Transcriber’s Note
This file uses _underscores_ to indicate italic text. Small capitals
changed to all capitals.
CARTELS
Challenge to a Free World
_By_ WENDELL BERGE
_Assistant Attorney General of the United States_
_Public Affairs Press_
WASHINGTON, D. C.
_To My Father_
GEORGE W. BERGE
_who throughout his life and in his public career was
guided by the conviction that the people’s rights
are not won without struggle and will not
be maintained without vigilance_.
_Public Affairs Press, 2153 Florida Ave., Washington, D. C._
_Copyright, 1946, by American Council on Public Affairs_
_M. B. Schnapper, Executive Secretary and Editor_
_Preface_
Plastics, television, new chemical and electrical techniques are but a
few of the instruments which will furnish the stuff for the pioneers of
a new age. The challenge of housing will excite bold minds to action,
on a scale never before attempted, to wipe out slums and give dwellers
in country and city alike a new and higher standard of living. Not
only at home, but also abroad, the opportunities for daring enterprise
which will be offered by the needs of world reconstruction will surpass
anything ever before known.
How are we going to meet this challenge? At the outset, we must face
frankly the greatest obstacle to making the most of our opportunity.
It is the threat of cartel control of major world industries. Unless
this threat is understood and dealt with decisively, our opportunity
to realize the great potential benefits of a free economy will be
lost. And worse still, the hope of maintaining democratic political
institutions will be seriously impaired.
The pattern of cartel operations has been clearly revealed in recent
years by antitrust investigations. From public records in antitrust
proceedings and congressional hearings, information about cartel
operations is now available. The public should be familiar with the
facts. As head of the Antitrust Division of the Department of Justice,
I have frequently been called upon to discuss cartel problems before
congressional committees, trade associations and civic groups. Since
my testimony and speeches received varying degrees of public notice
at the time they were given, the casual reader of newspaper reports
necessarily obtained only an impressionistic picture of the far-flung
ramifications of the subject. Something more is needed for thorough
understanding.
With this thought in mind, a number of friends and associates have
suggested from time to time that my material should be woven together
in book form. This I have undertaken to do in the present volume.
Merely to make assertions about the evil effect of cartels is a simple
matter. But I believe that the real usefulness of this book will depend
upon its fairly detailed explanation of the operation of particular
cartels, with direct quotations from letters, memoranda and other
documents.
While I have not tried to compile a complete source-book, I have
striven to make this discussion as non-technical as possible. The
factual material is drawn largely from the documents of the Kilgore,
Truman and Bone Senate Committees, and from the public records of
antitrust cases.
The investigations which unearthed the facts cited in this book were,
of course, the work of a great many men and women in the Antitrust
Division extending over a period of years. Acknowledgment of credit to
all of them would be impossible. Many of the men who have developed
these facts are now serving their country in the armed forces.
I cannot praise too highly the ability, energy and devotion to public
service of the men and women of the Antitrust Division. It is a
privilege to head such a splendid staff, as it is to serve under such
an able and distinguished Attorney General as Francis Biddle, who
has maintained at all times an extremely deep interest in our cartel
work and has given it his fullest support. Attorney General Biddle
has repeatedly impressed upon me his own conviction that the vigorous
enforcement of the antitrust laws against cartels is an indispensable
condition to the maintenance of a free competitive economy in this
country.
In the preparation of this book I am particularly indebted to Joseph
Borkin of my staff, who is in my opinion one of the best informed men
in America on the activities of international cartels. For more than
five years Mr. Borkin has devoted his great resourcefulness and energy
to investigation and study of cartel problems. His contribution in this
field has been invaluable.
I also want to acknowledge my deep obligation to my First Assistant,
Edward H. Levi, with whom I have spent many hours discussing the legal
and economic problems of cartels, and on whom I have relied so heavily
in the practical administration of the Antitrust Division. And I am
greatly indebted to Myron W. Watkins, Charles A. Welsh, Ernest S.
Meyers, George P. Comer, Herbert A. Berman, Bartholomew Diggins, Robert
Hunter, and Heinrich Kronstein of the Antitrust Division staff, all of
whom have been of great assistance in the preparation of this book and
in the cartel work of the Division. Professor Walton Hamilton of Yale,
who has been a part-time member of the staff, has also worked closely
with me on these matters and has made a signal contribution to our work.
Mr. M. B. Schnapper, Executive Secretary of the American Council of
Public Affairs, has been of greatest assistance in the planning of this
book and in the editorial work which it has involved.
