think is false. You have to motivate people to take a risk. We have destroyed that. Mr. BEDELL. You see, you and I disagree on that. I don't think the motivation is missing. I think the opportunity is missing. I think there is no opportunity for people to take a risk. I believe people take risks. I don't know if you are familiar with my background. I started out in high school with $50 and built up a very successful business. I did not build up that business because of the tax laws or because of the opportunities that existed or because of the desire to try to make more money. I did that because I wanted to be looked at as a success by my fellow man. That is my reason pure and simple. People have different reasons for the motivation to succeed. I am here to testify that is why I did it. I think that motivates most people. We have to develop a society where that opportunity exists. And if the opportunity exists, then I believe we are going to see people availing themselves of that opportunity. I think that is true of your son. The problem with your son is he does not have that opportunity. Mr. BIDDLE. When did you build your business, may I ask? Mr. BEDELL. Well, I told you I started when I was in high school; that was obviously many, many years ago. Mr. BIDDLE. You built it before the Tax Reform Acts of 1972 and 1976. Mr. BEDELL. Yes, I did. But I think that the reason I was able to build it at that time was because there was not the dominance, in my opinion, at that time of big business which absolutely throttled any opportunity for small business to have a chance. And I happen to be one of those few that really think the tax laws had very little to do, as they affected me individually, with my success. If the tax laws had been higher or lower, either one, I might have been somewhat less successful or somewhat more succesful, but I believe the whole problem is not the tax laws. I believe your son has no place to go. He cannot start an independent grocery store if he wants to, I do not think. Mr. BIDDLE. That is right, and if he went to his banker to borrow the money, he would be laughed out. If he went to friends and said invest, they'd say, "You have to be kidding; what is the benefit of risking our money? We are better off to buy a new car, refrigerator, or something else." Mr. BEDELL. OK. The disagreement we have, if we have one, is that because of the tax laws or because of the fact that A & P, Kroger, or Giant control so much of the chain grocery store busi ness. Mr. BIDDLE. I suggest it is not either/or; it is both. I mean, the structural situation and the shift in tax treatment have all combined in our industry. For example, there have been three public offerings since 1969, three companies have been able to go to the public to obtain money. Mr. BEDELL. That is right. Mr. BIDDLE. One of my leading companies, Amdahl Corp., is one of the most innovative companies in the computer industry. They beat IBM hands down in the marketplace but had to go to Japan to get the money because no American investor would dare to invest in somebody who endeavored to compete with IBM. But the venture capital that he got in the beginning would not exist today because there is no incentive to the venture capitalist to invest unless he can see, ultimately, a public offering and he cannot see that unless the investor has some motivation, which I call greed, a chance to make more money by investing in a risky situation. Mr. BEDELL. If that opportunity was to get a 9 percent dividend a year and an appreciation in the value of his stock Mr. BIDDLE. Put it all in the big boys. Mr. BEDELL. I think, then, you would have the common people; I know my farmers would be interested in that, for example where they have extra cash. Mr. BIDDLE. If my member companies pay out dividends to attract money they are not investing in R. & D. and their life expectancy is very short. In our industry, product turnover, new innovations take 3 to 4 years. A company must invest every available dollar in R. & D. or it will be trampled by its competition. So you cannot pay dividends. Anything that encourages the movement of money to dividend-paying corporations will only move it to the giants; it will not move it to small high companies, small technology companies. Mr. BEDELL. I guess it depends on your profitability, does it not? Mr. BIDDLE. Well, when you are in an industry that, by its nature, you have to price your product 20 percent below the dominant corporation in the industry, you do not have▬▬ Mr. BEDELL. It is part of the problem. Mr. BIDDLE. Part of the structural problems; they cannot be isolated. Mr. BEDELL. I did not mean to take so much time. The committee has established the practice of keeping the record open in order that any additional views, ideas, and/or suggestions that might occur to you or those whom you represent, that you think contribute to a solution, may be made a part of the record. Mr. BIDDLE. Mr. Chairman, I did not really answer your question of the world I see 20 years from now, and I would like to submit that to you in writing for the record. Mr. BRECKINRIDGE. Fine. Thank you very much. [Material referred to above was not received.] Mr. BRECKINRIDGE. Our next witness is the Honorable John H. Shenefield, Assistant Attorney General for the Antitrust Division of the Department of Justice. I want to say to you, Mr. Shenefield, that having listened to these lay people attack the legal profession, I welcome you. It is good to have another attorney in the room. I believe I am correct in understanding that you came aboard maybe last May or June. TESTIMONY OF JOHN SHENEFIELD, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE Mr. SHENEFIELD. Last May, sir. Mr. BRECKINRIDGE. Sort of early in the administration but then not too early. 