The trend toward corporate bigness in industry has led many students of anti-monopoly policy to believe that the American policy of encouraging competition and discouraging monopoly is turning out to be a failure and to conclude that steps need to be taken to limit the influences of large enterprises in American industry. Of many proposals that have been made, two principal ones are of particular interest.
One proposal is that new restrictions be placed on mergers. Some have urged that no merger be permitted which cannot be justified by technological reasons. Some have proposed that mergers involving a corporation above a given size be prohibited unless found by the Federal Trade Commission to be in the public interest.
The second proposal deals with the concentration of production in various industries into a few enterprises. It is urged that the Government undertake a comprehensive survey of American industry to determine whether enterprises exceed the size required by modern technology and that the Government be authorized to break up firms that are unnecessarily large.
Both of these proposals are based on fallacy. They rest upon a mistaken conception of the role of large corporations in American business and particularly upon the relation of large corporations to competition.
Each, if put into effect, would weaken rather than strengthen competition. In fact, in order to stimulate competition, existing restrictions on mergers should be relaxed, not tightened, and large enterprises, instead of being threatened with breakup, should be given a clear mandate to grow, provided they use fair means. Let us examine more completely each of these two proposals to restrict the growth of enterprises.
The proposal that new restrictions be placed on mergers arises from the fact that the United States in recent years has been experiencing a great wave of mergers. But recent mergers have not weakened competition. On the contrary, they have indirectly strengthened it because they have enabled managements to build more diversified and better-integrated enterprises—enterprises which are more capable of reaching all parts of the vast domestic market, of adapting themselves to market shifts and changes in technology, of riding out the ups and downs of business, and of supporting technological research and development. Many large firms and firms of moderate size have acquired small firms, but the acquisitions by the very largest firms have not been numerous.
The specific circumstances surrounding each merger are unique, but a case-by-case examination shows how mergers are helping to build stronger enterprises, better able to compete and to hold their own in competition.
Let us consider a few examples. A maker of cans bought a concern manufacturing plastic pipe in order to get a foothold in the plastic pipe business. A maker of railroad freight cars bought companies making electrical equipment, truck trailers and dairy supplies in order to shift from a declining business to expanding businesses. A food manufacturer bought a West Coast manufacturer of salad seasoning in order to give nation-wide distribution to its product. A maker of household ware bought a supplier in order to have a source of pressed wood handles for its appliances.
Unusually competent managements often buy other concerns so that they can spread good administrative methods to less efficiently operated enterprises.
The many advantages produced by mergers show that the proposal that mergers be prohibited unless they can be justified by technological reasons does not make sense. There are good reasons for mergers that have nothing to do with technology.
Moreover, it would be unwise to require Government approval of all mergers involving an enterprise above a specified size. That would be substituting the decision of Government officials for the decision of business men on matters that the business men are better able to understand. The public interest is amply protected by the present drastic provision of Section 7 of the Clayton Act.
Indeed, the fact that mergers often make for more vigorous competition by helping managements build stronger and more efficient business enterprises indicates the need for relaxing the present severe restrictions on mergers contained in Section 7 of the Clayton Act. This section prohibits any merger which is likely to lessen competition substantially in any line of commerce. The fact that the merger may increase the intensity of competition in other lines of commerce makes no difference. As Section 7 now reads, the total effect of the merger on competition is irrelevant. If it is likely to lessen competition substantially in any one line of commerce, it is illegal.