small fictitious model, as follows: One man, owning all of the highly profitable Super-Cosmos Corporation, is causing it to hold back most of its earnings, thus enabling him to bypass personal income taxes. With these withheld tax-free earnings he is gradually buying up all other companies, large and small, causing them also to hold back earnings in order to buy other companies which in turn generate profits to buy others, etc. , etc. If this Super- Cosmos Corporation paid its earnings to him in dividends he would be heavily taxed and not richer but poorer. As it is, he grows richer and richer, owns more and more property, expands and expands, so that finally he owns every shoe-shine stand and peanut stand. He finally owns every single enterprise there is,
It is not true, of course, that one man is doing this. But several clusters of men, capitalists, are doing something like it and are producing the strange multifarious sort of companies we have noted, which are becoming typical companies among the biggest ones. And concentration is being intensified.
What of the antitrust laws? Why don't they prevent the erection of these huge, expanding multifarious trusts or finpolities?
The average citizen is not aware that the antitrust laws are highly selective in their application at those relatively rare times when the pubpols decide to make them operative. Their application is permissive, not mandatory. The avowed purpose of the antitrust laws is to protect competition. Thus, if a company in one line of business tries to take over a company in the same line of business they may be called into play; also, if a company through ownership in a functionally unrelated company--such as Du Pont in General Motors--seems likely to divert subsidiary business from others to itself, they may also be put into play.
As it is said, the antitrust laws forbid only horizontal mergers or horizontal restraint of trade. Under those laws General Motors could not acquire Ford Motor or vice versa.
But other kinds of mergers are not forbidden.
There are possible, for example, vertical mergers. Here a manufacturing company may acquire suppliers, all the way back to the mine or field, or may acquire distributors to the retail market. This does not appear to be illegal unless competition is directly affected with someone in the same line of endeavor. Actually, the company that engages in vertical mergers, far from ending competition, is externally intensifying it, forcing others to do likewise or to fall behind in the blind race for dominion.
There are, too, circular mergers, in which a company acquires a good many companies, neither in exactly the same line of business, but the whole tending to come back into a closed circle so that all these companies only or largely do business with and for each other, excluding others from the magic circle. Such a combination might well come under fire of the antitrust laws, particularly if the White House occupant decided to parade his muscle.
There are, finally, these latter-day heterogeneous mergers and acquisitions we have discussed and in which the large companies now so largely figure. The antitrust laws do not apply against them because the various acquisitions are not in directly competing lines. A ship company that acquires chemical companies, an automobile company that acquires a household-appliance-maker or a telegraph company that acquires insurance companies does not appear to have acquired any of its competitors.
But in a very real sense basic competition is diminished. For large pools of liquid capital, retained profits, acquiring most of the economy for themselves, are gradually ending competitive endeavors in making money and in running enterprises. As far as economic creativity is concerned, competition has been stifled at its very roots. Most of the population is in the process reduced to the passive status of the Russian and Chinese populations but by different means.
The antitrust laws, as justice Oliver Wendell Holmes noted, are a joke. They have signally failed to preserve competition, their avowed intent. While the economists go about vainly seeking perfect monopoly, a single company in a single industry making a single item, and debate among themselves the semantic differences of oligopoly, monopoly and price leadership, we see around us a rising and all-embracing financial monopoly, quasimonopoly or semi-oligopoly. It isn't that there is monopoly in one industry--such as steel, oil or motors--but that industry in general totality is monopolized in ownership, control and direction by a very few people, the rich and super-rich. The moneybund is a concrete literal reality rather than a hyperbolic figure of speech.
The next step may be the merging, as it becomes profitably tax-saving, of the huge heterogeneous trusts. There is nothing in the antitrust laws as now written, seemingly, that would prevent the merger of U. S. Steel with Great Atlantic & Pacific Tea and the fusion of this combination with IT&T and W. R. Grace. Another possible combination among many is General Motors, Sears, Roebuck, Standard Oil of New Jersey and Heinz pickles. Why not? They don't offer competing products or services. They are simply competitive in making money, which is the mainspring of all the activity. Take away the money-making incentive in the form of extremely peculiar tax laws and such mergers would not occur.
What is happening is not only of economic and political concern but is of profound cultural concern. Under the system of many competing enterprises, each independent of the other, independent and candid voices were encouraged. The old-time merchant, for example, was often a man of forthright, informed opinions, which he forcibly expressed. The object of going into business for oneself in the American ethos was to become "independent," so that one needed nobody's permission to speak out, or anyone's aid or charity.
The institutional foundations of independent expression, however, are being as eroded under spreading corporate giantism as under Communist or Fascist totalitarianism. Neither finpols, their managers or employees dare speak out on anything for fear of compromising the corporate image before a heterogeneous public. What does the corporate crowd really think about birth control, religion in the schools, civil rights, conscription and the like? Nobody knows because they play it cool, say nothing. The mass media under their control are similarly noncommunicative, carrying water on both shoulders, reflecting the world as an entertaining circus of clowns, idiots, heroes, villains and random events. The growing corporate philistinism spreads slowly over the seats of learning.
To what extent can an employee of any one of the multiple parts of the corporate octopi commit himself on public questions? As a middle-range executive of the Super- Cosmos Corporation, to what extent can he express himself on, say, traditional versus progressive education? If he manages to make himself effectively heard on either side he is sure to make a large emotion-ridden crowd angry. Indeed, the more effectively he speaks on any aspect of a topic the angrier they get. They send letters to the management of the company, threatening to raise a boycott against its many branches, subsidiaries, affiliates and coordinates. But rarely do matters go this far; if they do, the
offending middle-range executive is told to "lay off, forget about different approaches to education, stick to business. "
As nearly everybody works for one or the other of these finpolities, nearly everybody is reduced to mouthing mild banalities if called upon to speak at all. Everybody toes the approved corporate line, designed to avoid making anybody angry about anything. "Don't be a trouble maker," is the operational motto. Meanwhile, the world itself poses more and more difficulties. As for politics, leave that to the pubpols and their minions. As General Motors goes, so goes the nation: I'd die for Standard Oil: I have but one Ford to give to my country: Fifty-four-forty or AT&T: Nylon ueber alles.
