FEDERAL LICENSING OF CORPORATIONS MARCH 10, 1938 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON THE JUDICIARY, Washington, D. C. The subcommittee met, pursuant to recess, in room 324 Senate Office Building, at 10:30 a. m., Senator Joseph C. O'Mahoney (chairman), presiding. Present: Senators O'Mahoney (chairman), Borah, and Austin. STATEMENT OF WILLIS J. BALLINGER, ECONOMIC ADVISER, FEDERAL TRADE COMMISSION Senator O'MAHONEY. Please state your name and the position you оссиру. Mr. BALLINGER. My name is Willis J. Ballinger. I am economic adviser to the Federal Trade Commission. Senator O'MAHONEY. You have been requested by the chairman of the committee to appear, because we desire to have your analysis of the subject matter with which this bill deals. Will you be good enough to proceed? Mr. BALLINGER. Mr. Chairman and Senators, at the request of Senator Ashurst, chairman of the Judiciary Committee, I am appearing before this committee. I understand from Senator O'Mahoney, chairman of this subcommittee, that I am called upon to furnish data and make some comment upon certain provisions of the Corporation Licensing Act proposed by Senator Borah and Senator O'Mahoney. This bill, Senators, has been widely hailed in many quarters as putting real teeth into the antitrust laws. In other quarters it has been criticized as putting too many teeth into such laws. Now at the present time I do not wish to be drawn into the controversy of whether the power of the courts to revoke the license of a corporation which has violated the antitrust laws is wise, sound, effective, or an overdrastic, dangerous way to promote an observance of the antitrust laws. What interests me a great deal is that the distinguished sponsors of this proposed measure have apparently come to the conclusion that a strong penalty for violating the antitrust laws is advisable. A good many lawyers and economists have believed for a long time that the antitrust laws should be amended in a number of respects to make them more effective. Some hold that the basic antitrust law, the Sherman statute, was dealt a mortal blow when the Supreme Court promulgated the Rule of Reason in 1911. As this group sees it, the Rule of Reason caused the court to sanction mergers, if in its judgment their monopolistic power was offset by advantages assumed to be passed on to the public. An extreme section of this group goes so far as to charge that the Rule of Reason caused the Court to cease to enforce the Sherman statute, that the Court took unto itself the power and assumed the benevolent role in each particular case of deciding whether the net balance of public benefits offset the evils of monopoly. Some other thinkers lay great stress upon the majority opinion in the U. S. Steel case (1920). In this case Justice McKenna, writing the majority opinion for the Court, declared that size per se was never illegal. Only when size was accompanied by an unlawful overt act, such as inducing or coercing competitors to fix prices did such large size become illegal. Justice Day, on the other hand, contended that size per se could be illegal and was in the case of the United States Steel Corporation-that where a corporation attained dominancy in an industry and possessed tremendous financial strength this power was unlawful whether benevolently or malevolently employed. Senator BORAH. Before you depart from the Steel case, I would like to put in the record the statement that the majority opinion was rendered by four members of the Court, which was a minority of the Court. Justices McReynolds and Brandeis did not sit. Mr. BALLINGER. Many students feel that Justice McKenna's opinion legalized the "follow-the-leader" type of monopoly, whereas if Justice Day's opinion had become law the Government would be able to reach this kind of monopoly. It is found in many industries today-industries where smaller units are tossed a few crumbs in return for which they prudently observe their feudal obligations. The small-business man knows that the Sherman statute is one thing in theory and quite another in practice. To bid for business against the giant corporation would mean a retaliation. Such retaliation would, of course, be unlawful. Little-business men know from bitter experience that the stopping of such retaliation by action of the Government takes time. Sometimes it takes many years. And while the mills of justice are grinding slowly, the little fellow is ground up. In many cases he could not possibly hang on until relief was given him by the Government. So he wisely sits quietly at the foot of the table and accepts the one-sided carving of the turkey. I am not opposed to size which is exposed to competitive restraint. Even if solely through efficiency one corporation could eliminate all competitors the resulting monopoly could not be justified by sound. capitalistic economics. But size due to the employment of predatory or uneconomic business practices, size which maintains itself because it can intimidate competitors and muzzle competition, is size which has no justification whatsoever. In many cases the remedy for this kind of size will not mean that the Government must take a goodsized hammer in its hand and attempt to pulverize a number of large corporations. If we will make it a very risky business for one corporation to attempt to punish another corporation which desires to compete with it, a recrudescence of competition in many fields of industry will speedily determine the useful limits of size. If littlebusiness men in many industries can be given protection from retaliation if they choose to challenge the price structures of giant corporations, I believe that size will very quickly adjust itself so that such size will be founded on genuine efficiency and capitalistic ability. Of