Has Small Business a Future?
WHAT DO WE MEAN BY PRESERVING SMALL BUSINESS?
By JAMES E. MURRAY, Senator from Montana
Delivered before Greater Cleveland Council, Smaller Business of America, Inc., Cleveland, Ohio, March 26, 1943
Vital Speeches of the Day, Vol. IX, pp. 473-477.
I NEED not tell you how much I appreciate the opportunity of coming before this organization of small businessmen to discuss a subject of paramount importance to the Nation—the future of small business in America.
It is particularly gratifying to me because I well remember the interest your organization has taken in preserving and strengthening the position of small business in our national economy. In 1940, you sent your representatives to confer with the Platform Builders of both major political parties, urging a national policy of support of small business. Both major parties in that year adopted planks making the preservation of small business enterprise a vital national aim.
Meanwhile public interest in the present status in the future of small business has been steadily increasing.
During the past fifty years, the whole world has seen a steady march towards the monopolization of industry and commerce. We all know what this trend has actually accomplished in some of the countries abroad. In Germany, the Government took the lead in the cartelization of her business and industry. That movement in Germany brought Hitler to power and laid the foundation for its present tyrannical totalitarian regime.
In America, long before the war, the rise of monopoly and the trend towards centralization of industry had already brought about the amalgamation of thousands of small firms into huge financial and industrial organizations. We were rapidly being converted into a Nation of big business. This trend did not come about as a natural evolution. As in other countries, it was fostered primarily by powerful financial promoters who took no heed of its economic and social consequences. Power and greed were the main forces behind the movement. It had become a common occurrence for promoters to clean up ten or twenty million dollars between breakfast and luncheon in these corporate manipulations and consolidations. In America, as in Germany, we were rapidly following the road to totalitarianism.
Many of our statesmen, economists and businessmen foresaw the consequences of this course. To prevent this trend.
long ago anti-trust Jaws were enacted. The enforcement of those laws, however, has been intermittent and at best has contributed merely to retard the growth of monopoly. Anti-monopoly enforcement alone will not arrest the trend toward collectivism. We must establish a fixed national policy against the further concentration of business and encourage a program of decentralization. The Nation must be thoroughly aroused against the danger of the collectivistic economy we have been building.
A few official figures might illustrate this point. By 1938, less than 5% of all the corporations reporting to the Government owned 87% of the assets of those corporations. One-tenth of one per cent. of the corporations owned 50% of the combined net income, while four per cent. of the corporations earned 84% of the total net profits.
The Temporary National Economic Committee of the United States Congress had delved into this question in a most thorough manner. In its final report, published in March, 1941, that Committee stated:
". . . most of the wealth and income of the country is owned by a few large corporations, . . . these corporations are owned in turn by an infinitesimally small number of people.
"the profits from the operations of these corporations go to a very small group, opportunities for new enterprises, whether corporate or individual, are constantly being restricted."
The general claim that centralization of industry raises efficiency in production has been found to be without foundation. The great mergers in this country have in most instances merely brought together diverse industries, which only added to the burdens of management unfamiliar with the special problems of the individual industries which they had absorbed.
Similarly, the claim that centralization is justified because it facilitates the development of new methods and inventions has been clearly disproved. The U. S. Patent Office statistics show that of all the patents issued between 1921 and 1938, 42.9% went to individuals and 34.5% to 17,571 small corporations. Thus individuals and small corporations accounted for 77.4% of all the patents issued within that period. Mr. Frank B. Jewett, President of the greatest laboratory of big business—the Bell Laboratories, Inc., confirms this finding in the following statement:
"Fundamental patents which mark big changes in the arts, are more likely to come from the outside than from the inside. I think, in the majority of cases, the chances are ten to one that the fundamental idea will come from outside the big laboratories."
It is commonly known that big corporations are quite often the graveyards of new discoveries and inventions. They resist change and progress and yield only to pressure from competitors. They often buy up new inventions in order to prevent the rise of competition which would force them to institute changes in their industrial establishments.
With the advent of the war, this trend toward centralization has been greatly accelerated. The larger corporations were well represented in Washington; the procurement officers of the Army, Navy and Maritime Commission had a high regard for these big concerns because of their engineering staffs and their plant capacities to absorb war contracts. It was much easier to deal with the big corporations than with a multitude of small ones. Therefore, when war orders began to flow, it was natural that they should go first to such firms.
By the end of 1942 we discovered that 252 firms had been awarded prime war contr
acts totaling about $67,400,000,000;that a single corporation, the General Motors Corporation, had received $7,251,000,000 in war orders; that sixteen big firms had been awarded each over one billion dollars in prime contracts.
