The Big Cannot Be Free

by DAVID CUSHMAN COYLE

1

THE American people do not like to be pushed around by big business. They also resent being trampled on by big labor unions. The majority of Americans are suspicious of big private powers; they think there ought to be a law. But the American people have been baffled, generation after generation, when they have tried to keep the “interests” under control.

The American He Revolution was a fight against British big business; and as it was only a war, we managed to win it without overstraining our minds. But since then, we have had nothing so simple. Among ourselves we have fought about monopoly and big business for a hundred and sixty years with a vast amount of confusion. George Washington speculated in Western lands. Aaron Burr dreamed of an empire in the Southwest. Hamilton and Jefferson fought over the issue of bigness, and it came to a head again in the struggle between President Jackson and the Bank of the United States. As to who was right and who was wrong in these historic operations, the American people have been much in doubt, with an inclination to fear big enterprises and admire them at the same time.

Bigness and resistance to bigness were stepped up after 1870 by the effect of new inventions, chiefly in the form of railroads. The railroad was a sort of adjustable bottleneck, by means of which farmers and miners could be squeezed and growing towns could be killed off or forced to pay tribute. The Huntington group in California controlled, bled, and stunted that state for many years by means of a railroad monopoly. Pennsylvania anthracite was monopolized from the beginning by the men who controlled water and land transport. Rockefeller developed the use of railroad rates to kill off the independent oil operators. The resistance to Rockefeller was violent, and even successful for a time in 1872, but he won in the end.

Meanwhile a much more important kind of bigness was taking the center of the stage, the kind known as high finance; but the control of transport bottlenecks is by no means a dead issue. In November, 1946, a Standard Oil man, testifying before a Congressional subcommittee against any publicly controlled use of the Big Inch oil pipeline, proudly stated that the oil industry provides all its own transport.

The battles of the giants, from Jay Gould to J. P. Morgan, covered far more than mere monopolies of goods or transport. The great game was to get control of a property, water its stock, and sell the watered stock to the public, and by “planned mismanagement” and market manipulation, to run stocks and bonds up and down at will, with the manipulator taking the profits. The methods of the last third of the nineteenth century were crude and spectacular. They made many good stories for muckrakers and investigating committees. The methods are smoother now, but the depression and the Second World War were not without their tall tales, some of which are still waiting to be told.

In the 1870’s the Grange, with one and one-half million members, arose to combat the railroads’ oppression of the Midwest. They put through some state regulatory laws, but in several states the roads forced repeal by threatening an embargo. The Supreme Court in 1886 denied the states the right to interfere with interstate rates. Congress in 1887 passed the Interstate Commerce Act, which promptly became a dead letter.

The Knights of Labor revolted in the 1880’s against the labor policies of big business. They even threatened to eliminate Jay Gould, calling out from that gentleman a ringing profession of American faith: “I am yet a free American citizen. ... If, as yon say, I am now to be destroyed by the Knights of Labor unless I sink my manhood, so be it.” From Patrick Henry to Gould and to the Liberty League the torch of freedom was handed on.

In 1890 the Sherman Act was passed to “appease the restive masses,” but it would be fifty years before Thurman Arnold would demonstrate, briefly, that the Act could be made to work. Both Cleveland and McKinley regarded the Interstate Commerce Act and the Sherman Act as toothless, and the Supreme Court gave them reason.

In the nineties the revolt begun by Grangers, Knights of Labor, and Populists was focused in the fiery oratory of Bryan, who threw a brief scare into the big men in 1896. Mark Hanna went about raising a mammoth war chest; James J. Hill decided to turn Republican; all right-thinking people rallied to save the Republic; and that crisis passed. I first entered political life at that time, marching with other little boys and shouting, “Democrats live on rats!” It was a great moment. We saved the country — and in due course got United States Steel.

Then McKinley was shot, and the terrible Theodore reigned in his stead. The muckrakers raked, and Theodore thundered. He had the nerve to prosecute Morgan and Rockefeller themselves in the Northern Securities Case, and won it in 1904, but nothing came of it after all. T.R.calmed down, in fear of the possible consequence of rocking the boat. Mr. Dooley paraphrased the President’s message in 1901: “On the wun hand, I wud stamp them undther fut; on the other hand, not so fast.”