WENDELL BERGE
CONTENTS
_1_: Trusts to Cartels 1
_2_: Enterprise Eclipsed 10
_3_: Technology 19
_4_: Patents 36
_5_: Medicines 52
_6_: Synthetic Hormones 58
_7_: Vitamins 82
_8_: Quebracho Extract 112
_9_: Titanium 124
_10_: Optical Instruments 142
_11_: Miscellaneous Products 176
_12_: The Webb Act 192
_13_: Private Governments 208
_14_: Freedom or Control? 233
_Appendix I_: Recent Cases 250
_Appendix II_: Bibliography 257
Index 261
1
_Trusts to Cartels_
The problem of monopoly is no longer a distinctively domestic and
national phenomenon. It has come to encompass the wide world. Like a
parasite upon its host, monopoly has grown with the marketplace. Today
hardly a corner of the world remains free from the malignant influence
of its latest and most sinister form, the cartel. Diamonds discovered
in Arkansas may prompt agitated conferences within 48 hours in London
and the Belgian Congo; a lawsuit in New York challenging the aluminum
monopoly brings simultaneous outbursts of oratory in the House of Lords
and of vituperation on the Axis radio.
For over half a century, the Sherman Act has stood as a positive
expression of the inflexible will of the American people to preserve
freedom of economic opportunity. When this measure was enacted the oil,
whiskey, and sugar trusts had placed barriers directly athwart the
arteries of commerce and were exacting tolls for every gallon or pound
of product permitted to pass. Since nation-wide industrial monopoly of
a comparatively stable character first took the form of a simple trust
agreement the Sherman Act came to be designated an antitrust statute.
But its thrust was positive: the maintenance of free, competitive
markets and a democratic system of industrial control.
If such an Act were passed today, I am quite sure it would be called an
“Anti-Cartel Act.” For our attention is at the present time focused on
industrial monopoly in a different form, operating in a wider orbit.
But our basic concern is the same. We are as determined today as were
our grandfathers, two generations ago--indeed, as were the founders of
the republic--to countenance no infringement of the right to engage
in any legitimate enterprise and to conduct business without let or
hindrance from any self-constituted group presuming to monopolize trade
or industry.
The Sherman Act has proved an effective instrument no less for
dealing with the cartel problem than for curbing the trusts. It must
be conceded, however, that, in default of proper implementation and
appropriate supplementation, it has not fully realized the salutary
object for which it was designed. In particular, our policies with
regard to patents, trademarks, the tariff, monetary and credit matters,
interstate commerce, and foreign trade, all have a direct bearing
upon competition and the pattern of industrial organization. They
are important factors conditioning the efficacy of a free market for
performing its basic economic functions. To our comparative neglect of
the incidence of these policies on the problem of maintaining healthful
competitive conditions in industry must be attributed a large share
of the responsibility for the difference between antitrust goal and
business practice.
In these circumstances, cartels--which, in effect, are trusts magnified
to an international scale--have been able by clandestine means to
impress their sinister mark upon our economy. In mobilizing for war, we
discovered, almost too late, that they were responsible for shortage
after shortage of vital materials. The fact is that they have retarded
technological advance and the introduction of improved devices and
products, whenever such developments seemed to threaten their vested
interests despite the fact that thereby national security might be
jeopardized. They have, indeed, obstructed and in no small measure
thwarted the declared foreign policies of the American government,
placing their own business interests above the public interests.
In peace time, their high-price, restricted-output strategy has
impeded the advance of our living standards and general economic
well-being. Through the abuse of our patent system, cartel controls
have been established over large segments of technology. With this
leverage, industrial monopolies of international compass have at times
deliberately brought about the deterioration of quality standards.
When it might be to their advantage in maintaining or exploiting
their monopoly position, they have adulterated their products to an
extent and in a manner endangering the health, and even the lives, of
consumers. Almost incredible as these assertions may be, they are not
subject to contradiction--the incontrovertible facts are clearly set
forth in Congressional investigations and in the evidence in antitrust
cases of the Department of Justice.
Cartels are in essence private governments which threaten to subvert
and even engulf duly constituted authority. In Germany, Kaiserism and
later Nazism received enormous impetus, indeed decisive support, from
the regimented, cartelized structure of the national economy.
