THE HIGH COST OF MONOPOLY

...Even some of those who agree that laws and lawsuits against shared monopoly suits are economically valuable still get apprehensive at the prospect...

...The examples are numerous: % There were a number of competing milk firms in Minneapolis-St...

...Much of the American economy can neither be characterized as monopolistic (like Xerox, Western Electric, or IBM) nor as competitive (the wheat and fashion markets...

...Between the two are "shared monopolies"—a form of flawed competition where only a handful of large firms produce a particular product...

...Treasury Secretary John Connally has already dismissed the role of antitrust in the Nixon Administration's Phase II...

...More than a decade later, two other authors on Corporate America agreed...

...Despite this perception of symptoms, Galbraith goes on, mirabile dictu, to diagnose this industrial patient as healthy—exploiting efficiencies, encouraging long-range planning, and creating stability...

...Job mobility declines as the number of important independent firms dwindles...

...A corporation is an artificial body created by the law which, in the interests of all, must be controlled by the law...

...ii The oil import quota, by keeping out much foreign competition, permits domestic oil firms to overcharge, according to a Presidential task force, by an estimated $5 billion to $7 billion per year...

...Even conservatives could jump on the anti-monopoly bandwagon...

...Lost output and income transfers are not the only ill effects of monopolies...

...There is first the fear of widespread disruption in American industry, to which economist and former antitrust chief Donald Turner has replied, "The disruptive effects are usually exaggerated anyway...

...Quinn concluded that "the record of the giants is one of moving in, buying out, and absorbing the smaller concerns...

...Such overpricing leads to lost output...

...Monopoly overcharging also results in an inequitable transfer cost...

...James Madison argued in the Federalist Papers that political freedom requires many "factions," setting faction against faction until a political equipoise results...

...The disfiguring of free enterprise by monopoly imposes serious economic and social tolls...

...families receive more income than the bottom twenty per cent and the top five per cent more than the bottom forty per cent—can eventually have serious political consequences...

...The extent of shared monopolies can modestly be desribed as staggering...

...Second, for those concerned that deconcentration suits may be a harsh penalty for monopolistic firms, leaving monopoly uncorrected is a "harsh" treatment for consumers...

...The Closed Enterprise System, the Nader antitrust study describing the consumer costs of tolerating corporate giantism, was covered by the general (and not merely business) press...

...Efficiencies...

...A 1963 study, containing the most recent figures available, pointed out that 1.6 per cent of the adult population of the United States owned 82.4 per cent of all publicly held stock...

...Professor Shepherd of the University of Michigan has estimated this redistribution of wealth at $23 billion annually...

...Monopoly misallocates resources, creating excess capacity and a smaller Gross National Product than is our national potential...

...Based on market concentration—the share of business held by the leading firms in a particular industry—there has been a slight increase in the already high level of concentration during the past two decades...

...More evident, however, is the evolution of the consumer movement into what some trend-watchers have called "The New Populism...

...Although millions own some stock, only a relative handful reap the lion's share of corporate dividends...

...Free enterprise" then witnesses the kind of dependence found both in the cartelized Japanese economy and the com-munized Soviet economy...

...Such industries are many and recognizable: automobiles (General Motors, Ford, Chrysler...

...Steel plant, introduced the revolutionary oxygen steelmaking process...

...The tax revenues alone from this wealth could go a long way toward ending both poverty and pollution in this country...

...The word has typically projected antique images on our memory screens—a combative Teddy Roosevelt, industrial tycoons, corporate empires, victimized farmers...

...When confronted with the realities of unchecked, centralized private power, philosophic integrity could propel many into the antitrust camp...

...When that same company operates in thirty states, it will be heard by thirty times as many representatives...

...To be sure, it creates stability (as does price-fixing, Galbraith should be reminded), but stability for what, and for whom...

...As it has been already argued, certainly not for consumers, that ninety-nine per cent noncorporate management sector for whom the economy, presumably, was constructed in the first place...

...As economic diversity decreases, the number of units contributing to the political process decreases accordingly...

