Antitrust: New Life in an Old Issue

FEW economic issues have revived as suddenly as antitrust policy. Only weeks ago, excitement about business concentration and the potentialities of vigorous trust-busting seemed, in the words of Historian Richard Hofstadter, "a faded passion." Now the virtues and evils of business bigness are again being fiercely debated, largely for two reasons:

> Two new studies of big business have appeared almost simultaneously. One is a Nader's Raiders report, The Closed Enterprise System, and the other is a widely acclaimed book, America, Inc. (see box). Both argue that giant size gives the biggest U.S. corporations the power to hurt the consumer by charging excessive prices, engaging in collusive dealings and ignoring public concern about product safety and pollution. Nader's Raiders advocate the breakup of every U.S. corporation that has assets of more than $2 billion--except for "natural-monopoly, rate-regulated public utilities like A.T. & T."*

> The White House has been dropping hints that it is considering relaxing antitrust enforcement in order to help American industry compete more effectively with foreign rivals. U.S. businessmen have long argued that the antitrust laws put them at a disadvantage against foreign companies that, to win rich export orders, are free to form cartels and engage in reciprocal deals (You buy from me, and I'll buy from you). Government officials also worry about great foreign mergers that are creating companies equal in size to the largest U.S. firms.

Growing Concentration. Washington's trustbusters have filed few major cases lately, but Richard McLaren, the Justice Department's antitrust chief, insists that there has been no slackening of zeal. The Administration's prime concern is controlling "merger mania," he explains, and recently there just have not been any big mergers to attack. Attorney General John Mitchell discouraged many corporate giants from contemplating merger by emphasizing in a 1969 speech that the Government would move to bar most acquisitions by the nation's 200 largest companies.

In the view of Nader's Raiders and the authors of America, Inc., the Mitchell-McLaren policy is grossly inadequate because it leaves untouched the nation's already existing aggregations of economic power. The critics complain that the 200 largest U.S. corporations control about two-thirds of all manufacturing assets, a degree of concentration that some economists had not expected the U.S. to reach until 1975 at the earliest. The critics have brought up again the oldest question of antitrust policy: Is bigness, in itself, bad? They reply with a ringing yes.

Political Power. One of their most important points is that massed economic power translates into political power, through the ability of wealthy businessmen to finance campaigns for office.* The big money, they say, flows to candidates who favor retention of the oil-depletion allowance and import quotas on petroleum and steel; the quotas enable domestic industries to charge higher prices than they could if foreign products were able to enter the U.S. more freely. Economically, however, the dispute centers on whether giant enterprise is efficient.

Advocates of bigness in business argue not that it is desirable but inevitable. Economist John Kenneth Galbraith has attacked big companies for creating demand for unnecessary products, but he also argues that only the giant corporation has the resources to engage in necessary long-range planning and to marshal the armies of specialists needed to fully exploit technology. Says Galbraith, in defense of the huge corporation: "The notion that you can get along without modern organization is strictly romantic. If you think otherwise, try taking a trip to the moon."

The Quiet Life. The critics retort that giant companies, which have billion-dollar investments in existing technology, seek not progress but what the late Judge Learned Hand called "the quiet life" of monopolists--an existence undisturbed by the innovations of pushy competitors. Many of the genuinely new products that have appeared since World War II have been the work of small firms. Transistor radios were first sold in large volume by Sony, then a struggling young Japanese company; stainless-steel razor blades were introduced by Wilkinson Sword, a British firm that few Americans had heard of; dry copiers were invented by an obscure company then called Haloid Xerox; the picture-in-a-minute camera was developed by Polaroid, a firm with no prior experience in photography. Similarly, the fast, low-cost oxygen steelmaking process was first tried in the U.S. by the relatively small McLouth Steel Corp. in the mid-1950s. A decade passed before U.S. Steel and Bethlehem Steel, which had enormous plants devoted to the old open-hearth process, used the new method on any large scale.

Another major problem is the role of the giant corporation in inflation. Economists generally agree that when inflation is caused by the pull of excessive demand, prices go up fastest in industries with a large number of small companies. But they also agree that big corporations play a disproportionate role in what Nobel Laureate Paul Samuelson calls "sellers' inflation"--the passing on of higher costs to consumers in the form of price increases. A special difficulty is the ability of giant companies in concentrated markets to maintain or even to increase prices despite falling demand. That ability is one reason the Nixon Administration still has not made the gains against inflation that it expected by engineering the business slowdown of 1970. Many big corporations set prices calculated to give them a fixed profit return on investment; if sales drop, they often increase prices in order to hit the profit target.

Even if it is conceded that bigness is dangerous, the critics face an almost unanswerable question: How big is too big? The Nader team's advocacy of an absolute $2 billion limit on assets is an overly simplistic answer. There are genuine economies in large-scale operation, and nobody knows what is the optimum size of a company. Trustbuster McLaren wonders: "Do you apply the same limits to an aerospace company and a candy manufacturer? If not, how do you determine the proper size for each?"

Size can bring social benefits, too --and smallness is no guarantee of either efficiency or virtue. Big companies launched almost all the expensive programs for hiring and training the hardcore unemployed under the Government's JOBS program; small companies generally had neither the funds nor the interest to do so. Despite the bad example set by the oil and steel quotas, giant companies with worldwide interests have generally been dedicated supporters of free trade, while small manufacturers have often howled loudest for protection. Small retailers, who need large markups to survive, have provided the prime support for the misnamed "fair trade" price-fixing laws. The construction industry, which is fragmented into myriad poorly financed small companies, has been a prize example of both technological lethargy and violent inflation.

For the immediate future, breaking up the nation's biggest companies seems a political impossibility--not least because the American temperament will not stand for laws that seem to put limits on growth and success. Democratic Senator Philip Hart of Michigan, a leading congressional foe of monopoly, told TIME Correspondent Hays Gorey: "I don't think a case has been made that we'd be better off if General Motors were broken into five separate companies." There is a genuine problem, though, in making the sometimes elephantine bureaucracy of the giant corporations responsive to the public will. One way to do that is to continue criticizing their faults. Thus the new studies, despite their flaws, serve a useful purpose.

* According to the FORTUNE 500 listings, 107 companies would be subject to breakup. Among them: 42 industrial firms, including the Big Three automakers and 14 oil companies; 37 banks; 18 life insurers; eight transportation companies; and two retailers, Sears, Roebuck and Marcor.

* Marvin Watson, a Texas oilman and former high aide to President Johnson, told United Steelworkers President l.W. Abel last month not to waste money trying to re-elect Oklahoma Senator Fred Harris. Watson's implication was that oilmen have marked Harris, a former Democratic national chairman, for political extinction. They have never forgiven Harris for voting against one of their favorites, Russell Long, for Senate whip in 1969.

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