Independent merchants and lawyers, once noted for their forthright views on public affairs, spoke out as the occasion seemed to require. Now that they are gone down the corporate drain, theirs and other voices are frozen in corporate silence. In their place the finpols, if they feel anything of public concern requires attention, summon their public relations men, legislative representatives and lawyers and map out a quiet undercover campaign--but only as the interests of the finpolity itself dictate. Do the political parties themselves need an overhauling? That is something best left to the pubpols, "Mind your own business" becomes the prevailing rule. "Live and let live. "
The outcome is much the same as though a totalitarian regime had imposed its will. The organization man in the grey flannel suit becomes endemic, not only on the corporate circuit but in politics and the groves of academe. The independent, autonomous mind is more and more seen as an eccentric, a knocker, a trouble-maker, an agitator. "Don't rock the boat," he is admonished. "You are simply playing into the hands of our enemies abroad. Be patriotic and rally behind the four-square guesswork of Mr. Big. "
The uniformity is perfectly reflected in the glacial technical slicknesses of the watered-down mass media. The pay-off comes in one catastrophe or the other--Bay of Pigs, Vietnam, Watts. Catastrophe itself becomes endemic, built-in--as in the ghettos.
The source of it all surely is found in the need to preserve the well-being of the really huge investments of the finpolities. Any real or apparent deviation from a bland public- relations norm, in word or deed, can hurt profitability, and this is the new unforgivable sin. For as profits go down, unemployment rises, parents despair, children grow hungry. Then riots begin, suicides proliferate. It is easy to see that the general well-being depends wholly upon the well-being and good temper of the finpolities. The national maxim becomes, "Shut tip. "
Engineering Enterprises
A difficulty in writing about corporations is that the idea of a corporation brings different things to people's minds.
What people usually think of when they think of corporations is the engineering structure owned by the corporations. People sometimes visit corporations, as they say, by which they mean they visit their plants or offices.
Nevertheless, nobody, not even a corporation lawyer, has ever seen a corporation, which as a juridical concept is beyond sensory experience and almost as impalpable as a metaphysical abstraction. Yet one can sue or be sued by a corporation, injure or be injured by one. The corporation is actualized, concretized, only in a set of papers, the provisions of which the courts stand ready if necessary to implement. Whatever is tangible about the corporation is in these papers--its charter of incorporation, its by-laws and the titles to its properties. Even when a corporation owns a single plant and office combined, one cannot go and look at it; one can look only at its properties, which it can sell or otherwise dispose of and still remain intact in full corporativeness.
Public relations departments, in presuming to show the corporation to public view, in almost all cases show only some of its property, mostly consisting of engineering enterprises. All the leading 200 corporations listed in Appendix B are the legal representatives of such engineering enterprises. The corporation itself is a business--or finpolity; the business is an adjunct of an engineering process, which could be carried on by other legal means.
While there may be little difficulty in seeing U. S. Steel, General Motors, AT&T and their industrial counterparts as operators of engineering enterprises (a brief visit to their plants will convert doubters), there may be some difficulty in seeing certain other companies as conducting such operations. The electric, gas transmission and railroad companies, of course, all clearly stand out as operators of engineering enterprises. But there might be some opposition to the assertion that Sears, Roebuck, Great Atlantic & Pacific Tea and R. H. Macy and Company are also operators of engineering enterprises. It is nevertheless herewith asserted that they are.
Even if we eliminate all manufacturing--that is, machinefacturing--from their jurisdiction, they remain engineering enterprises, their engineering function being to gather, transport, store, display, deliver and offer to view a great variety of merchandise. Their engineering task is logistical. Of course, if anybody wishes to deny that R. H. Macy & Company is engaged in engineering we need not worry; one either sees the point or not. But it cannot be rationally denied that all the so-called industrial and public utility companies are engaged in pure engineering as well as in trade for profit.
Engineering is one form of applied science, and we find the industries, taken altogether, using the full range of mathematics, physics, chemistry, biology and even, more or less to suit the taste, the social proto-sciences. With more or less growing consciousness they apply pure science to their problems of production. The discovery of a new scientific principle, such as is involved in the transistor, is instantly incorporated into radios. New self-directed machines (automation) are installed on production lines as soon as they are created.
Now, if anyone wishes to contend that all these corporate engineering plants are marvels of modern human ingenuity, he will not bear any demurrer from this observer. He may find, instead, that he has a rival in eloquent advocacy, for I would be the first to agree that all these big corporations in their engineering aspects are among the wonders of the modern world.
But we are not considering them in this aspect--we are taking this showy aspect wholly for granted. We are considering them only in their corporate aspect, their juridical and quasi-political as well as financial-economic aspects. One not only concedes but proclaims and insists upon the fact that E. I. du Pont de Nemours and all the others have marvelous plants and general offices, based upon the latest scientific principles.
Few of the finpols, however, are au courant with their enterprises in their scientific and engineering aspects. Like the man in the street, they couldn't tell one much about molecules, atoms and sub-atomic particles nor about the principles of mechanics. Their knowledge has to do largely with principles of accounting and finance, law, cost analysis, taxes, prices, political negotiation, marketing, general organization--and profitability. They are largely creatures of the executive suite and boardrooms and the higher political caucuses rather than of the plant. They know far more about tax structure than about atomic structure.
And it is just these societal aspects, their particular area of interest, that is our area of interest. We take for granted the work of the scientists in the laboratory and the
technicians and engineers in the plants. They have those, too, in Soviet Russia and Communist China where, however, they do not have finpols.
Portent of good or evil, depending upon one's point of view, it is nevertheless a differentiating descriptive fact.
What most basically confronts us is not only different legal systems but different types of legal systems. The finpols and finpolities have come into historic view, chiefly with the aid of modern technology which they neither invented nor developed, in our sort of political system They constitute our problem, if problem they are, and this problem is in the truest sense political rather than economic or technical.
We are, then, interested in the finpols and finpolities from a political point of view. We do not identify the corporations in their essence either with their plants, which are among the most praiseworthy structures in the land, or with their products. While nylon to the average citizen may connote Do Pont, to us it connotes only chemistry. What Do Pont connotes to us--and Ford, Rockefeller, Mellon and the rest--is finpolity.
Eight
UNDERSTRUCTURE OF THE FINPOLITAN ELITE
As the various finpols and finpolities are rivalrous at least in respect to making and retaining money, how and in what way do they act in concert, if they act in concert at all? Do they, in fact, act in concert in imposing faits accompli and policies on the nation?
To conclude that they more or less loosely act together as a moneybund is to proclaim oneself at once an adherent to what is pejoratively called the conspiracy theory, widely frowned upon by latter-day organizational academics in grey flannel suits (many of them briskly on the way up to the State, Defense or Treasury Departments or to the foundation refreshment troughs). In a broad sense, as it has been observed by unabashed exponents of the conspiracy theory, all history is a conspiracy. In this sense the word no more than broadly and perhaps privately and even unconsciously indicates coordinated action toward some mutually agreed upon end or ends at variance with public expectations; manifestly it does not have its specialized meaning in law.