Totalitarianism represents simply the ultimate consummation of
cartelism--the final, full expression of the reactionary forces
stemming from special privilege. In totalitarian states all industrial
enterprise is subservient to the predatory interests and fear-dominated
will of a government which openly flouts the democratic principle of
consent of the governed. In the economic sphere, the investment of
fresh capital, the volume of production, the prices to be charged, the
markets to be served, are determined by arbitrary decrees. Risk-taking,
managerial discretion, bargaining freedom, the essential elements
of the capitalistic system as we have known it, are absent. One can
neither start a new industry, launch a new enterprise, or change one’s
occupation without first obtaining official consent. It is in the
nature of cartels that they should operate in a similar fashion, even
if in their application the devices used for consolidating the vested
interests of established concerns and throttling the dynamic forces
which economic freedom would release may lack something of the rigor
they exhibit under totalitarian “leadership.” In order to maintain
their control over production and prices cartels must determine who may
enter the industry, how they shall operate and where they may sell.
The basic American concept of free enterprise is the antithesis of a
cartelized market. Yet, all too frequently, some of our industrialists
have had the effrontery to attempt to promote a pro-cartel policy by
a specious appeal for free enterprise. The pretension is that freedom
to compete in trade must encompass freedom to suppress competition! As
though the right to start a fire in order to heat a house must include
the right to burn down the house in complete disregard of the peril to
the whole community! The common sense of ordinary men has no difficulty
in distinguishing between the right to start a fire and the “right” to
commit arson.
Unless I am greatly mistaken, the American public will no more tolerate
a cartel-sanctioning abrogation of the antitrust laws in the name of
“free enterprise” than they would countenance a repeal of the laws
against arson in the name of “freedom of self-preservation”--the right
to keep warm!
It is significant, and deserves thoughtful reflection that Germany, the
“classic land of the cartel,” where regimented economic restrictionism
is the accepted “way of life,” has in the course of two generations
farrowed Kaiserism and Hitlerism--the natural offspring of militarism
and cartelism. Even in times of peace, the militarists and industrial
monopolists of Germany found cartel restrictions an excellent means
for conducting covert warfare. In this way industrial “colonies”
were acquired and prospective victims “softened up.” Back in 1883,
Joseph Chamberlain, as a member of the British Cabinet, declared, in
sponsoring a bill designed to forefend the sub-rosa “invasion” tactics
of imperialistic Germany:
“It has been pointed out especially in an interesting memorial
presented on behalf of the chemical industry that under the present law
it would have been possible, for instance, for the German inventor of
the hot blast furnace, if he had chosen to refuse a license in England,
to have destroyed almost the whole iron industry of this country and to
carry the business bodily over to Germany. Although that did not happen
in the case of the hot blast industry, it had actually happened in the
manufacture of artificial colors connected with the coal products, and
the whole of that had gone to Germany because the patentees would not
grant a license in this country.”
A quarter century later, Lloyd George, introducing a more drastic bill
for curbing these insidious depredations on strategically vital British
industries, pointed out:
“Big foreign syndicates have one very effective way of destroying
British industry. They first of all apply for patents on a very
considerable scale. They suggest every possible combination, for
instance, in chemicals, which human ingenuity can possibly think of.
These combinations the syndicates have not tried themselves. They are
not in operation, say, in Germany or elsewhere.... A good many of
these patents have been taken out not for the purpose of working the
patents in this country, _but for the purpose of preventing their being
worked_.”
The “big foreign syndicates” to which George referred were, of course,
the German cartels.
The adroit strategy of stealthily sapping the industrial foundations
of the national security of countries capable of resisting the German
_drang nach_ all-points-of-the-compass has been relentlessly pursued
and resourcefully developed, through thick and thin, decade after
decade. If the cartels are thwarted in the use of the patent system as
a weapon for disarming potential competitors abroad, they may inveigle
the intended victims of German aggression to a ‘simulated’ love-feast
at which the latter are gorged with the poisoned food of production
quotas, technology restrictions, market-territory limitations, and
pricing inhibitions. What these tactics accomplished in the way of
immobilizing French industry is now a familiar story. To cite the
record of only three of the most strategic industries, through cartel
manipulations the Germans succeeded in (a) reducing the relative output
of French steel from substantial equality with German output in 1926
to 40 percent thereof in 1938, (b) retarding the growth of French
aluminum production to a rate which fell short of doubling the output
in the same period, while German production was increasing five-fold,
and (c) restricting the French dyestuffs industry in such fashion that
its output in 1937 was barely two-thirds of what it had been in 1924,
whereas German production, even according to official estimates (none
too reliable though they are) had increased five percent in the same
period.
Nor were the European countries alone the “potential enemies” whose
vital economic defenses were thus impaired by subtly imposed cartel
restrictions. In this hemisphere, likewise and not least of all in our
own country, the cartel device was sedulously--and effectively--used
for the same ulterior purpose. As President Woodrow Wilson declared
shortly after the first World War,
“Our complete dependence upon German [dyestuffs] supplies before the
war made the interruption of trade a cause of exceptional economic
disturbance. The close relation between the manufacture of dyestuffs
on the one hand and of explosives and poisonous gases on the other,
moreover, has given the industry an exceptional significance....
