Congressman's Report

Volume XV, No. 2
August 26, 1977

Anti-Monopoly --A Game Plan

Back in 1975, I made a speech to the American Bar Association in an attempt to generate some thinking about the growth of monopolies in the American economic system. In the course of that speech, I unveiled a proposal called the Competition Review Act of 1975 as a long overdue and necessary alternative to the Clayton and Sherman Antitrust Acts, both of which have been shown unable to keep pace with the kind of corporate growth that has brought such high levels of concentration to the energy industry, steel, pharmaceuticals, autos, and a whole list of key industries.

The silence was deafening.

This year, I reintroduced essentially the same bill, but with the important addition of other corporate entities such as newspapers, book publishers, and the broadcast industry. This time I struck a responsive chord. In addition to my competition review bill, Congress is considering legislation to limit the power of the giant companies in the energy industry and similar proposals, based on the belief that big may be bad.

The growth of multi-product conglomerates has been the subject of increasing media attention and economic analysis. Americans are beginning to realize that what's good for General Motors -- or IT&T -- is not necessarily good for the country. In this report, I examine the stifling of competition in American business life and its implications for the consumer, for our economy, and for our free society

COMPETITION IS GOOD

My basic point of view in approaching this subject is that competition is a good and vital thing. Sometimes it is unpleasant, even harsh, It's the "survival of the fittest" that eliminates one drugstore in a town too small to support two. But competition keeps the law of supply and demand going. Where it exists, a person who thinks one store or plant or purveyor of services is charging too much can go to another and pay less. Where there is nowhere else to go, when we have monopolies, prices can be set at whatever level the supplier pleases.

Everyone agrees that competition and free enterprise are the basis of the American economy and way

of life, but some corporate executives and others who ought to know better remind me of the man in a Sinclair Lewis novel of whom it was said, "He would have been as horrified to have heard Christianity doubted as he would have been to see it practised."

Business people ought to be backing attempts to put competition back into energy and other major industries because unless we save competition, our system can collapse. For it is a system that succeeds on incentives, on the freedom to innovate, and it rewards those who are most productive. Growing institutional bigness, on the other hand, begets by its very nature institutional insensitivity and greed. I hope the day never comes when our system rewards those whose product is sheer strength, when those who have stifled and smothered competition emerge as the most powerful.

BIGNESS- A GROWING CONCERN

Bigness in itself is not bad. We need bigger institutions to cope with the increasing size and complexity of our modern world. We are not necessarily better served at mom and pop's corner grocery than at the neighborhood supermarket, where prices are often lower and the surroundings may be more sanitary even if they lack down-home warmth and charm. But my belief is that we can accept the measure of bigness needed to run our society without continuing to allow the frenzied growth of conglomerates and multinational corporations which threatens to destroy the central principles upon which our economy was built. Over the last thirty years, without purposely deciding to do so, we have let our tax laws and other incentives reward tycoons who merge one company after another into vast conglomerates. Many of these economic merger merchants are brilliant, hardworking men and women, and we need their leadership -- but with modified goals.

I lament the end of the old dream of the man who owned a hardware or drugstore, who maybe wanted to take his son into the business to expand it into two or three stores. That man is an endangered species, gobbled up by a local group and then a chain, then the chain by a conglomerate, and the conglomerate by a


 
multinational company based in Cleveland or Kuwait, which couldn't care less because it is far removed from the old neighborhood. Unfortunately, this sort of thing is happening with ever-increasing frequency.

Fortune magazine, which every year publishes a list of the biggest 500 industrial corporations, may in the near future not have 500 names to place there. To illustrate: 20 years ago, 400 companies controlled two-thirds of this country's manufacturing assets. Today, 200 companies have a two-thirds share of these assets. With the large number of mergers, takeovers, and consolidations reported daily in the Wall Street Journal, that figure could go down to 100 within a decade. Immense conglomerates such as International Telephone and Telegraph (IT&T) are continually expanding into new ventures -- bread, rental cars, and hotels, for example.

IT&T exemplifies the kind of conglomeration which is infiltrating all of our major industries. The parent company alone has over 40 divisions, ranging from avionics to defense communications to drills, pumps and compressors. Among its more than 70 subsidiaries are the Hartford Insurance Company, Sheraton Hotels, Continental Baking Company, Gwaltney Foods, and, until recently, Avis Car Rental. There is scarcely an area of our lives not touched by the long arm of IT&T. I don't think we get better hotel rooms or high-fiber bread because IT&T gobbles up Sheraton or Continental Bakeries.