In any event, overeager members of the financial elite have been caught and convicted in American courts of many literal subconspiracies, so that even in the narrow juristic sense many of them stand forth individually as certified, simon-pure conspirators. Consequently, even if there is not a single all-embracing conspiracy in juristic terms, it is a fact that there are and have been hundreds of adjudicated single conspiracies. The conspiracy theory, then, has a little more to it than honors-bouond academics concede.
Three Theories
There are in fact three major sociological theories, academically certified in all solemnity, to account for the phenomenon of socio-economic decision-making, the recondite problem being to determine: Who, if anybody in particular, really makes the basic decisions that govern society? Who calls the shots?
To a considerable extent this is a pseudo-problem, for virtually every person knows that he isn't calling the shots nor are any of his neighbors, co-workers or acquaintances. Everybody knows it is some distant and obscure "they. " But this fact (evident to any intelligent person) is not at all evident to many academics, who have made quite a scholastic mystery out of the whole business. Doubt is raised by some that any individual whatever makes any decisions; the theory is advanced that the entire process is occultly collective.
There is, first, the theory of an elite, which is employed by some masterful investigators.
Next, there is the theory of an inert, apathetic, partially alienated mass society, consisting largely of P. T. Barnum's myriad suckers and H. L. Mencken's swarming booboisie--the denizens of the grandstands and taverns. According to this theory, as most people are supine, unresponsive, childishly credulous and seeking no more than a job, diversion and comfortable mediocrity for themselves, the few who are seriously active emerge spontaneously at the decision-making level, more or less by default. As Tom, Dick and Harry won't bestir themselves and George the doer does, George finds himself willy-nilly among the decision-makers, a natural leader. But he got there more by chance than design, chosen if at all merely by fitting into the pattern of things and events. No conspirator he, no boob and no elitist.
There is, finally, the pluralist theory, according to which many diverse groups, individuals and forces confront each other in various ways, and under various cultural auspices arrive after debate by consensus or compromise at decisions, a notion that fits in neatly with democratic prescriptions. The process is presented as one of mutual accommodation.
There is something to be said for each of these theories, as each explains some of the data. Obviously a single synthesizing theory would be preferable. Lacking such, one can, and many sociologists do, attempt to blend them or to use them all. But as this is eclectic, theoretical purists are offended. The world, however--even the small world of society--is more complex than any all-embracing theory about it.
My own tacit use of these theories with respect to our subject is hierarchical and eclectic in the order stated. The facts strongly suggest to me, in other words, that the elitist theory best explains the facts. Whatever it fails to explain is then explained by the concept of the mass society. Finally, in many matters, less paramount in almost every single case, the pluralistic theory does come into play as it finds supporting data. But it is far less often significantly applicable than its sponsors suppose.
Actually.
price controls, lower taxes, etc. President Johnson, like President Eisenhower, has professed great admiration and respect for the finpols who are, after all, under the equal application of the laws entitled to as much consideration as, say, the ordinary workman. The finpols, then, are an integral part of "The Great Society," in which there is obviously a great deal of lucre to be made filling profitable government contracts for cement, steel, aluminum, copper, textbooks, rockets, space machines, tanks, recoilless rifles, schools, hospitals, sanitoria and bird baths.
In place of the Church today, there are the Intellectuals. In so saying I realize that my remarks lose credibility for many American readers, for intellectuals are not highly esteemed in the American mass-media or, presumably, among most of the populace. As I don't want to take the space to lay down a detailed argument supporting my case for the Intellectuals as a domestic Third Force let me, aiming right between the eyes of the dubious, simply remark that Karl Marx and V. I. Lenin were intellectuals. So, for that matter, were Winston Churchill, Albert Einstein, Thomas Jefferson. , Benjamin Franklin and John F. Kennedy. Not all intellectuals, to be sure, have attained comparable eminence. But they are nevertheless present in their various ways.
It is the intellectuals, as a group, who preside and wrangle over the undulating frontiers of ideology, philosophy, scholarship and science, in all of which they may be said to have, by popular default, a vested interest. Most broadly (and abstractly) they preside in some disorder over values. And although their concrete power today is not comparable with the power of the medieval churchmen (themselves the intellectuals of their day, supported by the propertied and psychological power of the Church), it is nevertheless implicit. It is the general task of the intellectuals to make sense out of the established order, if that is possible; but the more the established order fails to make sense in the minds of the intellectuals the nearer it is to ultimate rejection or modification. If a basic political operating rule is that all men are entitled to the equal protection of the law and Negroes and others are flagrantly denied such protection, it is the intellectuals who are most sensitive to the contradiction between rule and action and who therefore deny that the system is what it virtuously claims to be. By the test of its own rules, by the way, ours is not an operationally virtuous system.
The fact of the importance of the intellectuals as a class has nothing at all to do with the strength or virtue of the intellectuals as individuals but has everything to do with the ultimacy of systematically applied thought. Hitler threw the intellectuals out of his system, preferring to rely upon what he called his intuition. As a consequence he lost, among many other things, priority in the matter of the atom bomb. The currently split and diminished Reich stands as a monument to his folly. The Russian politicians, supposing Leninism to be ultimate political revelation rather than a restricted set of tactics, keep the intellectuals under close restriction; the expression of free thought is not permitted in contemporary Russia. Nevertheless, the Russian intellectuals do maintain some under-the-surface ferment in the Soviet Union. They are a force, however feeble, but of vast potential.
One of the latter-day difficulties of the finpols and the finpolities on the American scene is that since 1929 they have lost the sympathy of a considerable segment of intellectuals. Far fewer today than in the 1920's believe that what's good for General Motors is good for the United States. Much about the specific enterprise of General Motors, indeed, increasingly fails to make human sense in the minds of intellectuals, despite the herculean labors of public relations men. And in view of the emergence of a vast hereditary establishment of property, it is blindingly clear that huge money rewards are not merited compensation for some overpowering social contribution as in the creation of an industry. If Carnegie, Rockefeller, the original Du Ponts, Westinghouse, Ford, Hartford and other nineteenth-century men made such a contribution, a debatable
point in itself, it is certainly plain that their heirs have not. Today, the biggest money rewards in the American system come from simply sitting and listening to the reading of a will, which can scarcely be construed as a social contribution. Intellectually, it looks medieval.
It is a mistake, though, to suppose that it was the post-1929 denouement alone that caused the defection of many intellectuals from the old and easy ways of thinking. It was the literary intellectuals more particularly, committed to humanistic values, who reacted most strongly to the national experience after 1929. But public policy with respect to the new weaponry, from the atomic bomb onward, raised increasing doubts about the direction of events among scientific intellectuals, many of whom now look upon the joint policies of the government and the finpolities with an increasingly dubious eye.