Wilson was rather more dangerous. In his reign the Clayton Act was passed to revive the fainting Sherman Law. But Wilson had a war, and on his death we scurried back to normalcy.

After Wilson the government was safe and sane. Mellon ruled the Treasury, to the tune of sound finance. More mergers, more watered stocks, more bigness; more power to “businessmen” who were really finance men in disguise. They had it their own way, and the outcome was unpleasant.

So there came another terrible Roosevelt, who put a crimp in some of the best Wall Street rackets, and upset the organization of a few holding company empires. He gave labor the power to meet big industry on equal terms, but had neither the time nor the political strength to put any restrictions on big labor. For he too had a war.

2

UNDERLYING all the fighting about who should rightly get what, were deep human and economic questions left unanswered. Free enterprise and property were commonly admitted to be sacred rights, and the law, even if passed by bribery, was the law. How far could Americans safely attack the legal property rights of the wealthy, without losing all property and liberty? And who would build the country if the great builders were blocked? These questions were always in the background, confusing the majority with chilly fears that after all, if the reformers should win, they might win only disaster.

Gould made a keen point when he called himself a free American. By tradition all good Americans had to believe in free competition and the survival of the fittest. Nearly all the empire builders had been poor boys, who made good in competition with their rivals at every level on the way up. They were the product of liberty, and the strongest believers in liberty — for themselves. The progressives who attacked them believed also in liberty, and in free competition, and in the survival of the fittest. They objected to being squeezed and oppressed by men who had used “unfair" methods. But the little men failed to understand that the real trouble was not in the unfairness of the methods; the trouble was in allowing the prizes of competition to be unlimited. The problem was technical, not moral.

According to American mythology all men have an “inalienable” right to liberty (except when convicted of a crime). The fact is that the right to liberty makes sense only for small and unimportant people. The big cannot be free, or in the end they will destroy all freedom. We are under no moral compulsion to allow the rights of common men to big business or big labor. The double talk in the fight of John L. Lewis against the United States came from the illusion that Lewis and the mine owners are entitled to freedom until proved guilty of something. The same illusion has confused the arguments about economic freedom and monopoly all through our history.

In the face of the theory of inalienable liberty, we have had to recognize that “free” competition works reasonably well only so long as none of the competitors gets too big.

Public opinion has been confused by a feeling that coöperation among businessmen is the lesser of two evils. No doubt the trade associations, the mergers, and the interlocking directorates have often led to monopoly practices, to artificial prices, and to rules for keeping newcomers out of many lines of business. But to force business to go back to the cutthroat competition of the nineteenth century would be even worse. Instead of monopoly by agreement between companies, there would be monopoly by the strongest having eaten up all the others. Reform is bound to be halfhearted until the point is clear that competition must be a game with limited goals, in which the winner does not take all, nor can the winner use his money to buy special advantages outside the rules.

The revolts against the big men have been chiefly moral crusades. They violated what the American people vaguely believed to be the principles of liberty and the precious rights of private property, and they implied a desire to restore the law of the jungle. On their own moral grounds, the crusades were not good enough to draw overwhelming strength from the American tradition.

The other great weakness of the reformers was that they could not overcome the common belief that the empire builders were the makers of prosperity. In the seventies and eighties, someone had to build railroads and steel mills and cities. Big men who did big things in a big way might be hated, but they were admired too. And who else would have done the job? No one seemed to know the answer to that.

If there is any reason now to resist the exercise of big private powers, it will have to be something more than moral condemnation of malefactors of great wealth. To be sure, the country will have to be shown that it can afford to be against sin. But it is far more important to recognize that most big business managers and big labor leaders are not malefactors, but well-meaning men working according to the rules. If their work is a menace, the rules may need changing, on grounds of national efficiency and without reference to moral turpitude.

3

THE question of efficiency has to be met. All through the nineteenth century and down to date, science and invention have been piling up examples of the value of big machines, big factories, and mass production. In some lines of production, especially in manufacturing, but. also in mining and agriculture, larger operations turned out more goods for less money, compared with the smaller productive units that they displaced. These big plants had the news values and the romance that appealed to the great American love of the ingenious and the wonderful. How could the public ever guess that the big plant is only sometimes more efficient, or that in most industries the middle-sized plant works better than either the small or the big? Middle-sized things are not news in America.

