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White House - Congressional Leadership Meeting, 5/20/69 (includes minutes)
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White House - Congressional Leadership Meeting, 5/20/69 (includes minutes)
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This file includes information regarding Abe Fortas.
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Robert T. Hartmann Papers
House of Representatives Subject Files
subjects
U.S. Postal Service. 7/1/1971-
Supreme Court of the United States. 2/2/1790-
Labor unions
Legislation
Legislative liaison
Postal matters
Presidential appointments
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Suffrage
Vietnam War, 1961-1975
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1969
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1969
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These documents were scanned from Box 106 of the Robert T. Hartmann Papers at the Gerald R. Ford Presidential Library.
DIARY OF WHITE HOUSE LEADERSHIP
MEETINGS -- 91st CONGRESS
May 20, 1969
At 8:35 a. m., Nixon said that foreign aid had originally
been scheduled on the agenda but was removed because
it was felt it would be more appropriate for a bipartisan
leadership meeting.
Mitchell discussed extension of the Voting Rights Act
which expires August 5, 1970. In practical effect, its
major provisions apply to only 6 Southern states, and
it would appear that the trigger mechanism was so devised
as to exclude another southern state (Texas). The Presi-
dent said often during the campaign that he was opposed
to legislation targetfed against a particular section of the
country. For that reason, when the Justice Department
testifies, it will propose amendments which will make the
statute applicable to the country at large. The 50% formula
will be retained for a transitional period but then eliminated.
Those who have been registered under the present system
will be protected. Those who have served 6 months in the
military service and those who have a 6th grade education
will have a presumption of literacy. Examiners and
LIBRARY GERALD FORD
observers will be available to go into any area where
discrimination is shown. McCulloch said that he welcomes
the proposals and felt that they would substantially improve
the Act. Rhodes asked if the old law applies only to Negroes.
Mitchell replied that it applies to all and that many whites
have been registered. Wilson and Tower asked about states
which require periodic reregistration. Mitchell said that the
legislation would not affect any part of that process outside
the literacy test area. Anderson asked if it had been made
permanent. Mitchell replied it was difficult to make a
decision on this point. New census information is necessary,
but it was learned that the questions necessary to include
would delay the completion of the census by 6 months. Cramer
asked if the vote fraud section could not be tightened.
McCulloch said he agreed it could be and should be and if so,
2
the President should message a bill to the Congress, for
which purpose, the Attorney General's appearance before
the Judiciary Committee could probably be postponed a
few days. Scott said he believed the Cramer suggestion
would help.
RMN said that he felt that the Attorney General had
handled the Fortas matter with great restraint and sound
discretion. There has been a great deal of speculation
about the appointments of successors. Any discussions
that RMN has on the subject are to be off the record.
This is because he feels that he should leave preliminary
matters to the Attorney General and maintain for himself
a posture of detachment which will permit him to make the
best appointments. He said that a number of people in this
room have strong views and that recommendations should
be conveyed to the Attorney General. "I consider these
appointments even more important than Cabinet appointments,
and I will not feel bound to make appointments from any
particular area of from any particular group. I will appoint
judges who will interpret the Constitution and law and not
attempt to make the law. Of course, there is a grey area
between the two. As to appointments, I will be "looking
into the matter shortly. Members of Congress have been
GERALD FORD LIBRARY
under consideration, but it now appears that none will be
eligible until the 92nd Congress. Mitchell was asked to
confirm. He said that Office of Legal Counsel had given the
opinion that the pay raise raised a Constitutional barrier.
Scott asked if there was any objection to suggesting names
to the press. RMN said that such suggestions would be
welcome, that he wanted to look at the whole field.
Blount said that he has examined all of the several proposals
for reform in the Post Office Department and has concluded
that a government-owned corporation similar to that recom-
mended by the Kappel Commission is the best. He does have
certain major differences with the Kappel Report. Under the
3
plan which he wants to present to the Congress by
June 1. the management of the corporation would be
a Board of Directors of 9 members, 7 nominated from
outside by the President and confirmed by the Senate
on a staggered basis over a 7-year term and 2 others,
including the manager, named by the first 7. Actions
of the Board involving rate changes would be subject
to a 60-day veto by Congress. The right to strike
would be denied, but in lieu thereof, employees would
be granted the collective bargaining rights and the
binding arbitration proposal which they have publicly
demanded. With respect to the latter, a permanent
dispute panel would be established and empowered to
engage in fact-finding, mediation and final arbitration.
Something has to be done to improve efficiency and reduce
the deficit promptly or the postal establishment will be
in terrible trouble 3 to 5 years hence. Today, the Depart-
ment is moving 82 billion pieces of mail a year and by
that time, the total will be 100 billion. H. R. 10, 000
now championed by the unions, would cost for wage
increases some $2. 7 billion a year; if this deficit is not
to be taken out of the public treasury, thiw will require
a 5¢ postage increase on first class mail. The corpora-
tion would be given power to raise money to modernize
facilities by borrowing up to billion. It would not
be required to act under a balanced budget for a transitional
period of 5 years, but thereafter, income would have to
equal outgo. Allott inquired about public service subsidied.
Blount replied that they would be continued as at present
with the new corporation being compensated out of the
public treasury. Rhodes asked about government
guarantees on the bonds. Blount said that this would be
authorized up to $2 billion. Wilson reminded that the Post
Office Department reaches every citizen; that the postal
workers have the strongest lobby in Washington; that some
thought must be given to what the workers can be told to
justify the proposal. Blount said that he realized that the
LIBRARY GERALD FORD
4
union leaders have their own positions to maintain and
that they know a great deal more about the process of
lobbying than about the collective bargaining process.
However, they have publicly endorsed both collective
bargaining and compulsory arbitration. It can be shown
that workers will fair better under the new system. The
Vice President voiced the concern felt by lawyers who
have practiced labor law about compulsory arbitration.
Rhodes asked if there would be a Congressional veto
procedure following a final aribtration settlement. Scott
said that this would be unworkable because it would
result in a union appeal whenever the decision was not
to their liking. Allott said that it was absolutely neces-
sary to passage of the bill to offer postal workers a
"bigger carrot." Cramer suggested that the new plan
emphasize comparability as one of the primary objectives.
Blount said that he believes in that concept. Corbett
warned that the legislation would die unless the Admini-
stration first won the support of the postal unions. He
suggested that the leaders be called in and consulted and
that if they proved to be viblently opposed to some particu-
lar part, it would be necessary t'to hunt for an acceptable
alternative.' Public service subsidies should be charged
against the public treasury. He anticipates no union
complaint about the bond proposals. RMN asked how many
employees the POD has. Blount said 730, 000. RMN said,
"Times two" in terms of votes. Ford said that public
opinion polls showed broad public support (about 2 to 1).
FORD & GLAND LIBRARY
Some effort should be made to compromise with the unions,
but the Administration should be firm and stay on the side
of the people, not with the employee leaders who have a
vested interest. Blount said that Ford had just made his
speech for him.
The Vice President asked why this lobby was so powerful.
Scott said, "It is the only lobby that gets into the kitchen
every day." RMN said that most postal workers, particu-
larly letter carriers, are "mini-politicians." He agreed
that a "good carrot" would be well advised, and he suggested
5
that the message emphasize those features which tend
to show that the employee will fair better under the new
system than under the old. It is not necessary to
emphasise the goal of efficiency because most people
instinctively understand that a better postal service is
what this proposal is intended to achieve. Postal workers
will "stand a lot taller" if they "don't have to go, hat in
hand, to their Congressman about every little grievance
and every pay raise.' Anderson suggested that it might
be possible to arrange some trade with the unions; their
support of this plan in exchange for Administration sup-
port of some part of H.R. 10,000. Corbett said that
union leadership had admitted to him that H.R. 10,000
is merely their bargaining position and that they are
willing to accept something less. RMN pledged his full
support to the Postmaster General and to the reform
measure he has recommended. He also said that he would
appreciate the support of each member of the Leadership.
At the President's invitation, Ford mentioned that the only
major legislation in the House this week is the $3. 6 billion
Supplemental Appropriations bill. It will be under debate
today and the rest of the week. He said that ABM opponents
may attempt to write an expenditure limitation into the
bill. RMN said, "Don't argue the germaneness question
too strongly; let them offer their amendment."
The President then introduced Henry Kissinger to give a
summary of world reaction to the President's Vietnam
speech. RMN interrupted to announce that on June 8 he
will meet with Rogers, Laird, Bunker and Thieu at Midway
Island, where theywwill discuss the Paris Peace Negotiations
and the military progress in Vietnam. He assured that
rumors of differences between the United States and Saigon
were without any foundation. Kissinger confirmed the latter.
He said there had been a broad gap between Thieu and the
Johnson Administration. Indeed, that there was a group who
promoted a "dump Thieu policy.' The Nixon Administration
GERALD P. LIBRARY FORD
6
has approached and consulted regularly and faithfully
with Saigon. For this reason, among others, the entire
attitude and atmosphere changed. This accounts in large
part for the favorable reception Saigon gave the Nixon
speech. That approval is more than a public relations
gimic. We have intelligence not only about what they have
said to us but what they have said to each other. Kissinger
gave a background of the preparation and timing of the
speech. TheRmirst discussions took place at Key Biscaine
before the Inauguration. On April 20, it was decided that
the message should be delivered about the middle of May.
