INDUSTRY: The Bigness Bugaboo

“Public policy both on mergers and bigness should be one of keeping hands off.” Thus, before Stanford University’s 14th Business Conference in Stanford, Calif, last week, Harvard Economist Sumner Slichter took up the question of increasing bigness in U.S. business and explored it both from an economic and a political standpoint. Said Slichter: “The health of any organization, whether a business concern, a university, or a Government agency, is promoted by growth.”

Size & Efficiency. There was once a doctrine, fostered by New Dealers and pre-New Dealers such as Justice Louis Dembitz (The Curse of Bigness) Brandeis, that bigness kills competition, results in high prices, low production and shady business practices. This notion is untrue today, argued Slichter: “As a matter of fact, the reverse is probably true.” Because of their size, big companies are constantly in the public eye, watched over by competitors, suppliers, customers and Government officials. At times, big companies get advantages in the form of discounts and rebates because they have big orders to place, and occasionally they abuse their bargaining power.

However, said Slichter, “it must not be uncritically assumed that the ability of big buyers to drive bargains is antisocial. The supplier is saved cost by being able to produce and sell in large lots. Furthermore, the pressure put on suppliers by buyers stimulates efficiency.” If anything, big buyers probably get fewer rebates than they should. “Some large suppliers, fearful of violating the Robinson-Patman Act, probably refuse to give the big buyer as favorable differentials as he is entitled to.”

In most cases, concentration of production “appears to be accompanied by keen competition.” In a changing and uncertain world, “the only safe thing to do i to study consumer tastes and trends, to f ish research, and to strive vigorously to grew.” Mere size alone is no indication of how rapidly a company will grow. Between 1935 and 1953, for example, the giant U.S. Steel Corp. increased sales 397%, but smaller Bethlehem Steel grew 980%, and Jones & Laughlin 880%. In rubber, General Tire grew 1,225%, Firestone 750%, while the two biggest companies, Goodrich and U.S. Rubber, increased far less. “Certainly,” said Slichter, “the changes in relative size of companies indicate that the big concerns did not get together and agree on how the market was to be divided. They have struggled for larger shares, and some of them have been more successful than others.”

Mergers & Production. Economist Slichter saw little danger in the growing number of mergers. “As a matter of fact,” he said, “the number of mergers in recent years is small relative to earlier years.” In the seven years, 1948 to 1954, the FTC reported only 1,773 mergers v. 2,203 m 1928 and 1929. “Furthermore,” said Slichter, “the number of mergers is small in relation to the total number of manufacturing and mining concerns . . . only 12/100 of 1% as large as the total number of manufacturing and mining concerns.” Actually, said he, there are not enough mergers in U.S. industry today. “Many small companies and companies of medium size could advantageously combine. Their production costs would be cut, their ability to do research would be expanded, and their marketing organization would be increased in effectiveness.

“It would be a blunder to place some limit on the size of business enterprises. A limit would tend to defeat the purpose of the antitrust laws, which are aimed to preserve and encourage competition. A limit on size would weaken competition by preventing the largest concerns from striving to expand their sales, and would force them to do the very thing that we do not want them to do—namely, to attempt to make more money by raising their prices and limiting the volume of their sales.”