Yet it is the relations between the finpols and the pubpols or public politicians that occupy the foreground, with the intellectuals kept in enfeebled attendance under steady public disparagement as "long hairs" and "impractical theorists" rather than in forthright restriction as in Russia. Finpols and pubpols are generally bedfellows, the latter probably the more ardent in the relationship, but increasingly there are signs of strain as the pubpols recognize, with some bewilderment, that in many ways their interests are incompatible. Can it be, they seem to ask themselves in dismay, that what is good for General Motors is not always good for the administration in Washington? What Big Business wants, in short, no longer always seems to harmonize with what the White House believes is required. The naive king, friend to all men, begins to feel that the barons are perhaps plotting against him.
The divergence of interests, not wholly closed since it widened under Franklin D. Roosevelt in the 1930's, seems likely to grow wider in the course of world change. The pubpols, like the medieval kings, may be obliged to struggle against the baronage, a prospect few of them can relish in view of their not too secret admiration for them. But as interests diverge and strains grow greater, the central government (like the medieval Crown, simply by reason of its wider responsibilities and inherent powers) seems bound to triumph, although by that time the central government may have been transformed into a more viable version of the Corporate State than was ever seen in Italy and Germany prior to 1945. There is indeed a discernible swing toward such a Corporate State, of which the finpolities would be integral and guaranteed formal parts (with big ownership stakes assured under some saving, perhaps socialistic, formula), and most of the smart money would no doubt bet on its emergence. Yet, in the time remaining before its advent, will the intellectuals look upon its coming with favor?
Informally, we are already well into the era of the Corporate State, of which the Warfare State is only a subdivision. Practically, it already exists as long as the pubpols find their interests running parallel with those of the finpols. A difficulty for the latter, though, is that the pubpols are sometimes obliged by the far-scattered facts confronting them to interpret the general situation differently, as President Kennedy did in the case of steel prices and as President Johnson did in the case of aluminum, copper and steel prices.
Although AT&T is a finpolity, a vast dukedom little short of a full polity, the domain over which it presides is parochial in comparison with the relatively universal domain of the United States government. AT&T is, comparatively, narrowly specialized in its interests.
And it is the narrow specialization of profit-interests of all the finpolities that, at times, makes their acts and policies inharmonious with those of the government of the United States, whose necessary task is to harmonize, at least roughly, a wide variety of foreign
and domestic problems and interests. The government, often to its distaste, must deal with a far more complicated situation than any finpolity deals with.
Such being the case there is always the potentiality of a clash--perhaps a serious clash--between the central polity and all or some of the finpolities. There can be no doubt which way the hand would go if all the chips were ever down. A question that arises at this point, unanswerable yet, is this: will the intellectuals be able to come forward with some solution or set of solutions more attractive than the looming and gradually emerging Corporate State or ultimate finpolity?
Although the medieval Crown won out in its struggle with the barons and the intellectuals of the day, when it attained its final victory it was by no means the same Crown. It had been modified and battered in the struggle. For the intellectuals in the course of time caused it to be changed almost beyond recognition, most dramatically in the French Revolution. While much remains the same today, as the effort to re-establish something like the Holy Roman Empire in the guise of a United Europe, the content, the outlook and the methods of the European governments are all different, largely owing to the efforts of the now secularized intellectuals. The slogan "Liberty, Equality and Fraternity," which exploded the emotions of men, did not come from king, nobleman, soldier, peasant or businessman. it, like modern science as a whole, came from the intellectuals.
No suggestion is intended here that some sort of established script or historical cycle is being followed or even that the same sort of structure confronts us that confronted medieval Europe. It is only that the interactive, usually muted, tug-of-war among government, the big corporations and the intellectuals stirs memories and seems to be at least a dim replica of an earlier internal struggle.
My own view is that although the big corporations and their dominant owners and managers, the finpolities and the finpols, are still unquestionably powerful they are in a long-term slipping position as far as ultimate general dominance is concerned. Too many counter-forces are emerging on the world scene.
That this is so has been shown both by Presidents Kennedy and Johnson, neither of whom was personally hostile to the corporate crowd. President Johnson has appeared to admire it as intensely as President Eisenhower and maintains close relations with it.
Yet situations arose which showed that, when the chips were down, a president who knows his own mind and interests can and must quickly bring the finpolities to heel. It has been demonstrated, in brief, that a political leader with a firm knowledge of the mechanics of government and the balance of forces in society can successfully assert the priority of the general interest over the special interests. Franklin D. Roosevelt did it most spectacularly, able as be was to act in the name of an unquestioned emergency. But neither Presidents John F. Kennedy nor Lyndon B. Johnson needed the excuse of an overriding emergency when they vetoed, only temporarily to be sure, the price increases of some of the most powerful industries. President Johnson, by releasing stockpiled government aluminum and by threatening to reallocate government orders for steel, showed that indirect government counter-action is always possible if the finpolities threaten to run away with any situation. This fact was probably always known to dominant Republicans, for which reason they have shown such marked partiality for a long line of mediocre and subservient presidents from Grant to Hoover and Eisenhower. Not a single Republican president since Lincoln, nor most of the Democratic, causes the pulse of a reader of American history to quicken even slightly. When honest, they were dull and inactive. When energetic, like Theodore Roosevelt, they were fakers; and when stupid they were calamities. No historian of any standing among his peers would deny it.
In a certain sense every big corporation is a hostage to presidential and even congressional ire, which alone explains the Republican partiality for figurehead presidents and congressmen of the worm's-eye view like Dirksen, Halleck, Hickenlooper, Curtis, Mundt and Hruska. Any corporation can be investigated and, in fact, the entire community of wealth can be inquired into via officially mobilized scholarship as was shown in the Temporary National Economic Committee's investigation. And all investigations disclose some state of affairs hitherto unsuspected and deplored by the more intelligent segment of the populace, leading to cries for change.
Trend toward Multi-Finpolity
The finpolities, in any event, are much more than merely large corporations. Indeed, even in their purely functional aspects they are not simply what the public thinks them to be.
AT&T, the man in the street supposes, is devoted to telephony, General Motors to making automobiles, Sears, Roebuck to merchandising, Great Atlantic & Pacific Tea to distributing groceries--all true. But these companies, and others, do much more, and the trend of each corporation now is to become a general enterprise engaging in any and every sort of activity that is profitable, related or not to its original line.
Let us examine a few of these multifaceted corporations, or multi-finpolities, from among the largest corporations, taking as our model one from real life.
What happens, let us first ask, if a big corporation loses its customers, its raison d' e^tre, as the old-time wagonmaking companies lost their customers with the advent of the automobile? Does it then go out of business? As many cases attest, the answer is No. As a huge financial reservoir it merely enters into one or many other businesses, provided they seem potentially profitable. They do this, too, if their original business enters upon a prolonged downtrend. The big corporations, in short, are Protean.
