uses in the pages referred to is "technical change," which I interpret to connote the inclusion of both invention and innovation; and further, what he is doing there is to set forth a compensation for the administrative control of prices which he regards as associated with the growth of the large corporation. But, he argues, there are compensations, one of which is that the large enterprise is increasingly the source of what he refers to as technical change. I do not think that such a body of concepts would make much sense if he were referring only to the latter stages, development or innovation.

At the request of the chairman, I have endeavored in this statement to bring together information gathered by the subcommittee in the course of its inquiry into administered prices which relates to the role of large versus smaller enterprises and independent inventors in creating new and improved products and processes. While the subcommittee's inquiry into administered prices was primarily focused on the behavior or performance aspects of concentration, what has become referred to as the "innovation" rationale for concentration was not completely ignored. Its relevance to the inquiry lay in the fact that if concentration is a prerequisite for scientific and technological progress, the logical expectation is that prices would continue to be administered by large enterprises. Thus, in its inquiry into steel, automobiles, bread, and drugs, a considerable amount of information was amassed relating to the "innovation" rationale.

The essence of the rationale is that society is now dependent upon large enterprise for scientific and technological progress, that the independent inventor and the small enterpriser have given way to the organized research of the large corporation, and that the body of scientific research itself has reached such dimensions that further contributions can come only from teams of speicalists working in such laboratories. It is only the large corporations which can afford to buy the expensive equipment and facilities, to hire the speicalists, and to pay the other costs of conducting research in the world of modern science. A typical expression of the rationale is to be found in the writings of David E. Lilienthal, who equates technological progress with bigness:

Most significant research and development require large resources and often a long period of time during which no results are forthcoming * * *. Only large enterprises are able to sink the formidable sums of money required to develop basic new departures; a small corporation is rarely able to risk those large sums, perhaps enough to wreck the company if the gamble fails, on the success or failure of a major new project in such areas as electronics or chemicals, for example * * *. Bigness and research activity are largely synonymous whether in business or in government. The greatest single factor in competition today is indeed research and development. This fact alone makes obsolete and inadequate many of the "horse-and-buggy" ideas about how competition can be maintained.13 Similarly, J. Kenneth Galbraith has written:

A benign providence *** has made the modern industry of a few large firms an almost perfect instrument for inducing technical change ***. There is no more pleasant fiction than that technical change is the project of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction. Technical development has long since become the preserve of the scientists and the engineer."

43 David E. Lilienthal, "Big Business: A New Era," Harper & Bros., 1952, pp. 69-72. 44 J. K. Galbraith, "American Capitalism, the Concept of Countervailing Power," 1952,

A new dimension has been added in recent years as economists have become increasingly preoccupied with the subject of growth. Economic growth, it is said, depends in good measure on innovation; if innovation stems primarily from the laboratories of the large corporations, bigness is therefore essential to growth. What follows here is an attempt to collate and summarize the material relating to this important line of thought which is presently scattered throughout some 30 volumes of the subcommittee's previous hearings and reports.

STEEL

On November 4 and 5, 1957, the subcommittee, as part of its general investigation of steel, addressed itself to the specific issues of new technology in steelmaking. In opening this session, former Chairman Kefauver stated:

*** If, by the use of new technology, new companies could be successfully organized, they would stimulate competition and eventually the American public would get the benefit of lower prices on the thousands of commodities using steel.

45

There are three stages in the production of steel: the making of steel ingots from pig iron and steel scrap, the "breakdown" of the ingot into semifinished forms, and the rolling or extruding of the semifinished shapes into finished steel products. When Henry Bessemer invented the first large-scale method of steelmaking, which mixed air with molten pig iron in a large converter, he was an independent professional inventor whose previous discoveries had given him financial independence. Unfortunately, the Bessemer process put into the molten metal about four times as much unwanted nitrogen as it did of the desired element, oxygen. This problem was overcome by the subsequent process, the open hearth, which employed the heat of the outgoing fumes to heat the incoming air. Its inventor, William Siemans, was also an independent engineer and inventor.

The most recent development has been oxygen conversion, in which large quantities of oxygen, instead of air, are injected into a Bessemertype converter. Although this use of oxygen has been experimented with for many years, the first successful methods were the LinzDonawitz (or L-D) process in Austria and the Kaldo process in Sweden. Introduced shortly after the war in Austria, the L-D process accounted by 1958 for about half of the country's ingot output.