The point here is that the message was not responsive as
"the press seemed to gather" to the NLF-10 point plan.
The policy of NLF has been twofold, (1) to mobilise world
opinion so as to isblate the U.S. from the world community
and thereby undermine support for the war on the domestic
front; and (2) to use the Paris talks as a vehicle to promote
a split between the U. S. and Saigon. Hanoi must be
convinced that both policies have failed when it reads
reaction to the Nixon speech. In this country, comments
made by Members of Congress of both parties and from all
points of the philosophical spectrum show unison rather than
a conflict. Comments in all of the foreign press outside the
Soviet sphere of influence have been unanimous, unqualified
and enthusiastic in thhir approval. The position taken by
Le Monde, the newspaper read by much of the French-
speaking world, is especially significant. The Japanese
reaction was favorable, the first time the Japanese have
been willing to let their feelings be known publicly. Yugo-
slavia, which is a good bellwether, responded favorably.
Elsewhere in the communist world, including Russia, criti-
cism was mitted. The communist press quoted long passages
of the Niron speech, including the conciliatory paragraphs.
This is something they seldom tio. In Hanoi, the reaction
was different than that in response to every previous
American pronouncement. They promised to study it. On
Sunday, they published a commentary, knit-picking the
individual proposals. This suggests their willingness to
negotiate and discounts the possibility of total rejection.
FORD & LIBRARY GERALD
7
RMN summarized. This is the first time in the Vietnam
struggle that the President has clearly defined America's
goals, offered the other side a way out, and built a plat-
form broad enough to accommodate most viewpoints on the
domestic front. In this connection, the President made a
conscious effort to move away from the old LBJ position
which assumed that "you are either with us or against us."
We cannot settle for the old communist "talk-fight" strategy.
There will be a time lag of from 2 to 3 months before the
true enemy reaction can be fully judged. However, we are
in the position of "controlling events rather than simply
reacting to them."
RICHARD H. POFF
ROAD LIBRARY
FOR IMMEDIATE PELEASE
MAY 20, 1969
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS. CONFERENCE
OF
CONGRESSMAN GERALD R. FORD
AND
RONALD L. ZIEGLER
THE ROOSEVELT ROOM
AT 10:35 A.M. EDT
CONGRESSMAN FORD: Good morning. I regret to say
that Senator Dirksen was unable to attend the meeting this
morning because he is out at Walter Reed for one of his more
or less regular check-ups; no crisis, no unforeseen problem.
He is simply out there for the purpose of a regular check-up.
The meeting this morning with the Leadership and
the President covered generally four areas: One, the Attorney
General was at the meeting and discussed the forthcoming Presi-
dential message in the area of the extension of voting rights
legislation. The present act expires in August of 1970. The
Attorney General is coming up to the House Committee on the
Judiciary sometime this week or early next week to make
recommendations and coincidental with that testimony by the
Attorney General will be a Presidential message proposing the
extension of the Voting Rights Act.
The Postmaster General also appeared before the
Leadership to discuss in broad terms the anticipated Presidential
message and the recommendations of the Post Office Department
for the reorganization of the Post Office Department.
Dr. Kissinger took time this morning to discuss their
estimate of the President's speech, both domestically and inter-
nationally. It was also pointed out that it was more or less
anticipated that there would be a follow-up meeting with the
Saigon government. It was reported by Dr. Kissinger that the
Saigon government is enthusiasticallv favorable to the specifics,
the recommendations of the President in his speech of last
Wednesday.
It was also indicated that within a week or so there
undoubtedly would be a foreign aid message from the President.
Those are the four areas we covered. I will be glad
to answer any questions.
0
In view of Dr. Kissinger's statement that Saigon
GERALD
FORD
was enthusiastically favorable, why is there such a hurried
meeting with President Thieu?
CONGRESSMAN FORD: I don't believe this could be called
a hurried meeting. It is my understanding that this had been
to some extent anticipated in the overall plans that had been
made both prior to the speech and subsequently. It doesn't
necessarily coincide with the speech, but it was a part of the
overall plan that had been worked out since the President took
office.
MORE
- 2 -
Q
What was Dr. Kissinger's estimate of the domestic
effect of the speech?
CONGRESSMAN FORD: The domestic effect, editorial-
wise and otherwise, he reported was favorable. I can assure
you that from the mail I have received and the editorials
that I have seen from various newspapers throughout the
country, it indicates that the President got a good public
response domestically.
According to Dr. Kissinger, the survey of the news-
paper editorials world-wide in the Free World was extremely
favorable. The French press, the Indian press, the British
press, all seemed to consider it a great forward step in an
effort to resolve the problem in Vietnam.
C'
Jerry, did you get an estimate from Dr. Kissinger
of the Communist reaction to the speech?
CONGRESSMAN FORD: I think it can be best summarized
that he felt their response a day or so after the President's
speech was a rebuttal, but not a rejection.
2 Did you have a feeling that troop withdrawals would
be discussed at this forthcoming meeting at Midway?
CONGRESSMAN FORD: The agenda was not discussed except
that it would include the political as well as the military, and
none of the details other than that were outlined.
C
You said Dr. Kissinger said that this meeting
between the two Presidents was more or less anticipated. What
did he mean by that; that they expected that President Nixon
would have to talk to him?
CONGRESSMAN FORD: No, it was anticipated that as we
move down the road trying to find an answer that the two Heads
of State would get together to make certain and positive, not
only in the present but in the future, that they would be
going down the same track.
In the past, as you know, not during this Administration,
but previously, there had been some public differences between
Saigon and Washington. I think this Administration wants to
make sure we don't make that mistake again.
Q
Are you talking specifically about the Midway
meeting?
CONGRESSMAN FORD: Yes, sir.
0
Mr. Ford, was there any discussion about the
process by which the President is picking some nominees for
the Supreme Court or where that stands?
giving
CONGRESSMAN FORD: There was no discussion.
Q
What is the general shape of the Post Office
reorganization that is going to be proposed?
CONGRESSMAN FORD: Until we have another meeting and have
an opportunity to trv and iron out some of the areas where there
are some uncertainties at the moment, I think it is best not to
discuss the details.
MORE
- 3 -
C'
Mr. Ford, is the Speaker's decision to let the
Senate take the ABM first a setback for you, for those
who are proponents of the ABM?
CONGRESSMAN FORD: As I indicated, I think it would
have been helpful to have the issue in the House first.
I don't think it is a setback for the Administration at
all, because I still feel that the Administration will be
successful in getting Congressional approval for the ABM
Safeguard system.
I ought to mention that in the supplemental
appropriation bill that is on the Floor of the House today
and tomorrow I am told that some of the ABM opponents
might take the initiative and try to write in some
limitation preventing the Defense Department from obligating
or spending any money for ABM research and so forth. I
personally would welcome their initiative in this regard,
because I think we might be very helpful on the cause by
giving them a pretty good licking.
Q
You control the motion to recommit on that
bill. Do you anticipate you might get something to put in a
bill so you could recommit?
CONGRESSMAN FORD: The motion to recommit is usually
used as something favorable for the Administration. I don't
think we would relinquish this prerogative of the minority
for a test on this. But if they offer a motion or an amend-
ment during the consideration of the supplemental appropriations
bill as we read it for amendment, I hope we can have a test on
it.
Q
But that would be a non-roll call test because
you would be in committee.
CONGRESSMAN FORD: We could get a division and a
teller vote and I think you sitting in the gallery could
count the troops on either side, and I think it would
be overwhelmingly for the Administration.
Q
Are you saving we are totally in tune with the
Saigon government for the goals in Vietnam, for example, the
coalition government? In the speech it seems to me there
are wide loopholes where it would be acceptable to us and the
Saigon government has not so indicated.
CONGRESSMAN FORD: As I understand it, the Saigon
government approved the words, language, and the phrases
as the President gave the speech on Wednesday. There has been
no modification of the President's view and the Saigon
government endorsed it.
Q
Did you discuss at all the problem of a coalition
government?
CONGRESSMAN FORD: No discussion was held on that
particular point.
i
GENELD
FORD
MORE
- 4 -
0
Just a minor question -- Ron might have covered
this this morning, and I was not here for that -- since this
meeting with President Thieu was not a hastily called meeting,
and since it could have been convened, I assumed, on June 10,
for example, since the President was going to speak at Ohio
State University on June 8, and since that is of significance,
going to a major college campus, what is your feeling at this
moment that he is not going to a major college campus?
MR. ZIEGLER: I can respond to that. I did not cover
that particular question this morning.
The date of the meeting, of course, was arranged
at a time which could best fit both President Thieu and
President Nixon's schedule, and that was the reason for the
date. As Congressman Ford indicated, the President's meeting
had been anticipated. The President has not had an opportunity
to meet personally with President Thieu since he has been in
office, and the President wanted to do this at the earliest
possible time.
MORE
i
GERALD
FORM
- 5 -
0
Did you establish whether he has met him before
as a privite citizen?
MR. ZIEGLER: The President indicated that he has met
President Thieu on two different occasions. But he has not met
with President Thieu since he has been President, of course.
