*^ Nor are the data local; the
situation
is ap-
pretation of the law.
pretation of the law.
Brady - Business as a System of Power
, the DuPont family with $573,690,000 holdings in E.
I.
DuPont and the U.
S.
Rubber Co.
, The Rocke- feller family with $396,583,000 in the Standard Oil Cos.
of New Jersey, Indiana, and California and Socony Vacuum Oil Co.
, the Mellon family with $390,000,000 in Gulf Oil, Alcoa and Koppers, the McCormick family with $111,102,000 in the International Harvester Co.
, the Hartford family with $105,702,000 in the A.
and P.
Co.
, the Hark- ness family with $104,891,000 in the Standard Oil Cos.
of New Jersey, Indiana and California and Socony Vacuum Oil Co.
, the Duke family with $89,455,000 in Duke Power, Alcoa, and Liggett and Myers, the Pew family with $76,628,000 in Sun Oil, the Pitcairn family with $65,576,000 in Pittsburgh Glass, the Clark family with $57,215,000 in Singers, the Reynolds family with $54,766,000 in Reynolds Tobacco, and the Kress family with $50,044,000 in Kress.
New York Times, Oct.
16, 1940.
See also TNEC Monograph No.
29, pp.
1505-28.
20 See "Blum Grapples with the 200 Families" by P. June 14, 1936.
21 Haxey, Tory M. P.
22 See Brandt, op. cit. ; Kolnai, The War against the West, pp. 322-93. An interesting example of family influence in a single industry, the German machine making in- dustry, is provided by a recent article by Dr. Otto Suhr, 'Tamilientradition im Ma- chinenbau," Zeitschrift fUr Betriebswirtschaft, Feb. , 1939.
23 See Louis R. Launay, De Wendel (Vaucresson, 1938). 24 See Neumann, op. cit. , pp. 288-96.
J.
Philip, New York Times,
?
233
? 234
ECONOMIC POLICIES
A fifth factor is found in the fact that leadership within the circle of the giants seems to be shifting steadily towards the heavy and the "laboratory-baby" industries. The heavy industries occupied a key position in the producers'-goods industries during the period of rapid expansion of industrial apparatus in the North Atlantic industrial nucleus before 1914, and were intimately connected with war and armaments programs from that time on; for these reasons they have long occupied positions of commanding impor- tance in the field of corporate concentration. The "laboratory babies" include electric manufactures and power, rubber, auto- mobiles, airplanes, radio, aluminum, petroleum, movie produc- tion, telephone and telegraph, rayon, plastics, heavy chemicals, and so on. These industries have either been launched on a large-scale basis or have quickly and by forced-draft growth become gigantic manufacturing and marketing systems early in their careers; ^^ most of them are less than fifty years old; all are dominated by huge, closely interlocking corporate complexes. The significance of this leadership lies in the following facts.
1. Metals, fuels, and heavy chemicals have, since 1914, been in- creasingly dependent (secularly) upon war and armaments prepara- tions for full prosperity. The principal exceptions are to be found in the United States during the middle and late twenties, and in the Ruhr and Rhine during the rehabilitation and "rationaliza- tion" period (1924-29). After 1914 elsewhere, and in the United States after 1939, war and armaments programs have comprised so large a part of total demand that once the adjustments in capacity have been made to meet these markets permanently, the failure of the demand looms as a major and irreparable catastrophe not only to individual industries, but also to the entirety of the industrial complexes of which they are the gravitational centers.
2. The heavy and armaments industries have, with the advance of science and technology, largely grown together "organically" at the manufacturing base. So close have become the materials,
25 Many older, empirically grounded industries have long since become dependent upon laboratory research. Steel-making is itself a conspicuous example: continuous heat-processing, vertical integration from the ores and fuels on through to the finished plates or tubes, etc. , by-product utilization (ammonia, tars, and allied dis- tillates from by-product coke ovens), increasing use of alloys such as molybdenum, magnesium, nickel,--all these require heavier and more consistent reliance on laboratory experimentation and control.
? ECONOMIC POLICIES
processing, and in part, the product interdependencies among cer- tain industries--coal, coal by-products, heavy industrial chemicals, war munitions, steel, steel-alloy, light metals (in particular alumi- num and magnesium), armaments, shipbuilding, machine and machine-tool building, and numerous others that are closely al- lied--that these industries form a series of complexes wherein only the fictions of corporate groupings survive (as in the railroad sys- tems of the United States and England) to confute the impression that one is dealing here with a single technological network.
3. No clear line separates these heavy-armament industries from the other "laboratory babies. " Neither technologically nor in terms of the configuration of corporate interests can a sharp line of de- marcation be drawn in any major industrial country between heavy and light chemicals; between machine industries manufacturing for peace and for war; between explosives and gas manufacture and the making of rayon, nylon, and plastics; between the manufacture of electrical apparatus and the alloy and light metals manufactures on the one hand and the automobile, rubber, airplane, engineer- ing, and similar industries on the other. If space were available, illustrations both from the technological and the corporate sides could be multiplied almost endlessly from the different countries we have cited. And the over-all movement through modern indus- try in general is clearly in this direction.
Firms working in these fields are thus drawn together by com- mon problems of scientific research, of manufacturing, and of man- agement and control. 2^ Access to the field is increasingly shut off by monopoly rights over laboratories, by exclusive and patent- controlled processes and products, by systems of pooling of patents within narrower and narrower circles, by high costs of initial capi- tal requirements, the inability to command a market without grant of special privileges by concerns already existing in the industry, but above all, by the nature of the industrial complex the new- comer must be adjusted to at the outset. In short, all the necessary conditions exist for expansion of supermonopoly powers through-
out these complexes as well as throughout the individual corpora-
26 Factors of a management and service character have played a very important role in the combination movement in public utilities in general. See James C. Bon- bright and Gardiner C. Means, The Holding Company (New York, 1932), pp. 176-87, 312-15-
235
? ECONOMIC POLICIES
tions comprising them. On the other hand, in so far as they are dependent upon war or upon public-works programs, they are faced with the further monopoly-encouraging conditions of "mo- nopsony"--single buyers. Probably half the demand of Kuhlmann, Schneider-Creusot, Montecatini, Vickers, Krupp, Skoda, special- ized branches of Bethlehem, DuPont, the Zaihatsu, and of the various aircraft companies falls into this class, whether war is being waged or not. In wartime, some such proportion (or a higher one) becomes valid for the bulk of other companies falling into the same classifications. As will be shown later, war or a status of suspended belligerency is swiftly becoming the normal, not the exceptional state of contemporary affairs. And the existence of a single buyer almost invariably promotes combination against sellers--in war- time the rule almost becomes a maxim. ^^
Two other factors deserve mention in this catalogue of forces which cumulatively enhance the relative importance of the giants in the larger coordination movement. They need not detain us long, since both are obvious and well known. The first is the fact that the interlinkages between the great industrial combines and the central financial and banking institutions have generally be- come so close that the division between them is functional rather than corporate. The greatest industrial concerns in Japan and Ger- many are the principal bankers. The Credit Lyonnais is probably the most powerful single force in French industry. Equally close are the tie-ups between the great central banks and the huge industrial and transport combines in Italy, England, and the United States. ^^ The finance committee with its various banking and other finan- cial connections tends to come to the fore within the industrial
27 Once capacity has been adjusted to war demands, the conditions of peace mean excess capacity and unemployment; if the war realignment is structurally far- reaching, this excess can probably only be taken up by huge public-works programs --thus perpetuating into peacetimes, in proportion to the excess, the monopoly- promoting conditions of monopsony. All intercartel agreements, of course, have a like effect, and war tends greatly to accelerate such compacts.
28 See Bonbright and Means, op. cit. , for a description of how the three great in- vestment banking houses of Morgan, Drexel, and Bonbright were enabled by a combination of well-placed minority holdings (in companies whose stocks were widely held by the general public), financial power, and their enormous influence and prestige, to control almost the whole of the American electric utility industry. For comparable data, see Liefmann, Beteiligungs- und Finanzierungsgesellschaften, covering English, French, German, American, Swiss, Belgian, and other financing holding-company, trust, investment trust, and similar forms of business organization.
236
? ECONOMIC POLICIES
237
control pyramids; simultaneously blocks of special industrial in- terests tend to dominate the policies of the great banking houses at the center of the financial webs of control upon which the entire business community is dependent. ^^
There can be no question but that such interconnections and interdependencies in the more important capitalistic countries enable the giant concerns to exercise undue leverage over the small businessman. The attempt by various national governments to provide special banking facilities for easy and cheap credit to little business shows how acute the problem has become. ^"
But there is one final sphere in which the power of the giants over smaller concerns is practically without recourse from any angle--that of international trade. The foreign banking, indus- trial, and commercial systems of concessions, branches, affiliates, minority holdings, communities of interest, interlocking director- ates, compacts and agreements of the several great national com- bines are too well known to require elaboration here. ^^ It only needs to be pointed out that, in the principal lines of manufacture and sale, no small enterprise or grouping of small enterprises has any chance of breaking into foreign markets against the opposition of the giants acting in concert, without allying themselves with or selling through one of these or a group of them.
And on this score, there is much less of a tendency for the giants
29 Particularly true in Germany where a number of the leading industrial giants have established their own so-called "House banks. " Somewhat similar is the case of the Rockefeller, DuPont, and Mellon controlled banks in the United States.
30 This subject largely dominated the hearings, plans, and negotiations of Secre- tary Roper, inaugurated in 1937 to solve the problems of the "little business man," and became a theme song for the crop of little businessmen's associations which sprang up shortly thereafter. See, e. g. , the platforms of the Smaller Business Asso- ciation and the American Federation of Little Business. The various governmentally controlled banks working with the Japanese National Planning Council and the Capital Adjustment Commission appear to have had the little businessman in mind for special attention. Similar agencies have been proposed or established in both Italy and Germany, though results in salvage of the little businessman's fortunes do not seem very striking in such quarters.
31 Two very interesting recent examples are provided by exposes of the armament industry's ramifications and the international network of the Aluminum Company of America. See H. C. Engelbrecht and F. C. Hanighen, Merchants of Death (New York, 1934), largely based on data from the Nye Investigation of the munitions industry; and see also proceedings in equity in the District Court of the United States for the Southern District of New York, Brief for the United States in Support of a Pre- liminary Finding of Conspiracy among Alcoa, Aluminum Limited and the Foreign
Aluminum Companies (June 1, 1939).