As good an example among many is International Telephone and Telegraph Corporation, the world's tenth biggest industrial employer with 195,000 workers in 55 countries, and the thirty-fifth largest American company assetwise. Its name suggests it to be devoted to international telegraphy and telephony but such is not at all the case. For as the Wall Street Journal justly remarked, it "sometimes seems no more than a scavenger-like monster, madly grabbing up everything in sight, always ready to strike again. " 17
it is difficult to tell precisely what business IT&T is really in aside from the business of making money. In this respect it is like a bank, and all the big corporations are, banklike, large pools of capital; what they produce, aside from profits, is secondary. And if what they produce does not bring in profits they simply switch to producing something else. Nearly all are holding companies, not operating companies as commonly supposed.
IT&T was founded in 1920, originally to run the telephone and telegraph companies of Cuba and Puerto Rico. It expanded into other countries: Spain, Belgium, Rumania, Australia, Latin America, the Philippines, etc. It also built up a manufacturing arm second in its field only to Western Electric.
But international political upheavals and wars deprived it of much of its operating territory. IT&T was quite literally forced out of business in many places.
After World War II it took a new lease on life and became a general holding company for all manner of enterprises. As its president told the Wall Street Journal, its criteria for
buying a company are only two: "The company should be growing faster than ITT. And it should have plenty of room to grow as the industry it is in grows. "
"The executive steps into his Avis rent-a-car," begins the Wall Street Journal account, "drives to his broker's to check on his Hamilton Mutual fund shares, mails the quarterly premium for his American Universal Life Insurance policy, checks on financing some capital equipment through Kellogg Credit Corp. , fires off a cable to Britain and then motors to Camp Kilmer, N. J. , for a session with the purchasing agent at the Federal Job Corps there. It's just a routine morning dealing with a variety of matters, but so far the man's business has been entirely with divisions or operations of the inappropriately named International Telephone & Telegraph Corp. "
IT&T now owns and operates the Aetna Finance Company; the American Universal Life Insurance Company; part of the Great International Life Insurance Company; Hamilton Management Corporation and Hamilton Funds, Inc. ; Avis, Inc. ; Kellogg Credit Company; the Mackey Telegraph and Cable System; Coolerator Company; Kellogg Switchboard and Supply; Kuthe Laboratories, Inc. ; Federal Caribe, Inc. ; Airmatic Systems Corp. ; Haves Furnace Manufacturing and Supply; Royal Electric Corp. ; the telephone system of the Virgin Islands; L. C. Miller Co. ; Jennings Radio Manufacturing; American Cable and Radio; Alpina Buromaschinen-Werke and Edward Winkler Apparatebau of Germany; a large group of Finnish, French, Swiss and English companies; National Computer Products; General Controls Co. ; etc. It owns scores of companies throughout Latin America and Europe in almost everything related in any way to using or producing electrical equipment, as well as many companies without the slightest relation to electrical equipment. It is a credit-insurance-investment-electricaI equipment-general world communications-transportation-chemical-computer- engineering-general service company. You name it, IT&T does it, almost, so long as it is highly profitable.
An extreme case, it will be said, but far less extreme than one might suppose. IT&T is more like a standard model of the emerging Protean finpolity. AT&T itself is not radically different.
General Motors makes automobiles at home and abroad. But it also makes giant Diesel locomotives, industrial apparatus, a full line of household electrical appliances (refrigerators, stoves, washing and drying machines, dishwashers, etc. ), airplane motors, earthmoving equipment and a variety of other items, and it can retool and make anything whatever in the electro-mechanical line. As easily as not, it could make airplanes, intercontinental missiles, submarines or space ships. Whatever it does not make it does not make because it doesn't want to. Thus far its automobile line is its main source of profit. Ford Motor is similarly in the household appliance field and heavily committed to electronics, including TV sets. Both own an assortment of underlying material-supplying companies. Both are really multi-faceted states, and with their credit companies and dealership-franchise arms are not very different from IT&T.
The diversified mixture of products of each was achieved by combining many different existing companies, as IT&T has done in a broader spectrum. In the case of some companies the product mixture has come about gradually. In the case of others the decision to diversify has come suddenly, as though recognizing an opportunity that others stumbled upon earlier. Companies suddenly and radically shift their operating emphases, always in quest of maximum return on capital.
Thus, W. R. Grace and Company, eighty-fifth in corporate size, originally operated ships to Latin America (the Grace Line) but more recently has diversified its activities so that it is now a big chemical and fertilizer producer, banker, Latin-American manufacturer, exporter-importer and oil company. This former ship operator and banker
now derives 65 per cent of its sales and 66 per cent of its pretax earnings from its chemical division. As in the case of IT&T, we may ask of W. R. Grace: What, really, is its business?
Sears, Roebuck and Great Atlantic & Pacific Tea would be defined, correctly, as merchandising enterprises. But each owns a great many supplemental manufacturing and financial enterprises which have been developed or acquired. Each does much more than mobilize, stock and deliver a wide variety of merchandise. A&P, like many of its counterparts, would ordinarily be described as a vast retail grocery chain. Yet it now also carries a big line of cosmetics, pharmaceuticals, household hardware and certain items of clothing (aprons, gloves, etc. ). It and Sears, Roebuck and their smaller counterparts are obviously on the way to becoming general national manufacturing and merchandising enterprises oriented toward the ultimate consumer. Sears, Roebuck is usually thought of as a mail-order house; yet it operates chains of department stores as well, and engages in the general insurance business. In many phases it is a manufacturer. Both are giant transport companies.
What is Du Pont? A big chemical combine, it will be said. But it is also a big manufacturer of synthetic textiles, paints and explosives. It can build, and has built, nuclear energy plants. It could just as easily build cities. The big oil companies are chemical companies as well as huge operators of seaborne shipping, tank-car fleets and continental pipelines, and some of the big chemical companies are becoming to some extent oil companies. What is Tennessee Gas Transmission? A transmitter of natural gas, of course; but it is also a huge chemical, petroleum and fertilizer enterprise as well as other things.
The trend among all the big companies is increasingly toward nonspecialization and to the merging of seemingly incompatible enterprises, as when Columbia Broadcasting acquires the New York Yankees baseball club and IT&T acquires American Broadcasting. Radio Corporation and other electronic firms acquire big book publishers with a view to gaining literary and educational properties. Many big newspaper enterprises also publish books, magazines and operate TV and radio stations, pulp and paper mills, deepwater ships, etc.
AT&T itself, publicly looked upon as "the telephone company," operating about 85 per cent of the nation's telephones, long owned 99. 8 per cent of Western Electric, manufacturer of telephones, switchboards and a wide array of electrical apparatus. AT&T is also heavily committed to research and holds patents relating to the whole electronic field, including computers. It is deep in the satellite enterprise.