One additional fact that I didn't give you this morning
in relation to a question on this, Ambassador Bunker, Secretary
Rogers and Secretary Laird will accompany the President to
Midway.
Q Could I ask you a corollary question? Is the
President speaking at another college commencement exercise
to make up for Ohio State?
MR. ZIEGLER: There is nothing on the schedule now.
0
Will Bunker be coming back to this country after
Midway?
MR. ZIEGLER: No. Again, the schedule is not totally
firm, but the information I can give you is that Ambassador
Bunker, Secretary Rogers and Secretary Laird will be at the
meeting in Midway.
Q
Will General Wheeler be there?
MR. ZIEGLER: Those are all the individuals I have now
that I can indicate to you.
Q
You don't rule out General Wheeler then?
MR. ZIEGLER: I just don't know. As soon as it is firmed
up we will give it to you.
C
Will Secretary Rogers be coming back here and
then going to Midway or will he go from Asia?
MP. ZIEGLER: It would be my feeling that he would be
here, but I don't have his schedule.
0
He is due back here on May 27th.
a
Can I ask how long the voting rights legislation
will be extended for?
CONGRESSMAN FORD: The actual term was not discussed.
There was at least one who raised the question of whether it
would be permanent legislation. I think this is something
that will be resolved prior to the President's recommendation,
but no firm decision was made on it.
Ω
Do you want any changes in that?
CONGRESSMAN FORD: Yes, I think there can be some
beneficial changes. I think in general I can say that it will
be broadened to be all-encompassing as to geography and it will
have stronger provisions related to vote frauds, the corruption
aspect.
MOPF
GERALD
- 6 -
O
Congressman Ford, did the situation on the surtax
come up and could you give us your assessment on whether the
surtax extension is in trouble in the House now?
CONGRESSMAN FORD: There was no discussion at the
meeting this morning concerning the proposed tax bill, the
surtax, the investment tax credit, repeal and the other tax
reforms represented by the President. But it is my personal
feeling that in the final analysis the Congress will take
affirmative action and if we don't, I think the Congress can
be charged with failing to face up to a serious economic threat,
inflation, and so forth.
So I personally strongly support the President's
proposal and I hope the Congress has the good sense to move
ahead and do something about the overall problem.
Q
How about the spending limit?
CONGRESSMAN FORD: There was no discussion about the
spending limit. I don't mind reiterating that I believe that
the provision in the supplemental appropriation bill is good
legislation. I think the Congress will eventually approve
it in one form or another.
0
When do the messages go up?
CONGRESSMAN FORD: The voting rights -- no special
date, but I would say within a week or maybe before. The
one on Post Office reorganization, probably sometime next week.
MR. ZIEGLER: Possibly.
Q
Was there any discussion on drug control, Federal
legislation, in light of the Supreme Court decision yesterday?
CONGRESSMAN FORD: There was no discussion on that.
o
Was there any discussion on Supreme Court vacancies?
CONGRESSMAN FORD: No.
THE PRESS Thank you.
END
(AT 10:50 A.M. EDT)
LISTERY
HOUSE ACTION, PERIOD MAY 13 THROUGH MAY 19, 1969
Tuesday. May 13, 1969
The House passed by voice vote 11 Bills from the Ilouse Committee
on Ways and Means.
Wednesday, May 14. 1960
SALT WATER CONVERSION
The House passed by voice vote. S.1101 to authorize appropri-
ations for the saline water conversion program for f'sca'
year 1970.
CRIME COMMITTEE FUNDS
The House passed by voice vote. H.Res.399. a funding resolution
for a select committee on crime.
Thursday, May 15, 1969
MARITIME AUTHORIZATION
The House passed by voice vote, H.R.4152, to authorize appro-
priations for certain maritime programs of the Department of
Commerce.
Monday, May 19, 1960
SUSPENSIONS (TUREE BILLS)
The House under suspension of the rules, bassed the Following
three Bills by voice vote:
1. H.R.10595 - extension of Great Plains Conservation Program
2. H.R.6008 - relating to Education Benefits provided Veterans and
certain dependents
3. S.403 - relating to various Veterans' housing programs
Tuesday and Balance of Week
H.R.11400 - Second Supplemental Appropriation Bill, FY 1969 (subject to
rule being granted Tuesday, May 20. 1969)
CERALD FORD
Working Paper for the Task Force on Productivity and Competition
THE CONGLOMERATE MERGER
By
Ronald H. Coase
There is a loud clamour to proceed against conglomerate mergers
under the antitrust laws and the political pressures exerted for such
action are strong. It is my view that such pressures should be resisted,
an opinion which I know is shared by some other members of the Task Force.
The acquiring of an enterprise by a firm which has interests in
other unrelated enterprises, unlike a horizontal merger, has no direct
anti-competitive effects. It leaves the competitive situation essentially
unchanged. Indeed, the main complaints about the conglomerate relate to
other things. It is said that a firm with a high price/earnings ratio
(based on the assumption that its profits will grow rapidly) is able,
through acquiring firms with a low price/earnings ratio, to produce an
apparent rise in the per-share earnings and thus justify the pre-existing
belief in the rise in its profits. It is, of course, clear that this
process cannot go on for long, (if this is the real basis for the conglom-
erate's rapid growth in profits) since it needs more and more acquisitions
of organizations with low price/earnings ratios to maintain this apparent
rapid growth in the earnings of the conglomerate, as the acquired firms
are presumably ones in which there is little prospect of a rise in earnings
or a considerable chance of decline. Whether investors are, in fact, mis-
led about what is going on, I do not know. But if there is a problem, it
seems clear that it is one for the Securities and Exchange Commission.
GERALD FORD LIBRARY
- 1 -
It is also claimed that these conglomerates will be inefficient.
A more likely result is that some will be inefficient and some will be
efficient. Competition will sort them out. Those that are inefficient
will find resources hard to get and may indeed be forced to dispose of
some of their constituent parts. As it is impossible to determine by
court proceedings which of these mergers will be efficient and which will
not, and competition will in fact do this (and probably in less time than
the court proceedings would take), there seems little point in using the
efficiency issue as a basis for antitrust actions.
Some support for antitrust action against conglomerate mergers has
been based on the fact that the firms might engage in reciprocal buying
between constituent units. This practice might, of course, lead to
greater efficiency (for example, by reducing marketing costs) or it might
lead to inefficiency (by substituting a subsidiary's higher cost supplies
for an outsider's lower cost supplies). If this practice leads to
efficiency, there is no reason to stop it; if it leads to inefficiency,
there is no reason why the conglomerate should adopt it (since it would
reduce its overall profits).
No convincing case has as yet been made for taking antitrust action
against conglomerate mergers. Until it has, the Antitrust Division should
resist the pressures and devote its resources to combatting clear threats
to the competitive process.
I do not regard this conclusion as inconsistent with the view that
&
FORD
there are other values to be taken into account apart from the efficiency
GREATS
narrowly conceived, with which society uses its resources. One of these
values is that it is undesirable to hang a man for an imaginery crime.
- 2 -
If policy is to be based on "fear of size," it is surely desirable to
discover what is really feared, whether it results from size and whether
this comes about in all circumstances or only in some. Even if these
fears are properly based and size in certain circumstances is found to
have consequences that ought to be feared, and these consequences are
such as to be properly dealt with under the antitrust laws, it is by no
means clear that the Department of Justice should give first priority to
recent conglomerate mergers, most of which are outranked in size by a
hundred or more other firms in the United States. What I urge (with no
more than that modicum of moral fervour proper in the circumstances) is
that antitrust actions should not be brought unless there is reason to
believe that the practices attacked have serious adverse consequences,
properly handled by the antitrust laws. This does not seem to me to have
been established, as yet, in the case of the conglomerate merger. A regard
for procedural decency may indeed often reduce one's chance of influencing
policy but not, I hope, when one is dealing with the Department of Justice.
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Working Paper for the Task Force on Productivity and Competition
RECIPROCITY
By
George J. Stigler
The allegation of reciprocity in the dealings between independent
companies is extremely widespread, although systematic quantitative study
of the extent of reciprocity has never been made. The doubts of the
importance of reciprocity (except in one important and identifiable class
of dealings) held by the economist may be stated.
Consider first the fully competitive situation in which seller S
produces X, and purchases Y in producing it, and buyer B produces Y, and
purchases X in producing it. Now let B initiate reciprocity, refusing to
buy X from S unless S buys Y from B. The possibilities are:
1. B sells Y on the same terms as his rivals (and, in each of these
cases, S sells X on the same terms as his rivals). There is no
cost-or-gain to either party in the reciprocity.
2. B sells Y on more favorable terms than his rivals. Then
compulsion is not necessary to get S's patronage.
3. B sells Y on less favorable terms than his rivals. Then S
LIBRARY GERALD r FORD
will be injured by purchasing from B.
Clearly, in case 2 there need be no compulsion to reciprocity and in case 3
the reciprocity will be refused. Case 1 is harmless and pointless, and I
assert that it is quantitively negligible. The non-economist will often
object to case 1:
(a) The preference given B's product is unfair to rivals selling on
equal terms. The answer is double: the preference will not be
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given if it imposes any cost on S; and if there is competition
the rivals are not injured in the least: they can sell else-
where the quantity they previously sold to S, and without a
reduction of price. Differently put: neither supply nor
demand has changed, so price will not change.