The common belief that big plants are necessarily better is harmful mainly because it discourages the resistance to bigness, and by a natural confusion of thought makes people believe that large corporations, or even large financial operations, must be somehow better than small ones. A little debunking seems to be in order.

A few years ago, a large clothing manufacturer was conferring with a committee of the Consumers’ League, on types of clothes for middle-aged women. For illustration they pointed to a suit worn by one of the committee as showing the kind of thing they wanted. He examined the material and workmanship and said he could do 100,000 of those to retail at $105. But the lady herself said she had had it made by a tailor at a total cost of $68. This was a case where the efficiency of mass production was eaten up by the cost of distribution.

Each particular kind of production has its peculiar technology. In a big country like the United States, as a rule the lowest cost on standardized goods is found in a plant that is big enough to use the latest automatic machinery. But even so, the plant may be fairly small. Most goods are small and do not call for large or complicated machines to produce them. Many kinds of goods are not even standardized, and as the country grows richer the demand for “exclusive” or unstandardized goods is apt to increase. Such goods are made in small and highly personal shops.

In America, because of cheap transport and large markets, the most efficient plant is often larger than in other countries, but it is not generally big compared with the total American production. Steel mills and automobile plants have to be fairly large; but aluminum plants do not, nor do machine shops, food-processing plants, and, in fact, the majority of factories.

A peculiar side light on the engineering aspects of bigness is the growth of specialties and subcontracting. During the war, after a couple of years of resistance, there was a considerable extension of subcontracting among the war industries. The figures, in fact, sound impressive. American Locomotive reported 500 subcontractors, and General Motors listed 18,375 different suppliers of parts and material, most of them small concerns. Actually, most of the subcontracts, measured by tonnage, went between one big concern and another, and represented nothing but a way of borrowing specialized machinery or skills for temporary work. But even in peacetime, and on work that is expected to go on for years, the big plants never equip themselves to make all the parts and materials they need for their finished product.

A small part, such as a bearing, was perhaps originally a simple piece of cast iron, and was made in a shop attached to the plant. But today a bearing may be a ball or roller bearing of special steels, or it may be lined with pressed metal powder, especially designed for a particular service. Even a big plant will often not use enough of such a part to justify the laboratory to design it and the machinery to produce it. This type of part then becomes a specialty, made by a shop that serves a number of customers, even in different industries. A specialty shop is apt to be small, because its product is small and is made on only a few highly specialized machines.

There is a strong tendency for specialty shops, though small, to be bought up by large concerns, but efficiency is not the reason. So long as the law allows these purchases, each big company is under pressure to buy up its sources of parts for fear that a competitor will grab them and cut off the supply.

Even the automobile business, which technically requires little beyond a design shop and an assembly line, could be more efficient with smaller companies, if the law protected them against the embarrassing right to buy up the producers of standard parts.

Mass production is a name that is apt to mislead the layman who thinks it must mean something massive like Willow Run. Mass production and its close relative, the straight-line process, are ways of handling work, to cut out hand moving of parts and, more important, the costly supervision and paper work of the older systems. Mass production refers chiefly to the assembly line, where the car moves along in front of the workman, while one part after another is added. This system is cheaper than the old-fashioned building method, where the car stayed in one spot while various workmen brought materials and built them into it, with innumerable foremen and clerks keeping track of men and materials.

In the straight-line process a steel plate starts from the yard and goes down a line of machines that cut, bend, punch, and plane it, without pause, until it emerges at the assembly line ready to be attached to the car. The machine that takes twenty minutes to finish a planing job may be working all the time, while a punch may take one bite and then sit idle for nineteen minutes till the next plate comes along, or in some cases the planer may be duplicated to save time. The idle machine time is more than made up by having no storage bins, no inventory, no orders to give, and no records to keep. This is the essence of these two American processes that have helped to set us ahead of the rest of the world.