To illustrate further, consider that three companies sell 80 per cent of all cold breakfast food in this country. One company sells 90 per cent of our canned soup. Three companies produce more than 90 per cent of all American-made cars. In this age when many people realize the need to use insulation to conserve energy in their homes, three companies control 80 per cent of the market in insulating materials.

I am concerned not only about bigness in the marketing of products but also about monopolies in the market-place of ideas -- the publishing and broadcast industries. 71 per cent of all newspaper circulation in this country is controlled by chains such as Gannett, Knight-Ridder, and the Hearst empire. As people draw their news from fewer and fewer sources, information flow is under the control of a smaller group of people, whose biases and perceptions could color what they provide us to read.

Conglomerates are making themselves evident in the book industry as well as in newspapers. Gulf and Western, the conglomerate involved in the film industry, also owns Simon and Schuster publishers. CBS, the familiar "eye" of television, has acquired Holt, Rinehart and Winston as well as Fawcett paperbacks. Several newspaper publishers now own book-publishing subsidiaries.

Why is concentration in the communications industry so disturbing? It is because of the enormous power this industry wields over people, behavior, and ideas. We ought to question the increasing disappearance of locally-owned and edited newspapers.

Worrisome is the loss of leadership which local newspapermen provided, and the absence of publishers and editors with roots in the community. These home-grown editors have been an independent voice in our cities and towns, and they often had the power and the backbone to blow the whistle on crooked politicians and promoters.

Not all newspaper chains are bad, and not all independent newspapers are good. But if the day comes when all newspapers look and read alike, when there is no more difference between them than between one mass-produced burger and another -- then we will have lost something vital in our society. Some chain publishers, I might add, ponder this issue too, and look for ways to insure diversity within the "family."

BIG OIL -- LOOK OUT, SUN

As I have emphasized over the years, the oil companies of this country are a striking example of economic gigantism, of bigness gone wild. For this reason, I approach the issue of energy conglomeration with a strong inclination to want that industry broken up, or divested, into more controllable forms. When I call for breaking up the oil companies, I do so as a believer in free enterprise. We need these companies, and they need to be quite large with a great deal of capital to justify the risks involved in finding undiscovered oil and gas reserves. However, we will never have a successful national energy policy unless we divest these multinational behemoths of the grip they now hold on almost all of our energy resources.

No energy program will ever succeed without basic changes in the way Americans live and travel and work. No matter how many times the President appears on our television screens asking for sacrifice, until the oil companies themselves are willing to make some sacrifices, the American people will continue to believe, as do a majority of those who responded to my recent constituent questionnaire, that they are being ripped off, that the energy crisis is not real, that this "crisis" is only a creature of big oil that will fatten profits.

Perhaps the only way to break through this barrier of skepticism is through vertical and horizontal divestiture of the energy conglomerates. A look at the status of these companies in our economic structure illustrates my point:

The most apparent measure of corporate strength is size. And for size, nothing can beat Big Oil. The 1977 Fortune 500 list shows Exxon as the biggest of all. Five of the top seven corporations on the list are oil companies. Indeed, if, as I have suggested, Exxon were broken up, its producing division alone would be the fourth largest company in America. Exxon in its present form is really too huge to be thought of as a mere corporation. If it were a sovereign nation, its gross national product would exceed that of all but a small number of countries.


 
Even with this enormous, staggering strength, Exxon and the other oil giants are not satisfied with being vertically integrated -- that is, controlling the flow of oil from the well to the gas pump. They also have become horizontally integrated by acquiring other energy resources, and now are racing pell-mell to gobble up remaining uranium, coal, geothermal, and oil shale reserves, or the independent companies which own these reserves. They are even expanding into solar energy, although control of the sun has eluded them -- so far.

There really is no competition within the oil industry. Exxon and the other major companies have a firm hold on the key elements in petroleum production and marketing. The top eight companies produce more than 54 per cent of crude oil, and more than 90 per cent of it is transported through pipelines owned by major companies, many times jointly.

More alarming in my view is the growing trend noted above, for oil and gas companies to control reserves of other energy resources. The chart below illustrates the control which oil companies are

establishing over coal and uranium. It shows that 14 of the top 20 holders of coal reserves are oil companies; of the top 20 holders of uranium supplies, 13 are oil companies. Overall, 24 oil companies hold 44 per cent of this country's leased coal reserves, and 62 per cent of domestic uranium milling capacity is in the hands of 5 oil companies.