Senator Hruska raised the question as to whether there were any reasons to explain its more rapid adoption in Europe than in the United States. Mr. Stillerman advanced a number of reasons. There was in addition a further reason, and that was the high cost of oxygen itself, until the great expansion of the oxygen industry during and immediately after World War II, and it was this reduction in the price of oxygen which made the use of oxygen in the Bessemer converter economically practical in this country.

The first American steel company to use the process was McLouth Steel Corp., at the time a very small company and which now ranks

45 Hearings before the Senate Subcommittee on Antitrust and Monopoly, "Administered Prices," 1957, pt. 3, p. 673, 85th Cong., 1st sess.

13th with about 2 percent of the industry's capacity. As described before the subcommittee by Mr. John V. Groner, of that firm, the process is the essence of simplicity:

In brief, the process comprises filling a vessel to about one-fifth its total depth with molten pig iron, scrap and limestone. A long pipe, known as a lance, connected with the oxygen supply, and having at its end a water-cooled nozzle ** is positioned over and may protrude into the open top of the converter.

Through this lance, oxygen is jetted on this charge, under great pressure and at a very high velocity, so that, in effect, it tunnels a hole of some depth into the charge. This results in the generation of great heat and the formation of gases and of various chemical reactions which cause the undesired constituents in the molten charge to pass either into the slag or as a gas into the air, thus refining the metal into steel.

46

In the last 10 years the major steel companies have been rapidly introducing oxygen conversion to the point that it now accounts for 12 percent of our annual steel output. In 1970 this percentage is expected to reach 45 percent.47

By greatly shortening the time required for steelmaking from 10 to 12 hours in open hearths to about 45 minutes, oxygen conversion makes possible substantial increases in production with only a relatively small addition to the industry's capital expenditures. capital costs of an oxygen converter are reported to be less than half the costs of an open hearth furnace, $15 versus $30 to $40 per ton of capacity.18

The

The next step in steelmaking is the reduction in the giant blooming or "breakdown" mills of the steel ingot into semifinished formsblooms, billets, or slabs-which are then fed into the rolling and finishing mills. A new process, continuous casting, greatly reduces the amount of capital equipment required to transform the molten metal into semifinished forms.

It eliminates not only the blooming mill itself, but also the large molds in which the ingots are cast, the deep-soaking pits used for reheating the ingots, the enormous cranes used to move the ingots, and other large-scale equipment required in the conventional process. This is accomplished by a relatively small machine into which molten steel is poured, coming out as a slab or billet ready for the rolling mills.

As in oxygen conversion, the innovators were European inventors and a relatively small American steel producer, the Allegheny Ludlum Steel Corp., the ninth-ranking steel producer. Experimental work was also carried out by an equipment manufacturer, Babcock & Wilcox, in cooperation with Republic Steel Corp. Continuous casting was first used to produce steel in 1949 in Germany by Dr. Siegfried Junghans who had previously developed the process for use with nonferrous metals. Using the Junghans machine, Allegheny-Ludlum began experimenting with continuous casting in 1950. Four years later the process was put into commercial operation by another small firm, the Atlas Steel Co., of Welland, Ontario.

According to State Department reports put into the subcommittee's record, the Soviet Union had been carrying on experiments with continuous casting since 1949. Apparently these efforts met with a con

48 Ibid., p. 782.

47 Council of Economic Advisers, Report to the President on Steel Prices, April 1965, 49 Ibid., p. 51.

siderable measure of success, as indicated by the following UPI dispatch appearing in the Washington Post of July 7, 1963:

Several unidentified American steel companies have concluded an agreement with the Soviet Government to acquire the rights to a Russian steel-casting process which could slash up to $8 a ton off the cost of steelmaking in the United States.

The agreement was reached between the U.S. Castings Corp. of New York and the Soviet Foreign Trade Ministry.

Martin M. Pollack, vice president of the American negotiating company, said savings to the U.S. steel industry through use of the method could run to $100 million annually.

The article went on to state that U.S. Castings was formed by four major steel companies solely for the purpose of negotiating the contract, which was said to be the largest in the history of SovietAmerican relations.

The unusual Soviet technique for casting steel in one unbroken process from smelter to the rolling mills has been highly praised by American technical journals and has been in operation here for 3 years.

Pollack described the Russian process as "the finest and most advanced in the world."

