2. Trade Associations. The existence of over 1,500 national and regional trade associations and approximately 6,000 State and local associations formed to promote and protect particular segments of American industry, and the frequency with which such associations are found engaged in practices which prevent the operations of a freely competitive economy, urges the necessity of more adequate regulation of their activities in the public interest. We recommend that all trade associations whose participating members are engaged in interstate commerce be required to register with an appropriate Federal agency and to file periodical reports of their activities. All such associations should also be required to give adequate publicity to all of their activities. The effect of such a requirement should be to facilitate the enforcement problems of the Department of Justice and of the Federal Trade Commission and should tend to make business covenants open covenants openly arrived at. This committee also believes that the time has come to make a clear legislative proscription of certain types of activity on the part of trade associations. Specific activities of trade associations which are calculated to or tend to achieve results not in harmony with the fundamental tenets of the antitrust laws should be unqualifiedly prohibited. [Approved without objection.] 3. Corporate Mergers. The committee has given serious consideration to the problem of corporate mergers and consolidations, this process being recognized as one which has for years hastened the growth of the concentration of economic power and has contributed in major part toward the elimination of competition. Section 7 of the Clayton Act forbids the acquisition of stock in competing companies where the effect is or may be to lessen competition. That law has fallen far short of gaining its objective, in part because the law does not prohibit the acquisition of assets of competing corporations, thus affording a convenient way of circumventing the obvious intention of the law. The committee, in its preliminary report, recommended that section 7 of the Clayton Act be amended so as to include within its prohibitions the acquisition of assets of competitors under conditions applicable to stock under the existing law. The committee again urges the enactment of such a law, but feels that additional legislation is indicated, its purpose being to halt the merger process in its inception, rather than to continue to attempt to do so through case by case litigation after the event. We propose that the Federal Trade Commission be given authority to be fixed by the Congress to forbid the acquisition of the assets and property of competing corporations of over a certain size unless it be made to appear that the purpose and apparent effect of such consolidation would be desirable. The authority given would, of course, relate to capital assets of competitors and not to inventory or stock in trade. The standards which the administrative tribunal would be required to apply to each case should follow the general standards inherent in the existing antitrust laws, but should be made as precise and definitive as possible. It is suggested for the consideration of the Congress that no such merger should be permitted unless its proponents demonstrate (a) That the acquisition is in the public interest and will be promotive of greater efficiency and economy of production, distribution, and management; (b) That it will not substantially lessen competition, restrain trade, or tend to create a monopoly (either in a single section of the country or in the country as a whole) in the trade, industry, or line of commerce in which such corporations are engaged; (c) That the corporations involved in such acquisition do not control more than such proportion of the trade, industry, or line of commerce in which they are engaged as Congress may determine; (d) That the size of the acquiring company after the acquisition will not be incompatible with the existence and maintenance of vigorous and effective competition in the trade, industry, or line of commerce in which it is engaged; (e) That the acquisition will not so reduce the number of competing companies in the trade, industry, or line of commerce as materially to lessen the effectiveness and vigor of competition in such trade, industry, or line of commerce; (f) That the acquiring company has not, to induce the acquisition, indulged in any unlawful methods of competition or has not otherwise violated the provisions of the Federal Trade Commission Act, as amended. The committee further recommends an outright prohibition on the acquisition of stock in or holding company control of competing companies with suitable exceptions for bona fide investments and the control of true subsidiaries by parent corporations. These recommendations would, in the opinion of the committee, tend to (1) outlaw stock acquisition and the holding company as methods of combining competing corporations without disturbing the legitimate use of the holding company device in the relations between parent and subsidiary companies, (2) strengthen the administrative authority of the agencies entrusted with the administration of the new law, thus avoiding the vexatious limitations upon the powers of enforcement of the Federal Trade Commission, (3) clarify to a degree the substantive standards governing the legality of the combination of competitors, (4) employ the administrative rather than the judiciary in the initial application of standards which are as much economic as legal, and (5) substitute prevention for punishment by requiring approval in advance of any integration rather than compulsory dissolution after the evils of concentration have been suffered by the public. The committee wishes to have it clear that in its judgment the advance administrative ruling, hedged in and safeguarded as we have indicated, may profitably be used in the merger field but may not safely be used in connection with the operation of the antitrust laws generally. As to them, improvement lies in the possibility of legis 304946-41- 4 lative clarification which will, over a period of time, make more certain the laws and their meaning, and their application to particular types of business conduct. In the legislative revision this committee proposes in connection with the problem of mergers and consolidations it should be so drafted to make it clear that it does not apply to corporations subject to the jurisdiction of such administrative agencies as the Civil Aeronautics Administration, the Federal Communications Commission, and the Interstate Commerce Commission. [Approved without objection.] 4. Penalties. In its preliminary report to the Congress this committee pointed out the inadequacy of existing civil remedies under the antitrust laws, as well as the inappropriateness of the criminal remedies in many cases. The committee then recommended the enactment of legislation which would subject corporations and corporate officers violating the antitrust laws to more stringent civil penalties than exist at the present time. The committee is still convinced of the validity of its earlier recommendation, and again urges the enactment of such legislation. A bill introduced in the Senate on June 28, 1939 (S. 2179) would, if enacted into law, carry into effect the recommendations here made. The committee also points out that the maximum criminal penalty, by way of fine (and the courts are reluctant to punish a criminal violation by imprisonment) is $5,000. This amount is clearly inadequate as a deterrent to businessmen or to groups of businessmen whose incomes are in the millions, and the committee therefore recommends that the maximum limit for fines be raised to at least $50,000, leaving discretion with the court to assess the penalty according to the means and circumstances of the defendant and according to the extent to which it has profited by the violation of the act. [Approved without objection.] 