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? 238 ECONOMIC POLICIES
to help their own small competing nationals in foreign markets than for them to divide by special agreement domestic and foreign markets amongst the huge combines dominant in the several na- tional territories. ^^ Thus Krupp, Vickers and Schneider-Creusot got together to divide and allocate markets for arms and munitions. General Electric and Krupp divide the markets for bar-metal com- pounds, the German Dye Trust and Standard Oil markets for hy- drogenated oil products, and so ad infinitum. In these agreements markets are increasingly divided along the following lines: (a) the domestic market is reserved for each, or some specific portion of it is allotted to domestic manufacture (e. g. , the Bausch and Lomb- Zeiss agreements on optical glass; General Electric and foreign pro- ducers on incandescent lamps); (b) the adjoining space or conti- nental area is reserved for each or a combination of each concept of Grossraumwirtschaft (e. g. , agreements of DuPont and Imperial Chemicals on munitions; Alcoa and the Aluminum Cartel); and (c) "competing" territories are handled increasingly in such a fashion that either the price structures agreed upon will not be disturbed through ''open competition," or dumping is resorted to on a bitterly cutthroat basis. If the former, it is usually because patents are so pooled or agreements so drawn that "outsiders" can- not possibly break in; and if the latter, then because no small con- cern unaided and by itself can possibly meet the pace once the struggle reaches a sanguinary stage. ^^
32 "One case concerns an American optical company, which, during the last 5 years, has manufactured, distributed, and sold approximately 50% of all U. S. military optical instruments. These have included periscopes, range finders, altimeters, bomb sights, torpedo directors, etc. This corporation arranged with a leading German corporation, operating in the same field, to divide the world market; to limit sales to allotted territory; and to fix and maintain prices and terms of sale. The German and American corporations agreed to conceal the existence of the contract from third parties, and the latter corporation agreed to pay to the other a royalty equal to a percentage of the gross sales price of each military optical instrument sold, in- cluding equipment sold to the United States Government. " Resolution by Senator Wheeler calling for an Investigation of Interstate Commerce Conditions Affecting National Defense, Sept. 18, 1940.
S3 It is noteworthy that none of the small American business groups has been able to see any other solution to its problems except to pool resources and behave in imitation of those against whom they are organizing--collusively with respect not to the large concerns or trade associations of the large, but with respect to that por- tion of the public which it may be able to call its own. Conversely, one will search through the records of monopolistic practices of the large combines in vain for instances where the little businessman was left unscathed, even when he was not the direct object of attack.
? ECONOMIC POLICIES
Such a classification of the reasons for the growing relative im- portance of the giants in the formulation of business policies does not by any manner of means exhaust the possible listing. But it may possibly cover the most important casbs. A little careful inspection of the voluminous records on which these generalizations are based will show convincing evidence not only that these trends are con- temporaneous and mutually reinforcing, but also that no competi- tive restraints or combination of competitive restraints can any longer be expected to stop or seriously to inhibit the vaulting powers of these great interlinked aggregations of large-scale cor- porate enterprise. Government may be able to do so if, when, and where it is able to shake itself free from direct or indirect manipu- lation by the powers it seeks to control. But so far as it fails to do so, by so much the mantle of political authority is simply shifted de facto from its former popular, or constitutional, base to another which stems from the inner councils of these huge corporate com- plexes. ^* But of that, more later.
CHANGES UNDERLYING POLICY-FORMULATION WITHIN THE CARTELS
The term "cartel" has lost its old precision. Once it stood simply for a contractual relationship, usually enforceable at law, between a number of enterprises which had banded themselves together for a fixed period of time in order the better to regulate prices, or production, or marketing terms, conditions and areas, or some other feature of business relating to a single or a closely related group of commodities produced by its members. Now that the term has come into general circulation, it has come to mean any sort of compact--whether recognized and enforceable by law or not--between two or more concerns for the purpose of manipu- lating one or more of the elements of conducting business to the advantage of the participating parties. Even in the classical home of the cartel, Germany, it has long been difficult to distinguish be-
34 The comment of the Wall Street Journal, April 28, 1941, on recent developments in Japanese "Co-prosperity sphere" plans is illuminating: "Recent strengthening of the power of business circles in the Konoye Cabinet will not mean abandonment of Japan's plans for economic regimentation and southward expansion. A good many leading 'liberal' businessmen, including the newly-appointed economic coordinator, Masatsune Ogura, whom some industrialists refer to as Japan's Goring, are toying with the idea of totalitarianism in Japan, only a totalitarianism run by businessmen. "
239
? 240 ECONOMIC POLICIES
tween the practices of cartels and those of many of the more power- ful trade associations such as the Federation of German Machine Building Associations (VDMA) or the Association of German Iron and Steel Industrialists. British writers use the terms "trade as- sociations" and "cartels" more or less interchangeably. In France the members of the Comite des Forges have entered into many dif- ferent "comptoirs," but what of the Comite des Forges itself? Many of its activities have long been of a distinctly cartel-like character. ^^ Thurman Arnold of the Anti-Trust Division uses the term to apply to any American trade association pursuing policies which bind its members to behave non-competitively. ^^
More than mere loose thinking is involved here. Actually, a vast and complicated system of collusive practices has come into being since the First World War having the effect of cartel agreements; it appears under a multiplicity of guises and is given effect through a wide variety of associational forms. To the economist the realities of practice, not the fictions of law or the accidents of terminology, must occupy the center of the stage. And from this point of view, it is probably not too far from the truth to say that practically all of the swiftly proliferating meshwork of trade associations found in all capitalistic countries of the world perform one or more func- tions of a distinctly cartel-like character. Adam Smith's dictum ap- plies to the usual, not the exceptional case. And even those which are economically functionless seem on investigation to be going through motions, like the wind-up of the pitcher before delivery of the ball, prefatory to more forceful and purposive action.
A couple of examples will serve to show how pervasive cartel- like policies have become. In Germany, none of the laws commonly called "Cartel Laws" apply singly and solely to collusive groups formally recognized in law as Cartels. For example, the famous "Law Against the Abuse of Economic Power" ("Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen"), passed in 1923, ap- plied to "Syndicates, Cartels, Conventions and Similar Agree-
35 See, in particular, Bezard-Faglas, Les Syndicats patronaux de I'industrie metal- lurgique en France.
86 Compare Arnold, op. cit. with the report on cartels prepared by Theodore Kreps and presented before the Temporary National Economic Committee. The Kreps view, which seems to have shared in the thinking of Mr. Leon Henderson of the TNEC, inclines quite favorably towards good cartels, while frowning--not very severely--at the bad.
J.
? ECONOMIC POLICIES 241
ments. " The text of the law (as of those which followed in July, 1930, August, 1930, August, 1931, December, 1931, and July, 1933) refers but incidentally to those combinations as "Cartels. " The last-named law (1933), "Concerning the Forming of Compulsory Cartels," places the cartel at the center of the discussion only be- cause it refers to all agreements entered into under authority of pre-existing laws by the generic term "cartel. " ^^ The Cartel Bu- reau (Kartellstelle) of the old National Federation of German In- dustry (Reichsverband der deutschen Industrie) handled cartel problems as specialized activities of its members, separately grouped in the Federation by industry and trade categories and organized as trade associations. The left hand took care of cartel problems; the right hand managed the larger interests into which
cartel practices were dovetailed. ^^
There can be no question but that the National Federation of
German Industry and all of its member bodies were engaged di- rectly or indirectly in the exercise of cartel controls. And, as has been pointed out elsewhere,^^ the organizational network of pre- Nazi Germany, brought together and centralized in the Spitzen- verhdnde, was well-nigh all-inclusive by the time the new regime took over. Not far behind Germany of that date stand England, France,*? and the United States of the present. Fascist Italy and post-Nazi Germany ^^ have seen the web of cartel-like controls still further extended.
37 For texts of these laws, and an exhaustive commentary on the history of cartel policy in post-war Germany, see Callman, op. cit.
38 See Max Metzner, Kartelle und Kartellpolitik (Berlin, 1926), and Wagenfiihr, Kartelle in Deutschland.
39 See Brady, The Rationalization Movement in German Industry (Berkeley, Calif. , 1933), Chapter V, and The Spirit and Structure of German Fascism (New York, 1937), Chapter IX; also, W. F. Bruck, Social and Economic History of Germany from Wil- helm II to Hitler, i888-ip^8 and Franz Neumann, Behemoth.
40 The "new" corporative order recently announced in conquered France seems much less revolutionary when viewed in light of the reorganization of the Con- federation Gen^rale du Patronat Fran^ais, following conclusion of the Matignon Agreement in 1936, with the Confederation Gdnerale du Travail. The new group- ings, the new tone, and the new policies which followed the Agreement were en- tirely in keeping with Nazi and Fascist patterns.
41 "Only transitorily and superficially did the beginnings of the new relationship between the state and the economy appear hostile to cartels. The development of National Socialist cartel policies during the last year shows a replacement of rigorous cartel supervision by policies designed to guide the economy and regularize markets with and through the cartels. This is readily shown in the law and in legal inter-
? 242 ECONOMIC POLICIES
A second example may be taken from the building industry in the United States. According to Assistant Attorney General Ar-
*2
nold:
Producers of building materials have fixed prices either by private arrangements or as the principal activity of trade associations. Owners of patents on building materials have used them to establish restrictive structures of price control, control of sales methods, and limits upon the quantities sold. . . . Some of these patent holders have taken ad- vantage of their control over patented products to require their licen- sees to give them control of unpatented products also. By the use of basing point systems and zone price systems, various building materials industries have established by formula a rigid structure of uniform prices throughout the country; and in some of these industries such price formulas have encouraged the wasteful shipment of products to great distances. The use of joint selling agencies has been another means by which some of these groups have undertaken to maintain their prices. In some groups the various producers have subscribed to the theory that every member of the industry should have a definite share of what- ever business there is to be done, and that no concern should try to get more than its share by price competition.
Supplementing these various devices for keeping the prices of build- ing materials high have been a series of other devices used to discipline competitors who are unwilling to play ball. In one industry the means is cutting off the supply of raw materials. In another it is starting a series of harassing lawsuits. In a third it is the harassment of distributors by selling through the seller's own factory branches at prices lower than those at which the distributor is permitted to resell. In a fourth it is the maintenance of orthodox channels of distribution by concerted refusal to sell to groups representing new methods of sale or new price policies.
