The Future of American Capitalism
BEWARE OF PARTNERSHIP BETWEEN GOVERNMENT AND MONOPOLISTIC BUSINESS
By WENDELL BERGE, Assistant Attorney General of the United States
Delivered before the Advertising Club of New York, May 31, 1944
Vital Speeches of the Day, Vol. X, pp. 531-534.
AMERICA'S industrial future will be determined largely by the type of measures which we adopt in the postwar period to achieve an expanding economy. Accomplishment will depend upon general understanding of our objective, and a clear grasp of the means necessary to make a capitalistic economy function successfully in the modern world. Attainment of lasting prosperity without drastic alteration of our way of life cannot be expected unless we have a firm conception of the capitalistic principles on which our economy is based.
American capitalism today faces a challenge. The American people are fighting in this war not only to preserve their own freedom; they are also fighting for a future in which there must be full employment, full production, and the assurance that all people shall have opportunity to build for themselves and their children a more abundant society.
Other systems have been held forth as a better way of life. It is claimed that a managed economy would offer stability and security. We may ask at what price. It can only be answered that a managed economy would ultimately be forced to deny businessmen the right to invest according to their own best judgment. It would have to direct businessmen what goods or services to produce, what quantity they should market, and what price they should charge. It would force labor to be tied to its status in a particular job. No Thomas Edison or Andrew Higgins or Henry Kaiser would emerge.
We have seen what has happened in other quarters of the world. Let us not delude ourselves. If American capitalism in the postwar world is prevented from fulfilling its promise of full production and full employment, the danger that we shall have a rigidly-controlled economic life forced upon us will become very real.
What is capitalism? Capitalism is the theory and practice of competitive production in a free market. The right to enter an occupation or to start a business, to invent and develop new products and new devices is the heart of economic democracy, and the essence of capitalism. When the arteries of enterprise are constricted by monopoly, private enterprise cannot function, and the entire economy falls victim to a series of maladjustments that cannot be solved short of vigorous government control. Over an extended period this control is inconsistent with the maintenance of what we think of as "capitalism."
Capitalism is a system of reward for enterprise and a promise of return for risk. It is a system of profit, but it is also a system of loss. Those who enjoy the opportunity for gain are expected to assume their rightful responsibility; in other words to take a chance, and to accept the occasional penalty of loss in the spirit of enterprise. Capitalism means equal opportunity and the guarantee that none shall be barred from the market place.
Monopoly is the greatest threat to the survival of true capitalism. For this reason it is important to affirm that capitalism does not mean—in fact, it rejects—the right of private monopoly to stifle enterprise. Vested monopoly interests must not bar the emergence of new business. It is not, in fact, consistent with the maintenance of a capitalistic system for either government or private monopoly to prevent the development of new industries in order to protect the old. Nor will our system work if we permit combinations to dominate the market, to fix prices, or to restrict production. Basing-point systems, restrictive patent pools, closed-market agreements, cartel agreements which cut off free trade among nations, tariffs which cater to special privilege, feather-bedding rules by labor unions—all of these are anti-capitalistic devices. They represent the most serious threat to a free capitalistic economy. No other system for organizing production places such a premium on flexibility or provides such stimulus to the introduction of new ideas, new industries, new goods and services. No other system offers such incentives to efficiency or emphasizes so completely the concept of service to the public.
The scope and magnitude of America's achievement in war production is an unmistakable index of our capacity for growth. The tremendous energy and determination which inspired and made possible the fulfillment of our war needs are equally available for the tasks of peace. It is the joint problem of government, industry and labor to unleash the incentives and to keep clearly in sight the goals which will maintain the levels of employment and production attained during war. Indeed, there is every reason to believe that this nation can surpass in time of peace its accomplishments under the pressure of grim necessity.
In the United States the choice we make between economic philosophies may well decide the future of democracy. If we extend governmental planning to all branches of economic life, or if we permit private planning to freeze the pattern of industrial concentration and control, we shall surrender the chance to attain economic democracy. Once economic freedom has been eliminated, there is no turning back, and democracy itself becomes a shadow without substance.