It will ... be a policy of obvious prudence to make certain of the
successful maintenance of many strong and well-equipped chemical
plants. German chemical industry, with which we will be brought into
competition, was and may well be again _a thoroughly knit monopoly,
capable of exercising a competition of a peculiarly insidious and
dangerous kind_.”
Despite this warning in 1919, we were only slightly better off,
relatively, in respect of the arts of organic chemicals manufacture
twenty years later, when Germany decided the time was ripe for another
attempt at world conquest, than we had been in 1917. In the matter of
synthetic rubber technique, today the most strategically critical of
all these processes, I. G. Farbenindustrie had succeeded, through its
cartel arrangements with the leading American firms in the petroleum
and chemical fields, in keeping this country in an extremely vulnerable
position--as all the world now knows. Partly through persistent
stalling tactics, partly through playing one American firm off against
another, partly through cajolery, and partly through deliberate deceit,
the German cartelists had not only stifled the development of American
technology in this field, even by their “partners” on this side of
the Atlantic, but had done even better, from their standpoint. They
had obtained the German patent rights and the essential know-how for
the most signal contributions of American technicians to the art of
synthetic rubber manufacture. And, incredible though it may seem, they
had obtained these advantages without divulging a single significant
detail of their own carefully guarded know-how!
As the President’s Office of Facts and Figures ruefully summed up the
situation in 1942:
“[The enemy] has worked for many years to weaken our military
potential. Through patent controls and cartel agreements he succeeded
in limiting American production and export of many vital materials.
He kept the prices of these materials up and the output down. He was
waging war, and he did his work well, decoying important American
companies into agreements, the purpose of which they did not sense.”
Thus, sixty years after a member of the British Cabinet first testified
to its awareness of the menace in the insidious penetration of German
cartels in the international sphere, a branch of the American Executive
confirms the continuing pertinence of his observations.
How, in the face of this record, in the light of this evidence of
the persistence of the cartel movement and of its chronic tendency
to pervert the processes of industrial production to ulterior ends
leading indefeasibly to the devastation and slaughter of war can it be
contended that cartels represent a promising way to order the post-war
world economy? Is it not plain, rather, that “if we would guide by the
light of reason,” we must reaffirm our pledge of democratic equality
of opportunity for all in trade and industry, and resolutely set about
the task of putting our house in order in accordance with that basic
principle of American life? Is it not plain, too, that monopolistic
industrial control in the domestic sphere cannot be completely achieved
without the uprooting of the foci of cartel infection in German
industry? Once German industry is purged of its cartel hook-ups and
monopolistic animus and all non-German industry is released from the
haunting fears and seductive temptations which go so far to explain
these international industrial alliances, I am confident that the
prospects for the restoration of genuine freedom of enterprise and
healthy competitive markets will be good. While I am not sanguine of
the goal being reached forthwith and easily, “at one bound” as it were,
I have an abiding faith that the dynamism of economic freedom will
enable us, in the end, to surmount every obstacle erected by special
privilege or vested interest on the highroad to full utilization of
resources. A truly great adventure is ahead.
2
_Enterprise Eclipsed_
It is the determination of our people not only to gain victory over the
military power of aggressors, but to establish securely the lasting
conditions of peace. We know that beyond victory we shall have to face
a multitude of perplexing economic problems. We must also realize that
we shall meet new dangers to those free institutions on which our
national economy is based. If the problems of peace are to be solved,
we shall have to come to grips with these difficulties in the same
spirit of resolution with which the war has been waged.
It seems abundantly clear that America can never have a foreign policy
based on the principles of democracy and international good will as
long as international trade is dominated by cartels. It does not seem
possible that the Atlantic Charter, the Good Neighbor policy, and
the reciprocal trade pacts can effectively prevail if the special
privileges of cartels dominate trade and politics in the postwar world.
In many respects cartels form one of the central issues of the present
period. The greatest threat to our success in achieving full production
and full employment at home, and friendly cooperation with other
nations abroad, is the philosophy and practice of privilege embodied in
cartels. If there is to be a free and productive economy in the United
States, or a free exchange of goods in world markets, the power of
cartels must be broken.
It is essential to understand that cartels seek to divide and rule
world industry on the basis of economic privilege. If cartels are
successful in gaining a foothold in the postwar period, it will almost
be impossible for this nation to maintain a high level of peacetime
production or to cooperate in the reconstruction of world trade.
