Obviously, the section as it now reads, conflicts with the national policy of encouraging competition. It should be rewritten to make the legality of mergers depend upon the total effect on competition, thus permitting any merger that has the net effect of increasing competition.
The second proposal—to remake the structure of American industry by breaking up the largest enterprises—rests upon the mistaken view that, where output is concentrated among a few concerns, effective competition does not occur. The error of this view is shown by the vigorous competition in various industries in which most of the output is made by a few firms—in such industries as the automobile, tire, refrigerator, soap, cigarette, paper products, television and many others.
There are two principal reasons why competition tends to be vigorous when production is concentrated among a few large concerns. One is that such enterprises keep close track of their rank in sales and fight hard to move ahead of rivals or to avoid being surpassed by rivals. The second reason, and one that is rapidly gaining in importance, is the fact that competition among large firms is being stimulated by the growth of technological research.
It is only within the last several decades that managements have generally discovered the big returns yielded by technological research. As a result, the outlays by private industry on research and development increased nearly six-fold between 1940 and 1953. In 1957, the total research and development expenditures of private industry, exclusive of the aircraft industry, which is a special case, are running about 71 per cent greater than they were in 1953. By 1960 outlays on research are expected to be 21 per cent above 1957.
No expenditures are more competitive than outlays on research, for the purpose of these expenditures is to improve products, develop new products and cut costs. More than 70 per cent of the outlays on research and development are made by firms with 5,000 or more employes because concerns with large sales can best afford this overhead expense. Hence the rapidly mounting outlays on research indicate both the growing competitiveness of American industry and the increasingly important role large enterprises are playing in making competition more intense. Incidentally, competition among large firms is superior in quality to competition among small firms and serves consumers more effectively. This is because the greater research by the large firms gives the consumers a wider range of choice over a period of years than competition among a much larger number of small firms that can afford little or no research. The large firms are constantly experimenting with new features in their products which they hope will win the favor of consumers. Sometimes consumers like the new features, sometimes they do not, but at any rate they have been given a choice. In general, the wider the range of choice open to consumers, the more effectively is the welfare of consumers advanced.
In view of the growing importance of large enterprises as a source of competition and the superior quality of this competition, a move to break up large concerns would be a blunder. There is much to be said, however, in favor of incentives for enterprises to split themselves voluntarily, if the managements consider a split desirable. The resulting increase in the number of top managements with independent authority to make policies and to try experiments would be favorable to technological progress—provided the concerns are large enough to support extensive research. A good incentive for voluntary splits would be created by reliev
ing stockholders from liability for the capital gains tax on the appreciation in their holdings from the time they purchased the stock up to the date of the split.
But enforced splitting of enterprises, except as a remedy for flagrant monopolizing of trade by unscrupulous methods, would be another matter. It would be demoralizing to managements to be penalized for winning customers by having to submit to an enforced disruption of their organizations.
In fact, the present law needs to be clarified in order to encourage a few of the very largest concerns to strive harder for a bigger share of the market. The Sherman Act forbids monopolization of commerce or attempts to monopolize it. In general, successful growth, due to superior efficiency and not aided by illegal practices, does not violate the law provided there is no deliberate attempt to acquire monopoly power. But what practices are evidence of "deliberate attempts" to achieve monopoly power? The managements of a few very large and efficient concerns apparently fear that efforts to get more business by cutting prices will be held to be attempts to monopolize. There is need to make clear that efforts to win business by giving consumers the benefits of low costs will not be regarded as monopolistic.
Americans should hold fast to their traditional views of the importance of vigorous competition in industry. This philosophy and the actual practice of vigorous competition have been unique and invaluable national assets which have contributed immensely to the progressiveness and efficiency of industry in the United States.
But Americans need to discard some widely held but views concerning the relationship between bigness and competition. They need to grasp the fact that when production is concentrated among a few large concerns, rivalries become peculiarly intense and the additional fact that in an age of technological research the large enterprise is an increasingly important source of competition.
Americans need to understand that a variety of conditions—rapidly changing technology, the growing importance of industrial research, the growing strength of trade unions—tend to increase in many industries the size of the enterprise that is able both to compete and to survive in competition. Hence, we are likely to see a spread of the tendency for production to be concentrated in a few large or fairly large firms.
But this trend, if it occurs, should not disturb us. It will simply represent an adaptation of industry to the conditions of the time.
The strength of competition in American industry will to an increasing extent be determined by the scale of technological research and development. Research will grow as rapidly as engineers and scientists can be found to man the laboratories. Hence, one can predict with confidence that competition in American industry will continue to gain in intensity. And large enterprises, far from being a menace, will, to a growing extent, be the instruments by which the country is given the benefit of large-scale technological research and of increasingly vigorous competition.