But this is only the beginning. In addition, "there is a growing concentration of control in many of these industries" through combination, merger, communities of interest, and the like. This holds for the distribution of building materials, and down through all the various systems of contracting and subcontracting charac- teristics of the industry.
*^ Nor are the data local; the situation is ap-
pretation of the law. " Fritz Ruble, "Kartellpolitik und Weltbewerbeordnung," Zeitschrift fiir Betriebswirtschaft, 1938, pp. 337-49- See also Bruck, op. cit. , pp. 222-26 and, particularly, Neumann, op. cit. , pp. 261-73.
42 In an address before the National Association of Purchasing Agents at the Fairmont Hotel, San Francisco, California, May 22, 1939. Department of Justice news release.
43 In some of these efforts the trade unions are alleged to have cooperated freely.
? ECONOMIC POLICIES
parently typical of the building industry throughout the entire country. ** Yet the situation within this industry is in no wise unique. In approaching the problem of cartel-like controls within the California food industries, for example, the Anti-Trust Divi- sion is faced with a situation so far advanced along the road of what the London Economist calls "feudalistic cartel controls" *^ that prosecution is faced with only one alternative to passing up the whole matter as beyond redemption, and that is to issue a blanket indictment against the entire industry. *^ Similarly with the petro- leum, movie-production, electric household-appliance, and milk industries,*^ and many if not almost all of the other important indus- trial groupings of America.
See, e. g. . Civil Action No. 698 in the District Court of the United States for the Western District of Pennsylvania, the United States vs. the Voluntary Code of he Heating, Piping and Air-Conditioning Industry for Allegheny County, Pennsylvania, et al. , Dec. 8, 1939.
44 As shown by the effort of building materials dealers in "41 federated units located in approximately 32 states throughout the United States" (FTC Docket No. 2191, Dec. 30, 1937) the local, regional, and in some respects the national markets for building materials are governed by cartel agreements affecting the bulk of the industry. Though enjoined from further such practices by the FTC in 1937, it would not appear from the statement by Mr. Arnold, nor from the numerous indictments handed down by the Anti-Trust Division in 1939 and 1940 against the building in- dustry, that monopolistic practices were checked nor even seriously impeded by the FTC action. "The housing investigation [conducted by Mr. Arnold] resulted in the indictment of 1,358 defendants" (New York Times, November 25, 1940), and the evidence adduced was such as to encourage belief that Mr. Arnold had even then but barely scratched the surface. In fact his economic advisor, Corwin D. Ed- wards, has clearly so stated in his illuminating discussion, "The New Anti-Trust Procedure as Illustrated in the Construction Industry," Public Policy, II (1941), 321-40.
45 "The Economic Front," Economist, Dec. 9, 1939. See also the article "The Cartel- lisation of England," in the Economist, March 18, 1940.
46 Under the California Pro-Rate Act, for example, 65 percent of the producers by number and product may cause a state of "emergency" to be declared by the State Agricultural Commissioner, after which a Pro-Rate Commission can be estab- lished possessed of power to establish crop quotas, crop surpluses, length of the canning season (14 to 16 days for peaches, for example), grades, grades that are marketable, etc. Costs of administration, such as advertising, are collectable through the state tax machinery, and failure to pay is regarded as the equivalent of tax de- linquency. Numbers of farmers are not accurately known in most crop districts, and in many cases the farmers are either tenants of processors and distributors or of banks, or in debt to concerns such as American Can and Continental Can; for all practical purposes the agreements are completely controlled by nonfarmer inter- ests.
47 See, in particular, the indictments by the Anti-Trust Division of the Borden Company, et al. , in the Chicago and Detroit districts. Much the same picture as
243
? 244
ECONOMIC POLICIES
Speaking very broadly, it seems possible to summarize the gen- eral lines of development in this expansion and permeation of cartel policies throughout the national systems of the various capi- talistic countries under the following five points.
1. The line between combinations, mergers, communities of in- terest, intercompany compacts on the one extreme and large na- tional trade associations on the other is, of course, structurally pretty clear. But between the two poles there is an almost infinite gradation of constantly changing forms, techniques, practices and policies. In general, trade associations throughout the world are taking on cartel functions so rapidly that the distinction between different types of cartels and these associations is badly blurred, and in many respects all essential differences are lacking. This is recognized as true by leading authorities in England, France, pre- Nazi Germany, the United States, and Japan. In Fascist Italy and Nazi Germany differences are in part technical and in part func- tional, but in the main cartel-type controls have been accepted as normal and natural for all trades and industries, and the attitude, if not necessarily the detailed forms of their respective "corporate economies," appears to be prototypal for developments in other countries of comparison.
2. It is a characteristic common to practically all leading trade associations and cartels that they seek to eliminate "outsiders" or "free-riders. " The compulsory cartel has achieved this objective in Germany. It is the aim of some of the more closely held British and French cartels, of the various agricultural marketing agreements set up in the United States, Germany, England, and Japan, and of all the trade associations which have succeeded in preserving the leading controls envisaged in NRA, and it is also a motive under- lying the new arrangement of Groups under the Confederation G^nerale du Patronat Fran^ais, and, of course, in general, for the economies of the directly corporate systems. Elsewhere there is a general tendency either to eliminate "outsiders" entirely, or to bring together in the collusive group such an overwhelming major- ity of the industry that "free-riders" would be either of only local
given in these indictments evidently holds for most other large milk-marketing areas. See also Corwin D. Edwards, "Trade Barriers Created by Business," Indiana Law Journal, Dec, 1940, pp. 169-90.
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? ECONOMIC POLICIES
significance/^ or so small and scattered that they might be forced into line at will upon pain of total extinction.
3. There is a clear and wholly unmistakable tendency for the large concerns to dominate more and more completely all forms of cartels and trade associations. This was clearly shown in the bulk of the leading NRA codes, is evident in most of the national and regional trade associations in America, and appears to be true of all the leading German, French, and British cartels and trade asso- ciations. Frequently, cartel activities have paved the way for com- bination of the horizontal type, as for example in the German and British heavy chemicals industries. Sometimes the way was pre- pared by cartels for vertical integration, with the result that inde- pendent enterprises tended to disappear entirely. *^ Frequently, as in the British salt, thread, chemicals, and armaments industries, trade associations were organized as adjuncts for further extending the monopolistic controls of large combines. ^" The existence of cartel controls not uncommonly enhances the superior bargaining power of large concerns producing goods or using materials not included within the cartel bailiwick, as in the case of the vertically organized German steel combine contrasted with the "pure" col- lieries. The combine, when producing for "self-consumption," was not required to charge profit margins at different stages of produc- tion, with the result that the combine possessed a considerable--at times well-nigh decisive--advantage over nonintegrated competi- tors. ^^ But in nearly all cases, both within the totalitarian countries and without, the lead in the organization and direction of both car- tels and trade associations is typically and increasingly being taken by the corporate giants. The policies of these organizations, that is to say, are being molded to the interests, the outlooks, and the pro- grams of the great monopoly-minded corporate groupings.
48 Even here there is a tendency to force recalcitrants into line on many issues such as labor policies, taxation measures, price maintenance, etc.
49 See Herbert von Beckerath, Modern Industrial Organization (New York, 1933), in particular Chapters II and VIII.
50 There are many American examples, e. g. , the National Glass Distributor's As- sociation, organized by the Pittsburgh Plate Glass Company; the New York Sheet Metal Roofing and Air-Conditioning Contractor's Association, dominated by the Fox Furnace Company; the Associated Milk Dealers of Chicago, dominated by Borden's.
61 Particularly interesting in this connection is the evidence submitted to the Enqueteausschuss, by various industrialists connected with the iron, steel, coal and heavy chemicals industries.
245
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4. That is why the following trends, clearly discernible within both cartels and trade associations in general, take on such great significance; these organizations are (a) becoming more perma- nent, less easily broken up by the changing fortunes of business cycles, and their contractual or semicontractual obligations are entered into with an eye to longer-run objectives. Simultaneously, (b) interests are spreading out from a single line of control (such as prices, or production, or marketing areas, or conditions and terms of delivery, or patent pooling) to take on other functions, and, in some cases (notably the "compulsory cartels"), the whole range of cartel functions. With this go (c) tendencies for the cartel to resort to some degree of central management of supplies or sales (''syndi- cates"), or labor, or engineering and accounting. This is, in turn, (d) paralleled by a general and well-nigh universal tendency for all these associations--in "proportion" as they take on a more cartel-like character--to band or group together into regional, commodity, and industrial central or peak associations (Spitzen- verbdnde). Finally, (e) there is an almost universal tendency, once this level of development has been reached, for members increas- ingly to try to limit business transactions to members, and for trade associations and cartels to deal with each other as exclusive agents for their respective memberships. The governance of the resulting system of intertrade compacts, agreements, negotiations and rela-
tionships then comes to be one of the principal activities of the Spitzenverbdnde. ^^
5. The relationship between the foregoing tendencies and the correlative rise and universalization of "mercantilistic" practices wherein the normal course of business as usual leans ever more heavily upon a generalized system of state aid--within the several national states, becomes clearly one of mutuality, interaction, and interdependence. The two lines of change have a common histori-
52 See, Bruck, op. cit. and Neumann, op. cit. , pp. 263-65, for a more recent discus- sion of National Socialism. In the 1925 Yearbook and Register of British Manufactur- ers, published by the Federation of British Industries, mention is made of ". . . a strong feeling . . . that so far as possible, members should give each other preference in placing orders, and the system of inter-trading is now rapidly gaining ground amongst members" (p. 23). The Nazis and the Fascists, with their widespread systems of inter-trade compacts, appear as the culmination and logical fulfillment of a process which becomes more and more formal and general as the networks of business spread out, lines of influence are transmuted into frames of control, and powers are gathered up and centralized in peak associations.
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cal origin, and they run their parallel courses over the same span of time. In a multitude of ways advance in one leads to advance in the other.
