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these kinds of problems represents a fatal flaw in the system. Unfortunately, many persons are inclined to damn the market-which to them means the businesses operating within it for failing to do jobs better left to the state. And, unfortunately, the defensively hostile responses of some business leaders to every social welfare proposal lend credence to the argument that the real issue at stake is the market system. Actually, however, the real issue usually is whether or not a particular job should be done at all, and who is going to pay for it. Once it is agreed that there is nothing inherently un-American or antimarket in admitting that some things are best left to the state, the state and the market can live in happy coexistence. In truth, they are indispensable complements of one another, rather than rivals or substitutes. But this has little to do with economic imperatives and the abandon

ment of the market.

Thank you.

Senator MORSE. Dr. Mueller, I was fascinated from the beginning to the end of your statement.

(Discussion off the record.)

Senator MORSE. Thank you very much, Dr. Mueller.

The statement of our last panelist will be given now by Dr. Donald F. Turner, who has served this Small Business Committee on a good many occasions, as we have had him before us and sought his help very often in the past.

We are pleased to receive you again this morning, Dr. Turner.

Dr. Turner was introduced credentially by Senator Long. It is a pleasure to welcome the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice.

Dr. Turner, you may proceed in your own way.

STATEMENT OF HON. DONALD F. TURNER, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, D.C.

Dr. TURNER. I think I should say first that the credentials given by Senator Long are perhaps a little overcharitable. I have not, for a long time, considered myself a practicing economist, but this does not necessarily mean that I feel myself disqualified in passing judgment on some of the positions Professor Galbraith has taken.

I am reminded of George Bernard Shaw, who in his role as a drama critic wrote a scathing review of a certain actor's performance of Hamlet. The actor furiously, and most unwisely, charged that Shaw had no business criticizing him, because Shaw had never acted in a play himself. To which Shaw replied, "I do not have to have laid an egg in order to tell a bad one when I see it."

As you know, I do not believe that Professor Galbraith's evaluation. of our economy's market structure is accurate. I subscribe almost in toto to the points that have been made previously by Dr. Mueller and Dr. Adams. They have spared me the task of dealing in detail with those aspects of the argument.

But in any event, I think it would be more suitable for me to discuss the charges that have been made against antitrust law and the characterization that has been put upon it.

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On the impact of antitrust law, I think it is undeniable that it has been more vigorous and more effective in attacking price fixing, other restrictive agreements and mergers than in dealing directly with existing market power. I suppose that may even be characterized as a massive understatement. But, on the failure of antitrust law to deal adequately with undue existing market power, I do have a few

comments.

The first is that to some extent this failure to deal with existing market power makes sense. I think it clearly makes sense to the extent that size and whatever market power that happen to go with it truly reflects economies of scale. I think it may also make some sense, although in my opinion perhaps less, where market power was acquired by initial competitive superiority and has been maintained without exclusionary behavior of any kind.

We have here, at least arguably, a problem of incentive. The fundamental purpose of the antitrust laws is to encourage competitive striving. It would be a little paradoxical, to say the least, to turn on the winner when he wins. If that were regular practice, one might anticipate some disincentive problems which may reach serious proportions.

I do now know the answer to that argument, but I just suggest, as I said, that it may make some sense to permit some conditions of market power which may be acquired and maintained in unexceptionable ways. Beyond this, I agree it would be desirable to increase the effectiveness of antitrust in dealing directly with existing market power. Of course, in saying so, I am proceeding on the premise that my friends Mueller and Adams more accurately access the current validity of the competition than Professor Galbraith has. There may be some ways of expanding the scope of antitrust within the confines of existing legislation. That is worth probing, and it is being probed.

I would also add that I still subscribe to the views Professor Kaysen and I set forth, now some 8 years ago, in which we urged additional legislation which would make it easier to deal with monopoly and oligopoly problems. However, I suppose it is highly likely that if I sent such a proposal forward to the administration, it would not be rushed over to the Hill the following morning.

