2 Enterprise Eclipsed

It is the determination of our people not only to gain victory over the military power of aggressors, but to establish securely the lasting conditions of peace. We know that beyond victory we shall have to face a multitude of perplexing economic problems. We must also realize that we shall meet new dangers to those free institutions on which our national economy is based. If the problems of peace are to be solved, we shall have to come to grips with these difficulties in the same spirit of resolution with which the war has been waged.

It seems abundantly clear that America can never have a foreign policy based on the principles of democracy and international good will as long as international trade is dominated by cartels. It does not seem possible that the Atlantic Charter, the Good Neighbor policy, and the reciprocal trade pacts can effectively prevail if the special privileges of cartels dominate trade and politics in the postwar world.

In many respects cartels form one of the central issues of the present period. The greatest threat to our success in achieving full production and full employment at home, and friendly cooperation with other nations abroad, is the philosophy and practice of privilege embodied in cartels. If there is to be a free and productive economy in the United States, or a free exchange of goods in world markets, the power of cartels must be broken.

It is essential to understand that cartels seek to divide and rule world industry on the basis of economic privilege. If cartels are successful in gaining a foothold in the postwar period, it will almost be impossible for this nation to maintain a high level of peacetime production or to cooperate in the reconstruction of world trade.

In general, cartels restrict rather than promote trade. Cartels typically engage in such practices as dividing fields of operation and market areas between members so as to eliminate competition, restricting production by agreement, and fixing prices so as to avoid price competition. They also promote various kinds of patent licensing contracts which enable them to control and limit the use of new inventions and thus restrict the benefits of technological advance. The effects of these practices include reduced production and employment, higher prices and profits, retarded spread of technological improvements and a lower standard of living.

The conduct of cartels before and during this war has been one of the tragic pages of our history. The shortages of aluminum and magnesium resulting from cartel restrictions forced us to strip the kitchens of America and scar our public squares with scrap piles. The scarcity of rubber is a never-ceasing threat to our productive effort. Our armed forces plead with us to contribute our binoculars. The lack of vital drugs and medicines has jeopardized our men fighting in fever stricken areas. In fact, almost wherever there was a cartel there was a shortage.

But cartels have an even more serious aspect. These private governments threaten the sovereignty of democratic nations. The political implications of cartel activity threaten to subvert future national public policy of the United States.

There is a close relation between a country’s economic policies and its foreign relations. It is generally recognized now that economic freedom cannot be attained at home if private groups are permitted to acquire monopoly power over industry. Likewise, it must be equally recognized that friendship and cooperation between this country and other nations cannot be established without the free exchange of goods and services. Reciprocal trade treaties and good neighbor policies can have little effect if private cartels can shut off American markets to foreign producers or prevent American producers from selling abroad.

The Good Neighbor policy is one of the fundamental principles of our relations with Latin America. While our Government was bending every effort to bring about the conditions of sound and mutually advantageous cooperation, cartels were systematically undermining these efforts. Latin America was turned over by private cartels as a colony to hostile foreign interests. By giving German industry virtually a free hand in Latin America, and by agreeing not to compete, American cartelists made possible the creation of a German sphere of influence. Nazi propaganda, espionage, and subversive activity all stem directly from this unhampered German penetration. When South Americans sought to purchase drugs, metals, precision equipment, and munitions from the United States, private cartel treaties had already provided that American concerns could not engage in this trade. Not only was the healthy development of South American trade and industry checked, but even today we struggle desperately to overcome the political consequences of cartel activity.

We have long cherished the principle of open covenants openly arrived at. In fact, this policy is an essential part of America’s conduct of foreign affairs. Every treaty commitment made by this country is debated publicly by the people’s representatives. Without the agreement of two-thirds of the Senate and the President, no treaty may be made. Yet agreements have been made in international industry affecting both the American economy and our foreign policy which were secretly contrived and clandestinely arrived at. The American people had no voice, but they bore the burden of these private treaties.

Make no mistake—the war has not interfered with cartel plans. Cartel agreements invariably provide for the contingency of war. Long before the war, cartels worked out a modus vivendi—a method of continued existence—for they felt that their relations must be preserved, war or no war. Thus we find American and British cartelists agreeing to preserve the German position in Latin American markets after the war. Agreements between the cartel members of countries now at war provide for a resumption at the war’s close. In case legislation or government action interfere, then they will cooperate to adapt their relations, as one agreement states, “in the spirit of the present agreements.”

Therefore, the necessity for vigorous action in keeping open the channels of trade becomes apparent when we consider that those who create cartels hold themselves above the law or seek to control legislation and Government policy in the many countries where they operate.

These same groups are making their own postwar plans. Because they have found the enforcement of the Sherman Act a hindrance in the past they have expressed a desire to have the antitrust laws repealed.

It should be recalled that the political deal which Munich represented had its economic counterpart in one made at Dusseldorf, in which the Federation of British Industries and the German industrial overlords expressed their intention of stabilizing and rationalizing world trade. As indicated at Dusseldorf, cartel groups regard governments as handy instruments to be used in working out their schemes of restriction.

Although the peace of Munich has received considerable public consideration, little attention has been given to the peace of Dusseldorf, a peace which, while obscured in the welter of political and military crises, epitomized the spirit and the power of international industrial monopoly.

On March 15 and 16, 1939, immediately after Hitler’s invasion of Czechoslovakia, representatives of the Reichsgruppe Industrie of Germany and of the Federation of British Industries held an intensive conference at Dusseldorf. At the conclusion of the conference representatives of German and British industry issued the following joint declaration:

“The Reichsgruppe Industrie and the Federation of British Industries, having concluded a general discussion on Anglo-German trade relations, issue the following agreed statement:

“1. The two organizations welcome the opportunity which these discussions have given of developing still further the friendly relations which have existed between the two bodies for so many years.