Neither cartels nor trade associations, of course, can any longer be called "children of necessity. " But tariffs, subsidies, subven- tions, government loans without interest, laws allowing resale price maintenance, can, however, be regarded as successful products of the mounting demand of massed special interest groups of busi- nessmen, and their direct, coordinated, and organized efforts to see that governments stand perpetually prepared to grant what- ever aid their several plans and programs require. Without impor- tant exception in any of the major capitalistic countries, the neces- sary enabling laws have been lobbied through by business interests. The Spitzenverbdnde endeavor to see only that the basic laws and the mass of administrative decisions flowing from them generalize the gains and even cut the losses. The rule, as in early mercantilistic times, becomes one of concession, grant, honoraria, "special privi- lege. " Fully rationalized and centrally governed via the Spitzen- verbdnde, organized to the outer limits of trade and industry, the logical result of such generalized Priviligierung is cumulative ap- proximation to the generic conditions of the corporate or "guild" state. *^(R)
THE ECONOMIC POLICIES OF THE SPITZENVERBANDE
This means a great deal more than that the business life of the major capitalistic countries is being organized in ever more closely cooperating, bureaucratically directed, and monopolistic federa- tions of business interests. It means that direction throughout all this vast proliferating machinery is ever more clearly and insist- ently being centered in the hands of the corporate giants. It is not only their interests that dominate in the larger sphere of action, but their manners of procedure, their organizational patterns, their points of view, and their conceptions of the larger objectives of economic policy as a whole. The shape of things present and to
53 This is the term employed by the official Italian propaganda agency in America, the Italian Library of Information, to characterize for American readers the leading features of Fascist social -economic organization. See The Organization of Production and the Syndical Corporative System, an Outline Study.
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come in this universe of motion are, to be true, by no means free of confusion, but the general lines of force are ribbed boldly in view.
The "Industrial Complex. '*--The case is more easily made be- fore the law or to the general public for treating an entire industry, or a series of closely related industries, as a single managerial en- tity where the integrative pressures of technology have led directly to the concept of a single, all-inclusive engineering system--local, regional, national, or continental wide, a system which can only be broken up by going to more primitive methods of production. ^* Falling into this class are the systems of transportation and com- munication: railroad, highway, inland-river and coastwise ship- ping, airplane, bus, truck, telephone, telegraph, cable, postal service, radio, gas, water, pipeline, and power grid (inclusive of production, transmission, and distribution). In all these cases engineering, cost accounting, and management factors all conspire to favor for each appropriate territory a single, unified, and all- inclusive network under a single management charged with the task of organizing the whole with the minimum of duplication and overlapping. In some cases, such as the transportation and the communication groups, similar factors create conditions favorable to mono-management on an interindustrial and interservice basis; thus the railroads are technologically integrated systems, and other industries in these groups are bound together into actual or po- tential one-management systems.
This general category of industries is commonly said to be made up of "natural monopolies," and its members are thought to be peculiarly "affected with a public interest. " But whether so con- sidered or not, and whether owned and operated as governmental,
84 Developments of this character, combined with the increasing freedom of managerial circles from direct responsibility to the rank and file of property owners, have excited James Burnham to prophesy, in his Managerial Revolution (New York, 1941), that managers will become the new "ruling class" in the place of the capitalists. The whole argument is based on a misunderstanding of the location and source of power of existing managements both here and abroad, and confuses machinery of execution with structures of domination; in the same way, Paul Einzig ("Hitler's 'New Order' in Theory and Practice," Economic Journal, Vol. LI, No. 201, April,
1941) confuses planning and central management with antidemocratic and regional exploitation. But "planning" is a "tool" and "structure" is a "device" and nothing more. The question is not "management" and "planning," but who manages what, by what means, and to what ends.
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249
private, or "mixed" enterprises, these industries are all character- ized by the case they present for being organized as single, central managerial systems. ^^ Throughout there is a clear and unmistaka- ble long-run tendency for corporate groupings to be reshuffled so as to correspond to management imperatives--for, in other words, corporate holdings or management controls to become cotermi- nous with industrial, engineering frontiers. ^^ Most backward in these respects are the railroad systems of the United States," Eng- land ^^ and France; the telegraph and radio systems of the United States; ^^ the power systems of Germany,^? the United States, and
56 Which does not, of course, preclude a high degree of regional or functional de- centralization of a system functioning as a single managerial entity. The A. T. and T. , perhaps the best example outside of the postal services in the United States where corporate and network frontiers are almost entirely identical, has also been the leader in the development of methods of managerial decentralization.
66 How important these factors may become in future governmental policies toward "trust" developments is shown by Mr. Arnold's dictum, speaking on behalf of the Anti-Trust Division of the Department of Justice, that "the rule of reason is the recognition of the necessities of organization in a machine age. " This he interprets to mean specifically that the government will not proceed against, (1) "combinations which actually contribute to the efficiency of mass production," (2) "concerted action which goes no further than to insure orderly marketing conditions," and (3) those "monopolistic restraints" which, if proceeded against, would involve "economic dis- location in great industries. " Speech before the National Association of Purchasing Agents, San Francisco, California, May 22, 1939 (Department of Justice news release). It is not hard to see how a good combination of ambidextrous legal talent, gifted cost accounting, and clever management engineering might bring almost any com- bination out of the antitrust shoals under shelter of these wide-ranging criteria.
57 It is significant, however, that the ICC has long been committed to the principle of regional amalgamation, fusion of terminal facilities, etc. See in particular, the various reports of Commissioner Eastman during his incumbency as Coordinator of Transportation.
58 The English railroads, over fifty major and several minor lines, were brought together into four major systems in the early twenties. Measures are now being taken to fuse these four into a single rail network.
59 There is not the slightest justification from a competitive or a general economic point of view for the duplicate systems of Western Union and Postal Telegraph. No parallel to this duplication is to be found in any other major industrial country in the world. The American radio system is somewhat more complex, but it is equally out of date.
60 See, however, the plan of Oskar von Miller, Ausfuhrungen des Sachverstdndigen Dr. Oskar von Miller iiber die derzeit wichtigsten Fragen der Elektrizitdtswirtschaft, and Gutachten iiber die Reichselektrizitdtsversorgung (Berlin, 1930). Much of this plan has actually been carried into effect. Under stimulus, however, of a developing war psychology, accompanied by military plans for industrial decentralization of in- dustry, there has more recently developed considerable opposition to a central Ger- man power grid. See, various issues of ETZ from 1932 to 1936, the Archiv fiir Wdrme- wirtschaft, and Elektrizitdtswirtschaft, German journals devoted to the electric power industry; and see also F. Lawaczek, Technik und Wirtschaft im Dritten Reich (Mu-
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France; and the bus, truck, and internal waterways systems of all countries except Germany. ^^ Intertransport systems have been worked out comprehensively only in Germany,^^ ^nd intercom- munications systems only in Germany, Italy, and England. (R)^
A situation somewhat similar to that of the public utilities is found with all those industries which have (a) been growing to- gether, quasi-organically, at the manufacturing base, and to which (b) entrance is controlled through closely guarded engineering and research factors. In the first case there is a tendency for a complex of industries (the Russians use the term "Combinat") and in the second case for entire single industries to be fused together, so that in analysis one is compelled more and more to proceed as though one were dealing with single managerial units instead of collectivi- ties of separate enterprises. Either or both tendencies appear to be pronounced with all those types of enterprises termed "laboratory babies" above (heavy chemicals, plastics, electrical apparatus, pulp and paper, armaments). These industries may possess a common source or series of sources of raw materials, or a series of dovetailed "flow-type" processes, or monopoly of the necessary initial knowl- edge obtainable only from secret sources of information, or basic and indispensable patents on machinery, processes, or products. Such possession enables a single concern or a group of closely co- operating concerns to force entire industries into line, with the effect that one or more of the conditions and terms of conducting
nich, 1932). Plans of the Belgian engineer Oliven for an European-wide superpower grid have fallen afoul of analogous misfortunes.
61 A fair degree of unification has been achieved in the United States in the bus systems operating between major traffic terminals, and in some cases between railroad and bus transport. Steps have been taken by a number of railroads, led by the Pennsylvania, to dovetail rail and local freight trucking facilities.
62 The German intertransport network is not altogether complete, but it has be- come very nearly so with simultaneous over-all organization of each of the separate types, and then interlinkage step by step amongst them as fast as plans could be worked out. Model systems, in this respect, are the long-distance rail, short-distance bus, the rail, airplane, and postal bus passenger service, the Rhine water and rail freight traffic, and the rail and truck pick-up and delivery system in Berlin. The initial efforts of the giant Hermann Goring VS^orks to unify the Danubian water transport system foreshadow extension of the networks for the whole of the European mainland. See Lachman, op. cit.
63 Most complete are those of Germany and England, where all communication services are centered in the post office. The Italian and Japanese are not far removed from a like level of development.
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business are centrally managed and controlled throughout the entire industry. *'*
Certain of the conditions peculiar to the "laboratory babies," of course, are rapidly coming to govern the vast majority of the leading industries throughout the world. But in the absence of such pressures, the effect of partial managerial control may be had through the pooling of resources by the establishment of central cooperative facilities, such as laboratories, market information services, and joint management committees of one sort or another dealing with standards, grades, advertising, apprenticeship, fore- manship, public relations. (R)^ Individual firms may seek to depart from this cooperative set-up; but if the information is of critical importance, or if the standards are fundamental to the evolution of a system of interchangeable parts, or if the failure to adhere to the advertising schedule thereby causes a dangerous pyramiding of competitive costs, then firms may be compelled to hew pretty close to the line fixed, and will rarely be able to go far beyond the techniques and practices agreed upon in conference. ^^ The en- vironment, that is to say, becomes favorable for acting as though the association of cartel had become, through close and long col- laboration on vital issues, to some degree or other a single-manage- ment enterprise, and as though the member concerns were branch
6* Perhaps the best examples are to be found in the interests grouped around Standard Oil and DuPont in the United States, Imperial Chemicals in England, and the I. G. Farbenindustrie, Krupp, and possibly the Hermann Goring Works in Ger- many.
65 There are several dozen trade-association laboratories in the United States (e. g. , the Electrical Testing Laboratories of the Edison Electrical Institute and the National Electric Manufacturers Association, and the American Gas Association's laboratories in Cleveland), in England (e. g. , the British Cotton Industry Research Association and the Research Association of the British Rubber and Tire Manufacturers), and in Germany. A particularly interesting development in the latter country is the evolu- tion of a chain of industry-government supported industrial laboratories known as the Kaiser Wilhelm Gesellschaft, covering nearly every branch of industry in every field. Also of particular interest is the Reichskuratorium fur Wirtschaftlichkeit, a central "rationalization" coordinating body. (See Brady, The Rationalization Move- ment in German Industry. ) A similar body has been set up in Japan but appears to have met with indifferent success. Standards bodies, to be found in every manufactur- ing country, provide also a very interesting method of bringing industrial establish- ments together. (See Industrial Standardization, National Industrial Conference Board, New York, 1929); but the methods here are legion.