In general, cartels restrict rather than promote trade. Cartels
typically engage in such practices as dividing fields of operation
and market areas between members so as to eliminate competition,
restricting production by agreement, and fixing prices so as to
avoid price competition. They also promote various kinds of patent
licensing contracts which enable them to control and limit the use
of new inventions and thus restrict the benefits of technological
advance. The effects of these practices include reduced production and
employment, higher prices and profits, retarded spread of technological
improvements and a lower standard of living.
The conduct of cartels before and during this war has been one of the
tragic pages of our history. The shortages of aluminum and magnesium
resulting from cartel restrictions forced us to strip the kitchens of
America and scar our public squares with scrap piles. The scarcity of
rubber is a never-ceasing threat to our productive effort. Our armed
forces plead with us to contribute our binoculars. The lack of vital
drugs and medicines has jeopardized our men fighting in fever stricken
areas. In fact, almost wherever there was a cartel there was a shortage.
But cartels have an even more serious aspect. These private governments
threaten the sovereignty of democratic nations. The political
implications of cartel activity threaten to subvert future national
public policy of the United States.
There is a close relation between a country’s economic policies and
its foreign relations. It is generally recognized now that economic
freedom cannot be attained at home if private groups are permitted to
acquire monopoly power over industry. Likewise, it must be equally
recognized that friendship and cooperation between this country and
other nations cannot be established without the free exchange of goods
and services. Reciprocal trade treaties and good neighbor policies can
have little effect if private cartels can shut off American markets to
foreign producers or prevent American producers from selling abroad.
The Good Neighbor policy is one of the fundamental principles of our
relations with Latin America. While our Government was bending every
effort to bring about the conditions of sound and mutually advantageous
cooperation, cartels were systematically undermining these efforts.
Latin America was turned over by private cartels as a colony to hostile
foreign interests. By giving German industry virtually a free hand in
Latin America, and by agreeing not to compete, American cartelists made
possible the creation of a German sphere of influence. Nazi propaganda,
espionage, and subversive activity all stem directly from this
unhampered German penetration. When South Americans sought to purchase
drugs, metals, precision equipment, and munitions from the United
States, private cartel treaties had already provided that American
concerns could not engage in this trade. Not only was the healthy
development of South American trade and industry checked, but even
today we struggle desperately to overcome the political consequences of
cartel activity.
We have long cherished the principle of open covenants openly arrived
at. In fact, this policy is an essential part of America’s conduct
of foreign affairs. Every treaty commitment made by this country is
debated publicly by the people’s representatives. Without the agreement
of two-thirds of the Senate and the President, no treaty may be made.
Yet agreements have been made in international industry affecting
both the American economy and our foreign policy which were secretly
contrived and clandestinely arrived at. The American people had no
voice, but they bore the burden of these private treaties.
Make no mistake--the war has not interfered with cartel plans. Cartel
agreements invariably provide for the contingency of war. Long before
the war, cartels worked out a modus vivendi--a method of continued
existence--for they felt that their relations must be preserved, war
or no war. Thus we find American and British cartelists agreeing to
preserve the German position in Latin American markets after the war.
Agreements between the cartel members of countries now at war provide
for a resumption at the war’s close. In case legislation or government
action interfere, then they will cooperate to adapt their relations, as
one agreement states, “in the spirit of the present agreements.”
Therefore, the necessity for vigorous action in keeping open the
channels of trade becomes apparent when we consider that those who
create cartels hold themselves above the law or seek to control
legislation and Government policy in the many countries where they
operate.
These same groups are making their own postwar plans. Because they have
found the enforcement of the Sherman Act a hindrance in the past they
have expressed a desire to have the antitrust laws repealed.
It should be recalled that the political deal which Munich represented
had its economic counterpart in one made at Dusseldorf, in which the
Federation of British Industries and the German industrial overlords
expressed their intention of stabilizing and rationalizing world trade.
As indicated at Dusseldorf, cartel groups regard governments as handy
instruments to be used in working out their schemes of restriction.
Although the peace of Munich has received considerable public
consideration, little attention has been given to the peace of
Dusseldorf, a peace which, while obscured in the welter of political
and military crises, epitomized the spirit and the power of
international industrial monopoly.
On March 15 and 16, 1939, immediately after Hitler’s invasion of
Czechoslovakia, representatives of the Reichsgruppe Industrie of
Germany and of the Federation of British Industries held an intensive
conference at Dusseldorf. At the conclusion of the conference
representatives of German and British industry issued the following
joint declaration:
“The Reichsgruppe Industrie and the Federation of British Industries,
having concluded a general discussion on Anglo-German trade relations,
issue the following agreed statement:
“1. The two organizations welcome the opportunity which these
discussions have given of developing still further the friendly
relations which have existed between the two bodies for so many years.
