A Plan to Free Free Enterprise
QUINN, T. K.
Most industries are controlled by two or three monster corporations holding life-and-death power over huge sectors of the economy; to preserve individual freedom, a businessman proposes A PLAN TO...
...Any active giant is evil per se in a land where it is sought to preserve life, liberty and opportunity for the ordinary individual...
...Is it lowest possible cost without regard to how that cost is obtained or its consequences...
...Does its market power intimidate other companies...
...Don't you know that many of the parts are interchangeable...
...At the same time, we know that the best results may be secured from many independent enterprises and fair competition, as in the athletic world...
...When Adam Smith and John Stuart Mill praised competition, competitors had somewhere near equal status and power...
...Nor is any question raised as to how or why we ever permitted any private interest to achieve a position of such influence...
...The laws should, of course, be enforced...
...Such losses on its $100- to $200-million electric appliance volume would be lost in its over-all volume of about $12 billion for 1955 and gross profit of over $2 billion...
...We are witnesses to the irresistible market power of sheer size in the adventures of General Motors into other than automobile fields...
...When we get to General Motors, we run out of words...
...I submit that the social efficiency of General Motors can never be measured by its balance sheets or profit-and-loss statements...
...The fallacy of price competition as a constructive force under all circumstances is proved by the automobile industry...
...We are told how it will bolster the economy and restrain recession...
...Anticipating the big national road-building program, which will run into billions of dollars...
...to preserve individual freedom, a businessman proposes A PLAN TO FREE FREE ENTERPRISE By T. K. Quinn A $10-Million-volume business is a big business...
...The same costly tooling is used on several cars, and if the divisions became separate corporations the result would be to increase the price of cars...
...The corporation has entered the large gas-engine business and may eventually have most or all of it...
...The results might also be accomplished by requiring all corporations doing an interstate commerce business to take out a Federal charter and then place the desirable limitations in the charters...
...Certainly there is competition in the automobile industry, although it is not a price competition that now precludes huge manufacturing profits for the giants...
...Instead, the public, the investors and the companies themselves all benefited...
...T. K. Quinn, management consultant and President of the Monitor Equipment Corporation, was formerly Vice President of General Electric and President of Maxon, an ad agency...
...Facing the giantism issue, we might well begin with the introduction of a maximum free-enterprise bill, designed to open new opportunities to tens of thousands of companies and restore economic freedom in many fields that are now practically closed...
...When decentralization of the giant or monster companies is proposed, we are met with the question: "What, would you make separate corporations of Chevrolet, Buick, Pontiac, Oldsmobile and Cadillac...
...The latest is the combination arrangement effected by RCA...
...The existence of giants in any field is an automatic incentive to its competitors to merge, not necessarily for greater efficiency, as is so often misrepresented, but for offsetting capital and market power...
...4. These companies would not be permitted to purchase, merge or absorb other companies...
...It did not take GM long to acquire 76 per cent of the locomotive business of the country...
...They would then come under the new restrictive legislation...
...We had the means to do it...
...Is our political and economic salvation entirely bound up in the single proposition of lowest dollar cost, however obtained...
...Exceptions in such industries as steel and automobiles, where larger capital is required, might be allowed...
...It is most difficult to argue against a Bethlehem Youngstown merger so long as U. S. Steel, which is a combination of over 100 corporations, is allowed to continue...
...A $100- or $200- million business is a giant business...
...The decisions of company managements like General Motors and U. S. Steel can determine the whole course of the country's development in human relations, organization, opportunity, profits and prosperity, regardless of our people or their representatives...
...It means restricting autocratic power to save our system...
...But today the general rule in America is that from three to five giant companies are in substantial control of each of our major industries...
...By an adroit use of its purchasing power, GM could silence almost any company that had a complaint...
...Just how different is the bureaucracy of our giant corporations, except that there are more of them and they are still subject, in a decreasing degree, to public opinion and our political institutions...
...Giantism is not evil in a vacuum, but we do not live in a vacuum...
...We could conceivably end up with only two or even one...
...For example, GM buys refrigerator parts, which it could as well make for itself, from American Motors...
...These other companies may remain hopeful, imagine they have some inside track to General Motors and not protest, but when the chips are down hey will suffer nevertheless...
...We are not reminded that GM could just as well have taken contrary action, or no action at all, and thereby induced recession...
...5. Officers and directors of these companies would not be permitted to serve as officers or directors of any other concerns or corporations...
...Whirl pool and Seeger Refrigerators...
...When General Motors decided to get 95 percent of the bus business, it merely purchased bus lines...
...General Motors thus threatens the very existence of countless good companies and...
...It will be recalled that there is a precedent in principle for this kind of action in the Public Utility Holding Company Act of 1935...
...The whole electrical-appliance industry lives in the shadow of the danger that General Motors may choose tomorrow to double its appliance business-which it could do by reducing prices 5 or 10 or 15 percent, and temporarily absorbing the losses...
...This does not necessarily mean controlled monopoly...
...3. Income tax rates on the companies that exceed the maximum indicated size could be gradually but reasonably graded upward...
...If we wish to preserve the independence of the smaller, more socially efficient companies, we can do it in the long run only by taking the giants in hand, checking their undue power and holding them within the bounds of special rules and regulations...
...What do we mean by "efficiency...
...If giant size and interchangeability make for genuine economic and political efficiency, why not have General Motors make all the cars...
...Of all the slogans which have been sold to America (principally by public relations experts, broadcasters and economists who are often in the employ of the giant corporations), the most seriously misleading is that "bigness is not evil per se...