(b) The reciprocity eliminates "selling expenses". Putting aside
the question of fact (for often reciprocity complicates trading),
if there are economies from the reciprocity, the practice should
spread, and will not injure competition.
The opposite situation, where S is the only seller, B the only buyer,
raises no interesting questions of reciprocity, which is inherent and
unavoidable. There remains the case of one-sided monopoly.
So long as the seller (or buyer) with monopoly power has a single price,
reciprocity has no real effect. Suppose the monopolistic seller extorts a
preferential price from the buyer--then he is using a portion of his monopoly
powers indirectly when he could be obtaining the same extra sum directly by
selling at a higher price. If the seller (or buyer) with monopoly power sets
a different price for some buyers than for others (and so practices price
discrimination), it is possible that he may increase his profits. But the
only purpose in varying prices through reciprocity (paying different prices
to different customers for their products) would be to conceal the discrim-
ination.
The case for reciprocity arises when prices cannot be freely varied
to meet supply and demand conditions. Suppose that a firm is dealing with
a colluding industry which is fixing prices. A firm in this collusive
FORD LIBRARY
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industry would be willing to sell at less than the cartel price if it can
escape detection. Its price can be reduced in effect by buying from the
customer-seller at an inflated price. Here reciprocity restores flexi-
bility of prices.
In short reciprocity is probably much more talked about than practiced,
and is important chiefly where prices are fixed by the state or a cartel.
February 18, 1969
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SUMMARY OF RECOMMENDATIONS OF THE TASK FORCE
ON PRODUCTIVITY AND COMPETITION
We present here a summary of the recommendations of the Task Force
on Productivity and Competition. These recommendations are elaborated and
defended in the accompanying Report.
1. We recommend that the President issue a general policy statement
(a) establishing the Antitrust Division as the effective agent of
the Administration in behalf of a policy of competition within the
councils of the Administration and before the independent regu-
latory commissions; (b) urging those commissions to enlarge the
role of competition in their industries; (c) marshaling public
support for the policy of competition.
2. We urge the commissions to permit free entry in the industries under
regulation and to abandon minimum rate controls, whenever these
steps are possible-- and we think they usually are; and we urge
the President, when occasion permits, to appoint at least one
economist to membership in each of the major commissions, and
institute effective procedures for the review of the performance
of the commissions.
3. To enhance the effectiveness of the Antitrust Division, we urge the
Attorney General and the Assistant Attorney General in Charge of
Antitrust to insist that every antitrust suit make good economic
sense, and to institute semi-public conferences to assist in the
formulation and frequent reevaluation of enforcement guidelines.
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GERALD LIBRARY FORD
4.
We recommend that the Department of Justice establish close liaison
with the Federal Trade Commission at the highest levels, with a view
toward fostering a harmonious policy of business regulation.
5.
We recommend that the Department bring a series of strategic cases
against regional price-fixing conspiracies, which we believe to be
numerous and economically important.
6.
We cannot endorse, on the basis of present knowledge of the effects
of oligopoly on competition, proposals whether by new legislation
or new interpretations of existing law to deconcentrate highly
concentrated industries by dissolving their leading firms. But
we urge the Department to maintain unremitting scrutiny of highly
oligopolistic industries and to proceed under section 1 of the
Sherman Act--which in our judgment reaches all important forms of
collusion-- in instances where pricing is found after careful investi-
gation to be substantially noncompetitive.
7.
The Department of Justice Merger Guidelines are extraordinarily
stringent, and in some respects indefensible. We suggest a number
of revisions in the accompanying Report.
8.
We strongly recommend that the Department decline to undertake a
program of action against conglomerate mergers and conglomerate
enterprises, pending a conference to gather information and opinion
on the economic effects of the conglomerate phenomenon. More broadly,
we urge the Department to resist the natural temptation to utilize
the antitrust laws to combat social problems not related to the
competitive functioning of markets.
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9. We recommend new legislation to increase. the monetary penalties, at
present largely nominal, for price fixing.
10. We urge a new policy for antitrust decrees. The Department should
not seek the entry of regulatory decrees: decrees that envisage a
continuing relationship with the defendant. Save in exceptional
circumstances, all decrees should contain a near termination date,
ordinarily no more than 10 years from the date of entry. And the
Department should undertake a review of existing decrees to deter-
mine which should be vacated as obsolete or inappropriate.
11. The Expediting and Webb-Pomerene Acts should be repealed, and the
Robinson-Patman Act substantially revised.
12. Mr. Alexander L. Stott dissents from certain parts of the Report
and from certain of the above recommendations. Mr. Raymon H. Mulford
dissents from two recommendations.
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CONFIDENTIAL
REPORT OF THE TASK FORCE
ON PRODUCTIVITY AND COMPETITION
The Task Force on Productivity and Competition submits its report
on the problems which will be confronted by the new administration in
this area, and the steps which we recommend to be taken. The report
is presented under three general headings:
I. The Administration's Policy of Competition and the Role
of the Antitrust Division and the Regulatory Commissions
in This Policy.
II. Organization and Procedure in the Antitrust Division.
III. Recommendations for Change in Antitrust Policy.
Individual task force members would often change the emphasis of the
Report, and larger differences are presented as dissents.
I. General Policy
A. Antitrust Policy
The American Way, as we are constantly told, is to rely upon compet-
itive private enterprise to do most of the work of allocating resources
to industries and firms, organizing production, and providing economic
progress. We are constantly travelling a shorter distance down this Way,
however: for good reasons and for bad we have almost continuously expanded
the governmental controls over economic life, and in recent years important
restrictions have been placed upon private enterprise to protect the bal-
ance of payments. Some of the vast arsenal of public controls are unnec-
essary, and a large proportion of the necessary controls are excessively
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LIBRARY GERALD R. FORD
restrictive of competition. As one example, the safety of financial insti-
tutions is of course a major public concern, but this safety can often be
achieved by insurance or similar devices, and hardly ever requires that
competition be suppressed to the extent that the most incompetently
managed institution will be prosperous, and hence safe.
The traditional American policy of seeking to minimize regulation
of economic life is a profoundly wise policy, and deserves to be reasserted
and implemented. Both logic and political expediency--not always close
allies--dictate that economic freedom be subjected to the discipline of
competitive markets. We believe, therefore, that the President should
issue a general policy statement on competition and public regulation, to
achieve at least three important purposes:
1. To establish the Antitrust Division as the effective agent
of the Administration in behalf of a policy of competition,
in intragovernmental groups, and before independent regula-
tory bodies.
2. To encourage and urge the regulatory bodies--which cannot
ignore the clear policy positions of the President even when
his appointive power is dormant--to enlarge the role of
competition in their respective industries.
3. To revive and strengthen public support for the policy of
competition, and to establish the bona fides of the Admin-
istration as the protector of both consumer and businessman.
An executive order or a major presidential address would be an appropriate
vehicle for this declaration. Whether or not a formal statement commends
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GERALD R. FORD LIBRANA
itself, we believe that the correct policy is one of persistent and
resourceful exploitation of competition wherever possible.
B. The Policy of Competition in the Regulated Industries
Our mandate to examine productivity and competition in the American
economy compels us to brief examination of the work of the regulatory
commissions themselves. The regulated industries comprise one-eighth or
more of the economy in terms of income, and are too important to be
omitted from our Report.
The tasks assigned to the regulatory agencies are various: to prevent
monopoly pricing (as with telephone and pipelines); to prevent congestion
(as with radio and television frequencies); to provide safety to savers
(as with financial institutions); and so on. It is not possible for us
here to examine these purposes critically, although it is notorious that
in certain industries (such as motor trucking) there is no respectable
case for economic regulation. There is widespread disenchantment with
regulatory purposes as well as regulatory processes, and a general belief
that excessive rigidity, expensive review of economically trivial details,
and frequent failure to achieve any important results have characterized
our regulatory efforts.
In two directions, we are convinced, there should be a major reorien-
tation of the regulatory policy:
1. Entry of new firms should be encouraged wherever an absolute
contradiction with regulatory goals is not involved. At present
the practice is universally the opposite: to prohibit or ration
with utmost severity the entrance of new firms.
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2. Allow much freedom in price competition. The regulatory
bodies should abandon minimum rate regulation whenever
possible (and it is usually possible), and rely chiefly on
maximum rate regulation.
Where rates are regulated, it is essential to make both changes: there
is little merit in allowing additional firms to enter if they are not held
to the test of unfettered competition with the existing firms.
We urge the Administration to pursue three complementary paths of
reform in the regulated industries:
First, the commissions should have the merits of competition pressed
upon them. Competition is not a matter of all or none, and the fact of
regulation should not exclude competition as a force at each of a hundred
points where it is relevant and feasible. If there must be only one rail-
road there can still be several truckers, several freight forwarders, and
the possibility of inter-modal competition.
Second, the primary method of giving a larger role to competition is
by appointing commissioners who understand and believe in a policy of
competition. We believe that every regulatory body should have at least
one economist as a commissioner. Quite aside from the implementation of
the desire for more competition, this proposal has a decisive defense:
economic regulation poses more economic than legal problems, and an
economist knows more about economics than a non-economist. The economic
triviality and irrelevance of much activity of the regulatory commissions
is patent and inexcusable.