We stand on the threshold of some of the greater technical and scientific developments of modern history. Light metals, plastics, vitamins, television, new chemical and electrical techniques are all in their infancy. Air transport, housing developments, and the improvement of national health will provide an insistent demand for the output of these new materials. The slums of country and of city alikecan become an unpleasant memory if new materials for housing are made available in a competitive market. The most provincial area can possess the advantages of the great metropolis through radio, television, and electric power.
This future will not be won without effort. If scientific development and economic progress is nullified by a system of cartels and monopolies or by rigid government control, we shall delay and may lose the opportunities which will be opened to us at the end of the war. If discovery is to be translated into a more abundant life, the way to enterprise must be guarded as we guard our civil liberties.
How does it come about that business, or government, or labor in a supposedly free economy becomes afraid of change, fearful of any alteration of the status quo? To some extent, short-sightedness, a trait common to all of us, is responsible. Fundamentally, however, it is the all too human desire to escape the risks of enterprise without giving up its rewards. It is the quest for relief from the trials and dangers of competition. But thus to limit and hedge around the right to enterprise affords only a deceptive security, an illusory safety. The periodic depressions and the social shortcomings which critics emphasize as the inevitable products of capitalism are not at all inevitable. They are the result not of the system but of its abuses. They are the consequences of attempts to escape the responsibility which freedom of enterprise imposes.
If we examine closely the instruments of capitalism, we find that they are designed primarily to initiate experimentation, to spur efficiency, and to promote progress. They are not designed to entrench vested interest, to stabilize control of the market, or to safeguard the status quo. Like every other instrument or institution, they can be abused, as they have been abused, to defeat the purposes for which they were intended.
Thus, the modern corporation in its origin was intended to facilitate enterprise by dividing risks, limiting liability, and encouraging the introduction of new capital into the market. As an instrument, the corporation may be used or misused. In its proper orbit, the corporation has served this country well. Too often however, the corporation has been diverted from its original purpose, and as a consequence we have witnessed in recent years the increasing concentration of ownership and control of vast sectors of industry through the corporate device.
Similarly, the patent system was designed to promote progress, to encourage invention, and to protect and reward the inventor. Yet through patent pools and cartel agreements we have seen the stifling of research, the delay of new industries, and the suppression of the small inventor and businessman. It is not enough to say that such abuses are illegal and should be penalized. Business itself should aid in the elimination of these abuses.
The price system is the keystone of a competitive market. It is upon the free and flexible adjustment of prices that the effective operation of an enterprise economy primarily depends* Here again the frequency and the extent of abuse, the degree to which many prices and price levels are fixed or administered by monopoly, create an almost insurmountable obstacle to the working of a free market. It is basic to the concept of a free economy that there shall be no domination of the market regardless of the means by which such domination is achieved. In this respect, there is no question that the growth of monopoly and tie acceptance of restrictive practices have jeopardized the foundations of our economic way of life.
American capitalism must, if it is to go forward in the post war world, meet with resolute courage, initiative, and resourcefulness the changed conditions with which it will be faced. In the early years of this country, American enterprise accepted the challenge of undeveloped resources and created the strongest productive system of any country in the world. The mainspring of the growth of the American economy was freedom of enterprise. America was in the vanguard of the movement to release industry from the shackles of feudalism. Men did not need permission from the Crown or from a paternalistic government to move from one corner of the nation to another, or to enter one trade or another. Products, too, could be bought and sold wherever there was the most advantage. Coal mined in Pennsylvania could be transported to any point in the country where it could compete in quality and price with the output of local mines. The oil of Texas could furnish power, light and lubricants to the industry of the East. It was a cardinal tenet of American capitalism that there must be no obstacles erected to the movement of trade within our borders. Industry grew with the national market, and the wealth of our nation increased correspondingly. No governmental agencies determined the production and allocation of goods. No permission was required to risk one's capital. America overcame the threats of sectionalism and as a consequence developed into a united economy and a united country.
At the end of the present war, American capitalism will face the greatest opportunity as well as some of the greatest difficulties which it has had to encounter in its history.
