Monopoly

The late Senator Kefauver (1903-63) repeatedly went searching for organized crime with a television camera. The wisdom he learned from his first large experience of this search (1950-51) was then expressed in his dedication of a book^* “…to the people of America, who, I hope, will be sufficiently aroused to help us, through public opinion and legislative action, to strangle crime in America…” He seems never to have entirely outgrown the faith of those who go out righteously to strangle what is criminal, and will be done with the task before the setting of the sun.

Until coming to public notice as a crime-buster, Kefauver had spent a decade (1939-48) in the House of Representatives. There he had earned a modest reputation as a Southern Populist or Tennessee liberal—a defender of the Tennessee Valley Authority and of Small Business, an enemy of the poll tax but an enemy also (like Lyndon Johnson, at the same time) of legal protection of the Negro’s right of equal access to employment. In 1948, when he was running for the Senate, Kefauver set great store on refuting the charge of his political opponents that he was unsympathetic to the House Un-American Activities Committee. And, in 1950-51, he vied with Senator Joseph McCarthy for the national television audience.

It was on February 9, 1950, that McCarthy opened his long, demeaning charade with Act One, “The Communists in the State Department.” And it was on May 10, 1950, that Kefauver opened his competing attraction, a performance designed to show, in the impresario’s own words, “How the National Crime Syndicate Can Be Smashed.” Initially it was Kefauver, not McCarthy, who scored the greater public success. Kefauver was the popular Democratic candidate for the Presidential nomination in 1952. He probably would have been nominated but for the determined opposition of Harry Truman. McCarthy never got that high. And Kefauver was nominated in 1956, if only for the Vice-Presidency.

McCarthy surely never discovered a Communist; Kefauver may not have identified one undetected criminal. Nevertheless, both Senators became national figures at about the same time, in public appreciation of their reputed services in putting down evil-doers. Both exploited the resources of the Congressional process of Hearing and Investigation. But Kefauver was made of better stuff. Unlike McCarthy, he was capable of appreciating that Leviathan can be shaped to such grossness that there is no decent living with him. He did not engage in wild accusations of individual guilt. He was far less hectoring in interrogation than many other Senators. He knew—and was troubled by the knowledge—that even a Congressional investigation sincerely directed to the discovery of abuses can result in punishment by pillory. And he does not seem to have tried to entrap reluctant witnesses into perjuries (as others, I believe, did successfully in the case of William Remington and unsuccessfully in the case of Owen Lattimore). After McCarthy’s downfall, he even advanced several proposals of legislation designed to improve the procedures of Congressional investigation.

Senator Kefauver was surely not, in his public conduct, a person of refined sensibilities. But during the fifteen years in which he sat in the Senate, he was still, I believe, on balance, among its most valuable members.

The kind of thing the Senator did best is suggested by this little book on Monopoly, and especially by its first section, on the “ethical” drug industry. (“Ethical” drugs are those sold only on a doctor’s prescription.) The sources of the ethical drug industry’s monopoly power are two—product patents and the ignorance, indolence, or connivance of doctors who prescribe in high-priced trade names rather than in the far cheaper generic equivalents. From time to time, the industry has fallen into publicized scandal, through promoting harmful products. It parades research but reportedly spends only about 6 per cent of revenues on research and 25 per cent on advertising. It sells identical products at high prices in the United States or to the uninformed user and at much lower prices abroad or to knowing buyers. In supplying materials to restore health, to alleviate pain and to save life, it earns the highest average return on investment of any branch of American manufacturing—about 20 per cent after taxes.

The drug industry demanded exposure, and Senator Kefauver ably exposed. He also framed legislation, part of which was enacted (after being watered-down by the Kennedy Administration), which should, for the future, largely prevent the sale of unproven drugs and somewhat diminish the monopoly power of trade names. For his work on the drug industry, Kefauver deserves the grateful remembrance of the American people.

Yet, even in relation to this industry, the Senator seems strangely patchy in understanding. He invokes competition where competition is a wooden god. If drug patents raise prices, perhaps government should buy out the patent-holder (in condemnation proceedings) and release the product for general production: that is a kind of use of market forces—though Kefauver never suggests anything so radical. But an indiscriminate kowtowing to competition is here singularly misplaced: pharmaceutical nostrums are no better for being sold in vigorous competition. And if drugs are too expensive for the poor, they must be supplied not by free competition but by government action supplementing the market flow of incomes. In improving the supply and use of drugs, more competition among merchants and manufacturers may have less to contribute than government control, government provision, and a higher level of professional competence and responsibility among doctors. Kefauver, however, is singularly reticent on any need except for more competition. For example, after ascribing dangerous effects to Chloromycetin (pp. 66-68), he draws an astonishing conclusion:

In this area governmental prohibition can be ineffective; the need is for a competitive order in the industry which emphasizes price reductions to the public rather than excessive promotion practices.