Third, the regulatory commissions are largely out of public control.
Once in a decade or two, at most, a commission will be investigated by
R.
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GERALD
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LISGRAT
Congress. The Administration should explore methods of getting more
meaningful and effective reviews than we now get. We do not know whether
the best method is an enlarged Bureau of the Budget section, a national
commission, the creation of academic review committees, or a special
adviser to the President. The best method, however, is surely not infre-
quent, partisan Congressional review. The present rule of the regulatory
bodies is undirected, unmeasured, and unevaluated.
II. Organization and Procedure in the Antitrust Division
A.
The Utilization of Economic Knowledge
We anticipate little opposition to the proposition that the Antitrust
Division make full and effective use of economists and their special skills.
These skills are often necessary to understand the effects of economic
practices (an example is market-sharing in fixed proportions), to assess
the economic importance of individual cases, and to assist in devising
remedies that will not shatter on economic realities. We endorse the
policy of having a highly professional economist serving as adviser to the
head of the Division, and a strong permanent staff of economists.
The problem is not the goal of an economically sophisticated antitrust
policy, but its implementation. A division charged with the enforcement of
a statute must of course be directed and largely staffed by lawyers. Unless
there are substantial incentives to the staff to utilize economics--whether
by central direction, or vastly more powerfully, by demonstrated assistance
in winning cases-the non-lawyer will often be viewed by the lawyers as a
mysteriously necessary obstacle to smooth operations. The Assistant Attorney
General will have succeeded in making a truly major contribution to antitrust
policy if he establishes the relevance of economic knowledge.
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LICERSE
B.
The Development of Criteria for Classes of Cases (Guidelines)
When the Antitrust Division is confronted by a large number of
similar cases--and it must now be scanning many hundreds of mergers each
year--it will inevitably have rules to guide the numerous men who pass
on individual cases. The question is not whether to have criteria or
guidelines, but how to arrive at them.
We believe, for reasons we discuss below, that the present merger
guidelines are questionable in important respects. Here we consider the
procedures for formulating guidelines.
A set of rules for a class of cases will be desirable only if two
conditions are fulfilled:
1. There are a large number of uncontroversial, easily identified
cases. If there are not, the rules give little help to either
business or the Division.
2. Controversial or objectionable cases cannot be repackaged to
avoid scrutiny.
The way to determine whether mergers, for example, meet these conditions
is to examine a large number of them in the light of legal and economic
knowledge. The Antitrust Division will perform this task vastly better
if it uses the large amount of professional expertise available outside
the Division. We therefore recommend that the Division have semi-public
conferences to explore difficult areas of policy, inviting legal and
economic experts to propose or discuss guidelines. Some members of the
task force would prefer to have formal notice and public hearings in estab-
lishing rules. If rules are adopted, a periodic review of them by the
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same procedure will be a useful method of conferring flexibility upon
them. A specific application of this method is proposed below for mergers.
C.
The Role of the Federal Trade Commission
No review of antitrust policy would be complete that ignored the
Federal Trade Commission, which is charged with enforcement of, among
other statutes, the Clayton Act, of which Section 2, the Robinson-Patman
Amendment, and Section 7, prohibiting mergers and acquisitions that may
substantially lessen competition, are particularly important; and the
Federal Trade Commission Act, whose operative provision, Section 5, for-
bids "unfair or deceptive acts or practices", a term that has been
interpreted to embrace even more than the vast area of anticompetitive
behavior proscribed by the Sherman and Clayton Acts, as well as consumer
fraud and some "immoral" sales methods such as lotteries. As is evident,
the Commission's jurisdiction largely overlaps that of the Antitrust
Division.
In its antitrust work, the FTC has concentrated on price discrim-
ination, on practices believed to oppress or coerce small dealers, and
on mergers, especially vertical and conglomerate, and usually in industries
such as food products, groceries, and cement--industries which by long-
established understanding with the Antitrust Division have been assigned
as the Commission's sphere of primary competence.
Unhappily, little that the Commission undertakes in the antitrust
area can be defended in terms of the objective of maintaining and strength-
ening a competitive economy. Consider price discrimination. There is now
an impressive body of literature arguing the improbability that a profit-
maximizing seller, even one with monopoly power, would or could use below-
. .
GERALD
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cost selling to monopolize additional markets. Yet, not only has the
Commission continued to bring predatory price discrimination cases, but
the alleged danger of predatory pricing remains a principal prop of its
vertical and conglomerate antimerger cases. As for "secondary line" dis-
crimination (that is, giving discounts to some dealers or distributors
but not to others who compete with them), the Commission has never attempted
to differentiate those cases (if there are any) in which a monopsonistic
buyer is able to extract unjustified price concessions from his suppliers
to the prejudice of his competitors from those in which discrimination is
employed by oligopolistic sellers who wish to cut prices secretly, and
should be encouraged to do so--and those in which price differences (which
the Commission tends to equate, erroneously, with discriminations) are not,
in fact, discriminatory. Over the last eight years the Commission, often
under the prodding of reviewing courts, has pulled some of the sting from
enforcement of Robinson-Patman against secondary-line discrimination. It
has demanded somewhat stronger proof of competitive injury; the meeting-
competition and cost-justification defenses have been rendered meaningful;
and the provisions of the Act relating to advertising allowances and
brokerage payments are, in general, no longer used to compel sellers to
compensate for services that are not economically beneficial to the seller
(such as advertising by tiny retail outlets or brokerage when a broker's
services can be dispensed with). Although the retreat from per se rules
against secondary-line discrimination has led to a general diminution of
enforcement activity by the FTC (private suits continue, of course, and
are discussed later) the Commission still brings many cases that impair,
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DERALO
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LIDERAY
rather than promote, competition and efficiency. For example, the Com-
mission has in recent years waged vigorous war against "functional dis-
counts", which are discounts offered to middlemen who perform certain
distributive functions (such as warehousing) that other middlemen, who are
not given the discounts, do not perform. Moreover, as explained later in
this Report, we can conceive of no case of discrimination in which the
Sherman Act would not provide an adequate remedy-adequate, that is, to
protect the interest in maintaining an effectively competitive economy--
and so we view Robinson-Patman enforcement as inherently likely to be
pushed beyond proper limits.
The efforts of the Commission to protect small dealers from allegedly
unfair and coercive business practices constitute a dark chapter in the
Commission's history. Much of this enforcement activity does not eventuate
in formal proceedings. What happens is that a dealer who is terminated,
for whatever reason, is likely to complain to the Commission, knowing that
the relevant Commission staff is well disposed toward "small business".
The staff uses the threat of an FTC proceeding to get the supplier to
reinstate the dealer, and if threats fail--usually they succeed--the FTC
may file a complaint charging the supplier with having cut off the dealer
because he was a price cutter, or for some other nefarious reason. Our
impression, in sum, is that the Commission, especially at the informal
level, has evolved an effective law of dealer protection that is unrelated
and often contrary to the objectives of the antitrust laws. The Commission
is supported in this endeavor by the Supreme Court's rulings that Section 5
of the FTC Act empowers the Commission to suppress practices that resemble
antitrust violations.
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LIBRARY
With respect to the Commission's enforcement policy in the merger
field, it is illuminating to compare the recent statements of Commission
merger policy with the Department of Justice Merger Guidelines, discussed
elsewhere in this Report. The Commission is even more severe. Unlike
the Department, it attaches a good deal of significance to the absolute
size (independent of market share) of merging firms; to the alleged power
that large firms have over small; and to the dangers of "price squeezes".
It will, for example, challenge virtually any. acquisition by a cement
producer of a ready-mix concrete company, virtually any substantial acqui-
sition by a large food chain, etc. The Merger Guidelines are models of
restraint compared to those promulgated by the Commission, which are as
hard on economic theory as on mergers.
We conclude that substantial retrenchment by the Commission in the
antitrust field is highly desirable. In addition to retrenchment (at
least by stopping the increase of the Commission's appropriations), its
resources devoted to regulating competition might be redeployed. The two
principal possibilities are (1) consumer protection, and (2) economic
studies utilizing the very broad fact-gathering powers vested in the
Commission by its enabling legislation. Unhappily, either route could be
followed in a way that endangered competition. An incompetent economic
study can be influential on policy makers--witness the influential 1948
FTC study which erroneously suggested that concentration was on the rise
in American industry. Overzealous enforcement of consumer-protection
legislation can also have errant results. We note that the application of
consumer-protection law is almost always invoked not by consumers but by
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AMERICA
competitors, whose interest lies in protecting their market, not in
giving consumers full information; and that elaborate requirements relating
to packaging, safety, etc. can curtail consumer choice, limit competition,
reduce the consumer's incentive to exercise care, and--what is most serious--
impose substantial costs on society.
The Federal Trade Commission urgently needs a basic reform, but this
need will be difficult to fulfill. Quite apart from the fact that there
are no vacancies on the Commission, any dramatic or far-reaching Presiden-
tially-inspired reforms would run up against the long tradition of regarding
the independent agencies in general--and the FTC in particular--as "arms of
the Congress". That has at times meant an office of economic opportunity
for Congressmen; more important, it means that a strong showing of Presi-
dential interest in the operations of the Commission will not be welcome
on the Hill.
