INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

FRIDAY, MARCH 7, 1941

UNITED STATES SENATE,

TEMPORARY NATIONAL ECONOMIC COMMITTEE,

Washington, D. C.

The committee met at 10:20 a. m., pursuant to adjournment on Saturday, March 1, 1941, in the caucus room, Senate Office Building, the chairman, Senator Joseph C. O'Mahoney, presiding.

Present: Senators Joseph C. O'Mahoney (chairman), and James M. Mead, New York; Representatives Hatton W. Sumners, Texas, and B. Carroll Reece, Tennessee; Wayne C. Taylor, Under Secretary of Commerce; Joseph Meehan, Department of Commerce; Garland S. Ferguson and Ewin L. Davis, Commissioners, Federal Trade Commission; Joseph J. O'Connell, Jr., and Charles L. Kades, special assistants to General Counsel, Department of the Treasury; Sumner T. Pike, Commissioner, Securities and Exchange Commission; A. Ford Hinrichs, Chief Economist, Bureau of Labor Statistics, Department of Labor; Hugh B. Cox, special assistant to the Attorney General, Department of Justice; and H. Dewey Anderson, executive secretary of the committee.

The CHAIRMAN. The committee will please come to order.

We have the pleasure this morning of listening to the representative of the Treasury Department.

STATEMENT OF JOSEPH J. O'CONNELL, JR., SPECIAL ASSISTANT TO GENERAL COUNSEL, DEPARTMENT OF THE TREASURY

Mr. O'CONNELL. Thank you, Mr. Chairman. I will try to be fairly brief, especially since most of what I have to say is material that you have suspected me of thinking, and may have heard me say to some extent before.

First I want to make clear that I am appearing before the committee this morning, not to express any view which the Treasury Department as such may have, but rather to express to the committee. some of my views as they have developed as a result of the hearings before this committee. There is little that will be said that you have not heard said before in one form or another. However, it is my hope that what I recommend will impress you as being indicated by the material presented to this committee during its period of life.

What I have to say is on the assumption that we are wedded to a private system of competitive capitalism, and I intend to suggest certain specific things which this committee might recommend to the Congress and which, in my judgment, will help to preserve that system.

1

I do not want to burden the record with too much detail this morning, especially since practically all the ground I intend to cover is covered in detail in a monograph prepared in the Treasury Department on assignment from this committee. My main reason for appearing before you this morning is to call special attention to the recommendations in this report, which has not yet been released by the printer and may not be until quite shortly before the committee completes its deliberations. For that reason, quite frankly, I feel justified in taking some of the time of the committee to indicate in a very general and informal way what I believe to be desirable things to do, although most of the things are outlined in greater detail in the report itself.

I might say at this point that the report to which I refer was begun under the direction of Mr. Herman Oliphant, the first Treasury representative on this committee and the then General Counsel of the Department. After his death the work was completed, in a somewhat less detailed form than had been planned originally. Milton Handler, associate professor of law at Columbia United School of Law and special assistant to the General Counsel for the Treasury Department, was directly in charge of the work. The job is obviously one not falling within the range of Treasury Department activities, and the report represents the views of Mr. Handler and not of the Department. However, I have no hesitancy in saying that I believe it to be sound and commend it to you for your consideration.

At the outset I should like to point out what seems to me to be a very simple proposition, yet is one often lost sight of. That is that there is no constitutional question involved in any of the cases where the Sherman Act and the Clayton Act have been invoked. If there were and it were felt that the decision on the constitutional question were not in accord with law, then there would be some point in asking the Supreme Court, at a later date and in another case, to review and possibly to overrule its earlier decision. That is not so where the question is merely one of the construction of the statute. If the Supreme Court misconstrued the statute, then the legislature should amend the statute so as to plug the gap. The report contains a number of affirmative recommendations for changes in the substantive law of monopoly, restraint of trade, and unfair competition, as well as suggestions for improvement on the procedural or enforcement side.

The CHAIRMAN. I take it that this monograph, which I think some of us already have read, expresses the point of view which you are here expressing, that the purpose of this committee should be to recommend the strengthening of the competitive system.