Meanwhile, a shortage of raw material began to affect the small plants. There was not sufficient raw material for both war and civilian production. Civilian production was curtailed and in some instances, it had to be suspended altogether because war requirements had priority. Without war orders and without raw materials for the production of civilian goods, many of the 184,000 industrial units of our economy were faced with ruin. To this were added the problems of labor, rationing, freeze orders, etc., all of which greatly aggravated the conditions facing small business in general.
Instead of converting the smaller plants to war production, the Government, at the outset, was induced to embark upon an extensive program of plant expansion. By the middle of March, 1943, the Defense Plants Corporation had authorized the construction of new plants for the war effort valued at $9,175, 190,258, an investment corresponding to 90,000-odd manufacturing and mining companies of the United States in 1939. A similar program of expansion was financed by private capital.
This unprecedented expansion program called for great quantities of critical materials, manpower and skilled technicians. With the war demands mounting by the hour, the satisfaction of those additional requirements for the construction of the new plants and all the appurtenant devices and machines essential for their operation had to be accomplished at the expense of the civilian economy. This drastically affected the raw material requirements of the manufacturing enterprises engaged in civilian production. In due time, the plight of small manufacturing units was bound to have serious repercussions upon the situation of the wholesale and retail establishments. The flow of merchandise was gradually being reduced to a trickle; in some instances, it was suspended altogether. Stocks on hand began to grow shorter, and without much prospect for improvement, stores, especially in the hardware and similar lines began to shut down. Business generally was affected. What this might mean to our economy if permitted to continue, I need not review before an audience which is fully cognizant of its implications. When we consider that in 1939 there were about 1,600,000 small retailers and about 70,000 small wholesalers in the country, we can easily understand how many millions of lives are affected by this situation. What affects these small merchants in turn affects thousands of others who depend upon them for trade or services. Thus, whatever hurts one segment of our economy, inevitably proves detrimental to our economy in general. They are all links in one chain with the weakest link determining the strength of the chain as a whole.
Sensing the oncoming economic hurricane which was developing fourteen months before Pearl Harbor, I felt impelled to introduce a Resolution in Congress on October 8, 1940, providing for the creation of a Special Senate Committee to study and survey the problems of small business enterprises. The Resolution was finally adopted and this Special Senate Committee soon began to function.
I am happy to say that the members of this Senate Committee, Democrats and Republicans alike, have been working in perfect harmony towards our objectives. Your own state of Ohio is contributing in no small measure to the work at hand. Your Senior Senator, Honorable Robert A. Taft, has been one of the most active and constructive members on the Committee. He has been giving generously of his time and his recognized talents to help solve these serious economic problems. Your Junior Senator, Honorable Harold H. Burton, although not a member of our Committee, has also, from the very start, taken an active part in the task of preserving and strengthening small business. Our Committee has acted with unanimity on every problem thus far considered. A similar Committee has been set up in the House of Representatives under the able Chairmanship of Honorable Wright Pattman, and it has been equally effective in meeting this great national problem.
Much has already been accomplished, but much more remains to be done if small business is to weather the storm brought about by the conditions I have described, now greatly accelerated by the war. Time will not permit me to give you a detailed account of our achievements.
The work of these Congressional Committees has contributed greatly towards making the country small business minded. Both Committees are working in complete harmony with one end in view—the preservation of small business. The weight of an awakened public opinion and the constant prod dings of the Committees have forced the several national procurement agencies to recognize small business enterprise in awarding contracts. Thousands of small business enterprises throughout the country have already benefited from these activities.
Frequent Committee hearings have brought out many startling revelations, as you have no doubt read in the press. Until exposed by our Committee, in one Army Procurement District, for example, about 85% of all the war contracts were being received from Washington earmarked for a few large firms. Similarly, all uniforms for naval officers were ordered from two big manufacturers, to the exclusion of hundreds of smaller tailoring establishments which could have given just as satisfactory service. These conditions have been rectified, thus affording many smaller establishments an opportunity to contribute their share to the war effort and remain in business until fairer weather is with us once more. Similar efforts are being carried out in all areas of the Nation.
We have enacted legislation creating the Smaller War Plants Corporation to help distribute war work and finance small manufacturers able and willing to take war orders. This agency has been provided with a fund of $150,000,000 and full authority to take prime contracts itself and farm them out to smaller units. Of course, this was something new in the annals of our Government functions and it has taken some time to effectively launch its activities. However, it has already succeeded in aiding many small firms. It is now perfecting its field organization where small plants will be given consideration without having to run to Washington in quest of war contracts.