Perhaps the best short-run path of improvement runs through the offices
of the Attorney General and the Assistant Attorney General in charge of
Antitrust. Since the jurisdictions of the Commission and of the Antitrust
Division are so largely overlapping, no one could object to the establish-
ment between the Commission and the Division of close liaison at the highest
levels. Indeed, it is something of a wonder (though explicable in terms of
bureaucratic rivalry) that such liaison has been wholly lacking heretofore;
the only coordination between the agencies is at very low levels, and con-
sists largely of haggling over who shall sue in cases where both agencies
are interested. Especially at the beginning of a new Administration, it
should be quite feasible, as well as wholly appropriate, for the Attorney
General and Assistant Attorney General to establish a close cooperative
FORD LIBRARY GERALD
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relationship with the Chairman of the Commission. We think it likely
that the Commission will pay some heed to the Department's views, if
forcefully expressed, on antitrust and trade-regulation policy.
III. Recommended Changes in Antitrust Policies
The general policies of the Antitrust Division are profoundly good,
and we propose no major change in its emphasis or directions of policy.
In fact, the main thrust of the following recommendations is that certain
recent developments of policy or doctrine should not be allowed to divert
the agency from its basic task of striking down conspiracies and mergers
in restraint of trade.
A. Price-Fixing
The price-fixing cases of the Antitrust Division are its bread and
butter, and understandably its staff would prefer more cake. We emphasize
the great economic and social importance of continued, vigilant, aggressive
seeking-out and conviction of conventional price-fixers. Every victory
weakens the efficiency of undetected collusion in that area of economic
life. We strongly recommend the bringing of a series of strategic cases
against regional conspiracies, which we believe to be numerous and econ-
omically important.
B. Concentration and Oligopoly
Oligopoly--the industry composed of a small number of independent
enterprises--undoubtedly presents the most difficult problems in a policy
for competition. The difficulties arise because of a combination of three
circumstances. The first is factual: there are many important industries
in our economy whose structure is oligopolistic--how large a number depends
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GERALD R. FORD LIBRARY
upon what a "small number of firms" means. The second is interpretive:
the economists have not succeeded in fully identifying the characteristics
of an industry which determine whether it will behave competitively or
monopolistically. The third is the matter of action: if firms in an
oligopolistic industry are convicted of collusive behavior, must one press
for a remedy so radical as dissolution in order to stop future repetitions
of the offense? (And should the standards of permissible concentration be
-
wholly different for pending mergers than for established enterprises?)
The circumstances which determine whether or not the firms in an
oligopolistic industry will usually behave more or less competitively
(seeking by independent actions to improve their individual profits at the
cost of rivals' profits, with the eventual general erosion of unusual profits)
are partly known:
1. The easier (quicker and cheaper) new firms can enter the
industry, the smaller and more short lived will be the
monopolistic restrictions.
2.
The more elastic the demand for the product of the oligopol-
istic industry the less the reward from restrictions of output
below the competitive level, and hence the less the induce-
ments to act collusively. This in turn usually depends upon
what alternative products the buyers may turn to.
3.
The larger the effective number of firms the less the probability
of collusive behavior--collusion increases in expense (including
probability of detection) as numbers increase. However, a given
number of firms is more likely to result in collusion, the more
concentrated is production in the hands of a few firms. If we
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correct for this and take the effective number of rivals to
be the number of rivals of equal size which would produce
the same competitive situation as the firms (not of equal size)
actually in the industry, the effective number may be very
roughly estimated at twice the number there would be if all
firms were as large as the largest in the industry. That is,
if the largest firm has 1/5 of the industry's output and the
remaining firms fall off in size regularly, the effective num-
ber of firms is of the order of magnitude of 10. By this is
meant that the concentration in the industry is equivalent
to what would exist if there were 10 firms of equal size.
There are other influences which probably but less certainly affect the
probability of competitive behavior. One of these is the size of buyers:
larger buyers, for a variety of reasons including possibility of backward
integration, make for more competitive prices.
Numerous statistical studies have been made of the relationship between
concentration and rates of return on investment, and these studies generally
yield positive but loose relationships: concentration is not a major deter-
minant of differences among industries in profitability, although it may
sometimes be a significant factor. It appears also to be true that some-
where between five and ten effective rivals (i.e., a largest firm with a
share of 1/3 to 1/5) are usually enough to insure substantial elimination
of the influence of concentration upon profitability.
Concern with oligopoly has led to proposals to use the antitrust laws
(perhaps amended) to deconcentrate highly oligopolistic industries by
- 14 -
dissolving their leading firms. We cannot endorse these proposals on the
basis of existing knowledge. As indicated, the correlation between con-
centration and profitability is weak, and many factors besides the number
of firms in a market appear to be relevant to the competitiveness of their
behavior. While a flat condemnation of oligopoly thus seems to us unwise,
we commend to the Antitrust Division a policy of strict and unremitting
scrutiny of the highly oligopolistic industries. If, in any of these
industries, pricing is found after careful investigation to be substan-
tially noncompetitive, the Division will have a clear basis for proceeding
against the leading firms under Section 1. Collusion that can be incontro-
vertibly inferred from behavior (such as persistent, stable price discrim-
ination in the economist's sense) should not bring immunity from the Sherman
Act, and we are confident that structural remedies will be sanctioned by
the courts in cases where, due to number of firms and the other conditions
of the market, lesser remedies are likely to be unavailing. In assessing
the gain from such structural remedies, account should be taken of any
reduction in efficiency which the remedy entails.
The concern with oligopoly is also quite visible in the Department of
Justice's major recent innovation, the Merger Guidelines, to which we now
turn.
C.
Mergers and the Guidelines
The present merger Guidelines impose stringent restrictions upon the
relative sizes permitted to companies which desire to merge. The impact
of these percentages is reinforced by a definition of the market (within
which shares of companies are reckoned) so loose and unprofessional as to
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GERALD FORD LIBRARY
be positively embarrassing. We propose to reverse this emphasis: not to
tell companies which mergers are forbidden, but which mergers are permitted.
We are persuaded that this orientation better serves the interests of both
business and the Antitrust Division. Before we turn to the methods by
which more appropriate Guidelines for mergers are achievable, we shall
briefly discuss the present Guidelines, and indicate our reasons for dis-
satisfaction with them in their present orientation.
Market Definition. The delineation of a relevant market within which
to appraise the lawfulness of a merger is crucial, for if the market is
drawn narrowly enough, virtually any merger can be made to seem monopolistic
in its effects. Unfortunately, as they are presently drafted the Guidelines
seem to invite a substantial degree of market gerrymandering, especially in
delineating regional or local markets. The Guidelines' test of whether a
product is sold in less than a national market is loose. Any group of com-
peting sellers in the industry is a relevant market, unless the defendant
can show that there is no "economic barrier" preventing other sellers from
selling in the particular area. Such a barrier may consist of freight costs,
customer inconvenience, customer preference for the brands presently sold in
the area, or the absence of good distribution facilities.
This is a misleading test. An industry may be riddled with the kind
of "barriers" cited in the Guidelines and yet still not contain any mean-
ingful local markets. An example will illustrate. Assume that the price of
steel bars is $2 in Minnesota and $1.60 in Chicago, and the cost of shipping
the bars from Chicago to Minnesota is 41 cents. On these facts, it is plain
that the Minnesota sellers could not raise their price significantly without
- 16 -
FORD is LIBRARY GERALD
immediately losing their business to the Chicago sellers. Minnesota is
thus not a meaningful local market even though, at the existing price,
freight costs do impose an effective economic barrier against the Minne-
sota sellers. Moreover, additional firms will establish production or
distribution facilities in Minnesota if it becomes profitable to do so.
The same analysis can be extended to the other barriers discussed in the
Guidelines.
In criticizing the test of "economic barrier", we do not mean to deny
the difficulty of devising rules of market definition that will be at the
same time simple and sensible. This is most probably not an area in which
Guidelines provide a useful enforcement tool. If there are to be Guide-
lines, though, they should at least not misstate the applicable economic
theory. It would, accordingly, be a decided improvement if the Guidelines
were revised (at a minimum) to explain that a distant seller of a product
must be included in the local market if a modest price increase in the
local area--a price increase unrelated to his costs--would bring him in
forthwith.
Horizontal Mergers. The provisions of the Guidelines governing hori-
zontal mergers--that is, mergers between direct competitors--are extra-
ordinarily strict. If a market is "highly concentrated" (defined as where
the 4 largest firms account for at least 75 percent of the sales in the
market), then a merger between two firms, each of which has a 4 percent
market share, will be challenged: and if the acquiring firm has a share
as large as 15 percent, then the acquired firm need have only a 1 percent
share for the merger to be challenged. Different levels of permissible
size are stated for less concentrated industries, and some account is taken
of the trend of concentration.
puma
- 17 -
We agree with the basic premise of the horizontal-merger provisions
of the Guidelines that market-share percentages are the appropriate touch-
stone of illegality for such mergers. We would favor levels of concentra-
tion modestly lower than those now used (but differently structured), with
the purposes of (1) allowing all mergers below the Guidelines levels, and
(2) not prohibiting, but reviewing, those above the critical level, with
an implied probability that the more a proposed merger lies above the level
of automatic approval, the less the probability of its acceptance. We
discuss below the procedure that should be followed better to utilize
existing knowledge in fashioning the Guidelines.
