Competition of the Future

Kenneth Smith

This is one of those subjects where the speaker has unlimited range. What are to be the competitive conditions of the future is purely a matter of opinion. No facts are involved and no one can question what may be said however much he may disagree with the conclusions of the other fellow.

There are two distin,ct angles of approach. The first might be to consider what bre the changes which will be brought by the pressure of economic forces, by such factors as improved transportation, the increasing tendency to eliminate the middleman, and the collateral tendency'of backing inventories up against the mill. These factors will exert a tremendous influence, entirely regardless of legal compulsion or mutual cooperation.

I have some definite views as to what the effect of these conditions may be upon the future of your businesses, and I think it can be demonstrated from an analysis of these conditions alone that the wholesale hardwood yard, as it was evolved in.the early days and as continued down until about ten vears ago, has served its day, and that in another twenty years will likely be no_n-existent.

Ifowever interesting it might be to pursue this angle of approach, I think that you are probably more interested in, and the more likelv to be dire,ctly affected. at least in the immediate future bf the next twb, three or five years, by the effect of legal compulsion upon your businsss practices. Another way in which this might be stated is: "What follows NRA?" If NRA is to pass into history next June and nothing take its place, that creates an entirely different set of conditions under which to operate than will be the case if some pernlanent restrictive legislation is passed by the next Congress to take the place of NRA. What may be done, how it is done, and how it is operated, will very likely affect the future competitive conditions under which you will operate, and, for that reason, I am going to devote the time at my disposal to trying to paint a background of the possibilities in this direction in the hope of interesting vou. in seriously devoting time and thought, and I hope aggressive and energetic action, to this problem.

We might begin the analysis by a consideration of what it is that we want. Do we.still want what we did or thought we did? Should the codes be completely abandoned? Is this type of restrictive legislation and operation of the industry, by the making of its own laws in the shape of codes, substantially sound, and the remedy making such changes in method of operation as will make them more effective ? Is the administration of restraint on trade laws in need of drastic revision ? Should the viewpoint of business men be brought to bear.more closely upon the solution of the problem through commission control, such as the Federal Trade Commission, or should the problem be handed over entirely to the Courts?

An unbiased observer, who might listen to the ordinary run of comment of the averag'e business man, or who might for instance have been listening to your discussions this afternoon, might readily conclude that these codes and this National Industrial Recovery Act was something which the heinous politicians had saddled upon industry; that it had never been favored nor approved by business and should forthwith be abolished. fn recent talks he has characterized most of the current discussion of price-fixing and monopolistic action in connection with NRA as "hysterical" and I think this is not an unfair criticism. His own view and attitude has been challenged, and yet I think there are very few business men and practically no business organizations whose views are as definitely stated and substantiated as his own.

Now the facts are, and I think anv unbiased business man with a reasonably good memory will readily concede, that what business has been demanding vociferously for the last twenty-five years has been the rlght and the-privilege of making its own rules of cooperation and competi- tion; and that what actually happened, when the Democratic Administration fostered the provisions of the National Industrial Recoverv Act, was to say in effect to business: "Now we will gitre you what you have been asking for, and see if all the predictions which you have made work out, and you are able to govern yourselves better and to work out of this depression faster than would be the case by continuing to work under the restraint of the Sherman Law and the Clavton Act."

Now what has happened is that, after lve got what we had asked for, there has been a remarkable change in the attitude of business leaders. The vicious Ameri&n habit of expecting immediate perfection caused vou, and caused members of practically every other industry, to start looking immediately at the defects in administration, at the imp_erfections of the laws in the shape of rules and regula- tions under codes which you had made for yourselves, and to become vexed at the very restraints upon individual freedom of action which you had imposed upon yourselves. Most of the codes have been working only a little over six months, and it is just plain unreasonable to expect that the competitive habits acquired over generation upon generatio:r could have been revolutionized in so short a space of tirire.