In this connection, it is only fair to say that the Army and Navy is now fully cooperating with the Smaller War Plants Corporation. They have themselves set up in their procurement agencies small business, units to cooperate with the Smaller War Plants Corporation and see that small plants are remembered when contracts are being awarded. From now on, we are looking for more tangible results from that source and with the aid of the new Chairman of the Corporation, Colonel Robert W. Johnson, an able and experienced executive, it is fair to expect that small business will be able to secure a greatly increased share of war work.
We have enacted legislation to help thousands of dealers and distributors, affected by rationing regulations, to borrow from the Reconstruction Finance Corporation on their stocks of merchandise or to dispose their stocks to the Corporation. This legislation was extremely beneficial to the thousands of automobile dealers of the Nation affected by the stoppageof automobile production and rationing of cars, as well as others affected by like conditions.
We have brought about legislation to remove, as far as practicable, the unnecessary burdens imposed by the multiplicity of forms and questionnaires sent out by Federal Agencies—an exasperating situation which was costing business very dearly in time and labor.
Quite a number of other measures are in process of legislative study. Our Committee is sponsoring legislation to create an administration of civilian supply. The importance of this proposed legislation is generally appreciated. The welfare of the people on the home front is vital to the successful prosecution of the war. Without the wholehearted effort of our workers in the mines and factories sustained through the efficient maintenance of our civilian life, our Armed Forces would be crippled.
This is a war of production. We are faced not only with stupendous production schedules for our own men, but for our gallant allies who are with us in this fight to a finish for the preservation of human liberty and dignity. A subcommittee on Mines and Mining, which I recently appointed, will soon introduce a Bill to bring about an expansion in the production of metals and minerals essential in the war effort and also in our civilian economy.
During the past nine or ten years, scores of Bills were introduced in Congress to provide equity capital for small business. Thus far, no legislation has resulted. Now one of our sub-Committees is preparing a comprehensive Bill based on the principles underlying the Federal Housing Act to provide long-term loans for small business. I am sure this will prove a most helpful measure in preserving and fostering small business enterprise.
Another sub-Committee is formulating legislation to prevent big manufacturing and wholesale tire dealers from monopolizing the industry in the field through branch houses and agencies. If enacted, this measure will help retain the tire business in the hands of the small independents.
In the course of the administration of the Act creating the Smaller War Plants Corporation, certain weaknesses have been disclosed. We are now preparing amendments to strengthen that measure and make it more effective and serviceable to small business enterprise.
Our Committee has been acting as liaison for small business enterprises in their dealings with the procurement agencies, the War Production Board, the Office of Price Administration and all other Government Agencies whose functions are affecting their existence. We have been instrumental in directly aiding many such smaller units of our economy to secure war contracts when they were about to close down through the exigencies of the war.
Our Committee has published many reports of its activities which have found wide circulation throughout the country. I must give the American press full credit for its splendid cooperation in giving wide circulation to our findings and our reports. The Committee and I personally appreciate very much this valuable service and patriotic effort on their part.
When the term, "small business," is mentioned, many people think of the comer grocery store and wonder what all the shouting is about. If that store should disappear as a result of the war, many people think, no great harm will befall them. When we use the phrase, "small business," some people are led to think that since it is only small business it is not worth while losing sleep over it, much less to make an effort to actually preserve it
Few of those who think in that vein realize that what is commonly called small business is in reality the largest segment of our industrial and distribution economy. In myvernacular, the term, "small business," means any business which is genuinely engaged in competition with others in the same line and is not a part of a monopoly group or does not control a substantial volume of trade in a given industry. This applies to business units in the manufacturing as well as distribution business.
Statistics as of July, 1942, indicate that business enterprises with a tangible net worth in excess of $20,000 accounted for 9.7 per cent. of the total number of business organizations in our whole economy, while the so-called small business represented 903 per cent. These figures prove the relative importance small business is playing in our economic system. It is the most truly and effective competitive section of American business.
The enlightened big business executive of today is not unmindful of the dependence of the larger organizations upon the smaller business units for their welfare. Many big enterprises find an outlet among the smaller manufacturing plants for their semi-finished products, and as for distribution, most of them are practically entirely dependent upon small business.
