The task of democracy is to preserve the freedom and independence of the individual in this economic and political complexity and the obvious first step is to differentiate between the economic organizations which are essentially national in scope and those which are essentially local and at the same time definitely and clearly to fix their powers, responsibilities, and duties. The simple way to do this is to provide a national rule for the national corporations that carry on national commerce. The suggestion has been made over and over again by the statesmen of the last 50 years. It has been rejected because of an inherent fear that it would lead to political domination of the States by the Federal Government.

Some of those who have opposed the proposal have pointed out that the respective States have a complete legal right to regulate the activity within their borders of corporations created by other States. The right exists but has seldom been exercised. Indeed, in the nature of things it cannot be successfully exercised because so much business is essentially national in scope and the economic power of the corporations which carry it on is so great that individual States fear to place themselves at a possible disadvantage by imposing requirements which other States would not lay down. The result has been that we have witnessed in America the steady progress of centralism— centralism in business, centralism in labor, centralism in agriculture, centralism in government. The very consequence which it was feared would follow from a system of Federal charters or licenses for corporations engaged in interstate and foreign commerce has proceeded from the failure to adopt that formula, and simultaneously, with the development of centralism the economic impotence of the States and of local communities has become more and more striking.

The principal instrument of the concentration of economic power and wealth has been the corporate charter with unlimited powerscharters which afforded a detour around every principle of fiduciary responsibility; charters which permitted promoters and managers to use the property of others for their own enrichment to the detriment of the real owners; charters which made possible the violation of law without personal liability; charters which omitted every safeguard of individual and public welfare which common sense and experience alike have taught are necessary.

Among those to suffer the worst effects of the failure to require national standards for national corporations are, it is almost possible to say, the businessmen of the Nation who have been taught to fear a national charter law. Because the local corporation and the small corporation have no protection against the unfair and improper activity of the large corporation, little business has seen a constantly increasing portion of the Nation's business pass into the hands of big business.

Throughout the 50-year period during which the Government establishment at Washington has steadily grown little businessmen have always been told by the opponents of a charter system that they, the littles ones, would be the victims of Government interference and control, if a national charter system were adopted. The system was not adopted and the little businessman finds himself compelled to deal with both the bureaucrat and the monopolist.

A national law which would prohibit interlocking directorships would eliminate one of the principal causes of concentration and would injure no local or small corporation.

A national law which would make corporation directors trustees in fact as well as in law would protect investors big and little and would injure no local or small corporation.

A national law which would raise a barrier to business dealings by corporation officers and directors for their own personal profit with the corporations they manage would protect investors and all honest business enterprise.

A national law which would make corporation officers and directors civilly liable personally for violations of the antitrust laws which they themselves conceived and directed would protect all business.

A national law which would clearly define the scope of subsidiary corporations and one which would standardize intercorporate financing would remove two of the causes of concentration.

These and other necessary reforms could be effected by a national charter law without in the slightest degree impairing State sovereignty. Indeed, such provisions would have the very opposite effect because they would abolish the principal means by which the concentration which has undermined local economic sovereignty has been effected. So long as those who want to voyage at will upon the seas of interstate and foreign commerce without responsibility to the public may obtain unlimited charters from the States, there is no efficient means of safeguarding the general welfare, for even the regulatory powers of agencies like the Federal Trade Commission and the Securities and Exchange Commission are not sufficient to prevent the evils which arise from loose State charters.

If it be desirable to foster small business and encourage independent economic development in the States, if it be desirable to improve the fiduciary standards of the modern business corporation and protect investors, the simple way is to strike at the cause and prevent the practices that are condemned instead of trying vainly to correct and punish wrongs after they have been committed.

National standards such as are suggested here would require no expanding bureaucracy to administer. They would clothe no Government employee with discretionary power. They would have the simple effect of raising the corporate standards of the entire business world and thereby would liberate business from the dangers of arbitrary power whether exercised by "monopoly" or Government.

In the absence of legislation of this kind, it will be quite impossible to escape the continued multiplication of Government boards and commissions. Free independent enterprise will continue to be condemned to wage an unequal battle with concentrated power and the progress of concentration will make inevitable the development of more discretionary Government tribunals to protect the masses. We must either keep business organizations within bounds or accept some form of concentrated government.

The Temporary National Economic Committee, therefore, endorses the principle of national standards for national corporations and recommends that Congress enact legislation to that effect.

[Approved. Dissenting: Sumners, Reece, O'Connell, and Pike.]

PERSONAL STATEMENT OF MESSRS. REECE, PIKE, AND O'CONNELL

Messrs. Reece, Pike, and O'Connell dissent from the position taken by the majority on "national standards for national corporations,` for the following reasons:

First, the statement does not express definitely what it is that is being recommended. For instance, it is not clear whether statutory prohibitions of certain corporate practices are envisaged, or whether complete charters for national corporations are contemplated, or both. Without determining precisely what standards of corporate practice should be imposed, a recommendation that "national standards for national corporations" be adopted is not meaningful.

Second, the statement inadequately discusses the specific purposes which would be achieved by the adoption of "national standards for national corporations," but there is an unfortunate implication that their adoption would solve all the problems involved in the concentration of economic power.

Third, the proposal for "national standards for national corporations" proceeds largely on the theory that simple legislative prohibitions of business conduct hostile to competitive enterprise will be sufficient to eliminate the conduct inimical to the business structure this committee seeks to preserve. In fact, like the provision in the Panama Canal Act denying permission to monopolies to use the Panama Canal, the recommendation of the majority naively assumes that the so-called standards will be self-executing.

