21. "Break "Em Up"

21. "Break 'Em Up" The Antitrust Division has launched on the mass pro duction of breakup suits against leading American com panies. The outcome is about as certain as that of a game of billiards playeq by a man using a lopsided cue and an elliptical ball on an uneven table. No one knows how long the cases will take, nor how many more will be brought, nor whether other companies will take their cases to the public as A&Phas done and what the out come of that would be if they did. Following are some of the leading" divorce, divestiture, and dissolution" suits already brought: To-divide the four leading meat-packers (Armour & Company, Swift &Company,-the Cudahy Packing Com pany, and Wilson &Company, Inc.) into 14 "separate and competing" companies; To force the American Telephone &Telegraph Com pany to sever relations with its manufacturing company, the Western Electric Company, of which it owns' 99 per cent, and to break up Western Electric into three competing companies; To require that the General Electric Company dis pose of half of its Lamp Department; To break up the A&P system both vertically and horizontally, separating its manufacturing and its buying departments from its retail department and breaking 164 "BREAK 'EM UP" 165 up its retailing division into seven independent geo graphical divisions; To cause seven leading major integrated oil companies, on the Pacific Coast to divest themselves of their market ing assets and operations and to operate their transporta tion facilities as public utilities. (Attorney-General J.

Howard McGrath stated, shortly after the suit was filed, "We're going to file similar suits in other regions, probably without waiting for a decision in the case here.") The Department of Justice has also been reported preparing to file suit to compel the United States Steel Corporation to divest itself of various subsidiary com panies which mine ·coal, operate merchant ships, and fabricate steel. Presumably these suits are the result of the Supreme Court's recent favorable decisions, in several cases, in which it indicated at least partial dismemberment of the defendant company,! coupled with the Alcoa case (single company), the Tobacco case (three companies), and the Circuit Court's decision in the A&P case. What ever the sources, an Assistant Attorney -General has repeatedly said that he believed the Antitrust Division already had power, under existing interpretations of the Sherman Act, to break up the Big Three's and Four's of industry.

As the law is now interpreted, no antitrust lawyer appears willing to guess who next may be attacked. The new legal concepts of "exclusion," "conspiracy," "in tent," and "monopoly" are now so sweeping that prac tically any large business appears likely to be found guilty anyway whenever the Antitrust Division might bring suit for divorce, divestiture, and dissolution. Moreover, something further has been added to anti166 "BREAK 'EM UP" trust history. Until recent years the Antitrust Division rarely asked for divestiture as a penalty and it was even more rarely granted. It generally asked for fine and imprisonment and,got a fine. (The company of course also suffered damage to its good name, plus court costs, danger of treble-damage suits, and so on, even though it had abandoned the illegal practice some time before.) The idea generally was "make the penalty fit the crime." Now, however, the Supreme Court has shown in a number of cases that it will grant divestiture much more frequently. In the Schine case 2 it said, "... We start from the premise that an injunction against future viola tions is not adequate to protect the public interest. If all that was done was to forbid a repetition of the illegal conduct, those who had unlawfully built their empires could preserve them intact. . .. Such a course would make enforcement of the Sherman Act a futile thing unless perchance the United States moved in at the in cipient stages of the unlawful project. For these reasons divestiture or dissolution is an essential feature of these decrees."

So it looks as though Antitrust will, after this, ask the Court for divestiture in an increasing proportion of its cases. To sum up the situation, Antitrust is (1) bring ing more cases; (2) winning a larger percentage of them; and (3) appears likely to ask for divestiture in a larger percentage of its victories. All this means that the Supreme Court has given the Antitrust Division of the Department of Justice an extraordinary power over the leading American firms. The Department decides first whom to file suit against; then, when it wins the case, it practically decides how the losing company is to he broken up. In a divestiture case, the Supreme Court eventually "BREAK 'EM UP" 167 leaves·the businessof making the final order to the lower court. But lower court judges are busy. They turn the matter over to. the antitrust lawyers and the de feated company lawyers to work it out. Since the judges cannot be economists as well, they have little choice but to tum over the general economic principles of the breakup to the antitrust lawyers.