...Nor was industrial bigness a sine qua non to the development of stainless steel razor blades, transistor radios, photo copying machines, and the "quick" photograph...

...f In 1969 President Johnson's Antitrust Task Force urged the breakup of shared monopolies in proposed legislation...

...Shared monopolists often act as would a monopolist, with the result that prices invariably increase...

...The reputed efficiencies of large scale operation become inefficiencies when the scale grows too large...

...The Government will not break up the big firms...

...Can a coalition coalesce around this issue...

...aluminum (Alcoa, Reynolds, Kaiser...

...The new controls "would make [antitrust] less necessary and, very frankly, the matter has not been discussed at all," he said at a recent press conference...

...although costs were similar in both markets, the half-gallon wholesale price in 1967 was 33.8 cents in Minneapolis-St...

...What can be done...

...Others of this inclination charge "irrational populism" whenever corporate decentralization is urged, alleging it favors "Mom and Pop" stores over advancing technology...

...Monopoly and oligopoly, however, lead to "the quiet life," in Judge Learned Hand's phrase, a state of mind and economy where there is little pressure to seek out efficiencies...

...for a family of four in New York, this means an average of $102 added to gasoline and home heating bills every year...

...Politically, the control over government by big business, already great, increases...

...cereals (Kellogg, General Foods, General Mills, Quaker Oats...

...In 1969 the FTC's Bureau of Economics pointed out that "major concentrated industries, through the exercise of discretionary pricing power, contribute to both inflation and unemployment...

...Huey Long once prophesied that fascism would come to the United States first in the form of anti-fascism...

...A close Johnson adviser told me that Johnson would have proposed such legislation if reelected...

...Robert Townsend has put it more impressionistically: "Excellence and bigness are incompatible...

...These are the industries of our giant firms: General Motors has 800,000 employes worldwide and collects more in total sales (some $20 billion annually) than the budgets of all but three countries...

...Also there is very little incentive for shared monopolists to be progressive on pollution, with their heavy investment in existing capital assets and with their ability already to exact monopoly-like returns...

...The ideological interests of small businessmen, small farmers, and urban liberals in a more competitive economic system are obvious...

...Imagine a college classroom seating just 200, and there you could sit the rulers of two-thirds of American industry and more than onethird of all the world's industrial production...

...Unhappily, we have reached this level ahead of schedule...

...cigarettes (Reynolds, American, Philip Morris), and others...

...Without a following—demanding legislative action, supporting bigger budgets, and encouraging creative enforcement—antimonopoly activity will remain a romantic relic at best, a political pariah at worst...

...This redistribution of wealth—exacerbating the wealth extremes of a society where the richest one per cent of U.S...

...Recent and converging events, however, have resurrected monopoly as a current problem: % In the mid-Sixties Senator Philip Hart's hearings into economic concentration collected an avalanche of data, documenting the high degree of industrial giantism in America...

...General Robert E. Wood, the ultra-conservative former chairman of the board at Sears Roebuck, once observed, "We complain about government and business, we stress the advantages of the free enterprise system, we complain about the totalitarian state, but in our individual organizations . . . we have created more or less of a totalitarian system in industry, particularly in large industry...

...But on close examination, their verbal arrows become boomerangs: Innovation...

...Unemployment results since monopolies, as noted, significantly reduce our manufacturing output—which in turn reduces the number of workers who would otherwise be producing...

...Third, some fear that monopoly moves might inhibit business growth by penalizing firms for their successes...

...A man who thinks that economics is only a matter for professors," writes author-economist Robert L. Heilbroner, "forgets that this is the science that has sent men to the barricades...

...This is the core issue...

...There is the antitrust alternative —breaking up shared monopolies into firms of more competitive size...

...But steel has a long history of technological immobility...

...For example, our steel industry, dominated by four firms controlling fifty-four per cent of all shipments, periodically raises its prices despite idle capacity of about a third and despite the availability of cheaper imported steel...

...Conceivably, it would make Nixon into another Teddy Roosevelt...

...Political and Social Effects...

...Industrial economist Leonard Weiss, of the University of Wisconsin, has estimated that the noncompetitive state of the auto industry costs $1.6 billion per year...