36-474 O - 79-5 You have heard the testimony of the witness who went before you; I notice you were here for the entire time. Let me say that the old ad hoc committee hearing with which you are familiar had a series of witnesses, and I am sure that were you to conduct any hearing yourself you would adduce the same sort of testimony. But what we have here is not unusual, or the exception to the case. It is just that particular segment of that industry which does happen to be unique because of the size of the two principals. But taking the manufacturing world as a whole, and increasingly the distribution sector, the charts show the same sort of concentration that we see there. By the same sort of concentration, I have reference, of course, to the trends, which indicate the continuing disappearance of the small businessman just like we are witnessing the disappearance of the small "family farm," the increase in the assets and the holdings of those staying in the field who have control over and domination of the market; the result is stratification of pricing practices in markets. The pattern is there for people who want to read it. The problem is, do we want to do anything about it or do we not? If we do, then what is best? I just want to say that the committee is extremely and particularly interested in your views in this regard because of the importance which attaches to the position which you hold and the authority and responsibility which you have and its importance to the economy. I think I want to make this point quite clear-I did make it clear with Mr. Biddle. None of us, including Mr. Bedell or I, accept responsibility for our predecessors' omissions and commissions, but we surely hope to build on them. We hope in our relationships with your Agency and with the Federal Trade Commission and others who have an interest in this field, that it will be a cooperative and an affirmative relationship and that what might appear in the way of criticism is not intended that way; it is intended to get to the bottom of the facts and establish what the record is; then with those facts and that record before us determine a course of action that would contribute to your ability to resolve the problems that may be outstanding, rather than have to fight problems instead of getting answers. Mr. SHENEFIELD. Mr. Chairman, I welcome that sentiment. I am proud and pleased to be here and to be engaged in this discussion with you and your colleagues because we are engaged in the same general enterprise, which is to make sure that this economy induces entrepreneurial spirit and protects that investment once it is made. We welcome the help and assistance and advice, guidance, counsel, whether in the form of sharp but constructive criticism or in the form of helpful assistance through budgetary proceduresany way we can get it—and we look forward to working with you and with this committee on asking these important questions. I was quite interested in the dialog that developed with Mr. Biddle because it did seem to me that the questions that were being discussed are of fundamental importance to this country. It seems to me every generation of Americans ought to be asking themselves, through their Congressmen and themselves personally, what ought to be the shape of the economic system of this country. Are we content with the way it is now? How do we see it developing? Do we wish to return to Jeffersonian principles, if you care for that phrase? Are we willing to move toward what I had understood Professor Galbraith's former views were, to an economy dominated by large countervailing forces, or are we willing to make some changes to achieve the middle ground in some way? The efforts of this committee to ask those questions, perhaps to prod the membership of both chambers to ask those questions, to mold opinion abroad in the land as Congressman Bedell suggested, are highly constructive and can do nothing but, if only that, to make our job a good deal easier in enforcing the law. How would you like me to proceed, Congressman? You have my statement. Mr. BRECKINRIDGE. You are free, Mr. Shenefield, to proceed in any way that you wish. If you would like to read your statement and let us interrupt from time to time-I went through it last night, as a matter of fact, and will have some questions-or if you would like to summarize you can do that. Mr. SHENEFIELD. Why do I not summarize it and we can get directly to your questions? Mr. BRECKINRIDGE. All right, sir. [Prepared statement of Mr. Shenefield follows:] PREPARED STATEMENT OF JOHN H. SHENEFIELD, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE I appreciate this opportunity to appear before your Subcommittee during its inquiry into "The Future of Small Business in America." The future of small business, as reference to history will show, will depend in large measure on vigorous and effective enforcement of the antitrust laws. The historical alliance between small business and antitrust enforcement originated with the enactment of the Sherman Act almost ninety years ago. The powerful trusts and other business organizations of that time which preyed upon small businesses were emphatically condemned by the Congress. The Department of Justice has long recognized that the protection of small businesses against the depredations of larger and more powerful firms is one of the central purposes of the antitrust laws. We reaffirm our commitment to that purpose. This is not to say that the antitrust laws provide favored treatment to small businesses or any particular segment of our economy. The Antitrust Division's proper role is to promote the process of free competition by preserving a free market environment in which all firms may effectively compete. A policy of extending undue competitive advantages to small businesses-or stated somewhat differently, of imposing competitive disadvantages on larger businesses-would be contrary to the public interest and ultimately would be a disservice to small business itself. Such a policy would undermine a cherished right of small business: the right to grow and prosper to the fullest extent of its capabilities and potential, unhindered by anticompetitive forces. We believe that the success of any business, large or small, should be determined by its ability to produce the quality of goods and services its customers want, at the lowest possible prices. If this environment prevails, small business