Mr. O'CONNELL. Exactly.

The CHAIRMAN. And that the substitution for that system of any other, whether it be a system of government control or business selfgovernment or what, has been called economic planning, either by public or private parties.

Mr. O'CONNELL. Exactly. That is the point of view expressed in the report.

Mr. DAVIS. Are there mimeographed copies of the report available? Mr. O'CONNELL. The report itself is in galley form now; it is being printed. There will be printed copies available, I believe, in about 10

1 Temporary National Economic Committee Monograph No. 38, Study of the Construction and Enforcement of the Federal Antitrust Laws.

days, but that, unfortunately, will be a pretty late date. I can have a few typewritten copies available for such members of the committee as may want them, but unfortunately we were delayed in getting the material to the printer, and that, as I say, was one of my reasons for appearing this morning, to discuss two or three of the most important things in the report.

Dr. ANDERSON. Mr. Chairman, the report is to appear as a monograph in the monograph series. It has cleared both subcommittees and the full committee and was submitted to all members in summary form, and some members have asked for the entire manuscript, for example, the Federal Trade Commission has the entire manuscript, and I think some of their experts have gone over it. It is now in galley. Mr. DAVIS. When I was asked if they could get hold of a copy I referred them to you, Dr. Anderson.

Mr. O'CONNELL. In general, I might state that the report supports two basic propositions: First, that on the substantive side much could be done in the way of clarifying the meaning of the antitrust laws by legislation rather than by the case by case method so far used; secondly, that the enforcement process should be strengthened by giving to the Department of Justice and the Federal Trade Commission not only increased appropriations on which to operate, but also the additional strength they might gain through particular sanctions. Shifting the burden of proof to the defendant in given cases, permitting the court, on application of the Department of Justice, to enjoin a corporation violating the antitrust laws from giving employment to any officer found to bear responsibility for such act, and broader subpena power in the Department of Justice than now exists, and similar other enforcement or procedural aspects of the antitrust laws are recommended in the report. I only wish to mention them, not to discuss them. As I say, I have one or two things that I want to talk about in a little more detail.

The first thing I wish to refer to specifically involves the activities of trade associations, an aspect of the monopoly problem which has been considered at least to some extent by this committee. The treatment which I suggest should be accorded the problems in this field is, in general, a clearer legislative demarcation of the areas of permissive and of prohibited activity on the part of trade associations and a requirement that they be required to register with and give adequate information about their activities to an appropriate Federal agency. Certain specified activities of trade associations should be unqualifiedly prohibited and certain others, subject to perverted use but not necessarily so, should be made presumptively unlawful. I will not take the time of the committee to outline very many of the types of activities which I believe should be unqualifiedly prohibited.

I might say most of those included in the report are supported by provisions of consent decrees which have been entered into by the Department of Justice. Such things as agreements on the part of trade-association members to adhere to fixed or filed prices for certain periods of time, agreements for waiting periods before making changes in prices, should be expressly outlawed; affirmative requirements that trade associations give publicity to their dissemination of their trade statistics, that the buyers be made aware of the information disseminated as well as those selling, and other things-there are

probably a dozen that we suggest, there might be more. I merely suggest here that it would be helpful, it would aid better administration, better law enforcement, it seems to me more knowledge and information on the part of the trade-group system of what they can or cannot do, for certain things which are expressly known to tend toward restraint of trade, be they price fixing, allocations of territory, business, other things, could and very properly should be prohibited on the part of all trade associations. On the other hand, there are certain other activities in trade associations, such possibly as current and future price reporting, on which the Department of Justice would have stronger feelings than I would, that I would think might be made presumptively unlawful, at least put the burden of proof on a given association that that type of price fixing could not be in restraint of trade.