* * * * *
“4. The two bodies are agreed that the objective to be attained is that
the export of all countries should be conducted in such a way as to
ensure a fair return for the producers of those countries. Hence it is
agreed that it is essential to replace destructive competition wherever
it may be found by constructive cooperation, designed to foster the
expansion of world trade, to the mutual benefit of Great Britain,
Germany and all other countries.
“5. The two organizations are agreed that it is desirable that
individual industries in both countries should endeavor to arrive at
industrial agreements which will eliminate destructive competition,
wherever occurring, but prices must be fixed at such a level as not to
diminish the buying power of the consumers.
“6. The two organizations realize that agreements upon prices or other
factors between Germany and Great Britain are only a step, although a
most important step, towards a more ordered system of world trade. They
would welcome the participation of other nations in such agreements.
* * * * *
“8. The two organizations realize that in certain cases the advantages
of agreements between the industries of two countries or of a group
of countries may be nullified by competition from the industry in
some other country that refuses to become a party to the agreement.
In such circumstances it may be necessary for the organizations to
obtain the help of their governments and the two organizations agree to
collaborate in seeking that help.
“9. The two organizations agree that it is their objective to ensure
that as a result of an agreement between their industries unhealthy
competition shall be removed. Their aim is to secure as complete
cooperation as possible throughout the industrial structure of their
respective countries.
“10. The two organizations have agreed to use their best endeavors to
promote and foster negotiations between the individual industries in
their respective countries. They are encouraged in this task owing to
the fact that a considerable number of agreements between individual
German and British industrial groups are already in existence. There
is thus available a large body of experience which inspires confidence
that an immediate extension of this policy is both practicable and
advantageous.
“They are glad to state that approximately a further fifty industrial
groups have already signified their willingness in principle to
negotiate at an early date.
“They also report with satisfaction that negotiations have already been
started and are now taking place between ten industrial groups.”
The spirit exemplified in the above declaration is not dead. It is
awaiting the moment of peace to step in and resume control of those
very industries which are most essential to the rehabilitation of a
war-torn world, to the fullest use of our labor and resources.
Surely we must realize now that if the program of Dusseldorf prevails
in the postwar world it will produce World War III. Surely we must
recognize that we cannot build a free world without a free economy.
The close and constant cooperation of the United Nations after the
war is all-important. This cooperation should rest, among other
things, on active and healthy international trade. We want to see that
trade grow unhampered by private restrictions. In attacking these
illegal activities the Government of the United States is aiming at a
condition which obstructs healthy international trade and threatens the
effectiveness of governmental foreign policies.
To combat the influence of monopoly groups, the United States has two
effective weapons: (1) the vigorous enforcement of the Sherman Act, and
(2) the power which Congress possesses to investigate and make public
the hidden dealings of cartel interests.
It is significant that in Great Britain increasing interest in the
purposes and activities of cartels is being manifested--principally as
the result of American antitrust investigations which have revealed
that British industry, no less than our own industry, has suffered the
burden of restrictive practices imposed by cartel arrangements.
Moreover, there has been developing in Canada a substantial interest
in the cartel problem. Thus, the _Ottawa Journal_ recently stated
editorially that “it is fairly clear to all that cartels, large
combinations of industries parcelling out territories among themselves,
controlling patents and fixing prices, may be a menace to the general
well-being, and what is more vital, a menace to world peace.”
And the _Winnipeg Free Press_ declared not long ago that “it is
gradually dawning upon Britain that rationalization of industry has
its dangers. They are discovering that monopolies can and do develop
evil practices.... Thus there is arising there [in Great Britain] a
demand for control of monopolies, the breaking down of cartels and
the restoration of competition between the great industrial giants.”
After pointing out some of the evils that flow from monopoly control,
_Winnipeg Free Press_ went on to say: “National monopolies which
restrain trade are bad enough of themselves. But when combined with
international cartels they are intolerable. The Canadian government
should pay particular attention to the antitrust proceedings in the
United States. They reveal a most unhealthy state of industrial health
and if the economy of this country is to be saved from disaster steps
will have to be taken to break up the evil monopolies and their
cartels.”
It would certainly be in the mutual interest of Great Britain and
ourselves if we could take a joint stand against private restrictive
arrangements in the postwar world and together seek to stamp them out.