The continuous strip rolling mill, which performs the last stage of steel production, is often cited as a spectacular example of large-scale technology. It was developed during the 1920's by the American Rolling Mill Co., then a relatively small producer. A continuous rolling mill-which may be a half mile long costing more than $50 million-consists of a series of about a dozen rolls through which a steel slab is progressively reduced in thickness from around 6 inches to as little as one-tenth of an inch. But here, too, a promising capitalsaving technique has been developed. Known as the planetary mill, it is the creation of a Polish-born inventor, T. Sendzimir, who had previously developed a widely used method of galvanizing steel.49

Instead of a long series of rolls, the planetary mill consists of only two large rolls to which are attached small work rolls, which rotate with the movement of the large rolls. The combined movement of the two types of rolls creates such tremendous pressure upon the semifinished slab that only one pass is required. According to the testimony of its inventor, the cost of the planetary mill does not exceed 10 to 12 percent of the continuous hot strip mill but has one-third of its output. Though not yet in use in the United States, planetary mills are in commercial use or under construction in Spain, Italy, Great Britain, Japan, and the Scandinavian countries. In this hemisphere the Atlas Steel Co., in Ontario, Canada, has had such a mill in operation for a number of years and is currently installing a wider mill of this type.

These processes which make possible the production of molten steel in a simple converter in 45 minutes, permit the making of semifinished shapes by a relatively small continuous-casting machine, and enable these to be economically rolled into finished steel by a mill whose capital cost is less than a fifth of the present process, were, without exception, created and developed by independent inventors and smaller producers. But their significance to competition lies not only in their origins but in accelerating entry by newcomers and expansion by smaller firms

49 Hearings on "Administered Prices," pt. 3, pp. 752–776.

through the reduction in capital requirements. In addition, these new processes should be of particular interest to those countries—both developed and underdeveloped-which are acutely concerned with conserving their limited capital resources.50

AUTOMOBILES

During the subcommittee's hearings on the automobile industry, a considerable amount of information was obtained concerning innovations originating with the smaller as well as the larger automobile companies.

With respect to the smaller firms, the all-steel body was introduced by Oakland in 1912 and the all-steel closed sedan body by Dodge in 1923. Marmon came up with the rearview mirror in 1912. In 1913 noiseless rear axles, which had been developed by the Gleason Gear Co., were first used on the Packard. Hudson was first with the sedantype body which it introduced in 1913 and developed into the first low-cost closed car in 1920. Adjustable front seats were first contributed by Kissel Kar in 1919. Duesenberg was the pioneer with the four-wheel brakes, introducing the mechanical type in 1920 and the hydraulic 1 year later. Rubber engine mounts, which were an important contribution in reducing noise and vibration, were introduced by Nash in 1922. Also in 1922 Studebaker came out with automatic spark control. Hudson was first with the natural-grip steering wheel in 1928. In conjunction with Borg-Warner, Studebaker introduced the overdrive in 1935. The placement of the starter on the instrument panel was first made by Hudson in 1931. Hydraulic valve lifters, reintroduced in recent years, were first adopted by Pierce-Arrow in 1932. In 1933 in conjunction with A. O. Smith, Nash brought out turn signal indicators. Also in 1933 Pierce-Arrow, with the assistance of Stewart-Warner, brought out automatic power braking. Placing the spare tire in the trunk compartment rather than mounting it outside the body was first done by Hudson in 1934. And in the same year Hudson was the first to make the trunk an integral part of the car body. Putting the gearshift on the dash was first done by Reo in 1934. Thin-wall Babbitt bearings, which increased bearing lift and made possible higher horsepower, were orginally developed by the Cleveland Graphite Co. and introduced by Studebaker and Nash in 1935. Studebaker was also first with the power-operated windshield washer in 1938. In the same year Nash introduced the pressurized fresh-air heating system with cowl intake. One year later Hudson brought out airfoam cushions and the safety hood latch. First to introduce automobile air-conditioning in 1939 was Packard. Complete single-unit construction was first brought out by Nash in conjunction with the Budd Manufacturing Co. in 1940. In 1951 Kaiser-Fraser was the first with a crash panel to protect front-seat passengers. Torsion-bar front suspension, now featured by Chrysler, was introduced by Packard in 1955,51

50 For comments on the slow pace of innovations on the part of the largest steel producers, see hearings, pt. 4, pp. 1371-1372, and testimony by Dr. George Stocking, before the Subcommittee on Monopoly Power of the House Judiciary Committee, 81st Cong. 2d sess., pt. 4A "Steel," May 11, 1950, pp. 967-969.

51 85th Cong. 2d sess., Subcommittee on Antitrust and Monopoly, U.S. Senate, "Administered Prices: Automobiles" (committee print), 1958, p. 24.