Are we to have poison, so long as it is cheap? What silliness! Yet the treatment of the drug industry is the strongest section of this book.

In contrast, Kefauver’s treatment of monopoly and competition in the automotive industry (which occupies the second major section of the book) has, in my judgment, a cash value of zero. Here too his household gods are, first, private enterprise competition and, second, the efficient and unadorned product which, in his view, private competition inevitably produces. Tail-fins, other “fancification,” and high horsepower are, therefore, not the results of competitive adjustment to the common tastes that suppliers believe to exist. (No clean-cut American would desire such things unless he were seduced by some evil-doer.) It is only the monopolist and his vulgar advertising man who force such tawdry products on the healthy American consumer! The dead bodies of Willys, Kaiser-Frazer, and Studebaker remain quietly forgotten, while the Senator calls for the vigorous competition which would produce the simple, sturdy American automobile.

Characteristically, Kefauver simply refuses to face up to the classic dilemma of the competitor who is so efficient that he eliminates all other competitors—and becomes a monopolist. There have been times when General Motors might have lowered its prices and bankrupted its major competitors; would the Senator have preferred that? Any person who really set great store by private competition in automobiles would surely advocate, first, the splitting up of the largest companies, and second, the elimination of taxes on automobile imports. General Motors, I suspect, could be split into eight or more companies without the loss of any economy of scale in manufacturing. But no word of splitting the giant producers crosses Kefauver’s pages. And he does not forthrightly advocate the elimination of import duties (though he quotes others who advocate it). One tries not to be influenced by the Senator’s many small infelicities. These are most oppressive perhaps in his Chapter 5, a slight and tendentious confrontation of communities characterized respectively by “small” and “big” business. But, reading and re-reading his automotive section, I found it impossible to go away with the conviction that this was the product of a capable and serious person who had given thoughtful consideration to these questions of monopoly and competition for some years.

Kefauver also devotes to the steel industry a treatment which I find distressingly unhelpful. Analytically, it is stale; in policy, it comes to nothing. The analysis makes only such points as were made already a quarter century ago, in proceedings before the Temporary National Economic Committee. Whatever is new is omitted. Who would imagine, from reading Kefauver’s pages, that the rate of return on investment has been distinctly lower in the American steel industry than in the average of United States manufacturing during all but four years of the past ten? Who would learn from him that this low-profit industry is still too high-cost to compete in world markets, except at favorable locations or with special, high-quality products?

Yet American skills in steel-making remain among the most advanced. Capital is cheaper in the United States than in other private enterprise countries which are major steel producers. American steel-making materials are abundant and not expensive. (Special steel-making coals are so cheap as to be competitive after delivery to Britain, Germany, Italy, and Japan.) In 1963 and 1964, employment costs for hourly-rated workers in steel have been in the range of $4.25. Can this cost be earned in competitive world trade? Or will it increasingly restrict American steel to domestic and sheltered deliveries? Perhaps, in world trade, American steel workers can earn only twice what foreign workers do and not three times. It is not the act of a statesman to brush off such questions, as Senator Kefauver did (pp. 124-125), with a little potted kindergarten talk on the distinction between hourly wage rates and unit labor costs.

Alas, it is also not the act of a statesman to rail against monopolistic price advances, as the Senator does, and thereafter to make no proposal of due legal process—for he makes none—by which such price advances, by large firms, in monopolistic industries of great national importance, would be required to be reported, held in abeyance for a reasonable period, and, if need be, reviewed, justified, deferred, or disallowed. To what purpose are all his imprecations, if they are permitted to die away in another tasteless blessing on competition and another vapid call to vigilance?

In the end, in this book, Senator Kefauver prescribed specifically nothing: he advocated competition and democracy. So he wrote, in his closing paragraph:

It is difficult to believe that this country will, for long, tolerate an industrial organization in which control over basic economic policy is lodged in the hands of officials of a few private corporations. Our traditions of a free, democratic society are too deep-rooted; the strain of Populist philosophy, too widely disseminated…

Reading Senator Kefauver therefore brings one to reflection on the entire historic experience of Populism in the United States. What characterizes that experience is the absence of an intellectual hunger to understand economics and politics better—a hunger of disciplined personalities, which would lead to renewed questionings and refinement of analysis. Perhaps there is also in Populism a shortfall of moral commitment and, therefore, a deficiency in persistent year-to-year attention to political education and organization. But the deficit of painful intellectual activity remains outstanding. And, because the Populists had not paid the heavy price of thought, they could not add a cubit to America’s political stature. Neither could the Senator.