There is ample reason to believe that American exposure of secret
cartel practices may have its effect on the public policy of other
countries and promote common understanding that certain types of
activity should be outlawed in other countries as well as here. But
irrespective of the extent to which other governments adopt policies
similar to ours, there can be no doubt that American business can
thrive in competition with foreign cartels if it does not enter into
cartel restrictions. If freed of cartel shackles, American enterprise
should well be able to expand in world markets and render foreign
cartel control ineffective. It is doubtful, indeed, whether any major
international cartel can effectively control world markets without the
participation and cooperation of the American segments of the industry.
There is a real question whether foreign cartels can long survive in
many industries if American cooperation is not extended to them.
If and when some measure of control and regulation becomes economically
necessary on an international scale in a particular industry, a
question is presented for governmental action--not for private cartel
action. If, for example, in a particular industry it seems necessary
to control production in order to avoid waste of a scarce natural
resource, the solution of such a problem is properly a responsibility
of national or international governmental action. Where control is
needed, it must be by public authority. If international restrictive
agreements are ever needed, they must be determined upon by
governments--not by private cartels.
But the situation where control would be required on an international
scale is decidedly the exception. Most foreign trade in the postwar
world can be conducted on a competitive basis if we give competition
a chance. The period following the war will present an unprecedented
challenge to the ingenuity of mankind. Men of brains and imagination
should have a chance to rebuild the world, to take risks, to engage in
foreign trade and to win in competitive struggle, unhampered by private
decrees. The world is not a private hunting preserve which can be
divided at will among monopolists who think they have gained squatters’
rights.
3
_Technology_
In the days of Adam Smith it was possible to measure the wealth of
nations in terms of mineral resources, possession of fertile lands and
control of strategic geographical areas. Today we have a new index to
the wealth and security of nations. Technology and applied science have
become principal instruments in the maintenance of a high standard of
living and for the protection of national interests. In fact, when
we speak of the balance of power in the modern world, we must take
into account the extent and quality of industrial and technological
resources as a dominant factor in national welfare. The horizons
which have been opened by applied science and research offer to the
world, and to our own nation in particular, new industries, greater
opportunities for our youth, higher levels of health and comfort, and
the attainment of that genuine social security which comes with all
great advancements in human knowledge.
Technology--its direction, its applications, and its enjoyment--is
today a primary concern of government. In a system based upon freedom
of enterprise, access to technology is the fundamental condition of
rapid advancement toward the goals for which our nation is striving.
The power that goes with the development of modern technology has
been perverted in totalitarian countries to provide instruments of
aggression. Because totalitarian states have regimented science and
have made it subservient to imperial ambitions, it has been used to
destroy rather than to create. One of the principal problems which
the United Nations will encounter in the peace to come will be
the prevention of any abuse of new discoveries for the purpose of
establishing war machines which can threaten the peace of the world.
The control of vital areas of research by monopolistic interests is a
condition which cannot be tolerated. Monopoly control seeks to protect
vested interests and to perpetuate its grip on the advancement of
science and technology. It retards the introduction of new goods and
services and the maintenance of full employment in time of peace.
Our experiences in this war have demonstrated conclusively that
monopolistic control of critical sectors of industrial research has a
paralyzing effect on mobilization of our national strength. One of the
most difficult problems we have encountered in arming this country has
been the domination and restriction of technology by small privileged
groups. It has required strenuous efforts on the part of government and
industry alike to overcome the stifling effects of complacent monopoly.
With rare exceptions industrial research at the present time can only
be carried on by large numbers of scientists and technicians combining
their ingenuity to resolve the complex problems of both pure and
applied science. In the last fifty years technology has moved at such
a rapid pace that no longer is the small businessman in a position to
maintain laboratories of sufficient size. Today we witness the gigantic
research organizations of all major corporations, and no one desires to
impair their efficiency.
There is, nevertheless, a gap between the promise of organized research
conducted on a huge scale by great corporations and the fulfillment
as measured by accomplishments for the public interest. So that there
shall be no misunderstanding, I should like to pay tribute to the vast
army of scientists and research workers who have done such remarkable
work in the years of peace as well as in the years of war in bringing
forth a multitude of amazing discoveries. It is not their fault that
their contributions have not been fully realized. The trouble is that
in many instances the misuse of research by monopolistic and cartelized
groups has resulted in the restricting of production, withholding new
products, and fencing in and blocking off new developments.
One of the ablest and clearest statements of the effect of restrictive
arrangements upon research was made by Dr. F. B. Jewett, vice-president
of the American Telephone & Telegraph, and chief of Bell Laboratories.
In discussing an agreement between his company and other parties, he
stated:
“Broadly speaking, the practical effect of the agreement is to limit
the field of possible development of each party to its present major
activities....
