II
THE RECOGNITION OF INDUSTRIAL ORGANIZATION
The central government in its policy toward the large corporations must adopt one of two courses. Either it must discriminate in their favor or it must discriminate against them. The third alternative—that of being what is called "impartial"—has no real existence; and it is essential that the illusory nature of a policy of impartiality should in the beginning be clearly understood.
A policy of impartiality is supposed to consist in recognizing the existence of the huge industrial and railroad organizations, while at the same time forbidding them the enjoyment of any of those little devices whereby they have obtained an unfair advantage over competitors. It would consist, that is, of a policy of recognition tempered by regulation; and a policy of this kind is the one favored by the majority of conservative and fair-minded reformers. Such a policy has unquestionably a great deal to recommend it as a transitional means of dealing with the problem of corporate aggrandizement, but let there be no mistake: it is not really a policy of strict neutrality between the small and the large industrial agent. Any recognition of the large corporations, any successful attempt to give them a legal standing as authentic as their economic efficiency, amounts substantially to a discrimination in their favor.
The whole official programme of regulation does not in any effective way protect their competitors. Unquestionably these large corporations have in the past thrived partly on illegal favors, such as rebates, which would be prevented by the official programme of regulation; but at the present time the advantage which they enjoy over their competitors is independent of such practices. It depends upon their capture and occupation of certain essential strategic positions in the economic battle-field. It depends upon abundant capital, which enables it to take advantage of every opportunity, and to buy and sell to the best advantage. It depends upon the permanent appropriation of essential supplies of raw materials, such as iron ore and coal, or of terminals in large cities, which cannot now be duplicated. It depends upon possibilities of economic industrial management and of the systematic development of individual industrial ability and experience which exist to a peculiar degree in large industrial enterprises. None of these sources of economic efficiency will be in any way diminished by the official programme of regulation. The corporations will still possess substantially all of their existing advantages over their competitors, while to these will be added the additional one of an unimpeachable legal standing. Like the life insurance companies after the process of purgation, they will be able largely to reduce expenses by abolishing their departments of doubtful law.
Thus the recognition of the large corporation is equivalent to the perpetuation of its existing advantages. It is not an explicit discrimination against their smaller competitors, but it amounts to such discrimination. If the small competitor is to be allowed a chance of regaining his former economic importance, he must receive the active assistance of the government. Its policy must become, not one of recognition, but one of recognition under conditions which would impair the efficiency of the large industrial organizations. Mr. William J. Bryan's policy of a Federal license granted only under certain rigid conditions as to size, is aimed precisely at the impairment of the efficiency of the "trusts," and the consequent active discrimination in favor of the small competitor; but the Roosevelt-Taft programme allows the small competitor only such advantages as he is capable of earning for himself; and it must be admitted that these advantages are, particularly in certain dominant industries, not of a very encouraging nature.
Nevertheless, at the last general election the American people cast a decisively preponderant vote in favor of the Roosevelt-Taft programme; and in so doing they showed their customary common sense. The huge corporations have contributed to American economic efficiency. They constitute an important step in the direction of the better organization of industry and commerce. They have not, except in certain exceptional cases, suppressed competition; but they have regulated it; and it should be the effort of all civilized societies to substitute coöperative for competitive methods, wherever coöperation can prove its efficiency. Deliberately to undo this work of industrial and commercial organization would constitute a logical application of the principle of equal rights, but it would also constitute a step backward in the process of economic and social advance. The process of industrial organization should be allowed to work itself out. Whenever the smaller competitor of the large corporation is unable to keep his head above water with his own exertions, he should be allowed to drown. That the smaller business man will entirely be displaced by the large corporation is wholly improbable. There are certain industries and lines of trade in which he will be able to hold his own; but where he is not able to hold his own, there is no public interest promoted by any expensive attempt to save his life.
The Sherman Anti-Trust Law constitutes precisely such an attempt to save the life of the small competitor; and in case the Roosevelt-Taft policy of recognition tempered by regulation is to prevail, the first step to be taken is the repeal or the revision of that law. As long as it remains on the statute books in its existing form, it constitutes an announcement that the national interest of the American people demands active discrimination in favor of the small industrial and commercial agent. It denies the desirability of recognizing what has already been accomplished in the way of industrial and commercial organization; and according to prevalent interpretations, it makes the legal standing of all large industrial combinations insecure—no matter how conducive to economic efficiency their business policy may be.
Assuming, however, that the Sherman Anti-Trust Law can be repealed, and that the Roosevelt-Taft policy of recognition tempered by regulation be adopted, the question remains as to the manner in which such a policy can best be carried out. Certain essential aspects of this question will not be discussed in the present connection. The thorough carrying out of a policy of recognition would demand a Federal incorporation act, under which all corporations engaged in anything but an exclusively local business would be obliged to organize; but, as we have already seen, such an act would be unconstitutional as applied to many technically domestic corporations, and it would probably be altogether unconstitutional, except, perhaps, under limitations which would make it valueless. It may be that some means will be found to evade these Constitutional difficulties, or it may not be. These are matters on which none but the best of Constitutional lawyers have any right to an opinion. But in any event, I shall assume that the Federal government can eventually find the legal means to make its policy of recognition effective and to give the "trust" a definite legal standing. What sort of regulation should supplement such emphatic recognition?
The purpose of such supervision is, of course, to prevent those abuses which have in the past given the larger corporation an illegal or an "unfair" advantage over its competitors; and the engine which American legislatures, both Federal and state, are using for the purpose is the commission. The attempt to define in a comprehensive statute just what corporations may do, or must in the public interest be forbidden from doing, is not being tried, because of the apparent impossibility of providing in advance against every possible perversion of the public interest in the interest of the private corporation. The responsibility of the legislature for the protection of the public interest is consequently delegated to a commission whose duties are partly administrative and partly either legislative or judicial. The most complete existing type of such a delegated power is not the Federal Inter-state Commerce Commission, but the Public Service Commissions of New York State; and in considering the meaning and probable effects of this kind of supervision I shall consider only the completed type. A Federal Inter-state Commerce Commission which was fully competent to supervise all inter-state commerce and all commerce competing therewith would necessarily possess powers analogous to those bestowed upon the New York Public Service Commissions.