Even assuming, however-and I will make that assumption for the purposes of the balance of my remarks-that our present relative inactivity in dealing with existing undue market power shall continue for the indefinite future, I do not agree that it is bad public policy or bad law or bad anything to continue to attack price fixing and other restrictive agreements and mergers likely to increase market power in those areas where we still have hope.

To put it somewhat differently, the fact that for historical reasons of one sort or another we have had to accept a measure of unfortunate development in one or more areas of our economy does not mean, it seems to me, that we are compelled to make things worse by permitting

more.

It seems to me that to describe the kind of policy we have been carrying on as "discrimination" is to apply a most inappropriate term. In antitrust or in any other area of public policy it has always been true that even though we cannot undo the past we can try to do better

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for the future, and we cannot rationally measure prospective public policy by past mistakes. Past mistakes by no means compel repetition.

In this regard, while monopoly and oligopoly are, indeed, a problem, I think we should be careful not to overstate it, as I believe Mr. Galbraith has. To quote from his book, "Oligopoly is not a special but a general case. It is the market structure of the industrial system." Now, unaccustomed as I am to calling attention to the nonoligopolistic sector of our economy, I do feel compelled to put Professor Galbraith's remarks in perspective. Taking mining and manufacturing together with transportation and public utilities, Professor Kaysen, a man whom we both view with high regard, estimates that the oligopolistic sectors produce around 20 percent or probably 25 percent of national income. Concededly, this is not a trivial figure. But neither does it amount to the domination that Professor Galbraith's remarks suggest.

That being so, we have wide areas of the economy which have not been afflicted or badly afflicted, and it seems clear to me that it makes good public policy sense to endeavor to preserve competition where it can be preserved in those areas. I see no reason why we should not continue to attack outright price-fixing agreements, even though, in some industries, concentration is so high and the nature of the product is such that the sellers, as Mr. Galbraith indicates, can achieve close to the kind of price determination that an outright agreement would. I have already given some general reasons for this. I would add a particular one. That is that price-fixing agreements involving a rather large number of firms in a way is the worst of all possible worlds. You get all of the disadvantages of price fixing and the kind of interference with competition and allocation of resources that that gives you without any of the economies of size that come from growth of firmsexcept, I should say, perhaps some planning advantage. But I doubt very much the episodic kind of price fixing that we have seen really makes any significant contribution to this.

Now, turning to mergers, where industries are currently relatively unconcentrated, why permit further concentration by merger? There may, indeed, be some economic changes taking place in some industries which tend to indicate that the current size of firms is below that which would be necessary for the achievement of economies. But typically, substantial economies will be developed by internal growth, and without having any figures, I would guess that internal growth has been the means by which most economies of scale have been achieved in the past.

Where there is already a fair degree of concentration in an industry, even where there may be one or two or three dominant firms, the problem posed by merger involving firms other than the largest is indeed a somewhat more difficult problem than it appears to be in the unconcentrated industry. But it is also, I suggest, much more complicated than Professor Galbraith suggests by using the term "discrimination."

Let me give you a specific example: In the steel industry, several years ago, Bethlehem, the No. 2 firm, and Youngstown-I forget which, No. 5 or No. 6-proposed to merge. Both were substantially smaller than the United States Steel Corp. and the merged company

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was still considerably smaller. Indeed, the argument was made that we should have permitted those two companies to merge in order that they could more adequately deal with United States Steel. It seems perfectly plain to me that apart from any moral reason, which I reject, there was no persuasive economic reason to permit this merger and, the decision was eminently correct. I will only give a couple of reasons. Even assuming that the merger would have increased the competitive ability of the merged firms, which was disputable, there was no reason to suppose that the merger would have made the industry in fact any more competitive than it was or, to put it somewhat differently, that a merged Bethlehem-Youngstown would have embarked upon a competitive pricing spree or any kind of other competitive spree as a consequence of the merger. Moreover, to have permitted the merger would have made it much less likely that future technological changes, if they came, that would have lowered the size of firm necessary for economies of scale, would have led to an appropriate deconcentration of that industry.