“Thus, while a casual reading of the agreement by one not thoroughly
conversant with all the factors may appear to establish the basis
for an enlarged free development in most of the fields, this is not
actually the case.
* * * * *
“The far-reaching effect of the proposed agreement on the character and
scope of our research and development work is apparent. Viewed both
from the standpoint of the research worker in our laboratories and
from the standpoint of those responsible for the expenditures incurred
by the Laboratories, the inevitable result would be a narrowing of
the field of activity and failure to undertake anything which at the
outset is not clearly directed to the field of our current business.
From the standpoint of the man who has a brilliant idea which in its
first nebulous form seems to be applicable outside our business, there
will be little or no urge to go ahead in the face of a situation where
he knows that the results of his work have been sold in advance outside
of the Bell System. From the standpoint of management there will
likewise be no incentive, but quite the reverse, to urging him on and
appropriating money for his investigations.”
A member of a monopoly or cartel group all too often finds itself in
a position where it must choose between the national interest on the
one hand and its cartel obligations on the other. This difficulty is
accurately stated in a document taken from the Standard Oil Co. (N. J.)
files with reference to the development of 100 octane gasoline, one of
the most vital materials of modern warfare:
“This possibility is, of course, extremely attractive to the Army Air
Corps, but there is one difficulty involved which Mr. Russell quite
frankly discussed. The hydrogenation development originated in Germany,
and through cooperation all around has now passed into the hands of the
oil industry of the entire world, and, to a certain extent, into the
hands of the foreign chemical industry as well. There is a full and
free exchange of technical information between all of the companies
and units involved in the hydrogenation development and this exchange
is not only by means of reports but by constant visits of technical
men. To cut off these reports and shut our hydrogenation plants against
these visitors would be not only a violation of these agreements, which
would involve us in many difficulties, but would also be tantamount
to a confession that we were engaged in some work of special military
value which would mean that the plants would become a focal point for
espionage. The costs and difficulties of protecting against leakage of
information about large commercial operations under such conditions
is hard to estimate. _It seems that the only practical way to handle
this problem is to avoid carrying out the operation of producing 100
octane number aviation gasoline commercially as long as possible._ We
would, of course, also have to breach our agreements to render full and
complete technical reports to all of the companies associated with us
(even to the American companies, for fear of leakage). We should also
forfeit the advantage in producing at the least cost the best available
gasoline for commercial purposes.
“_Any program by which the Army Air Corps can obtain their objective
of a one or two year start over the rest of the world on this vital
matter bristles with difficulties and sacrifices from our standpoint._
We will not have to cross the bridge finally until our present
experiments are completed. When and if we are able to demonstrate that
the hydrogenation plants are capable of turning out an aviation product
which with the usual quantity of lead can be brought up to 100 octane
number, we shall be faced with the situation mentioned above. _To meet
the very proper desires of the Air Corps as expressed to us we shall
have to violate our agreements and perhaps forfeit the confidence of
our associates, both American and foreign, and beyond this we shall
either have to avoid any commercial use of the new method or run the
very grave risk of finding that our efforts at secrecy have been
abortive._”
In pointing out the inevitable conflicts between national loyalties
and business interests which arise when industry is carried on through
private international cartel agreements, I do not attack, nor do I
intend to cast inferences against, the patriotic motives of any men
or companies. I assume that the persons who have taken part in these
transactions have not consciously acted against the best interests
of their country. But it is the cartel system that is at fault. The
individuals caught up in the system are faced with a dilemma because it
imposes on them choices which it is almost impossible to make without
violation of an obligation to one of two conflicting interests.
One of the most serious limitations upon research has been the
division of fields of technology by cartel groups. If a company is
barred by agreement from an aspect of technology, there is little if
any incentive to do research in that field. One possible consequence
of such division of technology is that it permits foreign interests
to exercise influence amounting to domination over research in this
country.
No one doubts that synthetic rubber is a matter of national interest.
The cartel arrangement between Standard Oil Co. (N. J.) and I. G.
Farbenindustrie was such that the latter dominated the development of
synthetic rubber in this country as well as in Germany.
In the case of the Bausch & Lomb (Rochester)-Carl Zeiss (Jena, Germany)
cartel on military optical glass, the heads of the Bausch & Lomb
department responsible for military research were to be appointed only
with the agreement of the Zeiss firm.
In regard to the cartel involving Plexiglass, probably one of the most
important plastics, and one which has innumerable military uses, the
Rohm & Haas Company (Philadelphia) stated: “We could think of a price
agreement on the finished product, or a division of our interests ...
we have not only our own interests at stake, but also the ones of our
German house [Rohm & Haas of Darmstadt, Germany] and the I. G.”