66 Such is the case in all "simplification," "typification," fits and gauges, dimen- sional standards for interchangeable parts, methods of testing and rating, standards for control instruments, etc. See TNEC Monograph No. 24, Consumer Standards.
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ECONOMIC POLICIES
or regional offices rather than independent business units--for be- having, in short, as though central direction had been given over to a "syndicate" or a "community of interests," or a formal combina- tion (as in the case of the great German dye trust).
Here again, the position of the Spitzenverbande has been uni- formly to foster, promote, and encourage. This is shown not only by the detail of the activities on which they center their attention, but also by the industrial groupings of their membership. The Grand Council of the Federation of British Industries bears more than a superficial likeness to the National Council of Confedera- tions of the Italian Corporate State and the Gruppen arrangement under the Chamber of Commerce and Industry in Nazi Germany.
20 See "Blum Grapples with the 200 Families" by P. June 14, 1936.
21 Haxey, Tory M. P.
22 See Brandt, op. cit. ; Kolnai, The War against the West, pp. 322-93. An interesting example of family influence in a single industry, the German machine making in- dustry, is provided by a recent article by Dr. Otto Suhr, 'Tamilientradition im Ma- chinenbau," Zeitschrift fUr Betriebswirtschaft, Feb. , 1939.
23 See Louis R. Launay, De Wendel (Vaucresson, 1938). 24 See Neumann, op. cit. , pp. 288-96.
J.
Philip, New York Times,
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ECONOMIC POLICIES
A fifth factor is found in the fact that leadership within the circle of the giants seems to be shifting steadily towards the heavy and the "laboratory-baby" industries. The heavy industries occupied a key position in the producers'-goods industries during the period of rapid expansion of industrial apparatus in the North Atlantic industrial nucleus before 1914, and were intimately connected with war and armaments programs from that time on; for these reasons they have long occupied positions of commanding impor- tance in the field of corporate concentration. The "laboratory babies" include electric manufactures and power, rubber, auto- mobiles, airplanes, radio, aluminum, petroleum, movie produc- tion, telephone and telegraph, rayon, plastics, heavy chemicals, and so on. These industries have either been launched on a large-scale basis or have quickly and by forced-draft growth become gigantic manufacturing and marketing systems early in their careers; ^^ most of them are less than fifty years old; all are dominated by huge, closely interlocking corporate complexes. The significance of this leadership lies in the following facts.
1. Metals, fuels, and heavy chemicals have, since 1914, been in- creasingly dependent (secularly) upon war and armaments prepara- tions for full prosperity. The principal exceptions are to be found in the United States during the middle and late twenties, and in the Ruhr and Rhine during the rehabilitation and "rationaliza- tion" period (1924-29). After 1914 elsewhere, and in the United States after 1939, war and armaments programs have comprised so large a part of total demand that once the adjustments in capacity have been made to meet these markets permanently, the failure of the demand looms as a major and irreparable catastrophe not only to individual industries, but also to the entirety of the industrial complexes of which they are the gravitational centers.
2. The heavy and armaments industries have, with the advance of science and technology, largely grown together "organically" at the manufacturing base. So close have become the materials,
25 Many older, empirically grounded industries have long since become dependent upon laboratory research. Steel-making is itself a conspicuous example: continuous heat-processing, vertical integration from the ores and fuels on through to the finished plates or tubes, etc. , by-product utilization (ammonia, tars, and allied dis- tillates from by-product coke ovens), increasing use of alloys such as molybdenum, magnesium, nickel,--all these require heavier and more consistent reliance on laboratory experimentation and control.
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processing, and in part, the product interdependencies among cer- tain industries--coal, coal by-products, heavy industrial chemicals, war munitions, steel, steel-alloy, light metals (in particular alumi- num and magnesium), armaments, shipbuilding, machine and machine-tool building, and numerous others that are closely al- lied--that these industries form a series of complexes wherein only the fictions of corporate groupings survive (as in the railroad sys- tems of the United States and England) to confute the impression that one is dealing here with a single technological network.
3. No clear line separates these heavy-armament industries from the other "laboratory babies. " Neither technologically nor in terms of the configuration of corporate interests can a sharp line of de- marcation be drawn in any major industrial country between heavy and light chemicals; between machine industries manufacturing for peace and for war; between explosives and gas manufacture and the making of rayon, nylon, and plastics; between the manufacture of electrical apparatus and the alloy and light metals manufactures on the one hand and the automobile, rubber, airplane, engineer- ing, and similar industries on the other. If space were available, illustrations both from the technological and the corporate sides could be multiplied almost endlessly from the different countries we have cited. And the over-all movement through modern indus- try in general is clearly in this direction.
Firms working in these fields are thus drawn together by com- mon problems of scientific research, of manufacturing, and of man- agement and control. 2^ Access to the field is increasingly shut off by monopoly rights over laboratories, by exclusive and patent- controlled processes and products, by systems of pooling of patents within narrower and narrower circles, by high costs of initial capi- tal requirements, the inability to command a market without grant of special privileges by concerns already existing in the industry, but above all, by the nature of the industrial complex the new- comer must be adjusted to at the outset. In short, all the necessary conditions exist for expansion of supermonopoly powers through-
out these complexes as well as throughout the individual corpora-
26 Factors of a management and service character have played a very important role in the combination movement in public utilities in general. See James C. Bon- bright and Gardiner C. Means, The Holding Company (New York, 1932), pp. 176-87, 312-15-
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tions comprising them. On the other hand, in so far as they are dependent upon war or upon public-works programs, they are faced with the further monopoly-encouraging conditions of "mo- nopsony"--single buyers. Probably half the demand of Kuhlmann, Schneider-Creusot, Montecatini, Vickers, Krupp, Skoda, special- ized branches of Bethlehem, DuPont, the Zaihatsu, and of the various aircraft companies falls into this class, whether war is being waged or not. In wartime, some such proportion (or a higher one) becomes valid for the bulk of other companies falling into the same classifications. As will be shown later, war or a status of suspended belligerency is swiftly becoming the normal, not the exceptional state of contemporary affairs. And the existence of a single buyer almost invariably promotes combination against sellers--in war- time the rule almost becomes a maxim. ^^
Two other factors deserve mention in this catalogue of forces which cumulatively enhance the relative importance of the giants in the larger coordination movement. They need not detain us long, since both are obvious and well known. The first is the fact that the interlinkages between the great industrial combines and the central financial and banking institutions have generally be- come so close that the division between them is functional rather than corporate. The greatest industrial concerns in Japan and Ger- many are the principal bankers. The Credit Lyonnais is probably the most powerful single force in French industry. Equally close are the tie-ups between the great central banks and the huge industrial and transport combines in Italy, England, and the United States. ^^ The finance committee with its various banking and other finan- cial connections tends to come to the fore within the industrial
27 Once capacity has been adjusted to war demands, the conditions of peace mean excess capacity and unemployment; if the war realignment is structurally far- reaching, this excess can probably only be taken up by huge public-works programs --thus perpetuating into peacetimes, in proportion to the excess, the monopoly- promoting conditions of monopsony. All intercartel agreements, of course, have a like effect, and war tends greatly to accelerate such compacts.
28 See Bonbright and Means, op. cit. , for a description of how the three great in- vestment banking houses of Morgan, Drexel, and Bonbright were enabled by a combination of well-placed minority holdings (in companies whose stocks were widely held by the general public), financial power, and their enormous influence and prestige, to control almost the whole of the American electric utility industry. For comparable data, see Liefmann, Beteiligungs- und Finanzierungsgesellschaften, covering English, French, German, American, Swiss, Belgian, and other financing holding-company, trust, investment trust, and similar forms of business organization.
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237
control pyramids; simultaneously blocks of special industrial in- terests tend to dominate the policies of the great banking houses at the center of the financial webs of control upon which the entire business community is dependent. ^^
There can be no question but that such interconnections and interdependencies in the more important capitalistic countries enable the giant concerns to exercise undue leverage over the small businessman. The attempt by various national governments to provide special banking facilities for easy and cheap credit to little business shows how acute the problem has become. ^"
But there is one final sphere in which the power of the giants over smaller concerns is practically without recourse from any angle--that of international trade. The foreign banking, indus- trial, and commercial systems of concessions, branches, affiliates, minority holdings, communities of interest, interlocking director- ates, compacts and agreements of the several great national com- bines are too well known to require elaboration here. ^^ It only needs to be pointed out that, in the principal lines of manufacture and sale, no small enterprise or grouping of small enterprises has any chance of breaking into foreign markets against the opposition of the giants acting in concert, without allying themselves with or selling through one of these or a group of them.
And on this score, there is much less of a tendency for the giants
29 Particularly true in Germany where a number of the leading industrial giants have established their own so-called "House banks. " Somewhat similar is the case of the Rockefeller, DuPont, and Mellon controlled banks in the United States.
30 This subject largely dominated the hearings, plans, and negotiations of Secre- tary Roper, inaugurated in 1937 to solve the problems of the "little business man," and became a theme song for the crop of little businessmen's associations which sprang up shortly thereafter. See, e. g. , the platforms of the Smaller Business Asso- ciation and the American Federation of Little Business. The various governmentally controlled banks working with the Japanese National Planning Council and the Capital Adjustment Commission appear to have had the little businessman in mind for special attention. Similar agencies have been proposed or established in both Italy and Germany, though results in salvage of the little businessman's fortunes do not seem very striking in such quarters.
31 Two very interesting recent examples are provided by exposes of the armament industry's ramifications and the international network of the Aluminum Company of America. See H. C. Engelbrecht and F. C. Hanighen, Merchants of Death (New York, 1934), largely based on data from the Nye Investigation of the munitions industry; and see also proceedings in equity in the District Court of the United States for the Southern District of New York, Brief for the United States in Support of a Pre- liminary Finding of Conspiracy among Alcoa, Aluminum Limited and the Foreign
Aluminum Companies (June 1, 1939).