What all the expansion reflects is: investment of earnings not paid out. As we have noted, payouts incur additional taxes for stockholders; retained invested earnings are not taxed, are like money in the bank and get accelerated depreciation allowances. As there are not sufficient opportunities at home, the companies are now acquiring foreign enterprises at a great rate--in France, Germany, Belgium, Switzerland, Japan, everywhere--and since World War II have invested abroad about $40 billion. Ownership is preferred over income.
The cases cited are not at all untypical. One could go on for a long time detailing odd combinations of corporate activity. Thus, Hunt Foods & Industries, Inc. , originally the Ohio Match Company, in addition to making and marketing a broad line of food products operates companies in lumber, glass, aluminum, real estate, chemicals, glass and metal containers, gin, paints, varnishes, wallpaper, floor coverings and so on. It has a line of big corporate investments that is every bit as odd as the IT&T labyrinth. It is, first, the largest stockholder in Wheeling Steel, with 8. 8 per cent. It owns 22. 7 per cent of Canada Dry and 35. 8 per cent of the McCall Corporation, publisher of McCall's
Magazine, Redbook, Bluebook and the Saturday Review. It has it 4. 5 per cent interest in ABC-Paramount, giving it a foothold in film-making, radio and television broadcasting.
Let us take a more sober-seeming company, the Mississippi River Fuel Corporation, originally formed to transport natural gas by pipeline from Louisiana to St. Louis.
There was first formed the Mississippi River Corporation to exchange stock with it, and this company now owns 94. 2 per cent of the Mississippi Transmission Corporation, 100 per cent of several cement companies and 58 per cent of the Class A stock of the big Missouri Pacific Railroad. As the change in its name suggests, it is apparently going to concern itself with everything in the Mississippi Valley, perhaps the Valley as a whole.
The Illinois Central Railroad may become its rival, might even merge with it. For the railroad has caused to be formed Illinois Central Industries, Inc. , with which it exchanged 95 per cent of its stock; and Illinois Central Industries has already acquired a big electrical equipment maker. As its name suggests, it is ready to operate anything along its right of way from Chicago to Florida and the Gulf of Mexico.
Operating companies become holding companies and some of the holding companies become general investment companies such as Adams Express Company, until 1918 a leading express and money-order house that sold out its business to American Express and transformed itself into a closed-end investment trust. The chief difference between a standard investment trust and a heterogeneous holding company is that the latter holds a dominant to 100 per cent interest in companies in which it plays a directorial role; the investment trust has only a fractional position in each company and is not involved in the management. The investment trust is a pure rentier.
The time, then, is near at hand when a company's name will give no clue at all to its line of business apart from the business of making money.
Studying the reasons for the crazy-quilt expansion, the Federal Trade Commission in 1955 noted them as follows:
Building new capacity adds to existing capacity and intensifies competition; but by buying, a manufacturer acquires additional capacity without adding to total capacity and may also reduce some external competition. "These competitive considerations are especially important if he is diversifying into products new to him, but in the production of which others are well established. "
Selling companies are motivated to sell because they lack the financial resources for expansion. Here lies the opportunity of the resource-rich company.
"The same factor is to be noted in instances in which a company having surplus cash not immediately needed in its operations invests it in the securities of other companies, either in the same or an unrelated industry. Such investments may subsequently prove to be the initial step in acquisitions carried out either as further investment and diversification of the acquirer's business, or as a means of salvaging the investments already made.
"Tax savings possible under various provisions of the Internal Revenue Act granting more favorable rates on capital gains as compared with the rates applicable to operating profits of corporations and personal incomes of individuals, the provisions covering tax- free exchanges of stock, and the provisions governing the carrying forward of past operating losses as credits against future earnings are also important factors. " 18
Said the Federal Trade Commission stiffly: ". . . the economic forces and motives discernible are not per se different from those upon which all business judgments are based respecting the ownership and exchange of property in a free economy. The operation of these forces on a large scale, however, carries with it such adverse
economic effects on third parties, and on the economy as a whole, as to bring their unrestrained operation into conflict with public policy and law. " 19
What is happening may perhaps be better depicted by showing it as a small fictitious model, as follows: One man, owning all of the highly profitable Super-Cosmos Corporation, is causing it to hold back most of its earnings, thus enabling him to bypass personal income taxes. With these withheld tax-free earnings he is gradually buying up all other companies, large and small, causing them also to hold back earnings in order to buy other companies which in turn generate profits to buy others, etc. , etc. If this Super- Cosmos Corporation paid its earnings to him in dividends he would be heavily taxed and not richer but poorer. As it is, he grows richer and richer, owns more and more property, expands and expands, so that finally he owns every shoe-shine stand and peanut stand. He finally owns every single enterprise there is,
It is not true, of course, that one man is doing this. But several clusters of men, capitalists, are doing something like it and are producing the strange multifarious sort of companies we have noted, which are becoming typical companies among the biggest ones. And concentration is being intensified.
What of the antitrust laws? Why don't they prevent the erection of these huge, expanding multifarious trusts or finpolities?
The average citizen is not aware that the antitrust laws are highly selective in their application at those relatively rare times when the pubpols decide to make them operative. Their application is permissive, not mandatory. The avowed purpose of the antitrust laws is to protect competition. Thus, if a company in one line of business tries to take over a company in the same line of business they may be called into play; also, if a company through ownership in a functionally unrelated company--such as Du Pont in General Motors--seems likely to divert subsidiary business from others to itself, they may also be put into play.
As it is said, the antitrust laws forbid only horizontal mergers or horizontal restraint of trade. Under those laws General Motors could not acquire Ford Motor or vice versa.
But other kinds of mergers are not forbidden.
There are possible, for example, vertical mergers. Here a manufacturing company may acquire suppliers, all the way back to the mine or field, or may acquire distributors to the retail market. This does not appear to be illegal unless competition is directly affected with someone in the same line of endeavor. Actually, the company that engages in vertical mergers, far from ending competition, is externally intensifying it, forcing others to do likewise or to fall behind in the blind race for dominion.
There are, too, circular mergers, in which a company acquires a good many companies, neither in exactly the same line of business, but the whole tending to come back into a closed circle so that all these companies only or largely do business with and for each other, excluding others from the magic circle. Such a combination might well come under fire of the antitrust laws, particularly if the White House occupant decided to parade his muscle.
There are, finally, these latter-day heterogeneous mergers and acquisitions we have discussed and in which the large companies now so largely figure. The antitrust laws do not apply against them because the various acquisitions are not in directly competing lines. A ship company that acquires chemical companies, an automobile company that acquires a household-appliance-maker or a telegraph company that acquires insurance companies does not appear to have acquired any of its competitors.