“4. The two bodies are agreed that the objective to be attained is that the export of all countries should be conducted in such a way as to ensure a fair return for the producers of those countries. Hence it is agreed that it is essential to replace destructive competition wherever it may be found by constructive cooperation, designed to foster the expansion of world trade, to the mutual benefit of Great Britain, Germany and all other countries.

“5. The two organizations are agreed that it is desirable that individual industries in both countries should endeavor to arrive at industrial agreements which will eliminate destructive competition, wherever occurring, but prices must be fixed at such a level as not to diminish the buying power of the consumers.

“6. The two organizations realize that agreements upon prices or other factors between Germany and Great Britain are only a step, although a most important step, towards a more ordered system of world trade. They would welcome the participation of other nations in such agreements.

“8. The two organizations realize that in certain cases the advantages of agreements between the industries of two countries or of a group of countries may be nullified by competition from the industry in some other country that refuses to become a party to the agreement. In such circumstances it may be necessary for the organizations to obtain the help of their governments and the two organizations agree to collaborate in seeking that help.

“9. The two organizations agree that it is their objective to ensure that as a result of an agreement between their industries unhealthy competition shall be removed. Their aim is to secure as complete cooperation as possible throughout the industrial structure of their respective countries.

“10. The two organizations have agreed to use their best endeavors to promote and foster negotiations between the individual industries in their respective countries. They are encouraged in this task owing to the fact that a considerable number of agreements between individual German and British industrial groups are already in existence. There is thus available a large body of experience which inspires confidence that an immediate extension of this policy is both practicable and advantageous.

“They are glad to state that approximately a further fifty industrial groups have already signified their willingness in principle to negotiate at an early date.

“They also report with satisfaction that negotiations have already been started and are now taking place between ten industrial groups.”

The spirit exemplified in the above declaration is not dead. It is awaiting the moment of peace to step in and resume control of those very industries which are most essential to the rehabilitation of a war-torn world, to the fullest use of our labor and resources.

Surely we must realize now that if the program of Dusseldorf prevails in the postwar world it will produce World War III. Surely we must recognize that we cannot build a free world without a free economy.

The close and constant cooperation of the United Nations after the war is all-important. This cooperation should rest, among other things, on active and healthy international trade. We want to see that trade grow unhampered by private restrictions. In attacking these illegal activities the Government of the United States is aiming at a condition which obstructs healthy international trade and threatens the effectiveness of governmental foreign policies.

To combat the influence of monopoly groups, the United States has two effective weapons: (1) the vigorous enforcement of the Sherman Act, and (2) the power which Congress possesses to investigate and make public the hidden dealings of cartel interests.

It is significant that in Great Britain increasing interest in the purposes and activities of cartels is being manifested—principally as the result of American antitrust investigations which have revealed that British industry, no less than our own industry, has suffered the burden of restrictive practices imposed by cartel arrangements.

Moreover, there has been developing in Canada a substantial interest in the cartel problem. Thus, the Ottawa Journal recently stated editorially that “it is fairly clear to all that cartels, large combinations of industries parcelling out territories among themselves, controlling patents and fixing prices, may be a menace to the general well-being, and what is more vital, a menace to world peace.”

And the Winnipeg Free Press declared not long ago that “it is gradually dawning upon Britain that rationalization of industry has its dangers. They are discovering that monopolies can and do develop evil practices.... Thus there is arising there [in Great Britain] a demand for control of monopolies, the breaking down of cartels and the restoration of competition between the great industrial giants.” After pointing out some of the evils that flow from monopoly control, Winnipeg Free Press went on to say: “National monopolies which restrain trade are bad enough of themselves. But when combined with international cartels they are intolerable. The Canadian government should pay particular attention to the antitrust proceedings in the United States. They reveal a most unhealthy state of industrial health and if the economy of this country is to be saved from disaster steps will have to be taken to break up the evil monopolies and their cartels.”

It would certainly be in the mutual interest of Great Britain and ourselves if we could take a joint stand against private restrictive arrangements in the postwar world and together seek to stamp them out.

There is ample reason to believe that American exposure of secret cartel practices may have its effect on the public policy of other countries and promote common understanding that certain types of activity should be outlawed in other countries as well as here. But irrespective of the extent to which other governments adopt policies similar to ours, there can be no doubt that American business can thrive in competition with foreign cartels if it does not enter into cartel restrictions. If freed of cartel shackles, American enterprise should well be able to expand in world markets and render foreign cartel control ineffective. It is doubtful, indeed, whether any major international cartel can effectively control world markets without the participation and cooperation of the American segments of the industry. There is a real question whether foreign cartels can long survive in many industries if American cooperation is not extended to them.

If and when some measure of control and regulation becomes economically necessary on an international scale in a particular industry, a question is presented for governmental action—not for private cartel action. If, for example, in a particular industry it seems necessary to control production in order to avoid waste of a scarce natural resource, the solution of such a problem is properly a responsibility of national or international governmental action. Where control is needed, it must be by public authority. If international restrictive agreements are ever needed, they must be determined upon by governments—not by private cartels.

But the situation where control would be required on an international scale is decidedly the exception. Most foreign trade in the postwar world can be conducted on a competitive basis if we give competition a chance. The period following the war will present an unprecedented challenge to the ingenuity of mankind. Men of brains and imagination should have a chance to rebuild the world, to take risks, to engage in foreign trade and to win in competitive struggle, unhampered by private decrees. The world is not a private hunting preserve which can be divided at will among monopolists who think they have gained squatters’ rights.