Interestingly, however, many large holders of coal reserves such as Exxon and Texaco are not large coal producers. In fact, when oil companies purchase coal companies, experience has shown that coal production drops sharply. Thus, we see other energy sources being bought up but not developed -- held no doubt against the time when they can be used to maximize profits in an energy-starved nation.

We need energy divestiture now. And if what occurred in the past holds true in the future, divestiture and a turn in the other direction will be good for the nation, and might even be exciting for oil executives. Back in 1911, Standard Oil was broken up into 33 companies. Panic was abroad. Two years later, things had worked out well for everyone. A

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shareholder owning $600 worth of stock in 1911 owned in 1913 shares in divested companies worth $900. Some executives who were third vice presidents, going nowhere in Standard Oil, were having a wonderful time running their own independent companies, competing, innovating, and really experiencing the competition they had preached.

While total horizontal and vertical breakup of the oil companies may not happen for some time, Congress has taken some steps to deal with the problem they present. A bill which I introduced this session, H.R. 7816, provides that by 1980, if a company wants to lease any new public reserves of coal, offshore oil and gas, oil shale, or geothermal energy, it must be an independent oil or coal company. This would enable smaller companies to compete with the giants. If a company like Exxon wanted to get in on the act, it would have to spin off a producing division that would be eligible for oil and gas leases, but only if that division did not own assets in uranium and coal as well.

Another approach taken by a bill sponsored by Senator Edward Kennedy would restrict oil companies from expanding into coal and uranium mining and production. It is a modest proposal, since it would not prevent the large companies from expanding into solar, geothermal or wind energy, but it is a good beginning. We must take steps such as this to reestablish control by the people of this country over the natural resources which must be developed wisely for the good of everyone rather than for the excess profits sought by the energy giants. This is particularly true for those resources on the public lands which are owned by you and me.

THE COMPETITION REVIEW PLAN

Although I admit to being already pretty well convinced that we have too much economic concentration in the energy business, the situation in other industries is not so clear. That's why I propose the competition review approach. Various industries such as chemicals and drugs, iron and steel, motor vehicles, publishing and communications and others would be subjected to review by a special commission to see whether or not changes are needed to enhance competition and, if so, how best to proceed to make such changes. I suspect that any major realignments to decrease economic concentration would have to be made by statute; suits under existing antitrust laws go on for years and are generally unsuccessful in the face of monopolies buffered by expensive lawyers and unlimited resources.

The commission would, over a period of three years, examine these industries to see how they are performing, considering such factors as efficiency, innovation, social impact, price, and profit. For those that are operating well by such criteria, it would make little difference whether there are two competitors or

200, although in cases of doubt we should favor the latter. For those not performing well, the commission's analysis would show what particular factors contribute to the problem and would prescribe a set of remedies tailored to the specific conditions.

Such remedies would probably include revision of the tax code, with its unintentional bias towards centralization and concentration among industries. Perhaps we might need specific legislation to force divestiture of some companies. In other cases an antitrust lawsuit under existing laws might be enough. Present exemptions from antitrust laws may also need reexamination to see if they are meeting the intended purpose. In some manufacturing industries, we may need tax incentives or temporary direct subsidies to new companies entering the markets, while in other areas simple changes in the government's policy for procuring goods and services from corporations might help open up the market. The commission established by my bill would consider every kind of action which might help.

COMPETITION, REGULATION AND INFLATION

As I discussed in my 1975 American Bar Association speech, federal government regulation can lead to economic concentration. Anti-competitive policies are afoot in the federal government, most prominently in the regulatory agencies. In many of the regulated industries it is concentration, not competition, which gets protected and sometimes the regulators erect impenetrable barriers to a company which seeks to enter a field with lower prices and/or better products or service.

Price fixing and waste allowed by our own government through its regulatory processes contribute to inflation by forestalling competitive situations which could bring about decreased costs to consumers.

* * * * * * * *

To conclude, it is time once again, with the energy crisis looming ever larger in our lives and with the ever-diminishing supply of independence and open competition in our economic life, to make some fundamental changes to assure the continuation of our free and self-sufficient society. It is time to end this game of Monopoly in which there really are no winners

These changes will take us back to some very basic values which helped build our country: self-reliance, cooperation, sacrifice, and free enterprise. Making these changes will be difficult but by no means impossible. If our economic system is to survive, they must be made.

Paid for by the Udall Election Committee, Harry G. Karchmer, Treasurer. A copy of our report is filed with the Federal Election Commission and is available for purchase from the Federal Election Commission, Washington, D. C.


Previous Report: May 15, 1977 -- A Toast: To a Water Settlement
Next Report: November 30, 1977 -- "Solar Energy: A Ray of Hope"


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