But in a very real sense basic competition is diminished. For large pools of liquid capital, retained profits, acquiring most of the economy for themselves, are gradually ending competitive endeavors in making money and in running enterprises. As far as economic creativity is concerned, competition has been stifled at its very roots. Most of the population is in the process reduced to the passive status of the Russian and Chinese populations but by different means.
The antitrust laws, as justice Oliver Wendell Holmes noted, are a joke. They have signally failed to preserve competition, their avowed intent. While the economists go about vainly seeking perfect monopoly, a single company in a single industry making a single item, and debate among themselves the semantic differences of oligopoly, monopoly and price leadership, we see around us a rising and all-embracing financial monopoly, quasimonopoly or semi-oligopoly. It isn't that there is monopoly in one industry--such as steel, oil or motors--but that industry in general totality is monopolized in ownership, control and direction by a very few people, the rich and super-rich. The moneybund is a concrete literal reality rather than a hyperbolic figure of speech.
The next step may be the merging, as it becomes profitably tax-saving, of the huge heterogeneous trusts. There is nothing in the antitrust laws as now written, seemingly, that would prevent the merger of U. S. Steel with Great Atlantic & Pacific Tea and the fusion of this combination with IT&T and W. R. Grace. Another possible combination among many is General Motors, Sears, Roebuck, Standard Oil of New Jersey and Heinz pickles. Why not? They don't offer competing products or services. They are simply competitive in making money, which is the mainspring of all the activity. Take away the money-making incentive in the form of extremely peculiar tax laws and such mergers would not occur.
What is happening is not only of economic and political concern but is of profound cultural concern. Under the system of many competing enterprises, each independent of the other, independent and candid voices were encouraged. The old-time merchant, for example, was often a man of forthright, informed opinions, which he forcibly expressed. The object of going into business for oneself in the American ethos was to become "independent," so that one needed nobody's permission to speak out, or anyone's aid or charity.
The institutional foundations of independent expression, however, are being as eroded under spreading corporate giantism as under Communist or Fascist totalitarianism. Neither finpols, their managers or employees dare speak out on anything for fear of compromising the corporate image before a heterogeneous public. What does the corporate crowd really think about birth control, religion in the schools, civil rights, conscription and the like? Nobody knows because they play it cool, say nothing. The mass media under their control are similarly noncommunicative, carrying water on both shoulders, reflecting the world as an entertaining circus of clowns, idiots, heroes, villains and random events. The growing corporate philistinism spreads slowly over the seats of learning.
To what extent can an employee of any one of the multiple parts of the corporate octopi commit himself on public questions? As a middle-range executive of the Super- Cosmos Corporation, to what extent can he express himself on, say, traditional versus progressive education? If he manages to make himself effectively heard on either side he is sure to make a large emotion-ridden crowd angry. Indeed, the more effectively he speaks on any aspect of a topic the angrier they get. They send letters to the management of the company, threatening to raise a boycott against its many branches, subsidiaries, affiliates and coordinates. But rarely do matters go this far; if they do, the
offending middle-range executive is told to "lay off, forget about different approaches to education, stick to business. "
As nearly everybody works for one or the other of these finpolities, nearly everybody is reduced to mouthing mild banalities if called upon to speak at all. Everybody toes the approved corporate line, designed to avoid making anybody angry about anything. "Don't be a trouble maker," is the operational motto. Meanwhile, the world itself poses more and more difficulties. As for politics, leave that to the pubpols and their minions. As General Motors goes, so goes the nation: I'd die for Standard Oil: I have but one Ford to give to my country: Fifty-four-forty or AT&T: Nylon ueber alles.
Independent merchants and lawyers, once noted for their forthright views on public affairs, spoke out as the occasion seemed to require. Now that they are gone down the corporate drain, theirs and other voices are frozen in corporate silence. In their place the finpols, if they feel anything of public concern requires attention, summon their public relations men, legislative representatives and lawyers and map out a quiet undercover campaign--but only as the interests of the finpolity itself dictate. Do the political parties themselves need an overhauling? That is something best left to the pubpols, "Mind your own business" becomes the prevailing rule. "Live and let live. "
The outcome is much the same as though a totalitarian regime had imposed its will. The organization man in the grey flannel suit becomes endemic, not only on the corporate circuit but in politics and the groves of academe. The independent, autonomous mind is more and more seen as an eccentric, a knocker, a trouble-maker, an agitator. "Don't rock the boat," he is admonished. "You are simply playing into the hands of our enemies abroad. Be patriotic and rally behind the four-square guesswork of Mr. Big. "
The uniformity is perfectly reflected in the glacial technical slicknesses of the watered-down mass media. The pay-off comes in one catastrophe or the other--Bay of Pigs, Vietnam, Watts. Catastrophe itself becomes endemic, built-in--as in the ghettos.
The source of it all surely is found in the need to preserve the well-being of the really huge investments of the finpolities. Any real or apparent deviation from a bland public- relations norm, in word or deed, can hurt profitability, and this is the new unforgivable sin. For as profits go down, unemployment rises, parents despair, children grow hungry. Then riots begin, suicides proliferate. It is easy to see that the general well-being depends wholly upon the well-being and good temper of the finpolities. The national maxim becomes, "Shut tip. "
Engineering Enterprises
A difficulty in writing about corporations is that the idea of a corporation brings different things to people's minds.
What people usually think of when they think of corporations is the engineering structure owned by the corporations. People sometimes visit corporations, as they say, by which they mean they visit their plants or offices.
Nevertheless, nobody, not even a corporation lawyer, has ever seen a corporation, which as a juridical concept is beyond sensory experience and almost as impalpable as a metaphysical abstraction. Yet one can sue or be sued by a corporation, injure or be injured by one. The corporation is actualized, concretized, only in a set of papers, the provisions of which the courts stand ready if necessary to implement. Whatever is tangible about the corporation is in these papers--its charter of incorporation, its by-laws and the titles to its properties. Even when a corporation owns a single plant and office combined, one cannot go and look at it; one can look only at its properties, which it can sell or otherwise dispose of and still remain intact in full corporativeness.
Public relations departments, in presuming to show the corporation to public view, in almost all cases show only some of its property, mostly consisting of engineering enterprises. All the leading 200 corporations listed in Appendix B are the legal representatives of such engineering enterprises. The corporation itself is a business--or finpolity; the business is an adjunct of an engineering process, which could be carried on by other legal means.
While there may be little difficulty in seeing U. S. Steel, General Motors, AT&T and their industrial counterparts as operators of engineering enterprises (a brief visit to their plants will convert doubters), there may be some difficulty in seeing certain other companies as conducting such operations. The electric, gas transmission and railroad companies, of course, all clearly stand out as operators of engineering enterprises. But there might be some opposition to the assertion that Sears, Roebuck, Great Atlantic & Pacific Tea and R. H. Macy and Company are also operators of engineering enterprises. It is nevertheless herewith asserted that they are.