Mass assembly and straight-line production must have a big enough output to keep the work moving, and that is all. Many kinds of manufactured goods can be made by these methods, and with the best modern machinery, in fairly small factories employing fewer than five hundred men. It is noticeable that the size of plants, if not the size of corporations, has been shrinking in the ice industry, steam and electric car manufacture, screw-machine products, structural and ornamental metalwork, and condensed and evaporated milk.

4

SINCE the engineering requirements for top efficiency do not generally call for extremely large plants, the case for the big corporations is not so strong as the public has been led to believe. Big corporations are usually several times as big as they would need to be merely to have a propersized plant. If big companies have any value, it is not based on the efficiency of big factories. A big corporation may be efficient because of good management that takes advantage of new methods when less intelligent managers are staying in a rut. Henry Ford, for instance, was ahead of his time in taking over the idea of the assembly line, which originated in freight-car building and had been further developed in the Chicago stockyards. But Ford, too, was an exception. The record of big business in general is that when several concerns are merged their production costs go up, as their ability to use new techniques is stifled by lawyers, bankers, and red tape. When Elbert H. Gary was head of the U.S. Steel Corporation, it was his dullness of mind that caused U.S. Steel to miss its chance at the patents on wide-flanged beams, and to be a generation late in taking up the continuous sheet process.

Monopoly powers, more or less absolute, have saved some large concerns and wrecked many small ones, with little relation to their ability to serve the consuming public. The profit record is therefore not a clear indicator of relative efficiency. Cost records are more important, and such records as there are do not show most of the biggest concerns in a good light. Here and there a single individual has created a big business that remained efficient while he lived, but most of our best producers, judged by engineering standards, are of medium size.

Even mechanical or managerial efficiency, as shown by cost in dollars, may be deceptive. One common illusion of economists is that if a country district can import manufactured goods cheaper than it can make them locally, there is necessarily a real saving that will raise the standard of living. Maybe so, but the saving in price is not enough to prove it. There are several costs that do not register in the price of goods imported into an agricultural area. One is the cost of migrating from the farm to the city, where a boy can find a job in making these same goods. Another is the lack of other jobs near the farms. Having no easy way to escape, the farmer gets the small end of all bargains. What he loses by his weak bargaining power should be charged as part of the cost to him of buying cheap goods from far away. “Buy at home” has its points.

Another reservation on money costs is the possibility that too much mechanization and concentration, especially if banker management creeps in, may lead to general economic instability and periodically paralyze large numbers of factories for months or years at a time. From the public’s standpoint, there is more efficiency in a lot of small mills that run than in a big new mill that doesn’t run. This country lost 200 billion dollars between 1929 and 1937 by sheer inability to operate its economic system. That kind of over-all inefficiency outweighs a lot of wonderful technology in the details of production.

Another point is that capable and experienced business managers are scarce in this country, and were desperately scarce during the war. This weakness is directly caused by big business. Thousands of independent businessmen, or Babbitts, have been abolished and replaced with subordinate executives, or yes men, who, though smoother and more interchangeable, are unquestionably as a species a far lower form of animal life. For the nation, this change is inefficient.

These features—“intangible” costs, not expressed in dollars, economic instability, and the loss of certain scarce and essential kinds of manpower— must be charged against big enterprise.

5

THE men who organize business mergers, labor federations, and farm bureaus are more interested in power than in production. When they use their powder, they use it to stop producing or to make the public pay higher prices. Whether they are conscious of it or not, they challenge the nation to take over, as in Germany or Russia, and make them produce what the nation wants at whatever prices or wages the nation thinks fit to pay. In America, we took a lot of public control during the war, when the armed forces were the principal buyers. But public control over all business, labor, and agriculture is not what we Americans want in ordinary times. This is the dilemma of a democratic capitalist country. How can we protect the liberty and the interests of the common folk without setting up big government to control a growing number of big private interests, on an increasing scale that will end in our having no liberty at all?

Our law has long since recognized that railroads, power companies, telephones, and all natural monopolies are public services that may be privately operated only under license during good behavior. Other private enterprises have been taken over by the public — the Navy, the Post Office, most of the schools, highways, bridges, water supplies, police and fire protection services. Each inroad of government has been attacked as socialistic, and as adding to the bureaucracy, but it had to be.