What are the conditions which capitalism will find at the war's end ? The conclusion of the war will find an enormous productive plant. The enlarged capacity to make thousands of products, such as aluminum, magnesium, plastics, synthetic rubber, steel, medicines, airplanes, electrical equipment, now staggers the imagination. Hitherto backward areas have now become industrialized. Opportunities inherent in the rebuilding of a war-torn world will beckon to our businessmen.
But we will also emerge from the war with a national debt unprecedented in history, bringing with it a tremendous problem of taxation. Small businessmen will find themselves with inadequate financial reserves to cope with their postwar difficulties. There will be reluctance on the part of certain groups seeking special privilege to abandon the practices of a controlled economy once the need has disappeared. There is a possibility that certain portions of the world will remain under the influence of cartel groups posing problems for American businessmen anxious for world trade. It may be too much to expect a world free from the obstructive influence of tariffs.
What can be done to keep our economy from following the twin-mirages of "self-governing" monopoly and government control of business? Considered as a question of policy and as a program, certain principles emerge from the confusion which surrounds our current economic thinking. It seems to me that we should move in the following directions:
First, The present controls of government which have regimented and welded us into a wartime economy must be removed as soon as possible after the peace. To delay beyond the period of necessity is to invite their perpetuation.
The American people are well aware of the danger represented by a cartelized economy in which monopoly and power-hungry groups seek to control economic and political life on a basis of privilege. The experience of Germany in recent decades demonstrates ail too clearly the vicious results of a union between cartels and paternalistic government.
The keynote of a monopolized economy and a feudalistic political regime becomes suppression. No competition is permitted. Those who exercise their initiative are considered bootleggers, chiselers, and finally become outlaws. Once competition is eliminated, there is only a short step to the suppression of free speech and the right to criticize. A society so constituted can endure only by a reign of force. The Nazis achieved power by terrorism and could maintain themselves in power only by military aggression.
It is in the postwar world that American capitalism, in fact democracy itself, will meet its most serious challenge. To win this war we have had to suspend many of our fundamental economic liberties. We must make sure that they are merely suspended, not lost, otherwise the dead hand of priority, allocation, and price control will reach beyond the peace. To remove its grip will require the combined strength of government, business, and the public. If it is not broken, paternalism will follow. Paternalism of any brand, be it public or private, would in turn give us a rigid economy, which in time would crack wide open under the stress of social change. Like the monopolist, the bureaucrat cannot afford to take risks. Both must play safe, which economically leads to stagnation.
It is recognized, of course, that some controls during the transitional period are necessary. In general it seems that necessity continues only as long as there are vital shortages and only in the fields where shortage exists. When scarce materials cease to be scarce, there would seem, as a general rule, to be no further need for transitional controls.
Second. The new technology developed by this war must be made available to peacetime industry. A free technology is a key to progress. Inventions developed by public funds in this war must not become the private preserves of monopoly groups. The results of this research must be made available to returning servicemen and to youth generally, so that free enterprise can be more than a pious hope to them. If necessary, the government should develop its own industrial research facilities, as it has done so extensively and so fruitfully for agriculture, and make the results available to all, including small and large businessmen.
Third. Plants constructed in wartime must not be ploughed under in peacetime. The large productive capacities which we have created must be utilized to advance our standard of living and maintain our national income. This will be absolutely necessary if we are to maintain a national income which can carry a national debt load of from two to three hundred billion dollars, if we are to find jobs for the returning servicemen, and if unemployment and sectional dislocation is to be avoided in the transition from war to peace. The small businessman must receive primary consideration in the disposition of government plants and surplus war materials.
Fourth. Credit must be made available to small business. Small business unavoidably has found the going rough during this war. The postwar period will find it without the reserves available to larger units. Since small business is in many respects the most vital part of our economy, we must see that credit is made available to it on liberal terms.
Fifth. Taxation incentives should be given for the launching of new enterprises and for the expansion of existing plants. Taxation must not discourage venture capital and productive investment. We must recognize that a steady stream of new investment is necessary to an expanding economy.