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to help their own small competing nationals in foreign markets than for them to divide by special agreement domestic and foreign markets amongst the huge combines dominant in the several na- tional territories. ^^ Thus Krupp, Vickers and Schneider-Creusot got together to divide and allocate markets for arms and munitions. General Electric and Krupp divide the markets for bar-metal com- pounds, the German Dye Trust and Standard Oil markets for hy- drogenated oil products, and so ad infinitum. In these agreements markets are increasingly divided along the following lines: (a) the domestic market is reserved for each, or some specific portion of it is allotted to domestic manufacture (e. g. , the Bausch and Lomb- Zeiss agreements on optical glass; General Electric and foreign pro- ducers on incandescent lamps); (b) the adjoining space or conti- nental area is reserved for each or a combination of each concept of Grossraumwirtschaft (e. g. , agreements of DuPont and Imperial Chemicals on munitions; Alcoa and the Aluminum Cartel); and (c) "competing" territories are handled increasingly in such a fashion that either the price structures agreed upon will not be disturbed through ''open competition," or dumping is resorted to on a bitterly cutthroat basis. If the former, it is usually because patents are so pooled or agreements so drawn that "outsiders" can- not possibly break in; and if the latter, then because no small con- cern unaided and by itself can possibly meet the pace once the struggle reaches a sanguinary stage. ^^
32 "One case concerns an American optical company, which, during the last 5 years, has manufactured, distributed, and sold approximately 50% of all U. S. military optical instruments. These have included periscopes, range finders, altimeters, bomb sights, torpedo directors, etc. This corporation arranged with a leading German corporation, operating in the same field, to divide the world market; to limit sales to allotted territory; and to fix and maintain prices and terms of sale. The German and American corporations agreed to conceal the existence of the contract from third parties, and the latter corporation agreed to pay to the other a royalty equal to a percentage of the gross sales price of each military optical instrument sold, in- cluding equipment sold to the United States Government. " Resolution by Senator Wheeler calling for an Investigation of Interstate Commerce Conditions Affecting National Defense, Sept. 18, 1940.
S3 It is noteworthy that none of the small American business groups has been able to see any other solution to its problems except to pool resources and behave in imitation of those against whom they are organizing--collusively with respect not to the large concerns or trade associations of the large, but with respect to that por- tion of the public which it may be able to call its own. Conversely, one will search through the records of monopolistic practices of the large combines in vain for instances where the little businessman was left unscathed, even when he was not the direct object of attack.
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Such a classification of the reasons for the growing relative im- portance of the giants in the formulation of business policies does not by any manner of means exhaust the possible listing. But it may possibly cover the most important casbs. A little careful inspection of the voluminous records on which these generalizations are based will show convincing evidence not only that these trends are con- temporaneous and mutually reinforcing, but also that no competi- tive restraints or combination of competitive restraints can any longer be expected to stop or seriously to inhibit the vaulting powers of these great interlinked aggregations of large-scale cor- porate enterprise. Government may be able to do so if, when, and where it is able to shake itself free from direct or indirect manipu- lation by the powers it seeks to control. But so far as it fails to do so, by so much the mantle of political authority is simply shifted de facto from its former popular, or constitutional, base to another which stems from the inner councils of these huge corporate com- plexes. ^* But of that, more later.
CHANGES UNDERLYING POLICY-FORMULATION WITHIN THE CARTELS
The term "cartel" has lost its old precision. Once it stood simply for a contractual relationship, usually enforceable at law, between a number of enterprises which had banded themselves together for a fixed period of time in order the better to regulate prices, or production, or marketing terms, conditions and areas, or some other feature of business relating to a single or a closely related group of commodities produced by its members. Now that the term has come into general circulation, it has come to mean any sort of compact--whether recognized and enforceable by law or not--between two or more concerns for the purpose of manipu- lating one or more of the elements of conducting business to the advantage of the participating parties. Even in the classical home of the cartel, Germany, it has long been difficult to distinguish be-
34 The comment of the Wall Street Journal, April 28, 1941, on recent developments in Japanese "Co-prosperity sphere" plans is illuminating: "Recent strengthening of the power of business circles in the Konoye Cabinet will not mean abandonment of Japan's plans for economic regimentation and southward expansion. A good many leading 'liberal' businessmen, including the newly-appointed economic coordinator, Masatsune Ogura, whom some industrialists refer to as Japan's Goring, are toying with the idea of totalitarianism in Japan, only a totalitarianism run by businessmen. "
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tween the practices of cartels and those of many of the more power- ful trade associations such as the Federation of German Machine Building Associations (VDMA) or the Association of German Iron and Steel Industrialists. British writers use the terms "trade as- sociations" and "cartels" more or less interchangeably. In France the members of the Comite des Forges have entered into many dif- ferent "comptoirs," but what of the Comite des Forges itself? Many of its activities have long been of a distinctly cartel-like character. ^^ Thurman Arnold of the Anti-Trust Division uses the term to apply to any American trade association pursuing policies which bind its members to behave non-competitively. ^^
More than mere loose thinking is involved here. Actually, a vast and complicated system of collusive practices has come into being since the First World War having the effect of cartel agreements; it appears under a multiplicity of guises and is given effect through a wide variety of associational forms. To the economist the realities of practice, not the fictions of law or the accidents of terminology, must occupy the center of the stage. And from this point of view, it is probably not too far from the truth to say that practically all of the swiftly proliferating meshwork of trade associations found in all capitalistic countries of the world perform one or more func- tions of a distinctly cartel-like character. Adam Smith's dictum ap- plies to the usual, not the exceptional case. And even those which are economically functionless seem on investigation to be going through motions, like the wind-up of the pitcher before delivery of the ball, prefatory to more forceful and purposive action.
A couple of examples will serve to show how pervasive cartel- like policies have become. In Germany, none of the laws commonly called "Cartel Laws" apply singly and solely to collusive groups formally recognized in law as Cartels. For example, the famous "Law Against the Abuse of Economic Power" ("Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen"), passed in 1923, ap- plied to "Syndicates, Cartels, Conventions and Similar Agree-
35 See, in particular, Bezard-Faglas, Les Syndicats patronaux de I'industrie metal- lurgique en France.
86 Compare Arnold, op. cit. with the report on cartels prepared by Theodore Kreps and presented before the Temporary National Economic Committee. The Kreps view, which seems to have shared in the thinking of Mr. Leon Henderson of the TNEC, inclines quite favorably towards good cartels, while frowning--not very severely--at the bad.
J.
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ments. " The text of the law (as of those which followed in July, 1930, August, 1930, August, 1931, December, 1931, and July, 1933) refers but incidentally to those combinations as "Cartels. " The last-named law (1933), "Concerning the Forming of Compulsory Cartels," places the cartel at the center of the discussion only be- cause it refers to all agreements entered into under authority of pre-existing laws by the generic term "cartel. " ^^ The Cartel Bu- reau (Kartellstelle) of the old National Federation of German In- dustry (Reichsverband der deutschen Industrie) handled cartel problems as specialized activities of its members, separately grouped in the Federation by industry and trade categories and organized as trade associations. The left hand took care of cartel problems; the right hand managed the larger interests into which
cartel practices were dovetailed. ^^
There can be no question but that the National Federation of
German Industry and all of its member bodies were engaged di- rectly or indirectly in the exercise of cartel controls. And, as has been pointed out elsewhere,^^ the organizational network of pre- Nazi Germany, brought together and centralized in the Spitzen- verhdnde, was well-nigh all-inclusive by the time the new regime took over. Not far behind Germany of that date stand England, France,*? and the United States of the present. Fascist Italy and post-Nazi Germany ^^ have seen the web of cartel-like controls still further extended.
37 For texts of these laws, and an exhaustive commentary on the history of cartel policy in post-war Germany, see Callman, op. cit.
38 See Max Metzner, Kartelle und Kartellpolitik (Berlin, 1926), and Wagenfiihr, Kartelle in Deutschland.
39 See Brady, The Rationalization Movement in German Industry (Berkeley, Calif. , 1933), Chapter V, and The Spirit and Structure of German Fascism (New York, 1937), Chapter IX; also, W. F. Bruck, Social and Economic History of Germany from Wil- helm II to Hitler, i888-ip^8 and Franz Neumann, Behemoth.
40 The "new" corporative order recently announced in conquered France seems much less revolutionary when viewed in light of the reorganization of the Con- federation Gen^rale du Patronat Fran^ais, following conclusion of the Matignon Agreement in 1936, with the Confederation Gdnerale du Travail. The new group- ings, the new tone, and the new policies which followed the Agreement were en- tirely in keeping with Nazi and Fascist patterns.
41 "Only transitorily and superficially did the beginnings of the new relationship between the state and the economy appear hostile to cartels. The development of National Socialist cartel policies during the last year shows a replacement of rigorous cartel supervision by policies designed to guide the economy and regularize markets with and through the cartels. This is readily shown in the law and in legal inter-
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A second example may be taken from the building industry in the United States. According to Assistant Attorney General Ar-
*2
nold:
Producers of building materials have fixed prices either by private arrangements or as the principal activity of trade associations. Owners of patents on building materials have used them to establish restrictive structures of price control, control of sales methods, and limits upon the quantities sold. . . . Some of these patent holders have taken ad- vantage of their control over patented products to require their licen- sees to give them control of unpatented products also. By the use of basing point systems and zone price systems, various building materials industries have established by formula a rigid structure of uniform prices throughout the country; and in some of these industries such price formulas have encouraged the wasteful shipment of products to great distances. The use of joint selling agencies has been another means by which some of these groups have undertaken to maintain their prices. In some groups the various producers have subscribed to the theory that every member of the industry should have a definite share of what- ever business there is to be done, and that no concern should try to get more than its share by price competition.
Supplementing these various devices for keeping the prices of build- ing materials high have been a series of other devices used to discipline competitors who are unwilling to play ball. In one industry the means is cutting off the supply of raw materials. In another it is starting a series of harassing lawsuits. In a third it is the harassment of distributors by selling through the seller's own factory branches at prices lower than those at which the distributor is permitted to resell. In a fourth it is the maintenance of orthodox channels of distribution by concerted refusal to sell to groups representing new methods of sale or new price policies.
But this is only the beginning. In addition, "there is a growing concentration of control in many of these industries" through combination, merger, communities of interest, and the like. This holds for the distribution of building materials, and down through all the various systems of contracting and subcontracting charac- teristics of the industry.
*^ Nor are the data local; the situation is ap-
pretation of the law. " Fritz Ruble, "Kartellpolitik und Weltbewerbeordnung," Zeitschrift fiir Betriebswirtschaft, 1938, pp. 337-49- See also Bruck, op. cit. , pp. 222-26 and, particularly, Neumann, op. cit. , pp. 261-73.
42 In an address before the National Association of Purchasing Agents at the Fairmont Hotel, San Francisco, California, May 22, 1939. Department of Justice news release.