Now, in all of these activities, as in attacks on patent licensing restrictions and the like, the purpose of the antitrust laws, even assuming that we can do nothing about existing concentration, is to preserve the opportunity for declining concentration in the future as new developments take place-new entry, new products, and the like. And I would cite in this connection, lest there be doubt that any such happy developments will ever take place, that Dr. Mueller's figures over the past 15 years show more often than not, many more oftentimes than not, there has been declining concentration in the producer-goods industries.

To sum up, even if we did nothing more than we now do in directly attacking undue market power, I am firmly convinced that a strong antitrust preventive policy makes economic sense and, on the basis of evidence now available to us, would still appear to promote longrun benefits for the economy.

Thank you, Mr. Chairman.

Senator MORSE. Dr. Turner, you have made another great contribution to this discussion this morning. It is my prediction that there is going to be a great demand, particularly from the academic institutions of our country, both the law schools and the economics departments, for reprints of this panel discussion this morning.

May I say, Dr. Turner, I am a great defender of the separationof-powers doctrine. I, nevertheless, am tempted to suggest to you that, in connection with your obligations to the committee as a witness, we might ask you, on the basis of the suggestions that you and Professor Kaysen made in your book some 7 or 8 years ago, to perform the service of drafting for us and sending directly to the committee that legislation that you might otherwise send to the White House and save that problem of whether or not it would come up here the next morning. You can send it directly to us, and I would be very glad to introduce it.

But enough of that nonsense. Perhaps it is not so nonsensical after all.1

1 See Appendix B, p. 50.

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I think, before I ask any questions on behalf of the committee, the fairest thing to do is to let you gentlemen ask questions of each other or direct comments to each other. Particularly, I think I ought to invite Professor Galbraith to lead off, in view of the fact that he has received the thrusts of the three of you and may want to thrust back a bit.

So, Mr. Galbraith, I will call on you first. Then from then on, it is yours. I am speaking to the panel. It is up to you men on the panel to participate here in our seminar exchange. At the very end, I have two or three questions I want to ask on behalf of the committee. Then we will recess.

Professor Galbraith?

Dr. GALBRAITH. Mr. Chairman, I do not feel at all discontented this morning with the thrust of these three arguments. I cannot claim, of course, that I have unanimous approval of my three colleagues here. But I am encouraged by the way in which, almost without exception, they moved away to argue issues that were easier than the ones that I, myself, offered. And I can understand why they did so. If I may say just a word to my former colleague, Professor Turner, I think the difference between Mr. Turner and myself is one involving a shade of emphasis and involving semantics. On the question to which I immediately addressed myself this morning-I take it he does not dissent. There is only a difference between us as to how many of the horses have been stolen.

I am conscious, Senator Morse, of the appeal of that particular analogy to a livestock breeder like yourself.

The 20 percent of the gross national product that he cites from Professor Kaysen is a somewhat misleading figure; that is, the reference to the mere 20 percent of economic activity as concentrated. The total, of course, includes agriculture, includes service industries, it also includes the State. He will have been aware that I was more precise in confining my particular attention to manufacturing industry or to retailing-manufacturing rather than to state these percentages in quite such benign form as that particular calculation presents it.

But we continue to agree on this essential point, that there is a great concentrated core of American industry which wields great market power and it is going to continue to do so. It is not going to be attacked. Now, there may be marginal preventive action around the edges, wise or unwise. But there will not be any assault on this core.

I must say that Mr. Mueller made a great deal out of a very bad case. But I did not hear him, either, saying that the mergers that had already been achieved over the generations were going to be demerged. That word "demerged" did not come into the conversation this morning.

Now, it is true, and I quite agree with him, that there has been a measure of success in preventing large firms from acquiring smaller ones. But that was not my point.

My point was that the immune firms had already achieved a powerfui concentration. The firms that I mentioned-General Motors, Standard Oil, and so forth-are there, and I would gather from his argument that their situation is not going to be changed except by the remedial action which both he and Professor Adams proposed. This is not