Vertical Mergers. A merger that involves the acquisition not of a
competitor but of a customer or a supplier is a vertical merger, and the
present Guidelines contain strict provisions limiting such mergers. For
example, if the supplying firm in the merger has a 10 percent share of its
market and the purchasing firm has 6 percent of the purchases in that market,
the merger will be challenged.
Our task force is of one mind on the undesirability of an extensive
and vigorous policy against vertical mergers: vertical integration has not
been shown to be presumptively noncompetitive and the Guidelines err in so
treating it. Within this area of agreement there are two positions around
which the task force members cluster.
The one position asserts that many, and perhaps most, vertical mergers
which do not have direct horizontal effects are innocuous, but that in
certain situations a vertical merger will have anti-competitive effects.
These situations include: increases in the capital or other requirements
- 18 -
LIBRARY GERALD R. FORD
for an integrated firm may reduce the possibility of new entry; or price
discrimination may be implemented when a monopolist integrates forward or
backward. A showing that an anticompetitive effect of these sorts exists
is essential before a vertical merger is challenged.
The other position denies that a vertical merger has the potentiality
for economic harm in the absence of horizontal effects. To some of our.
members, it is wholly implausible that vertical integration places entering
firms at a disadvantage. A seller who fails to minimize his input and
distribution costs will be undersold by his competitors: he cannot afford
to sell to or buy from an affiliate if there are more efficient alternative
means of supply and distribution available to his competitors (and to him).
Even if the seller is a monopolist, the desire to maximize profits will
lead him to seek the most efficient methods of supply and distribution,
and there will be ample opportunities for nonaffiliated suppliers and out-
1ets to compete for his patronage. Except in the case of the monopolist
who cannot discriminate in price effectively without control of his outlets,
vertical integration will be initiated and maintained only if and so long
as it is justified by the cost savings it permits. It is not a method of
extending monopoly power.
The two positions coalesce on one policy conclusion: vertical mergers
should not be forbidden as a class.
The Conglomerate Merger. The large conglomerate enterprise with an
aggressive acquisition policy has only recently become prominent and news-
worthy. Almost by definition such a firm poses at most a minor threat to
competition, but nevertheless criticism of it is beginning to mount. Some
critics deplore the disappearance of independent enterprises and find a
- 19 -
LIBRARY GERALD ? FORD
threat of sheer bigness to political or economic life. Other critics be-
lieve that the conglomerate firm is spawning unhealthy speculation in the
securities markets.
Antitrust law has seemed to some a convenient weapon with which to
attack large conglomerate mergers. If one interprets "elimination of poten-
tial competition", "reciprocity", and "foreclosure" as threats to competi-
tion, one can always bring and usually win a case against the merger of two
large companies, however diverse their activities may be. These are often
makeweights. The economic threat to competition from reciprocity (reciprocal
buying arrangements) is either small or nonexistent: monopoly power in one
commodity is not effectively exploited by manipulating the price of an unre-
lated commodity. The argument advanced against the simpliste treatment of
vertical mergers--essentially that one cannot use the same monopoly power
twice--also challenges the fears of reciprocity.
Potential competition, on the contrary, can be a decisive limitation
on the exercise of market power, and a merger which eliminates an imminent
new competitor is anticompetitive. If entry into a field is relatively easy,
however, there are a vast number of potential entrants and the elimination
of one or a few has no effect. If entry is difficult, and only a select few
firms are capable of entry and on the record likely to enter, their indepen-
dence should be preserved. The identity of potential entrants should not
be established by introspection. If the producer of X is truly a likely
entrant into the manufacture of Y, the likelihood will have been revealed
and confirmed by entrance into Y of other producers of X (here or abroad),
or by the entrance of the firm into markets very similar to Y in enumerable
respects.
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LIBRARY
We seriously doubt that the Antitrust Division should embark upon an
active program of challenging conglomerate enterprises on the basis of neb-
ulous fears about size and economic power. These fears should be either
confirmed or dissipated, and an important contribution would be made to
this resolution by an early conference on the subject. If there is a
genuine securities market problem, probably new legislation is necessary.
If there is a real political threat in giant mergers, then the critical
dimension should be estimated. If there is no threat, the fears enter-
tained by critics of the conglomerate enterprises should be allayed.
Vigorous action on the basis of our present knowledge is not defensible.
The central task of the Antitrust Division is to preserve competition
in the American economy. This is a splendid and challenging task and
deserves and requires the full resources of the Division. We shall be
much the losers if we compromise the discharge of this central task by
burdening the Division also with tasks such as the combatting of organized
crime or the achievement of general political goals.
The Use of Conferences. We have proposed that conferences be used to
revise the Guidelines and to identify the problems, if any, created by the
large conglomerate enterprise. The conference will allow the Antitrust
Division to utilize the expertise and wide factual knowledge of economists,
lawyers, securities analysts, and other groups without the laborious machinery
of formal hearings. We strongly recommend that before such conferences are
held, leading students and exponents of particular positions be asked to
prepare position statements which present explicit and specific theories
and evidence. Then the conference members will have specific questions to
address and specific views to combat or support.
GERALD LISBARY FORD
- 21 -
D.
Antitrust Sanctions
The cutting edge of law is not the abstract statement of a legal duty
but the sanction provided for its nonperformance, and that is true of the
antitrust laws as of other systems of legal obligation. It is essential
that those laws clearly and accurately define and forbid the practices
that impair competition and efficiency but it is equally essential that the
sanctions for violation be effective in compelling compliance and with a
minimum of undesirable side effects.
In testing the antitrust sanctions by this standard, it will be helpful
to distinguish two purposes of sanctions: that of preventing (or, if it
has already occurred, undoing) a specific violation; and that of deterring
violations that might not always be detected. Sanctions of the first type--
remedial sanctions--suffice where there is no problem of detection (e.g., in
the case of an illegal merger). But take the case of price-fixing. Price-
fixing conspiracies can be, and one suspects often are, successfully con-
cealed. A sanction that merely prevented the continuation of the conspiracy,
such as an injunction, or one that merely restored the losses of the injured
consumers, such as ordinary damages, would in these circumstances probably
be insufficient. For in deciding whether to comply with the law, a seller
would discount the very modest (or negligible) injury to him if his partici-
pation in a price-fixing conspiracy was detected, and he was required to stop
and to pay actual damages, by the considerable probability that he would
escape detection altogether; and he could conclude that he had little to lose
by participating. That is why punishment by fine or imprisonment is an
appropriate sanction for illegal price-fixing; it provides deterrence, as
the purely remedial sanction does not.
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LIBRARY SERALD ? FORD
But the deterrent sanction in antitrust is weak. A price fixer can
be imprisoned and fined but prison terms are almost never imposed in price-
fixing cases and when they are, they are nominal in length; and the maximum
fine of $50,000 will deter only a very small corporation. The possibility
of a private treble-damage suit doubtless provides additional deterrent
effect, but there are serious limitations: judges are reluctant to author-
ize damage awards that seriously hurt a company; damages are difficult to
prove in price-fixing cases; and most important, the injury caused by a
price-fixing conspiracy is often so widely diffused (for example, among
millions of consumers) that no one has an incentive to bring a suit. The
government itself can sue for damages only when it was the victim of the
unlawful conspiracy.
If concealable offenses under the antitrust laws are to be effectively
deterred, either the resources devoted to the detection of such offenses
must be vastly augmented--and there are obvious limitations to this route--
or the fines must be increased to a point where they will give even the
large corporation considerable pause before participating in (or condoning
its officers' individual participation in) an illegal conspiracy. Precedent
for much more severe sanctions can be found abroad. The European Economic
Community, for example, may impose penalties of up to $1,000,000, or, in
the case of willful violations, up to 10 percent of annual sales. We have
not attempted to determine the appropriate level of antitrust fines, but we
urge the Department of Justice to accord high priority in its legislative
program to the upward revision of these penalties.
LIBRARY GERALD FORD
- 23 -
The creation of a more realistic scheme of antitrust fines would
enable a long-overdue reexamination of the punitive aspects of the private
antitrust suit. It is anomalous that private plaintiffs who have done
nothing to uncover or prove an antitrust violation (the usual case) should
be permitted to claim treble damages on the basis of a judgment obtained
by the Antitrust Division. In such circumstances, the excess over actual
damages and costs represents a pure windfall to the private plaintiff.
Today, one can defend this arrangement on the ground that it furnishes an
element of added deterrence which is necessary in light of the inadequacy
of the existing criminal fines. But that ground would be removed if the
fines were revised to a more appropriate level; and a more rational scheme
of deterrence would become feasible. We are also deeply concerned that
private treble damage suits provide undesirable opportunities for harrass-
ment and the furtherance of a variety of anticompetitive practices.