But what I conceive to be of much more importance in dealing with trade associations than mere prohibitory legislation is a requirement that all trade associations register with an appropriate Federal agency and file periodic reports of their activities. Furthermore, all such associations should be required to give publicity to whatever they do. If there is one thing that this committee has demonstrated, it is the value of publicity as a sanction in law enforcement. Most improper practices in trade will not stand the light of day. The requirement of registration and the filing of periodic reports by trade associations and of giving publicity to their activities has several purposes. It would make available to a Government agency, which might be termed a "bureau of industrial economics," information as regards the operations of the various segments of our economy which it would be in a position to analyze and disseminate to businessmen and others; and it would operate as a part of the law-enforcement mechanism by the chastening force of publicity and by making the records of their operations available to the Department of Justice and to the Federal Trade Commission. And when I speak of periodic reports of trade associations I do not mean certificates of incorporation and bylaws of trade associations or the type of information which is filed by the WebbPomerene Act associations, for example, because that is not helpful at all and would not be helpful in presenting to anyone a picture of what actually goes on. You people may recall that within the past year we had a picture presented before this committee of the operations of the Webb-Pomerene Act in the steel industry. The Steel Export Association met in New York 2 or 3 years back with a representative of the International Cartel of Steel, and the issue was, Would the export corporation be in a position or able to control the so-called outsiders who were selling in the low-priced European market?-and the picture as it was presented to me seemed to indicate that the International Cartel people were in a position to say to the Export Corporation, "You either control your own people or we will invade the high-priced American market.'

1

It seems to me where the sort of situation can exist that existed in that particular case, and there is no doubt that comparable situations exist in the case of domestic trade associations, it is wrong that the Government should only know of that type of activity as the result of such an investigation as the T. N. E. C. has been making.

1 Temporary National Economic Committee Hearings, Part 20.

That material was made known 2 or 3 years after it happened, and then only by the fortuitous circumstance that we were in existence and examining and investigating that particular type of activity.

What I am getting at is that when I say reports of trade associations, I mean complete reports of their activities; stenographic minutes should be kept of their meetings; they should be certified under oath and be delivered to the agency which has the responsibility for accepting them; they should keep open files of their activities, and failure to keep open files would be a violation of the sort of set-up that I am proposing.

To sum it all up, what I have suggested as regards trade associations would accomplish several things:

(a) The use of registration statements and filed reports would facilitate the proof of background facts in antitrust litigation, and access to such statements and reports would, to some extent, reduce the expense and obviate the present difficulty of obtaining such background information.

(b) Preliminary investigations would be greatly expedited by the requirement that complete files be kept by trade associations and that such files be made accessible to the Government.

(c) Business covenants would tend to become open covenants openly arrived at, and collusive restraints, to the extent that they would continue, would tend to be driven underground. This is neither an unmixed blessing nor an unmixed evil. Assuming that the ordinary businessman is not disposed to participate in a willful infraction of the law, the balance would seem to be in favor of full disclosure and publicity.

(d) The requirement would simplify the litigable issues of law and fact. Under the proposal, where the reports and files fully disclose the arrangements made, no time need be wasted in proving what the association actually has done, the only issue being the legality of such conduct. If, however, the record is incomplete, the Government need merely show the incompleteness, thus proving a violation without embarking on the complicated task of proving that the defendants have engaged in an unlawful restraint of trade."

(e) Since periodic reports would disclose the initiation of each type of concerted activity, the Government would be in a position to take action promptly before the activity becomes the established practice of the industry.

(f) And, finally, I think the need for a Federal agency, call it a bureau of industrial economics if you will, to assist business in collecting, analyzing, and disseminating over-all trade and business information, has been amply demonstrated to this committee.

A problem which has vexed economists, law-enforcement officers, and others for a long period of time has been that of mergers and consolidations. There is little point in reiterating what we all know, that being that the Clayton Act was intended to prevent the growth of mergers and consolidations and that it has fallen far short of gaining its objective. Admittedly, the amendments proposed by the Federal Trade Commission and by the Department of Justice should be helpful. It does not seem to me, however, that such changes go to the root of the difficulty. If we assume, as I think we may, that the uneconomic growth of large aggregations of capital through the process of consolidations and mergers is undesirable in a system such as ours,