course, there are other points at which little-business men must be given a fair break, aside from being protected in the right to compete. If, however, we make the competitive struggle a fair game all around, corporate size will cease to stifle business. In connection with that decision of Justice McKenna's, I want to point out some other things. Before New Jersey legalized holding companies and thereby made the sky the limit for corporate size, almost every State in the Union had a law against corporate size. I think the maximum limit was $100,000,000 of assets. At one time, therefore, the American people believed that corporations could become so big as to be dangerous. Now we have been sold the idea there is no danger in the size of a corporation. I think there is danger, both economic and political, where corporations are permitted to become mastodonic. As I say, in many fields of industry today the mere size of a few corporations operates to intimidate smaller units from challenging the prices laid down by the great corporations. Unlimited corporate size is certain to produce a tremendous concentration of corporate power and this concentration of corporate power not only facilitates violations of the spirit and letter of the antitrust laws but menaces democracy. All through history other peoples have been afraid of size and often when size triumphed there was disaster. Modern capitalism began as a rebellion against the feudal system in England. Historically it is supposed to have begun in little English towns. Early in this evolution the towns imposed regulations upon businessmen so that competition could be preserved and protected. These regulations forbade a man to sell his product except in a designated market place where he would be subject to all the good influences of competition; forbade a man to buy his materials except in an open market place where the free play of supply and demand would hinder him from getting preferential treatment; forbade any businessman from cornering the supply of a product. Particularly important, the amount of capital a businessman could acquire was limited. There was a great fear of concentrated wealth and of the power that went with it. The inhabitants of the towns lived too close to the feudal system not to be impressed with the dangers of concentrated wealth. Now capitalism was temporarily destroyed in these English towns. The regulation against business size was nullified. Then a few superwealthy men swept aside the laws intended to protect competition. The concentration of wealth and power which ensued established monopolies which oppressed consumers and ruined labor. The Greeks had a very good custom. On a question being raised as to whether a certain rich man was a menace to the State because of his wealth and power, a jar was set up in the public square, and the voters would write in the shell or ostracon whether they thought he was a menace or not. If he was elected, he was thrown out of Athens and his property confiscated by the State or divided up among the people. Sometimes I think America could use such tactics to an advantage. Senator AUSTIN. Will you permit a question at this point? Mr. BALLINGER. Certainly. Senator AUSTIN. Have you observed that the operation of that theory resulted in the handing of the hemlock cup to a very wise and great philosopher? Mr. BALLINGER. In what way, Senator? Senator AUSTIN. In the killing of Socrates. If you do not know this, Socrates was accosted by a man on the street who could not write, and asked him to write a name for him on the shell with which this man wanted to vote. Socrates said: "What name, sir? I will write it." The man said "Socrates." Socrates said, Socrates said, "Do you know Socrates?" "No." Socrates said "Have you ever seen Socrates?" "No." Socrates then said, "Well, tell me why you want to have Socrates killed." "Oh," he said, "I am sick and tired of hearing him called 'Socrates the Just.'" Senator BORAH. Have you not got Socrates mixed up with another man? Senator AUSTIN. That may be. Whom do you suggest? Senator BORAH. Was it not Aristides? Senator AUSTIN. We may differ on who it was, but the principle is the same. Senator BORAH. The principle is correct. Senator AUSTIN. That is the point. Senator O'MAHONEY. There are no provisions in this bill for the adoption of the shell. Senator BORAH. We also have a Constitution that stands in the way. Mr. BALLINGER. I want to put in the record some of the facts that show the enormous concentration in the business world today. The following facts are summarized from various sources dating from 1926 to 1931. They present a picture of the greater part of American business: Five percent of water power companies controlled 75 percent of developed waterpower. Five percent of anthracite companies owned 78 percent of recoverable tonnage. Five percent of bituminous companies owned 60 percent of recoverable tonnage. Five percent of iron and steel companies owned 95 percent of iron ore reserves. Five percent of copper companies owned 55 percent of copper reserves. Five percent of petroleum companies owned 50 percent of petroleum reserves. Five percent of farms controlled 45 percent of farm acreage. Five percent of mining companies produced 60 percent of mine products. Five percent of manufacturing companies produced 65 percent of value of manufactures. Five percent of wholesale establishments did 45 percent of wholesale business. Five percent of retail establishments did 45 percent of retail business. Five percent of service establishments did 52 percent of service business. Five percent of hotels did 54 percent of hotel business. Five percent of all corporations owned 77 percent of corporate assets. Five percent of all corporations received 86 percent of corporate income. |