With regard to remedial sanctions, the principal question involves the
undesirable side effects that frequently accompany a poorly formulated
decree. Ideally--and it is an attainable ideal an antitrust decree should
be a "one shot" affair: dissolving the monopoly, or divesting the acquired
assets, or terminating the basing-point system, etc. The antitrust laws
were never intended to be a system of continuing regulation. Antitrust
policy has as its basic principle the preservation of a competitive environ-
ment within which individual enterprises are free from continuing super-
vision. When a decree says, in effect, "Let us return to the court, or give
the power to the Antitrust Division, to adjudge the propriety of various
behavior of the defendant for years to come," one can be sure that the suit
has failed in its purpose of restoring competitive conditions. Nor is the
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FORD & GERALD LIBRARY
Department equipped to function as a regulatory agency, and it is not
likely to escape that common pitfall of economic regulation, the suppres-
sion of competition. Nonetheless, such decrees are frequently entered,
especially by consent of the parties in cases where the Department (or the
Federal Trade Commission, to which these remarks apply with equal, if not
greater, force) is unsure of its litigation prospects and wishes to sal-
vage something from the investment of enforcement resources.
For the future, we urge that the Department adopt a firm policy of
not proposing or accepting decrees that envisage a continuing, regulatory
relationship with the defendant. A correlative policy that we suggest is
that every decree contain a definite--and near--termination date, ordinar-
ily no more than 10 years from the date the decree is entered. Such a
principle would compel the Department to devise decrees that restore com-
petition rather than establish regulation, as well as assure that decrees
do not remain in effect long after the relevant industrial conditions have
changed (such as with the 1920 decree against the meat packers).
Little is known of the extent to which a large number of past decrees
are still operative, and if operative, of any real value in protecting
competition. We recommend, therefore, some such procedure as this in
dealing with outstanding decrees:
1. The past decrees still running should be compiled, and the types
and duration of prescribed conduct summarized.
2. The current relevance of the decrees, or at least those running
against large industries, should be examined presumably by the
economics section of the Antitrust Division.
1080
- 25 -
3. The older (say 25 years and over) and obsolete younger decrees
should be vacated.
E. Recommended Changes in Antitrust Statutes
Several legislative reforms could improve substantially the functioning
of the antitrust laws. We have recommended above a substantial increase in
the maximum level of fines. In addition, we recommend immediate repeal of
the Expediting Act. The low quality of many Supreme Court antitrust opinions
can be traced in no small measure to the fact that direct appeal frequently
requires the Supreme Court to pass on an extensive record without the ben-
efit of the winnowing and focusing process involved in an intermediate appeal.
The Supreme Court itself has noted that direct appeal is unsatisfactory. If
repeal is politically impossible, then an amendment that would drastically
limit the number of direct appeals would be desirable.
The Webb-Pomerene Act should also be repealed. The creation of cartels
in foreign commerce is antithetical to the underlying theory of the Sherman
Act. The danger that exempted cooperation between competitors in the export
field will lead to illegal cooperation at home is too great to be viewed as
merely a potential abuse. Nothing in U.S. domestic competition policy or
foreign economic policy warrants the retention of this outmoded approach to
international competition.
On the agenda for long-term legislative reform must be the Robinson-
Patman Act. The Act leads to rigidity in distribution patterns and to uni-
form, inflexible pricing. In industries with few sellers, price reductions
are more likely to be made if they can be made covertly. Such limited
reductions often lead over time to generally lower prices. Thus, a prohi-
bition against price discrimination may preclude the kind of competition
LIBRARY GERALD P. FORD
- 26 -
that is most likely to lead to lower prices in oligopolistic industries.
We view the Federal Trade Commission's tendency in recent times to relax
the enforcement of the Act as a desirable but, so long as private treble
damage actions are available, an inadequate reform.
In reforming the Robinson-Patman Act, two kinds of amendment are desir-
able. First, the general prohibition against price discrimination in
Section 2(a) should be made more supple by broadening the meeting compe-
tition and cost justification defenses so as to make them more readily
available for sellers whose price differentials do not stem from a preda-
tory purpose and do not injure competition in the market place (as opposed
to disadvantaging individual firms). Second, the more absolutist brokerage,
payments and services prohibitions of subsections (c), (d) and (e) should
be repealed while making clear that the standards of amended subsection (a)
remain applicable to practices that would previously have been treated under
those repealed subsections. The Task Force recognizes the political support
that the Robinson-Patman Act retains in some quarters and the danger that
an attempt to amend the Act might give particular interests an opportunity
to add even more restrictive provisions. As a consequence, some of our
members view amendment of the Act as a long-term, albeit important, reform;
others wish to leave it alone.
- 27 - -
LIBRARY GERALD R. FORD
Ward S. Bowman, Jr.
Ronald H. Coase
Roger S. Cramton
Kenneth W. Dam
Raymon H. Mulford *
Richard A. Posner
Peter 0. Steiner
Alexander L. Stott *
George J. Stigler, Chairman
* Subject to dissent which follows
LIBRERY GERALD R. FORD
- 28 -
A2
Sunday, May 18, 1969
THE WASHINGTON POST
Justice Dept. to Reveal Secret Report on Antitrust Laws
By Morton Mintz
wardness" for members of
mum fine for a criminal an-
are disrespect" for the anti-
Washington Post Staff Writer
the task force, MeLaren
titrust violation from the
trust laws and reduce their
The report of a secret
suid. For example, members
Johnso n Administration
have been unable to reply to
present $50,000 to $500,000.
"deterrent effect."
statements about the report
(Donald E. Turner. his prud-
But McLaren, expressing
rious reservations" about
task force on the antitrust
"that were not factual," he
ecessor during most of the
the proposed legislation,
laws will be released by the
said,
J 0 h 5 0 n Administration,
snid it could force out of
Justice Department in a few
The existence of the task
once told a reporter that a
business some small firms
days.
force, headed by Phil C.
maximum fine of S1 million
that "just went along with
This was disclosed by As-
Neal, dean of the University
"would not be unreasona-
what the bigger guys did"
sistant Attorney General
of Chicago Law School, was
ble.")
and thus have an "ex-
Richard W. McLaren, head
disclosed In February, 1008,
McLaren said he prefers
tremely anti-competitive ef-
of the Antitrust Division, in
by the New York Times.
such direct penalties as
feet."
an interview with The Wash-
At the time, Sen. Phillp A.
fines and jall sentences to
ington Post.
"indirect" increases in pen-
End to Court Backup
Hart (D-Mich), chairman of
There is DO precedent for
the Senate Antitrust sub-
allties such as would result
Perhaps more impor-
release of the report. The
committee, protested that
from legislation favored by
tantly," he sold, the bill
estimated 50 to 70 reports of
the task force should oper-
the chairmen of the Con-
would eliminate incentives
other secret Johnson Admin-
ate out in the open, so as to
gressional antitrust subcom-
to settle treble-damage
istration task forces remain
"surface all elements in the
mitters, Hart and Rep.
claims and thus "elog the
-along with other private
equation."
Emanuel Celler (D-Y.N.),
courts from here to Canar-
presidential papers-in ellar
and Sen. Russell B. Long
sie!"
Able Disagrees
tody of the National Are
(D-La.), chairman of the Sen-
Unlike Donald Turner,
chives.
But in an Interview with
ate Finance Committee.
MeLaren believes existing
At the White House yes-
The Washington Post, then
The legislators want to re-
laws give him the weapons
terday, a press aide said he
White House aide Joseph A.,
verse a 1064 Internal Rove+
he needs-and already has
did not know if additional
Calliano Jr. disagreed.
nue Service ruling that per-
used-to attack big conglom-
reports will be made public.
lie and that in order to
mits convicted antitrust vio-
erate mergers that have
McLaren Have no bint of
get "straight answers" on a
lators to doduct as "neces-
"anti-competitive conse-
the content of the antitrust
varlety of hard problems
sary business expense" pay-
quences." And again unlike
paper except to say that EL is
from "the best brains in the
ments made to settle treble-
Turner, McLaren prefers a
a "broad-seale report on rece
country," the President has
damage suits brought by vic-
"flexible approach" to such
ommendations for
to name his sources that
tims of price-fixing.
proposals as a requirement
tive and administrative au-
neither their appointments
The Justice Department
that giant firms spin off as-
tion to implement enforce-
not reports will be made
had opposed the IRS. In
sets equal to new acquisi-
ment of the antitrust laws."
public, and that their "confi-
By Harry Naltehayan-The Washington Post
1963, for example, Assistant
tions.
He said he had received
dential advice" will be di-
Attorney General William H.
Assistant Attorney General McLaren: The secret status of the antitrust report "has led to some awkwardness."
"clearance" to issue the no.
vulped by the President
Orrick Jr. said the impend-
port but did not say from
only to his closest advisers.
ing ruling would "encour-
whom. However, he said the
Mclaren said he felt the
quest of President Nixon,
of the law firm of Arnold &
the task force reports gener-
lishing in a book by a uni-
task force members were
report should be available
now is appraising the anti-
Porter, yesterday declined
ally contain "a lot of val-
versity.
"quite agreeable" to releas-
not only to scholars, but
trust and consumer protec-
to comment on the impend-
uable material" and some
In the interview at the
ing it.
more immediately to a com-
tion roles of the Federal
ing release of the task force
"frontier thinking." He said
Justice Department, Mc-
The secret status of the
miller of the American Bar
Trade Commission.
report.
that "maybe 10 or 15" of the
Laren said he favors in-
report "has led to some awk-
Association that, at the re-
Califano, now a member
He did say, however, that
papers are worthy of pub-
creasing the present maxi-