...But when one or two or three interests own the track, have the only means to employ the best stables and jockeys, enter more horses in the race and, finally, have their own people represented among the judges, the results are practically inevitable...
...We could expect similar results from an effective maximum-free-enterprise act...
...This would be done by limiting and restricting oversized corporations: 1. Industries could be classified for the purposes of the legislation, much as they are now classified by the Department of Commerce...
...Such companies might be permitted to reach, say, $200 million or $300 million in net worth before being classified in the special group...
...We must know how the results are secured...
...Do its payments to newspapers, magazines and other media put them under such obligation that they no longer dare say anything inimical about General Motors or its self-elected and self-perpetuating officers' political notions or ambitions...
...7. Any company could remove itself from the oversize class by decentralizing into separate companies...
...If a small group of independent businessmen tried to form a corporation for the production and sale of a new refrigerator, for example, it would find it almost impossible to find satisfactory wholesale outlets...
...This is also best in principle, because it means the democratic distribution of power, the very opposite of concentration...
...It is difficult to uncover complaints, because General Motors is a customer of many of its competitors...
...How are its suppliers treated...
...An obvious answer, of course, is that Studebaker and Nash have been able to produce low-priced cars without these interchangeable advantages...
...Unrestricted competition as an ideal has failed...
...The elephant that walks over ant hills, with or without lethal intent, is, to them, an evil...
...Much has been written on the subject of mergers-but their defensive aspects have not been stressed...
...General Motors (Frigidaire), Philco, Hotpoint, Admiral, Crosley, Sears (Kenmore) and the rest...
...Whenever the practices of giant corporations are questioned, the reply is usually that "they are competitive...
...The bigger the corporation becomes, the more threatening the sinister influence of this reciprocity...
...To start at the bottom and prevent smaller mergers would mount to further protecting those giants already in existence.The anti-trust laws have failed both because they are inadequate to the requirements of today's conditions and because they have not been enforced...
...General Motors entered the earth-moving equipment field by buying out the Euclid Company...
...The only effective, practical way to maintain the maximum number of independent companies is to decentralize at the top...
...6. These companies would be required each year to publish detailed profit-and-loss statements and balance sheets on each department of their total business, according to the industry classification provisions...
...Since then and particularly in the past 25 years, practically all competitors have been forced to follow with more or less "full lines-Westinghouse...
...2. Any concern with, say, $100 million or more in net worth could be declared to be in a special group which, for reasons of sheer size and power, are affected with a special public interest...
...Every purchasing agent in the nation must be mindful of General Motors' enormous purchasing power...
...Russia has only two or three models of motor cars and the state bureaucracy controls the production...
...In a world of mice, cats are evil...
...What chance is there, honestly, for any newcomer...
...Is opportunity left for new companies to enter the field...
...Spokesmen for GM often say that there is no such thing as an entrenched and unassailable position in the automobile business...
...General Motors, Ford and Chrysler could force the remaining competition out of business as they have all the rest...
...A billionaire business is best described as a monster business...
...Are its dealers independent businessmen or are they virtual serfs under domination...
...Neither is there in a horse race...
...General Motors could at will enter any field it chooses and become even more industrially dominant...
...Is it mere profit in relation to sales or investment for a private interest...
...Instead of continuing as a separate company, it would undoubtedly find it easier to merge with one or more other companies...
...We do not match bantamweights with heavyweights in the prize ring, and we cannot do so without foregone conclusions in commerce and industry...
...Its interests are so gigantic and overwhelming that they stagger the imagination...
...They do not compete in price because they are too big...
...Such exceptions as the Congress may decide on public utility, railroad, bank or insurance companies could be considered...
...Do they prosper fairly...
...But I am more interested in another reply...
...What railroad president would dare say no to the largest shipper over his lines...
...there would be too much bloodshed and no ultimate profit gain...
...Each of these companies has branches or distributors in all of the major cities that concentrate on their products and are not available as outlets to the independent producers of any single product...
...eventually, our own free American institutions...
...Above all, what are the social results of GM's huge operation...
...When General Motors announces that it is investing another billion dollars in its own future, the friendly press, to which it pays about $50 million a year in advertising-and more than that through its dealers -applauds...
...There is no better evidence of the power of sheer size in business concerns than the continuance of the determined efforts to attain it...
...While we so zealously protect its right of free enterprise, we are repressing the free-enterprise rights of tens of thousands of other concerns and individuals...
...It is said that giant corporations are more "efficient...
...Once the pace and pattern is set by the capital giant it becomes difficult, if not impossible, for any independence successfully to assert itself...
...The cry went up at that time that the Art was a "death sentence...
...But beyond this we are badly in need of additional legislation to curb, restrict and regulate giant corporations, decentralizing them in many instances and making generally certain that they shall not be permitted hereafter to discourage, eliminate or mistreat others, prevent healthy competition, or otherwise impair our economic or political freedoms...
...The General Electric Company, with which I was long associated, was the first to put together a line of electrical products in the appliance field under one brand name.We were not motivated by any thought of efficiency or greater service but by the desire for gain and to build the strongest market position...
...I offer these suggestions only as an indication of one way we could proceed to free the economy from the dangers of giant private corporate power...
...He may not even see the ants or be conscious of them, but every time he puts his foot down he may kill hundreds of them and send thousands scurrying in panic...
...With its influence and purchasing power, GM may soon dominate that field, although there are other good companies in it...
...Author of Giant Business: Threat to Democracy, he served in the War Production Board under Donald Nelson...
...Competition in all segments of our society could continue until some one or few companies become so big in a given industry as to threaten the whole system...
Vol. 39 • January 1956 • No. 2