It should be emphasized that we are not opposed to legislation which would outlaw specific corporate practices which have been proved to this committee to facilitate the undue concentration of economic power. This the proposal of the majority does not purport to do.

STIMULATING INVESTMENT

The voluminous testimony before the Temporary National Economic Committee conclusively demonstrated the potential capacity of the American economy to produce an abundance of goods and services. We are committed to the purpose of making that potential capacity the actual quantity of goods and services available to the people of this Nation. We reject as un-American and unrealistic the belief that the limits of economic achievement have been reached in the United States.

The hearings and studies of the Temporary National Economic Committee have disclosed the restraints placed on the competitive system by the concentration of economic power with respect to the disadvantages under which small independent business labors in attempting to operate successfully. Important avenues of credit for small business have either disappeared or so altered in their conditions as no longer to be readily available. Yet small business is the seed-bed of a growing system of free enterprise upon which a healthy industrial economy depends. Its encouragement is essential to a dynamic economy.

The social desirability of new enterprise and new employment is so great that Congress can well consider the advisability of material reductions in the rate of taxation on returns which come from investments in new, independent businesses. The advantages to be derived by the whole economy from the opening of new fields to investment

and commercial activity would more than offset any financial loss in returns from the higher brackets under the income tax law.

This does not blind us to the facts developed concerning the lack of private investment sufficient to absorb in ecoonmic production the savings of our citizens during the past decade or more. Vast hoarding of unused capital has resulted. It cannot be denied that the present system of production and distribution permits the amount set aside in savings to increase at a much faster rate than the national income itself increases, causing an imbalance of serious proportions. Nor is the answer found in continued Government spending to counterbalance the accumulation of unused savings in a relatively few hands. The ultimate answer must be in such a stimulus to private enterprise that an expanding economic endeavor will immediately put all savings to work in providing the capital required for a more adequate standard of living for all our people.

No single remedy will achieve this result. Many of the recommendations offered in this report will go far, in combination, to effect it. An equitable tax system will do much. A wise program of aid to the underprivileged to increase their purchasing power will do a great deal. Strict enforcement of existing antitrust laws and more adequate antitrust legislation to prevent monopoly and insure a system of free competition in a free market will accomplish great things. It is an important axiom that we cannot maintain an economy of mass production unless we have an economy of mass consumption. The only practical way of preserving our democratic institutions is to pass on the benefits of our technology in lowered prices and increased standards of living to our entire population. A combination of the above remedies will remove many of the restraints and uncertainties which have retarded the investment of capital in new enterprise. They are recommended by this committee as essential in stimulating the use of capital which will adjust the imbalance between savings and investments. [Approved without objection.]

A PROGRAM FOR BUSINESS AND ECONOMIC RESEARCH

One of the striking facts of experience in national economic policy formulation during the past decade, amply demonstrated by the experience of this committee, and more recently emphasized by the pressing problems of industrial mobilization confronting the national defense authorities, is the inadequacy of factual information concerning the structure and functioning of our industrial economy. President Roosevelt pointed to this deficiency in his message to Congress of April 29, 1938, specifically referring to it in section VI (7).

Looking to the post-war period we all know that business and Government will be confronted with a new, complex, and difficult situation. We shall be able to make the necessary adjustments and keep the economy functioning at a high level only if we anticipate and provide the factual requirements which are essential for intelligent appraisal and proper action. Fact gathering must be continuous so that essential economic information will be available to businessmen, to Government, and to the public.

We recommend, therefore, that the work of the Department of Commerce in the field of business and economic research be developed to provide for an adequate flow of current data on our national

economy-on production, orders, inventories, productive capacity and resources, and related matters; for the investigating and tracing the movement of goods from the producer of raw materials through the manufacturing and distributing processes to the ultimate consumer; for the study and dissemination of information on efficient business practices and techniques; for the study of trade and business fluctuations and conditions which affect the national economy. Should ade

quate powers not be in existence to provide the basic data essential for this program, provision should be made to remedy this deficiency, but it is not intended to recommend that the subpena power be made available.

Further, we recommend that essential research in other agencies necessary to provide a comprehensive and integrated record of the current functioning of the economy such as, for example, the studies on occupational outlook and productivity now conducted by the Department of Labor, and the general economic investigations and the corporation report projects of the Federal Trade Commission be adequately supported and provision made for filling any essential gaps. [Approved without objection.]

FOREIGN PATENT CONTROLS OVER AMERICAN INDUSTRY

Ample testimony on cartels before the Temporary National Economic Committee and other information which has come to the committee from governmental sources indicate that the interchange of patents between American and foreign concerns has been used as a means of cartelizing an industry to effectively displace competition. The production of vitally important materials, such as beryllium, magnesium, optical glass, and chemicals, has been restrained through international patent controls and cross-licensing which have divided the world market into closed areas. As a result, the capacity of American industry to produce these materials is not adequate to meet the needs of the defense program. The present international emergency further attests the need for a strong policy with respect to the control exercised by foreign governments and their dependent industries over American concerns through the patent system. The committee decries this situation and recommends that appropriate legislation be enacted to remedy it.

The further recommendation is made that the patent laws be strengthened so that no application for patent may be filed in a foreign country until specific permission has been obtained from the proper agency in this Government. This will prevent results detrimental to American interests following upon the use of a patent by a foreign government or its agents.

[Approved without objection.]

MAINTAINING A FREE MARKET

The American system is based on the maintenance of a free market. wherein the products of farm and factory are offered for sale in competition which insures the movement of the greatest quantity of goods at the lowest possible price. Many restraints on the free market have