5. Federal Trade Commission as a Master in Chancery. The committee recommends that the Federal Trade Commission Act be amended to provide that on request of the Attorney General the Commission, or any member thereof, may hear evidence and make findings of fact and conclusions of law in any pending antitrust proceeding. These findings should be made advisory to the Federal court under whose jurisdiction the case is pending, and that court should be in a position either to pass finally on the Commission's findings and conclusions, refer the report back for additional information, or hear further testimony itself. [Approved without objection.] INSURANCE The Temporary National Economic Committee has made the most extensive study of life insurance since the well-known Armstrong investigation conducted by Chief Justice Charles Evans Hughes in 1906. During the intervening period since then, life insurance has grown to be one of the largest businesses in the United States. Its influence reaches out through the capital structure of enterprise and the millions of policyholders whose savings are entrusted to its care until it can truly be characterized as a national enterprise of first importance. Consequently, the findings of the Temporary National Economic Committee in its prolonged deliberations will have a substantial influence on the development of a major American industry. Life-insurance business is regulated by the States. Our studies have disclosed conditions which lead to the following recommendations which are respectfully made for the consideration of the several States in which these companies are domiciled: 1. Insurance commissioners should be appointed by a responsible executive (in all cases subject of course to confirmation by the proper State body) and their selection should only be made with regard for the appointee's experience and qualifications. 2. The tenure of office of the insurance commissioner should be increased substantially and insofar as possible competent commissioners should be continued in office regardless of their political affiliation. 3. The salaries of insurance commissioners should if possible be substantially increased. 4. Insurance commissioners should not be obliged to undertake any duties other than the regulation and supervision of insurance companies. 5. There should be substantial increases in the budget for insurance departments of most States. 6. The personnel of most insurance departments should be increased. The work of an insurance department should be undertaken only by full-time qualified employees whose pay is sufficient to make them conscious of their responsibilities and free from insurance company or political influence. The employment of special outside examiners should be discontinued. The development of a civil service in State insurance departments is highly desirable. Companies should no longer be required to pay the salaries of examiners. If they must be charged for examination the necessary amount should either be collected by a lump-sum charge set in advance and paid by the company directly to the State treasury or preferably be collected through an appropriate State tax. 7. State insurance supervisory officials should strengthen examination procedures particularly in respect to companies domiciled within their State. The desired improvement would include more frequent examinations in some States, more competent examiners, greater publicity to and full release of all examination reports, and the undertaking of examination which would give greater attention to the insurance operations as contrasted with the purely financial aspects of the business. 8. Closer regulation and supervision of agency practices is required. Present laws for licensing agents are all too frequently administered purely as revenue measures. Agents should be required to show more adequate training, better prospects for financial success, and greater knowledge of the life-insurance business. Furthermore, State supervisory officials should give more attention to such matters as company training courses, sales contests, compensation arrangements, etc. 9. The number of policy forms should be reduced, and greater attention given to establishing standardized policy forms or policy provisions acceptable in all States. The present confusion in this field is most undesirable. 10. State supervisory officials should more closely scrutinize activities of officers and directors and generally make more thorough checks on the competence and activities of company managements. 11. The life-insurance business should be conducted on a competitive basis, with emphasis on management efficiency rather than sales promotion. No intercompany agreements should be permitted the effect of which is to prevent any company from developing actuarily sound service and sales techniques. 12. A fundamental change in the conduct of industrial insurance should occur. Otherwise, its eventual elimination may be necessary. The primary responsibility for the change lies with the companies issuing such insurance and the States which supervise them. [Approved without objection.] [In addition to the above, Commissioner Sumner T. Pike, of the Securities and Exchange Commission, personally recommends a liberalization of investment laws to permit life-insurance companies to invest a relatively small percentage of their funds in common stocks which would stimulate healthier financial structures and have a wholesome effect on the economy. Accordingly, he suggests that the respective States give consideration to liberalizing their laws in this direction.] Without interjecting the Federal Government into the general field of insurance regulation, it is possible to utilize Federal powers in a direction which will strengthen State regulation and make it more effective. There are admittedly areas where State regulation is severely handicapped by reason of the interstate character of the life-insurance business. If forthright steps are not taken now to plug the gaps where State regulation cannot do an effective job and to prevent relaxations of regulatory standards in several States such as have occurred in the past to the disadvantage of numerous policyholders, State regulation may eventually decay and all-inclusive Federal control will be required. Accordingly: 1. A Federal statute is recommended preventing life-insurance companies from using the mails, the radio, or other means or instrumentalities of interstate commerce to sell insurance in a State where they have not been lawfully admitted to do business. 2. The National Bankruptcy Act should be amended to permit any State insurance commissioner to apply to the appropriate United States district court to bring about the liquidation or reorganization of a life insurance company. If a company should be adjudicated bankrupt, the designated Federal agency or its nominee should be appointed to act as conservator and advisor during the readjustment of the company's affairs. 3. Officers and directors of insurance companies operating in more than one State should be prohibited by Federal statute from using their positions for improper personal gain either directly or indirectly. The statute should also declare life insurance officials not only in fact |