Even if we eliminate all manufacturing--that is, machinefacturing--from their jurisdiction, they remain engineering enterprises, their engineering function being to gather, transport, store, display, deliver and offer to view a great variety of merchandise. Their engineering task is logistical. Of course, if anybody wishes to deny that R. H. Macy & Company is engaged in engineering we need not worry; one either sees the point or not. But it cannot be rationally denied that all the so-called industrial and public utility companies are engaged in pure engineering as well as in trade for profit.
Engineering is one form of applied science, and we find the industries, taken altogether, using the full range of mathematics, physics, chemistry, biology and even, more or less to suit the taste, the social proto-sciences. With more or less growing consciousness they apply pure science to their problems of production. The discovery of a new scientific principle, such as is involved in the transistor, is instantly incorporated into radios. New self-directed machines (automation) are installed on production lines as soon as they are created.
Now, if anyone wishes to contend that all these corporate engineering plants are marvels of modern human ingenuity, he will not bear any demurrer from this observer. He may find, instead, that he has a rival in eloquent advocacy, for I would be the first to agree that all these big corporations in their engineering aspects are among the wonders of the modern world.
But we are not considering them in this aspect--we are taking this showy aspect wholly for granted. We are considering them only in their corporate aspect, their juridical and quasi-political as well as financial-economic aspects. One not only concedes but proclaims and insists upon the fact that E. I. du Pont de Nemours and all the others have marvelous plants and general offices, based upon the latest scientific principles.
Few of the finpols, however, are au courant with their enterprises in their scientific and engineering aspects. Like the man in the street, they couldn't tell one much about molecules, atoms and sub-atomic particles nor about the principles of mechanics. Their knowledge has to do largely with principles of accounting and finance, law, cost analysis, taxes, prices, political negotiation, marketing, general organization--and profitability. They are largely creatures of the executive suite and boardrooms and the higher political caucuses rather than of the plant. They know far more about tax structure than about atomic structure.
And it is just these societal aspects, their particular area of interest, that is our area of interest. We take for granted the work of the scientists in the laboratory and the
technicians and engineers in the plants. They have those, too, in Soviet Russia and Communist China where, however, they do not have finpols.
Portent of good or evil, depending upon one's point of view, it is nevertheless a differentiating descriptive fact.
What most basically confronts us is not only different legal systems but different types of legal systems. The finpols and finpolities have come into historic view, chiefly with the aid of modern technology which they neither invented nor developed, in our sort of political system They constitute our problem, if problem they are, and this problem is in the truest sense political rather than economic or technical.
We are, then, interested in the finpols and finpolities from a political point of view. We do not identify the corporations in their essence either with their plants, which are among the most praiseworthy structures in the land, or with their products. While nylon to the average citizen may connote Do Pont, to us it connotes only chemistry. What Do Pont connotes to us--and Ford, Rockefeller, Mellon and the rest--is finpolity.
Eight
UNDERSTRUCTURE OF THE FINPOLITAN ELITE
As the various finpols and finpolities are rivalrous at least in respect to making and retaining money, how and in what way do they act in concert, if they act in concert at all? Do they, in fact, act in concert in imposing faits accompli and policies on the nation?
To conclude that they more or less loosely act together as a moneybund is to proclaim oneself at once an adherent to what is pejoratively called the conspiracy theory, widely frowned upon by latter-day organizational academics in grey flannel suits (many of them briskly on the way up to the State, Defense or Treasury Departments or to the foundation refreshment troughs). In a broad sense, as it has been observed by unabashed exponents of the conspiracy theory, all history is a conspiracy. In this sense the word no more than broadly and perhaps privately and even unconsciously indicates coordinated action toward some mutually agreed upon end or ends at variance with public expectations; manifestly it does not have its specialized meaning in law.
In any event, overeager members of the financial elite have been caught and convicted in American courts of many literal subconspiracies, so that even in the narrow juristic sense many of them stand forth individually as certified, simon-pure conspirators. Consequently, even if there is not a single all-embracing conspiracy in juristic terms, it is a fact that there are and have been hundreds of adjudicated single conspiracies. The conspiracy theory, then, has a little more to it than honors-bouond academics concede.
Three Theories
There are in fact three major sociological theories, academically certified in all solemnity, to account for the phenomenon of socio-economic decision-making, the recondite problem being to determine: Who, if anybody in particular, really makes the basic decisions that govern society? Who calls the shots?
To a considerable extent this is a pseudo-problem, for virtually every person knows that he isn't calling the shots nor are any of his neighbors, co-workers or acquaintances. Everybody knows it is some distant and obscure "they. " But this fact (evident to any intelligent person) is not at all evident to many academics, who have made quite a scholastic mystery out of the whole business. Doubt is raised by some that any individual whatever makes any decisions; the theory is advanced that the entire process is occultly collective.
There is, first, the theory of an elite, which is employed by some masterful investigators.
Next, there is the theory of an inert, apathetic, partially alienated mass society, consisting largely of P. T. Barnum's myriad suckers and H. L. Mencken's swarming booboisie--the denizens of the grandstands and taverns. According to this theory, as most people are supine, unresponsive, childishly credulous and seeking no more than a job, diversion and comfortable mediocrity for themselves, the few who are seriously active emerge spontaneously at the decision-making level, more or less by default. As Tom, Dick and Harry won't bestir themselves and George the doer does, George finds himself willy-nilly among the decision-makers, a natural leader. But he got there more by chance than design, chosen if at all merely by fitting into the pattern of things and events. No conspirator he, no boob and no elitist.
There is, finally, the pluralist theory, according to which many diverse groups, individuals and forces confront each other in various ways, and under various cultural auspices arrive after debate by consensus or compromise at decisions, a notion that fits in neatly with democratic prescriptions. The process is presented as one of mutual accommodation.
There is something to be said for each of these theories, as each explains some of the data. Obviously a single synthesizing theory would be preferable. Lacking such, one can, and many sociologists do, attempt to blend them or to use them all. But as this is eclectic, theoretical purists are offended. The world, however--even the small world of society--is more complex than any all-embracing theory about it.
My own tacit use of these theories with respect to our subject is hierarchical and eclectic in the order stated. The facts strongly suggest to me, in other words, that the elitist theory best explains the facts. Whatever it fails to explain is then explained by the concept of the mass society. Finally, in many matters, less paramount in almost every single case, the pluralistic theory does come into play as it finds supporting data. But it is far less often significantly applicable than its sponsors suppose.
Actually.