The government lawyers have an almost limitless choice of forms in which to demand divestiture. They can divide a company "horizontally," "vertically," or both, and in varying proportions. In the General Elec tric lamp case, they set 50 per cent of the company's business as the amount it should drop. This was jotted down by some antitrust lawyers in New York as one more clue to the inscrutable mind of the Antitrust Di vision economists. Perhaps they picked it out of the air. Congress has laid down no rules or principles con cerning how a company should be broken up-let alone as to why it should be broken up. The Supreme Court has given Congress many broad hints on issues which some of its members, at various times, have felt Congress ought to decide (and not leave to the Court). Many were given in Chapter 2 of this book. The majority in the Columbia Steel case, in an other instance, said, "It is not for the courts to determine the course of the Nation's economic development....

If businessesare to be forbidden from entering into dif ferent stages of production that order must come from Congress, not the courts." 8 Justice Jackson, in the Standard of California case,4 said, I regard it as unfortunate that the Clayton Act submits such economic issues to judicial detertnination. It not only leaves the law vague as a warning or guide, but the judicial 16H "BREAK 'EM Up't process is not well adapted to exploration of such industry wide, and even nation-wide questions. Were Congress to look into this matter, it \vould have to consider three major and quite different questions. First, it would have to consider whether the Court was wise, in the Schine case, in saying that "an injunction against future violations [of the Sherman Act] is not adequate to protect the public interest." If it were wise, then practically any company found violating the Act is subject to divestiture. If it were not, then Congress might well try writing a statutory definition of what kind of violations in what kind of circumstances should be followed by an order of divestiture.

Secondly, Congress might define what categories of companies ought to be amputated or broken up. Should they be defined by mere size and, if so, size of assets, or volume of sales? Or should this be made different for different industries? And what should be the limits on size? Should the offense be measured by a com pany's importance in its industry? If so, should the test be position in the industry (largest, the two largest, three, four or 20 largest?), or by percentage of the in dustry (and if so, what percentage?) ? And how define industry? All of these measures have disadvantages. A limit on mere size would make for fewer companies large enough to take sizable technological risks, or to invest in basic or fundamental research. On the other hand, the breakup of the first, or first two, or first three companies, in an ind:ustry might be like requiring the railroads to take off all the front cars from their trains.

There would still be front cars-and largest companies. Perhaps most clearly dangerous would be to limit the proportion of the assets or sales of an industry that any company might control. Cartels do that. The Wall Street Journal has commented~ "BREAK 'EM UP" 169 [Under] such conditions why would U. S. Steel be inter ested in cutting prices,assumingit had all the businessit could be allowed to do? . ... And if the largest factor in the . . . industry were [thus] removed from the competitive race why would the other producers deem it necessary to hustle themselves . . . ? To make such a limit in the name of promoting competi tion would seem fatuous. The Sherman Act would come round full circle and meet itself head on. The third thing which Congress would need to con sider about the dismemberment of corporations would of course be an aspect of the same question: what is the ideal length, breadth, and shape of the Procrustean bed on which they are to be measured. In this case, Congress would be dealing in lninimums instead of maximums.

To what minimum ·should the antitrust lawyers be per mitted to reduce American industry? Here again, the danger of weakening competition in the name of strengthening it would come up in as just an acute form. For instance, there is nothing in the law today to prevent the antitrust lawyers, once having won a divestiture decree, from (a) breaking A&P down into 5,000 separately owned stores; (b) breaking the u. S. Steel down into individually-incorporated mills; (c) breaking oil refining down into pressure-and-thermal cracking, catalytic. cracking, fractionating, condensing, and boosting plants. In fact, there is nothing in the law on the subject anyway-"period." Even the onset of such legislation would probably discourage many expansion programs and new develop ments. The effect would be like the natural reaction of the du Pont management to Antitrust's suit against du Pont for "monopolizing" cellophane. The huge, new expansion programs of the big steel companies to de velop new ore and taconite reserves ,,,ould have to be 170 "BREAK 'EM UP"

re-examined carefully, lest in the future they become retroactively illegal. The possibility that Congress might authorize the dismemberment of large "conglomerate" companies (like General Motors, which makes cars, re frigerators, and Diesel locomotives) might not· cause GM to quit research on Diesels, which it introduced to the railroads some years ago. But it certainly would cause GM to think twice before launching another such venture not obviously related to the automobile business. This in turn could be embarrassing to the national defense, as many of Antitrust's trust-busting activities were to the national defense program ten years ago, until they were headed off in 1942 by the Smaller War Plants Corporation Act.. Hence~ as stated at the be ginning of the chapter, the outcOITle of the present Sherman Act divestiture program of the Department of Justice, is about as uncertain as the prospects of a man playing billiards on an uneven table with an elliptical ball and a lopsided cue.