Let us admit, by this time, that whatever has to be big cannot be bigger than the government and so has to be governed by the government, either under public ownership or under the threat of it. Then let us admit that bigness is a curse and that big government is dangerous to liberty. Let us recognize that bureaucracy is inefficient in big government as well as in big steel or big insurance. But the dangers and inefficiency of big government are no excuse for leaving big business or big labor uncontrolled. If any arbitrary private power grows strong enough to threaten the nation, it must be seized and mastered by the government. But if strong government is to be consistent with a satisfactory quantity of freedom, it must use its power wholeheartedly to protect small enterprise. Nothing ought to be big if it can get along at any reasonable cost in small units of ownership and operation.

The most valuable kind of national planning is what has been called “unplanning” — the arrangement of conditions under which the government will not have to handle masses of detail, either in regulating or in operating unnecessary big enterprises. The TVA, for instance, is an unplanning plan, since by handling the river, the electric rate problem, and some miscellaneous scientific research, the Authority has let loose a vast amount of private enterprise that the government need not worry about. The greatest unplanning plan of all is the defense and encouragement of small industry, which, if protected from gobbling by big industry, can do a vast amount of good planning without burdening the government.

What, exactly, could be done to cut down the amount of unnecessary bigness?

The personal income tax is still not so high in America as in most democratic capitalist countries. This tax is the backbone of any program to prevent unnecessary bigness. In general, its effect is to discourage the enterprise of men of large fortune, and to leave the field to those who have it still to make. A reactionary Congress will cut income tax rates, as a favor to big business. The first plank in any proper liberal platform is higher tax rates on the middle and upper brackets.

Corporation income taxes could well be increased, but with an exemption, such as fifteen or twenty thousand dollars, which would eliminate both taxes and headaches from more than 90 per cent of the number of corporations in the country. Precautions would be needed against tricks such as family incorporation. Such a direct advantage to legitimate small concerns might be logically inaccurate, since some kinds of business have to be much bigger than others, but the objection is academic. Prices would rearrange themselves with no measurable loss to the consuming public.

Little businessmen need scientific help. Without such help, many small concerns will be hopelessly handicapped. Some parts of the new frontiers of technology, like the old land frontiers, can be occupied only by large and expensive expeditionary forces, which should not be left entirely to big private companies to organize and exploit. The government should provide small business with more scientific research, management advice, marketing information, and technical services, especially in the less developed areas of the country. These services would do for little business what the government has long been doing for agriculture to the great profit of both the farmers and the nation.

The laws that an irritated public is demanding for regulating labor unions might well recognize that in so far as unions can divest themselves of monopoly and operate as small independent units, they can be left free to bargain and to strike in any plant that is not of strategic importance to the community.

But in the longer run, the development of great labor monopolies, with naive abuses of power, has probably been a good education for the American people. We were slipping. Too many businessmen had come to accept monopoly as normal, and too many liberals had slipped far enough to the left to accept monopoly as inevitable. Now one can go to a meeting of the U.S. Chamber of Commerce and hear monopoly denounced as evil, and an encouraging number of liberals are expressing themselves as not feeling obligated to follow the whole labor party-line. Out of all the confusion, we may get a renewed distrust of bigness, which in American life means renewed youth and vigor.

6

MANY Americans are “agin” monopoly on principle; but curing it is not so simple as opposing it. Monopoly is a good fighting word, but the tricks of big business, big labor, and big agriculture are complicated, and calculated to escape legal definitions of monopoly as fast as they are set up. The defense of free enterprise cannot be tied to a word, but must look to results, fighting every trick that allows men to escape the pressure of legitimate competition as understood by the American people. The application of the American notion of liberty is entirely practical, as the Federal Trade Commission and the Department of Justice have proved.

Big business has created the illusion that no antitrust law can hold it, but the ineffectiveness of the law has been only because of weakness of will. The present antitrust laws can be tightened up and enforced with good effect if the government wants to enforce them and can have money to pay for doing it. The appropriation for 1946 was 3.6 million dollars. Billions for military defense, but only 2 1/2 cents per capita for defense of free business. And the fines ordinarily more than pay the cost of antitrust suits, so it is not a question of “economy.”