...300 Representatives and Senators complained to Justice...

...But based on aggregate concentration—the ownership of all manufacturing assets by our biggest corporations—the increase has been dramatic...

...Catch 22...

...It is an argument for more $100 million firms and fewer $2 billion firms...

...John Kenneth Galbraith, in his The New Industrial State, ably points out the corporate control of the market mechanism, the seeking of growth not profits, the rise of oligopoly, and the blurring of private and public sectors...

...it was ten years later when U.S...

...It is an argument for the breakup and decentralization of many of our largest industrial corporations...

...Today the top 200 manufacturing corporations already control about two-thirds of all assets held by corporations engaged primarily in manufacturing...

...While defenders of the American dream guarded against socialism from the left, it arrived unannounced from the right...

...And to the extent that unemployment is an official policy to combat inflation—two million people have been thrown out of work between 1969 and 1971 with this purpose in mind—a "stagflation" created by our shared monopolies dims the employment picture...

...And "people's capitalism"—that "the people" own our corporations —is no rebuttal...

...When asked why (since such lawsuits could be filed by his agency), he replied, "Because we wouldn't file such a suit...

...In an age which has witnessed the collapse of the Penn-Central (a firm which was the result of a merger with claimed efficiencies because of its large size), and the near collapses of Ling-Temco-Voigt (LTV) and Lockheed aircraft firms, it should be evident that being big does not mean being efficient...

...Perhaps...

...the advertising budget of Procter & Gamble alone is twenty times as large as the appropriation of the Justice Department's Antitrust Division, which must monitor a trillion dollar economy...

...A top economic adviser to antitrust chief Richard McLaren, Leonard Weiss, aware of this conservative attraction and the potential popularity of an antimonopoly drive, argued for a breakup of General Motors with this flourish: "In terms of winning votes, a big automotive case might be worth a hundred merger cases...

...the six largest firms in Fortune's 500 (there are 400,000 manufacturing firms in this country) earn fully twenty-five per cent of all industrial profits...

...If monopoly disruption were accountable for only twenty per cent of all the unemployed, this still translates into over a million unemployed workers...

...One FTC commissioner, when asked what he thought of the Nader Antitrust Report, said, "Those guys are political dreamers...

...In the household appliance field alone, the late T. K. Quinn, a former GE vice-president, credited small companies with the discovery and production of, among other items: the electric toaster, electric range, electric refrigerator, electric dryer, electric dishwasher, vacuum cleaner, clothes-washing machine, and deep freeze...

...Collective or conspiratorial behavior, not competitive, then pervades productive activity...

...Those large firms which dominate an industry, by their orchestrated power, can resist governmental and public pressure more easily than smaller firms of lesser political clout...

...What, if anything, can be done about a place called Corporate America...

...electric light bulbs (General Electric, Westinghouse, Sylvania...

...In this case the Justice Department charged the Big Four auto firms with illegally suppressing anti-exhaust technology and implementation...

...But nearly all objective evidence refutes this assertion...

...While the top 200 industrial firms controlled forty-seven per cent of total assets in 1950, by 1965 they controlled fifty-five per cent...

...Mark Green is the director of Ralph Nader's Corporate Accountability Research Group in Washington, D.C...

...A look at the concentrated steel industry revealed that of thirteen major inventions between 1940 and 1955, none was produced by the American steel companies...

...What is ahead for Phase III...

...But the chance that continued success may in the future result in an antitrust case should not slow down profit-minded corporations, which will still be tempted by the interim monopoly profits earned prior to any dissolution suits...

...Green has contributed to numerous periodicals and was the editor of the Harvard Civil Rights-Civil Liberties Law Review...

...And as political pluralism weakens, so does democracy...

...initiative and individuality succumb to the ethic of the Organization Man...

...Economist William Shepherd studied racial patterns in white-collar jobs, concluding that firms with market power could afford the luxury of discriminating against blacks—and they did...

...In 1959 economists Carl Kaysen and Donald Turner concluded in their now classic Antitrust Policy that "there are more concentrated than unconcentrated industries in manufacturing and mining, they are larger in aggregate size, and they tend to occupy a more important position in the economy...