43 In some of these efforts the trade unions are alleged to have cooperated freely.
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parently typical of the building industry throughout the entire country. ** Yet the situation within this industry is in no wise unique. In approaching the problem of cartel-like controls within the California food industries, for example, the Anti-Trust Divi- sion is faced with a situation so far advanced along the road of what the London Economist calls "feudalistic cartel controls" *^ that prosecution is faced with only one alternative to passing up the whole matter as beyond redemption, and that is to issue a blanket indictment against the entire industry. *^ Similarly with the petro- leum, movie-production, electric household-appliance, and milk industries,*^ and many if not almost all of the other important indus- trial groupings of America.
See, e. g. . Civil Action No. 698 in the District Court of the United States for the Western District of Pennsylvania, the United States vs. the Voluntary Code of he Heating, Piping and Air-Conditioning Industry for Allegheny County, Pennsylvania, et al. , Dec. 8, 1939.
44 As shown by the effort of building materials dealers in "41 federated units located in approximately 32 states throughout the United States" (FTC Docket No. 2191, Dec. 30, 1937) the local, regional, and in some respects the national markets for building materials are governed by cartel agreements affecting the bulk of the industry. Though enjoined from further such practices by the FTC in 1937, it would not appear from the statement by Mr. Arnold, nor from the numerous indictments handed down by the Anti-Trust Division in 1939 and 1940 against the building in- dustry, that monopolistic practices were checked nor even seriously impeded by the FTC action. "The housing investigation [conducted by Mr. Arnold] resulted in the indictment of 1,358 defendants" (New York Times, November 25, 1940), and the evidence adduced was such as to encourage belief that Mr. Arnold had even then but barely scratched the surface. In fact his economic advisor, Corwin D. Ed- wards, has clearly so stated in his illuminating discussion, "The New Anti-Trust Procedure as Illustrated in the Construction Industry," Public Policy, II (1941), 321-40.
45 "The Economic Front," Economist, Dec. 9, 1939. See also the article "The Cartel- lisation of England," in the Economist, March 18, 1940.
46 Under the California Pro-Rate Act, for example, 65 percent of the producers by number and product may cause a state of "emergency" to be declared by the State Agricultural Commissioner, after which a Pro-Rate Commission can be estab- lished possessed of power to establish crop quotas, crop surpluses, length of the canning season (14 to 16 days for peaches, for example), grades, grades that are marketable, etc. Costs of administration, such as advertising, are collectable through the state tax machinery, and failure to pay is regarded as the equivalent of tax de- linquency. Numbers of farmers are not accurately known in most crop districts, and in many cases the farmers are either tenants of processors and distributors or of banks, or in debt to concerns such as American Can and Continental Can; for all practical purposes the agreements are completely controlled by nonfarmer inter- ests.
47 See, in particular, the indictments by the Anti-Trust Division of the Borden Company, et al. , in the Chicago and Detroit districts. Much the same picture as
243
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ECONOMIC POLICIES
Speaking very broadly, it seems possible to summarize the gen- eral lines of development in this expansion and permeation of cartel policies throughout the national systems of the various capi- talistic countries under the following five points.
1. The line between combinations, mergers, communities of in- terest, intercompany compacts on the one extreme and large na- tional trade associations on the other is, of course, structurally pretty clear. But between the two poles there is an almost infinite gradation of constantly changing forms, techniques, practices and policies. In general, trade associations throughout the world are taking on cartel functions so rapidly that the distinction between different types of cartels and these associations is badly blurred, and in many respects all essential differences are lacking. This is recognized as true by leading authorities in England, France, pre- Nazi Germany, the United States, and Japan. In Fascist Italy and Nazi Germany differences are in part technical and in part func- tional, but in the main cartel-type controls have been accepted as normal and natural for all trades and industries, and the attitude, if not necessarily the detailed forms of their respective "corporate economies," appears to be prototypal for developments in other countries of comparison.
2. It is a characteristic common to practically all leading trade associations and cartels that they seek to eliminate "outsiders" or "free-riders. " The compulsory cartel has achieved this objective in Germany. It is the aim of some of the more closely held British and French cartels, of the various agricultural marketing agreements set up in the United States, Germany, England, and Japan, and of all the trade associations which have succeeded in preserving the leading controls envisaged in NRA, and it is also a motive under- lying the new arrangement of Groups under the Confederation G^nerale du Patronat Fran^ais, and, of course, in general, for the economies of the directly corporate systems. Elsewhere there is a general tendency either to eliminate "outsiders" entirely, or to bring together in the collusive group such an overwhelming major- ity of the industry that "free-riders" would be either of only local
given in these indictments evidently holds for most other large milk-marketing areas. See also Corwin D. Edwards, "Trade Barriers Created by Business," Indiana Law Journal, Dec, 1940, pp. 169-90.
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significance/^ or so small and scattered that they might be forced into line at will upon pain of total extinction.
3. There is a clear and wholly unmistakable tendency for the large concerns to dominate more and more completely all forms of cartels and trade associations. This was clearly shown in the bulk of the leading NRA codes, is evident in most of the national and regional trade associations in America, and appears to be true of all the leading German, French, and British cartels and trade asso- ciations. Frequently, cartel activities have paved the way for com- bination of the horizontal type, as for example in the German and British heavy chemicals industries. Sometimes the way was pre- pared by cartels for vertical integration, with the result that inde- pendent enterprises tended to disappear entirely. *^ Frequently, as in the British salt, thread, chemicals, and armaments industries, trade associations were organized as adjuncts for further extending the monopolistic controls of large combines. ^" The existence of cartel controls not uncommonly enhances the superior bargaining power of large concerns producing goods or using materials not included within the cartel bailiwick, as in the case of the vertically organized German steel combine contrasted with the "pure" col- lieries. The combine, when producing for "self-consumption," was not required to charge profit margins at different stages of produc- tion, with the result that the combine possessed a considerable--at times well-nigh decisive--advantage over nonintegrated competi- tors. ^^ But in nearly all cases, both within the totalitarian countries and without, the lead in the organization and direction of both car- tels and trade associations is typically and increasingly being taken by the corporate giants. The policies of these organizations, that is to say, are being molded to the interests, the outlooks, and the pro- grams of the great monopoly-minded corporate groupings.
48 Even here there is a tendency to force recalcitrants into line on many issues such as labor policies, taxation measures, price maintenance, etc.
49 See Herbert von Beckerath, Modern Industrial Organization (New York, 1933), in particular Chapters II and VIII.
50 There are many American examples, e. g. , the National Glass Distributor's As- sociation, organized by the Pittsburgh Plate Glass Company; the New York Sheet Metal Roofing and Air-Conditioning Contractor's Association, dominated by the Fox Furnace Company; the Associated Milk Dealers of Chicago, dominated by Borden's.
61 Particularly interesting in this connection is the evidence submitted to the Enqueteausschuss, by various industrialists connected with the iron, steel, coal and heavy chemicals industries.
245
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4. That is why the following trends, clearly discernible within both cartels and trade associations in general, take on such great significance; these organizations are (a) becoming more perma- nent, less easily broken up by the changing fortunes of business cycles, and their contractual or semicontractual obligations are entered into with an eye to longer-run objectives. Simultaneously, (b) interests are spreading out from a single line of control (such as prices, or production, or marketing areas, or conditions and terms of delivery, or patent pooling) to take on other functions, and, in some cases (notably the "compulsory cartels"), the whole range of cartel functions. With this go (c) tendencies for the cartel to resort to some degree of central management of supplies or sales (''syndi- cates"), or labor, or engineering and accounting. This is, in turn, (d) paralleled by a general and well-nigh universal tendency for all these associations--in "proportion" as they take on a more cartel-like character--to band or group together into regional, commodity, and industrial central or peak associations (Spitzen- verbdnde). Finally, (e) there is an almost universal tendency, once this level of development has been reached, for members increas- ingly to try to limit business transactions to members, and for trade associations and cartels to deal with each other as exclusive agents for their respective memberships. The governance of the resulting system of intertrade compacts, agreements, negotiations and rela-
tionships then comes to be one of the principal activities of the Spitzenverbdnde. ^^
5. The relationship between the foregoing tendencies and the correlative rise and universalization of "mercantilistic" practices wherein the normal course of business as usual leans ever more heavily upon a generalized system of state aid--within the several national states, becomes clearly one of mutuality, interaction, and interdependence. The two lines of change have a common histori-
52 See, Bruck, op. cit. and Neumann, op. cit. , pp. 263-65, for a more recent discus- sion of National Socialism. In the 1925 Yearbook and Register of British Manufactur- ers, published by the Federation of British Industries, mention is made of ". . . a strong feeling . . . that so far as possible, members should give each other preference in placing orders, and the system of inter-trading is now rapidly gaining ground amongst members" (p. 23). The Nazis and the Fascists, with their widespread systems of inter-trade compacts, appear as the culmination and logical fulfillment of a process which becomes more and more formal and general as the networks of business spread out, lines of influence are transmuted into frames of control, and powers are gathered up and centralized in peak associations.
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cal origin, and they run their parallel courses over the same span of time. In a multitude of ways advance in one leads to advance in the other.
Neither cartels nor trade associations, of course, can any longer be called "children of necessity. " But tariffs, subsidies, subven- tions, government loans without interest, laws allowing resale price maintenance, can, however, be regarded as successful products of the mounting demand of massed special interest groups of busi- nessmen, and their direct, coordinated, and organized efforts to see that governments stand perpetually prepared to grant what- ever aid their several plans and programs require. Without impor- tant exception in any of the major capitalistic countries, the neces- sary enabling laws have been lobbied through by business interests. The Spitzenverbdnde endeavor to see only that the basic laws and the mass of administrative decisions flowing from them generalize the gains and even cut the losses. The rule, as in early mercantilistic times, becomes one of concession, grant, honoraria, "special privi- lege. " Fully rationalized and centrally governed via the Spitzen- verbdnde, organized to the outer limits of trade and industry, the logical result of such generalized Priviligierung is cumulative ap- proximation to the generic conditions of the corporate or "guild" state. *^(R)
THE ECONOMIC POLICIES OF THE SPITZENVERBANDE
This means a great deal more than that the business life of the major capitalistic countries is being organized in ever more closely cooperating, bureaucratically directed, and monopolistic federa- tions of business interests. It means that direction throughout all this vast proliferating machinery is ever more clearly and insist- ently being centered in the hands of the corporate giants. It is not only their interests that dominate in the larger sphere of action, but their manners of procedure, their organizational patterns, their points of view, and their conceptions of the larger objectives of economic policy as a whole. The shape of things present and to
53 This is the term employed by the official Italian propaganda agency in America, the Italian Library of Information, to characterize for American readers the leading features of Fascist social -economic organization. See The Organization of Production and the Syndical Corporative System, an Outline Study.