will prosper. Its entrepreneurial spirit, ingenuity, resourcefulness, and hard work have contributed enormously to our economy in the past, and will continue to do so in the future. Our primary mission at the Antitrust Division, therefore, is to ensure that all businesses have the opportunity to compete in markets which are free of artificial and unreasonable restraints on competition. In order to accomplish this goal, our day-to-day activities have become increasingly diverse. Most of our resources are, of course, devoted to traditional antitrust enforcement: civil and criminal litigation under the Sherman Act and the Clayton Act. We have also become increasingly active in the area of governmental regulation, and have intervened in many regulatory proceedings, advoctating the cause of free competition before such bodies as the Interstate Commerce Commission, the Federal Maritime Commission, and the Civil Aeronautics Board. We also advise the Congress of the effects on competition that proposed legislation may produce. In all of these activities, we have been sensitive to the special concerns of small business. Some examples of our present activities illustrate the benefits that small businesses derive from free competition. In the area of traditional antitrust enforcement, two of our most important current cases are those against the American Telephone and Telegraph Company and International Business Machines. Both the communications and data processing industries have expanded rapidly and have experienced rapid technological change. These industries, therefore, have offered substantial opportunities for small firms to develop special services and equipment that their larger competitors might overlook or be unwilling to develop. We have challenged activities that have stifled the emergence of small, innovative businesses on the fringes of the IBM and A.T. & T. monopolies. Although we cannot yet assess the impact of our cases in the particular industries involved, we believe that our activities will, at the very least, have a strong prophylactic value in other industries. In addition, the Antitrust Division will prosecute large and powerful companies in other industries when we believe they have violated the antitrust laws in a manner which has restricted market entry of small businesses. We are also dedicated to protecting competition in smaller, more localized industries. For example, we recently considered, under our Business Review Procedure, a proposal by a network of Nebraska banks to establish a state-wide electronic funds transfer system. We were concerned that small retail merchants might have to deal with a single supplier of EFT services, and therefore would have no opportunity to negotiate for the lowest costs and best services. Our investigation suggested that sufficient demand for these services might well exist to support rival networks established by other banks, which would provide to small retailers the benefits of competition, and we decline to approve the proposal. Our efforts to promote competition in the regulated industries are also based on the realization that governmental policies, which appear to be neutral, may in fact operate to the disadvantage of small business. For example, we have asked the Federal Aviation Administration to modify rules that would have the effect of discouraging small suppliers from entering the aircraft replacement parts industry simply by increasing the cost of necessary paperwork. In another case, we supported a route application filed with the Interstate Commerce Commission by the owner of a single bus who wished to compete with Greyhound in Florida. Greyhound opposed this application on the ground that it would lose revenue. We argued that the ICC should not simply protect the status quo and that Greyhound would not be jeopardized by this "diversion" of revenue. Ultimately, an interstate license was granted to the single-bus operator. Our program of legislative advocacy also recognizes the particular needs of small business. Our experience has demonstrated that the fundamental principles of existing antitrust laws are both broad and flexible enough to protect the ability of small business to compete fairly in the marketplace. There are several areas, however, in which legislative action is needed to ensure the effective implementation of these principles. These legislative changes will be particularly beneficial to small business. First, the Congress is now considering legislation which would overturn the Supreme Court's 1977 decision in State of Illinois v. Illinois Brick Co. In that case, the Court held that "indirect" purchasers of price-fixed goods could not sue under the antitrust laws to obtain treble damages. In limiting antitrust claims to direct purchasers, the Court prevented recovery by all other purchasers who are further down in the distribution chain. That decision has an especially harsh impact on small businesses, however, since small businesses, such as local retail firms, often do not purchase directly from manufacturers or large distributors. Bills pending in the House and Senate would provide a remedy for the injuries sustained by these small businesses, and would deter future antitrust violations by manufacturers and large distributors. The Antitrust Division strongly supports the enactment of this legislation. We have worked closely with the subcommittees and committees in both the House and the Senate, and we are hopeful that the Congress will enact this bill during the current term. The Antitrust Division also supports legislation to extend the coverage of Section 7 of the Clayton Act to mergers and acquisitions which affect interstate commerce. In United States v. American Building Maintenance Industries, The Supreme Court held that Section 7 does not prohibit the acquisition of companies whose activities, while clearly affecting interstate commerce, are essentially intrastate in nature. This interpretation would allow large firms to acquire one local firm after another, firms likely to be small businesses, and to obtain virtual nationwide monopolies. |