...Assuming that Corporate America has political power, what then are the costs of increasing concentration of economic power...

...Competition is the whip of efficiency, driving firms to produce better goods at lower costs in order to increase sales and profits...

...Industrial economists agree that when four or fewer firms control fifty per cent or more of a market, a shared monopoly results...

...Economist Leonard Weiss, after examining many analyses of R&D expenditures, concluded: "Most studies show that within their range of observation, size adds little to research intensity and may actually detract from it in some industries...

...Socially, people are governed by distant operatives...

...Also, the 100 largest corporations today have a greater share of manufacturing assets than did the 200 largest in 1950, the year Congress enacted the Celler-Kefauver Act to stop the trend toward industrial concentration...

...Emphasis added...

...Under the banner of free enterprise, up to two-thirds of American manufacturing has been metamorphosed into a "closed enterprise system...

...Supporting this view was International Telephone and Telegraph's effort to drum up Congressional opposition to the Justice Department's attempt to block its merger with the American Broadcasting Company...

...Their disappearance reduces a source of political options since, as the number of private sources for social risk capital is reduced, the unpopular or new cause will find it that much more difficult to secure backing...

...The Federal Trade Commission in January issued its first monopolization charge against a major industry in its fifty-eight year history, charging that four cereal companies were an illegal "shared monopoly...

...When you have a huge investment in present machinery, and when an unknown return is to be substituted for your sixteen to twenty per cent return, there is little need to embrace new technologies...

...f Finally, President Nixon's wage and price controls have revived questions extending from economist Gardiner Means and the populist Senator Joseph O'Mahoney, Wyoming Democrat, in the 1930s, to John Kenneth Galbraith and Senator William Proxmire today: Has monopoly's "administered" prices caused our nagging inflation/recession...

...Paul, forty-five cents in Duluth...

...Wilkinson, Sony, Xerox, and Polaroid were all small or unknown when they introduced these products...

...A small Austrian firm, one-third the size of one U.S...

...But as large numbers of independent firms are swallowed up, we instead race toward America, Inc., in Mintz's and Cohen's phrase, "one gigantic industrial and financial complex functioning much like a separate government...

...But the charge of irrational populism is misplaced when the point is that GM, averaging more than $20 billion in sales, could profitably be split up into three to nine companies, or that LTV, with eighty-seven subsidiaries, is neither efficient nor interested in the communities in which it invests...

...They are the dedicated critics of public power, the believers in decentralization, and free enterprise, and something called "the competitive spirit...

...He is the co-editor of "With Justice for Some" and the principal author of "The Closed Enterprise System," which will be published this spring...

...First popularized by the eminent Joseph Schumpeter, and recently adopted by John Kenneth Galbraith, the idea is that big firms can innovate better because they are able to risk the necessary large investments in research and development (R&D...

...f The late Sixties witnessed the largest merger wave in American history, averaging 3,605 mergers annually between 1967 and 1969, or six times as many per year as its famous turn-of-the-century predecessor...

...It was good public policy, cheap to pass, and would help out the consumer...

...Also, it should be stressed that about two-thirds of the research done in the United States is subsidized by the Federal Government anyway—not by big private industry...

...So too with socialism—corporate socialism...

...Foremost is the overpricing that occurs when one or a few firms control a market...

...Beyond the "irrational populist" threshold, many others disagree with this suggested cure...

...And finally, many understandably wonder if the public, comprised of large numbers dependent on giant business, would support such serious reform...

...The Auto-Smog Conspiracy case provides one clear example...

...Steel and Bethlehem followed suit...

...Pharaohs and emperors would be envious...

...Recent studies by economists William Shepherd and F. M. Scherer have tried to quantify this lost GNP, concluding that the overall cost of monopoly and shared monopoly in terms of lost production is somewhere between $48 billion and $60 billion annually...

...The extent and cost of monopolies can become as central to the New Populism as it was to the old...

...How can one comprehend power of this magnitude...

...When a major corporation from a state wants to discuss something with its political representatives," Senator Hart has said, "you can be sure it will be heard...