Testifying before the Senate Committee on Small Business some months ago, Mr. Philip B. Reed, Chairman of the General Electric Company, said:
". . . if small business goes, big business does not have any future except to become the economic arm of a totalitarian state, such as is the case in Germany and Italy . . . Out of flexibility, the vigor, and the competition afforded by small business comes the constant spark that has made free American enterprise one of the great progressive forces in the struggle of man for mastery of the physical universe. . . ."
If such an attitude had predominance in the past among the big business interests of America, there would have been no need for Congressional Committees to deal with small business problems; there would have been no problems. Unfortunately, his is one of the voices in the wilderness. For fifty years, big business has allowed itself to be used as a vehicle for ushering in collectivism in the United States.
From another source, from the mouth of big finance, there comes another acknowledgment of the importance of small business not only to our economy but to our very existence as a free Nation.
"The perpetuation of these small business plants and other small businesses," wrote the Index of the New York Trust Company,
"is of national import, because small business has long been considered a bulwark of the American system of free enterprise.
"Successful operation of small business throughout the Nation is generally accompanied by a diffusion of economic power, normally gives to both producer and consumer a wider latitude of choice, and insofar as it affects political power, helps to make possible the continuation of civil liberties."
There is another voice—the voice of the monopoly and cartel group. That voice is now silent. The war is on, and while our boys are shedding their blood on distant battlefields to the end that our liberties and freedom may remain with us for all time, it might be construed as unpatriotic to advocate at this time further centralization of economic power and influence. However, in certain quarters they yet make themselves felt quite perceptibly.
In years past, we have heard a great deal about the need for more business in Government and less Government in business. This propaganda has been quite effective.
We have had more business in government all right butit has been big business and the result has been disastrous to small business. It was big business in government that permitted and fostered the rapid centralization of business in this country during the decade following the last war. It was big business in government that slowed down the enforcement of anti-monopoly laws and brought on the inflation and Wall Street collapse of 1929. I think it can be charged, also, that big business influence in the various war agencies in Washington contributed to the concentration of war orders in the hands of big concerns and brought about much of the costly plant expansion at government expense while completely ignoring the capacity of small plants to help in the war work.
I must confess that the present administration in Washington deserves much of the criticism which has been leveled at it in permitting the war production program to be controlled almost exclusively by big business interests. We have bowed too much during the past, and particularly during the present war, to the big business executives of the Nation. They must be held responsible for some serious mistakes, such as the failure to properly plan for essential production of steel, of synthetic rubber, of strategic and critical minerals and other scarce raw materials.
I do not condemn big business indiscriminately. Many of our big industrial institutions have made almost miraculous contributions to war production. If big business can be big, efficient and successful on its merits, there is no basis for criticism.
I do condemn big business, however, for seeking to stifle the institution of free competitive private enterprise—for trying to gobble up everything—for entering into monopolistic agreements and cartels of foreign nations designed to freeze out small concerns, raise prices and restrain production in this country, and which, incidentally, has had a serious effect on the whole war effort. I condemn big business for seeking to strangle competitors in the home market and for creating some of the serious social problems in the big industrial centers of our country resulting from greedy collectivistic policies. Big businessmen generally must begin to see more eye-to-eye with men like Mr. Reed of the General Electric Company, whose utterances I have just quoted, announcing the truism that, "if small business goes, big business does not have any future except to become the economic arm of a totalitarian state, such as is the case in Germany and Italy." These are the forces against which we and all the other freedom-loving peoples are arrayed—this is what we are determined to stamp out in the international arena, and are equally determined to prevent its taking hold in our country.
Big business must be brought to see that by endangering our system of private, competitive enterprise they are also imperiling their own existence. If their policies are carried to their logical conclusion, it will mean that eventually totalitarianism will be the fate of this country. Whether it be brown, black or red makes very little difference. The freedom which the founders of this Republic had established for us and which made it possible for us to grow rich and prosperous and the world's greatest influence for human welfare will be no more. That, I am sure, is not what the vast majority of Americans want. That, I am equally certain, is what Americans will never permit to happen here.
That is why we, in both Houses of Congress, are unanimous in the resolve to fight totalitarianism abroad and stand guard over our cherished institutions at home. That is why I am confident the Nation will stand back of the Congress in this struggle to preserve the true character of free, private competitive enterprise, which has afforded our American people an opportunity for expressing themselves freely in therespective fields of their choice. Such people will never submit to the dictates of economic feudalists, whether they be of domestic or foreign origin.
Whoever helps maintain free and untrammeled smallbusiness is therefore helping the cause for which we are now locked in mortal combat with the would-be enslavers of mankind.
I thank you.