There is much to be said for laws directly limiting the size of all enterprises. For instance, the law might forbid any company to have over 1000 employees unless its operation is confined to one location, as suggested by Fred I. Raymond in The Limitist.

If ever we Americans mean it seriously, we can decree that no corporation may do business in this country in any complicated form. The law might well prescribe the exact form of a business corporation and of its accounts; it should have no peculiar kinds of stock or bonds; it should have no officers who are connected with any other corporation as officers or important stockholders, and no stockholders in a dominant position who hold important quantities of stock in any other corporation.

No commercial corporation should be allowed to hold stock in any other, and no financial corporation should be allowed to hold more than a limited per cent of the liabilities of any company, or to have any actual means of control over its operations. No corporation should be allowed to invest undistributed profits except in its own plant, or to hold a rainy-day reserve except in cash or government bonds. And no company should be allowed to own two newspapers, or a newspaper and a radio or any other business. Producers should not be allowed to own their distributors. As Attorney General Clark says, what big business needs is Divorce, Divestiture, and Dissolution.

Most of the failures of antitrust actions and of utility regulation are caused by complicated corporation setups and cross-ownership of stock. The complicated network is vaguely supposed to have some practical reason; but the main reason is that it will take a court four years to find out what goes on, and four more to find out how its decision has been evaded. The economic losses from cutting the whole Gordian knot would not be any noticeable fraction of the national income; and the frustration of certain financial manipulators would be a healthy tonic to legitimate industry and business all over the country.

Do such proposals sound visionary? At least they are not sudden visions. Some of them are law or have been law. Congress long ago, for instance, prohibited utilities in Washington from owning each other’s stock — a law which, in the opinion of competent observers, has been evaded. But the principle that simplicity in business organization is a right of the public for protection against wool-pulling has not been widely accepted, yet.

Action along lines such as these can be taken, and it would do the trick, if we really mean to weed the garden before it gets hopelessly choked. Bigness and monopoly grow up in any free competitive system as naturally as quack-grass and burdocks grow in a vegetable garden, or cancer and tuberculosis in the human body. You can’t fight against nature? Then why try to cure tuberculosis? The actual key to the future is the mental state of the independent voters who, when they are well agreed, can decide elections. If this middle group can think more clearly, it will be able to fight nature with good success. If reactionaries and communists are always going to be able to “sell” the independent voters the idea that they can’t fight bigness, the game will be up; but (hat is exactly the point that must not be yielded so long as any free speech is left.

During the war, the concentration of economic power in America was stepped up another notch. It would have been stepped up still more but for the constant resistance of liberal forces, chiefly the Small Business Committees of Congress and tho Truman Committee. The Smaller War Plants Corporation reported to the Senate Small Business Committee that before the war, 250 corporations controlled two thirds of the total American industrial plant, which had cost about 40 billion dollars. At. the end of the war, the 250 largest concerns again controlled two thirds, but by then the total had grown to GO billion dollars’ worth, and almost without exception what the big companies hold is the newest plant. Since 1943 there has been also a now wave of mergers in many industries that previously had been more or less free.

On the other side of the picture, the total number of independent businesses (other than farms and professions), which was 3.3 millions in 1940, fell to 2.8 millions in 1943, and by April, 1946, had recovered to 3.3 millions. By the end of 1946 the figure was reported as over 3.6 millions, the largest number of independent establishments in our history. Only a few hundred of these arc large companies; the vast majority of course are one-man businesses or concerns with one or two employees. The net loss of 500,000 concerns in 1942-1943 was an effect of the draft and the lure of war jobs; the recovery of 800,000 or more in 1944-1946 represents demobilization.

How do we reconcile these two facts? On the face of them, they show two opposing elements in our national life. The second set of facts means that the spirit of independent enterprise is as lively as ever among the American people; millions of hopeful men still risk their savings in new business ventures. But starting a new business is one thing; surviving is another. The growing concentration of business, in one line after another, is chilling the climate for small business and crowding new enterprise into the least profitable fields. This country needs to make up its mind rather soon to maintain as large a field as possible for men who are not too big to be free.