Part 2
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.
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“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.
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“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.
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“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.