247
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come in this universe of motion are, to be true, by no means free of confusion, but the general lines of force are ribbed boldly in view.
The "Industrial Complex. '*--The case is more easily made be- fore the law or to the general public for treating an entire industry, or a series of closely related industries, as a single managerial en- tity where the integrative pressures of technology have led directly to the concept of a single, all-inclusive engineering system--local, regional, national, or continental wide, a system which can only be broken up by going to more primitive methods of production. ^* Falling into this class are the systems of transportation and com- munication: railroad, highway, inland-river and coastwise ship- ping, airplane, bus, truck, telephone, telegraph, cable, postal service, radio, gas, water, pipeline, and power grid (inclusive of production, transmission, and distribution). In all these cases engineering, cost accounting, and management factors all conspire to favor for each appropriate territory a single, unified, and all- inclusive network under a single management charged with the task of organizing the whole with the minimum of duplication and overlapping. In some cases, such as the transportation and the communication groups, similar factors create conditions favorable to mono-management on an interindustrial and interservice basis; thus the railroads are technologically integrated systems, and other industries in these groups are bound together into actual or po- tential one-management systems.
This general category of industries is commonly said to be made up of "natural monopolies," and its members are thought to be peculiarly "affected with a public interest. " But whether so con- sidered or not, and whether owned and operated as governmental,
84 Developments of this character, combined with the increasing freedom of managerial circles from direct responsibility to the rank and file of property owners, have excited James Burnham to prophesy, in his Managerial Revolution (New York, 1941), that managers will become the new "ruling class" in the place of the capitalists. The whole argument is based on a misunderstanding of the location and source of power of existing managements both here and abroad, and confuses machinery of execution with structures of domination; in the same way, Paul Einzig ("Hitler's 'New Order' in Theory and Practice," Economic Journal, Vol. LI, No. 201, April,
1941) confuses planning and central management with antidemocratic and regional exploitation. But "planning" is a "tool" and "structure" is a "device" and nothing more. The question is not "management" and "planning," but who manages what, by what means, and to what ends.
248
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249
private, or "mixed" enterprises, these industries are all character- ized by the case they present for being organized as single, central managerial systems. ^^ Throughout there is a clear and unmistaka- ble long-run tendency for corporate groupings to be reshuffled so as to correspond to management imperatives--for, in other words, corporate holdings or management controls to become cotermi- nous with industrial, engineering frontiers. ^^ Most backward in these respects are the railroad systems of the United States," Eng- land ^^ and France; the telegraph and radio systems of the United States; ^^ the power systems of Germany,^? the United States, and
56 Which does not, of course, preclude a high degree of regional or functional de- centralization of a system functioning as a single managerial entity. The A. T. and T. , perhaps the best example outside of the postal services in the United States where corporate and network frontiers are almost entirely identical, has also been the leader in the development of methods of managerial decentralization.
66 How important these factors may become in future governmental policies toward "trust" developments is shown by Mr. Arnold's dictum, speaking on behalf of the Anti-Trust Division of the Department of Justice, that "the rule of reason is the recognition of the necessities of organization in a machine age. " This he interprets to mean specifically that the government will not proceed against, (1) "combinations which actually contribute to the efficiency of mass production," (2) "concerted action which goes no further than to insure orderly marketing conditions," and (3) those "monopolistic restraints" which, if proceeded against, would involve "economic dis- location in great industries. " Speech before the National Association of Purchasing Agents, San Francisco, California, May 22, 1939 (Department of Justice news release). It is not hard to see how a good combination of ambidextrous legal talent, gifted cost accounting, and clever management engineering might bring almost any com- bination out of the antitrust shoals under shelter of these wide-ranging criteria.
57 It is significant, however, that the ICC has long been committed to the principle of regional amalgamation, fusion of terminal facilities, etc. See in particular, the various reports of Commissioner Eastman during his incumbency as Coordinator of Transportation.
58 The English railroads, over fifty major and several minor lines, were brought together into four major systems in the early twenties. Measures are now being taken to fuse these four into a single rail network.
59 There is not the slightest justification from a competitive or a general economic point of view for the duplicate systems of Western Union and Postal Telegraph. No parallel to this duplication is to be found in any other major industrial country in the world. The American radio system is somewhat more complex, but it is equally out of date.
60 See, however, the plan of Oskar von Miller, Ausfuhrungen des Sachverstdndigen Dr. Oskar von Miller iiber die derzeit wichtigsten Fragen der Elektrizitdtswirtschaft, and Gutachten iiber die Reichselektrizitdtsversorgung (Berlin, 1930). Much of this plan has actually been carried into effect. Under stimulus, however, of a developing war psychology, accompanied by military plans for industrial decentralization of in- dustry, there has more recently developed considerable opposition to a central Ger- man power grid. See, various issues of ETZ from 1932 to 1936, the Archiv fiir Wdrme- wirtschaft, and Elektrizitdtswirtschaft, German journals devoted to the electric power industry; and see also F. Lawaczek, Technik und Wirtschaft im Dritten Reich (Mu-
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France; and the bus, truck, and internal waterways systems of all countries except Germany. ^^ Intertransport systems have been worked out comprehensively only in Germany,^^ ^nd intercom- munications systems only in Germany, Italy, and England. (R)^
A situation somewhat similar to that of the public utilities is found with all those industries which have (a) been growing to- gether, quasi-organically, at the manufacturing base, and to which (b) entrance is controlled through closely guarded engineering and research factors. In the first case there is a tendency for a complex of industries (the Russians use the term "Combinat") and in the second case for entire single industries to be fused together, so that in analysis one is compelled more and more to proceed as though one were dealing with single managerial units instead of collectivi- ties of separate enterprises. Either or both tendencies appear to be pronounced with all those types of enterprises termed "laboratory babies" above (heavy chemicals, plastics, electrical apparatus, pulp and paper, armaments). These industries may possess a common source or series of sources of raw materials, or a series of dovetailed "flow-type" processes, or monopoly of the necessary initial knowl- edge obtainable only from secret sources of information, or basic and indispensable patents on machinery, processes, or products. Such possession enables a single concern or a group of closely co- operating concerns to force entire industries into line, with the effect that one or more of the conditions and terms of conducting
nich, 1932). Plans of the Belgian engineer Oliven for an European-wide superpower grid have fallen afoul of analogous misfortunes.
61 A fair degree of unification has been achieved in the United States in the bus systems operating between major traffic terminals, and in some cases between railroad and bus transport. Steps have been taken by a number of railroads, led by the Pennsylvania, to dovetail rail and local freight trucking facilities.
62 The German intertransport network is not altogether complete, but it has be- come very nearly so with simultaneous over-all organization of each of the separate types, and then interlinkage step by step amongst them as fast as plans could be worked out. Model systems, in this respect, are the long-distance rail, short-distance bus, the rail, airplane, and postal bus passenger service, the Rhine water and rail freight traffic, and the rail and truck pick-up and delivery system in Berlin. The initial efforts of the giant Hermann Goring VS^orks to unify the Danubian water transport system foreshadow extension of the networks for the whole of the European mainland. See Lachman, op. cit.
63 Most complete are those of Germany and England, where all communication services are centered in the post office. The Italian and Japanese are not far removed from a like level of development.
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business are centrally managed and controlled throughout the entire industry. *'*
Certain of the conditions peculiar to the "laboratory babies," of course, are rapidly coming to govern the vast majority of the leading industries throughout the world. But in the absence of such pressures, the effect of partial managerial control may be had through the pooling of resources by the establishment of central cooperative facilities, such as laboratories, market information services, and joint management committees of one sort or another dealing with standards, grades, advertising, apprenticeship, fore- manship, public relations. (R)^ Individual firms may seek to depart from this cooperative set-up; but if the information is of critical importance, or if the standards are fundamental to the evolution of a system of interchangeable parts, or if the failure to adhere to the advertising schedule thereby causes a dangerous pyramiding of competitive costs, then firms may be compelled to hew pretty close to the line fixed, and will rarely be able to go far beyond the techniques and practices agreed upon in conference. ^^ The en- vironment, that is to say, becomes favorable for acting as though the association of cartel had become, through close and long col- laboration on vital issues, to some degree or other a single-manage- ment enterprise, and as though the member concerns were branch
6* Perhaps the best examples are to be found in the interests grouped around Standard Oil and DuPont in the United States, Imperial Chemicals in England, and the I. G. Farbenindustrie, Krupp, and possibly the Hermann Goring Works in Ger- many.
65 There are several dozen trade-association laboratories in the United States (e. g. , the Electrical Testing Laboratories of the Edison Electrical Institute and the National Electric Manufacturers Association, and the American Gas Association's laboratories in Cleveland), in England (e. g. , the British Cotton Industry Research Association and the Research Association of the British Rubber and Tire Manufacturers), and in Germany. A particularly interesting development in the latter country is the evolu- tion of a chain of industry-government supported industrial laboratories known as the Kaiser Wilhelm Gesellschaft, covering nearly every branch of industry in every field. Also of particular interest is the Reichskuratorium fur Wirtschaftlichkeit, a central "rationalization" coordinating body. (See Brady, The Rationalization Move- ment in German Industry. ) A similar body has been set up in Japan but appears to have met with indifferent success. Standards bodies, to be found in every manufactur- ing country, provide also a very interesting method of bringing industrial establish- ments together. (See Industrial Standardization, National Industrial Conference Board, New York, 1929); but the methods here are legion.
66 Such is the case in all "simplification," "typification," fits and gauges, dimen- sional standards for interchangeable parts, methods of testing and rating, standards for control instruments, etc. See TNEC Monograph No. 24, Consumer Standards.
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ECONOMIC POLICIES
or regional offices rather than independent business units--for be- having, in short, as though central direction had been given over to a "syndicate" or a "community of interests," or a formal combina- tion (as in the case of the great German dye trust).
Here again, the position of the Spitzenverbande has been uni- formly to foster, promote, and encourage. This is shown not only by the detail of the activities on which they center their attention, but also by the industrial groupings of their membership. The Grand Council of the Federation of British Industries bears more than a superficial likeness to the National Council of Confedera- tions of the Italian Corporate State and the Gruppen arrangement under the Chamber of Commerce and Industry in Nazi Germany.