Now the second angle from whi'ch this should be studied is as to the probabilities. What can we get ? What are we likely to get if the matter is left entirely in the hands of the politicians? What may possibly be altained by vigorous action on the part of the business interests of the United States ? What does Roosevelt and his Administration intend ? Yolr probably knorv as well as I that the only definite and positive statement along these lines that has been made by the Administration was the statement by 'President Roosevelt himself in his last address. that the NIRA would not be abandoned next Jun-e, but the Administration would sponsor permanent tegisiation in its stead.

You probably know also that the man who has emerged in Washington as being preeminently the most representa- tive of the Administration's viewpoint along these lines has been Donald Richberg and while, naturally, he has refrained from making any specific statements as to what may be expected, there exists in the recent speeches which he has made, and in the brilliant resume and analysis of the whole problem contained in the article which he wrote for the October issue of "Fortune", a very illuminating picture of what.is in his mind and what is. quite likely to emerg'e as the Administration's point of view.

If you pay careful attention to what a man thinks, you are able to get a very good line upon how that man is likely to act, for the reason that a man's actions are usuallv based upon his thinking. For one thing, as an answer 6 those who have commenced to argue that there should be no NRA and that there should be no further restrictive legislation, and that the so-called "rugged individual" sysfem of competition should continue, tiereis one paragraph which not only says that he favors an extension of tfie iestraint upon freedom of aompetition, but furnishes a sound reason fbr his view.

"A plea for unbridled freedom is pure nonsense. The whole advance of civilization requires a continual extension of public restraints on the anarchic results of permit- ting one man, operating under public protection - of his 'freedom' to destroy the freedom of many other men."

"ft has always been the function of government and social control to decide what sort of character. industry and capacity, shall be given 'freedom' to obtain power and influence."

He is noi the radical that he is pictured in the popular press. He is nothing like as unsound in his economic thinking as you have been lead to believe by what you have read in the newspapers of Los Angeles H-e is a liberal thinker and a trained thinker. He is wlll-to-do personally, and has devoted as much of his time to working for corporations as he has to workins for labor unions] He has made -a prof_ound study o{ the efiect upon future competition_ of cartelizing or codifying industry and upon the ehect of fixing prices,-minimum oi otherwise, by'law.

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From this study he has come to the conclusion that nothing witl so quickiy bring about a socialistic state as to solve for the political mind the problem, (which has never been so far solved by any socialistic enterprise), of the relative value of one commoditv or service in the terms of other commodities and services. He is of the opinion that, when industry has done this job through the setting up of the relative values of all commodities and services under codes. the inevitable next step will be the socialization of industry. He questions whether this is to be desired and he wonders seriously why business men, who are Supposed to be unalterably opposed to the socialization of industry are so determined upon the accomplishment of this one thing which is the greatest existing drawback to the socialization of industry. Let me quote you just briefly his expressed views on this subject: l'Ftgq the beginning it was recognized by NRA that price fixing by public or private agencies had ho place in a normal competitive economy. In emergencies it might be necessary to.stop destru,ctive price cutting."

"'Who can be entrusted with the power to fix a fair price that will insure justice to labor, investor and consumer? The answer is: no one, neither a private association nor a board of officials. There is no fair price that does not depend upon the fairness of material and production and distribution costs and a fair return upon investment. But the fairness of each cost depends upon what is a fair remuneration for services employed and property used. What test of fairness can we apply except the competition between willing sellers and buyers in a free rnarket?"

"The right of ,combination, even for good purposes, is yet on trial and a dangerous range of power should not be sought by those who have not yet convinced the public that they can be safely entrusted with less power. It should be apparent that if industry is to be left free to organize itself for self-government there must develop an improved understanding among trade-association members that their right of concerted action and cooperation in the maintenance of fair competition depends upon the maintenance of a real continuing competition, both in rendering service and in price determination."

The final consideration is: Should business men and organizations such as ours here support efforts to make NRA p_ermanent? To this my answer would be emphatically "Yes". There is no question in my mind but thit opposi- tion to governmental proposals for the continuatibn of NRA is just a waste of breath. But on the other hand, I think that just as unquestionably there is hope for betterment, if business men everywhere, working through their associations, are prepared to present a constructive alternative proposal, aimed to reach substantially the same objectives, by means that will be far less restrictive and far more profitable than will be the case if we leave the disposition of our future entirely in the hands of politicians.

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