Sixth. Internal trade barriers among the states and between sections must be removed. The discriminatory freight rates which have burdened the South and the West and hampered their development must be eliminated, as must other restrictive transportation practices, and also certain state legislation which thwarts the policy of Congress in fostering the freest passage of goods in interstate commerce.
Seventh. International trade should be encouraged. The Reciprocal Trade Agreement policy of our government should be promoted. Tariff barriers should be lowered or removed wherever possible. Cartels, which are in effect privately-erected tariff barriers, are illegal, and must be completely abolished. Worldwide trade will not only make people in every corner of the earth richer, but will give the people everywhere a vested interest in maintaining peace.
Eighth. Patents must be made to promote the advance of science and the useful arts. We cannot tolerate the use of patents to block off and fence in whole sectors of our technology. At the same time patent protection must remain as an incentive to the individual inventor and the businessman. The patent system should remain, but its abuses should be uprooted. Research developed in Germany for the purpose of making war on us should be made available for general use by the people of the United States.
Ninth. Labor must have the right to collective bargaining. In its own interest it should not attempt to prevent the development and introduction of new inventions and techniques or to join with industrial groups to fix prices and production quotas. In the long run, labor is the principal beneficiary of technological progress because as its productivity increases its standard of living rises. Social security and unemployment insurance programs, if wisely conceived and administered, are not only consistent with capitalism but will promote and assist its successful functioning. They should be encouraged.
Tenth, The government should properly develop public works and projects of the TVA variety, not only as emergency measures, but to provide additional opportunities for free private enterprise. The TVA has opened up an entire region for industrial investment and develpoment. Business ventures of every type are now flourishing in that area. The continuation of the policy represented by TVA and similar long-range public works projects offer constructive support by government to private initiative and full employment.
Finally, there should be vigorous enforcement of the antitrust laws. It is equally to the interest of the businessman, the worker, and the consumer to see that these acts are applied, no matter what political party is in power. This series of acts reflect the free enterprise spirit of America. This support should be more than lip-service. In its own interests, business should insist on the enforcement of the antitrust laws.
The foregoing is not presented as a complete or exclusive program for preserving the essentials of economic freedom, but I think it represents some of the principal aspects on which we should concentrate. If we fail in such a program, then inevitably government direction of all major phases of economic life will become the order of the day. Much as we dislike it, there is no apparent alternative to permanent government control if private enterprise fails.
What I have heretofore said is not directed against necessary government action in times of crisis. We have all seen instances of necessary government intervention during emergencies such as the depression a decade ago. Such intervention, of course, is inevitable and appropriate if capitalism fails to meet its responsibilities. People cannot be allowed to starve or go homeless. But the crises that call for drasticgovernment intervention can be avoided in most cases if we will cultivate the policies that make for the broadest measure of economic freedom. Private enterprise should not fail if it really is given a chance.
What might seem strange is the fact that the pressure for continued government control after the war will come from monopolistic business itself. And yet it is not so hard to understand. The monopolist wants an ordered and a secured market. He wants to know with certainty the amount of goods he can sell, where he can sell it, and the price. He wants to know that he will be protected against the competition of new processes and new enterprises. In other words, he wants to be protected against risk. Much of this protection he seeks to acquire through private agreements; but to the extent that he can get government to rationalize and guarantee his position, the monopolist feels that he is additionally secured. Many monopolists would prefer the protection of government to the perils of competition. They would prefer to take their chances on the outcome of conferences with government officials, to what they might get in the rough and tumble of the free market place where they would have to pit their strength against vigorous competition.
Hence, many of these monopolists today are urging what they call a continued partnership between government and business after the war. What they really hope for is a policy that will result in government approving and condoning monopolistic practices. But what they should know is that in the long run such a program will inevitably mean strict government regimentation of all business—government direction of business in the minutest detail by a mammoth bureaucracy. And this will signalize the permanent disappearance of our economic and political freedom.
If we see to it that the rules of a free economy, which are also the rules of- capitalism, are permitted to operate, the position of the United States in the world economy and the welfare of its people will most certainly exceed the performance of the past and justify the sacrifices of the present.