...Proponents of Big Business, on the other hand, argue that there are alternate benefits in our state of super-concentration...

...What of a large corporation commonly considered a major innovator, like General Electric, "where progress is our most important product...

...Senator Fred Harris recently introduced a rider to Phase II legislation to decentralize many of our giant corporations, and Senator Hart, chairman of the Senate Antitrust Subcommittee, will shortly introduce his own deconcentration legislation...

...Other dynamic costs are less capable of measurement but still severely damage our industrial and social health: Inflation and Unemployment...

...Shareholders and employes would not be injured, since the divested businesses are not liquidated or given away, but are sold for market value and continue to operate under new ownership...

...The social blights of racism and pollution have been associated with the discretionary power of monopolies freed from the spurs of competition...

...Although businessmen spoke the language of competitive capitalism, each sought refuge for themselves: price-fixing, parallel pricing, mergers, excessive advertising, quotas, subsidies, and tax favoritism...

...And our top 200 corporations now control the same share of assets held by the thousand largest in 1941, the year the landmark Temporary National Economic Committee submitted its final report to Congress recommending an "Investigation of Concentration of Economic Power...

...K While there were once as many as eighty-eight competing auto manufacturers in 1921, today the "Big Three" produce eighty-three per cent of all cars sold in the United States and ninety-seven per cent of all domestic models...

...When consumers pay excessive prices for their purchases, monopoly profits then redistribute income from the consuming public to the shareholders of particular corporations...

...Due to such market power of big firms, we are in what economist Paul Samuelson calls a "sellers' inflation"—where higher costs are simply passed on to the consumer in the form of higher prices...

...A staff report now at the Federal Trade Commission estimates that "if highly concentrated industries were deconcentrated to the point where the four largest firms control forty per cent or less of an industry's sales, prices would fall by twenty-five per cent or more...

...Racial minorities and blue-collar workers, seeing their small fixed incomes buy fewer goods because of monopoly prices, are also potential adherents...

...Conservative Senators James Buckley and Barry Gold-water, for example, opposed the Lockheed loan because it violated the principles of free enterprise...

...A benign providence," Galbraith has intoned, "has made the modern industry of a few large firms an almost perfect instrument for inducing technical change...

...soap detergents (Procter & Gamble, Colgate, and Lever Brothers...

...Clearly, only when the marketplace exploits actual efficiencies of size can the consumer get the most goods at the cheapest price...

...Paul in the mid-Sixties, but only three big milk firms in neighboring Duluth-Superior...

...f America, Inc., a critique of big business by Morton Mintz and Jerry Cohen, became a best seller in five short weeks during 1971...

...Ranging from tax inequities to shoddy merchandise to unfair property taxes, from auto bumper frailty to Pentagon cost overruns, there is a common thread of growing citizen hostility to the invisible bilk, that involuntary taking of income by unaccountable institutions...

...His article is adapted from that book...

...Willard Mueller, former chief economist of the Federal Trade Commission, testified before the Senate Antitrust and Monopoly Subcommittee in November, 1969: "You may recall that I testified before this Committee in 1966 that, should postwar trends in aggregate concentration continue, by 1975 the 200 largest manufacturing corporations would control two-thirds of all manufacturing assets...

...But competitive firms, which had to hire the best employes at the going rate— whether they were black or white—were found to discriminate less...

...Concentrated industries can largely shrug off the classical monetary and fiscal restraints, not reducing their high prices as consumer demand declines...

...The first American company to adopt it was McLouth Steel, which had less than one per cent of industry capacity...

...In 1970, both before and after the automobile strike, General Motors announced price increases attempting to maintain their targeted twenty per cent return (on net worth after taxes) rather than suffer a less than monopoly-like return...

...Economics professors William Shepherd and Richard Barber have both calculated that shared monopolies control about two-thirds of all industry...

...f Federal Trade Commission studies have found that cereal prices are fifteen to twenty-five per cent higher than would exist under competition because of domination of the industry by just four firms...

...And as big firms push out or buy out the small, the "mavericks" of industry disappear...