Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Source Description
This file contains:
Handwritten note RE: memo pads received from Larry Dunn. 1 pg. [Other Document], N.D.
The Consumer and the Federal Trade Commission critique of the consumer protection record of the FTC by Cox, Fellmeth and Schulz pages 64-89 and 101-140. 66 pgs. [Report], N.D.
Scholar Source Context
Document identity
localId
26126435
label
WHSF: Returned, 18-9
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
26126435
sourceUrl
contentType
document
title
WHSF: Returned, 18-9
description
This file contains:
Handwritten note RE: memo pads received from Larry Dunn. 1 pg. [Other Document], N.D.
The Consumer and the Federal Trade Commission critique of the consumer protection record of the FTC by Cox, Fellmeth and Schulz pages 64-89 and 101-140. 66 pgs. [Report], N.D.
citationUrl
collections
Richard M. Nixon's Returned Materials Collection
Returned White House Special Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
26126435
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
54211117c0b97c1c
ocrText
Richard Nixon Presidential Library
White House Special Files Collection
Folder List
Box Number
Folder Number
Document Date
Document Type
Document Description
18
9
N.D.
Other Document
Handwritten note RE: memo pads received
from Larry Dunn. 1 pg.
18
9
N.D.
Report
The Consumer and the Federal Trade
Commission critique of the consumer
protection record of the FTC by Cox,
Fellmeth and Schulz pages 64-89 and 101-
140. 66 pgs.
Monday, June 29, 2009
Page 1 of 1
JDE- This is
list of those
who received
memo pads
which I got
from Larry
Ruan this
morning.
fu
64
"See File No. 632 3104, opened July 24, 1962. This
matter led to the establishment of a general file, File
No. 652 3319 captioned 'Lumber Grading Agencies and Distributors,
Unnamed, I investigations under which resulted in the
establishment of two additional files (File Nos. 662 3151
and 662 3154). On October 12, 1966, the Commission
approved a proposal by the Bureaus of Industry Guidance
and Deceptive Practices to hold a hearing
Id. P. 50.
The extensive delays occuring during "investigations" in the
matters discussed above involve the Commission's so-called "voluntary"
and "industry-wide" enforcement tools (advisory opinions, industry
guides, trade regulation rules). Taken together, they indicate that
these methods of handling violations are not more effective than the
traditional "formal" " approach by cease and desist orders. In fact,
they may be worse, since the fact of asserted violation is at least
made public (by issuance of a complaint or consent agreement) when
the cease and desist order track is chosen.
65
4. Failure To Seek Effective Resources and Authority
A. The Need
During the last decade, the Federal Trade Commission
has done too little too late to improve its enforcement
capacity. This section documents its relative failure to
seek adequate funds and manpower as well as statutory author-
ity -- to carry out its "deceptive practices" enforcement role
successfully.
There is little doubt that the Commission needs to
multiply its staff and budget many times in order to enforce
its consumer-protection statutes adequately. There should be
no need to demonstrate, for example, that an agency devoting
perhaps half * of its total of 1200 staff members and annual
budget of a little more than $14,000,000 to consumer protec-
tion cannot hope to adequately police the merchandising
activities of hundreds of thousands of United States businesses.
To take a relatively trivial example, Charles A. Sweeny, until
his recent death Program Review Officer at the FTC, said in an
interview that home improvement frauds alone are so widespread
that to stop them the FTC would have to spend an amount equal
to its entire present "deceptive-practices" budget.
Another random statistic which is suggestive of the
magnitude of consumer problems is the following figure relating
to the incidence of mail fraud in the United States. Speaking
at a Seminar on Consumer Protection sponsored by the Los
Angeles Federal Executive Board, 17-19 October 1967, p. 58,
Mr. C.J. Lerable, a postal inspector from Hollywood stated that
in 1966 the Postal Inspectors conducted
investigations which led to 13,000 arrests.
(emphasis supplied)
*
For purposes of this comparison, it is interesting to
note that one of the FTC's traditional concerns in the area
of deceptive practices has been retail lotteries. Cf. later
discussion of its present endless, actionless study of grocery
store and gas station prize games.
60
B. Failure to Seek Adequate Manpower and Money
The FTC has failed in two respects to gain the leverage
on Congress that would enable it to acquire additional powers
and to acquire needed manpower. The first failure is self
evident from the findings presented in this report. The FTC
has not performed in such a way as to justify a further invest-
ment. Too much is likely to be wasted in misplaced priority
determinations, and in ineffective enforcement procedures. The
second failure is in the FTC's failure to crusade directly
with the requisite imagination and vigor for expanded authority
and appropriations. The fact that the Commission is quite
content to let itself slowly whither into meaningless pontifi-
cations, with an occasional grandstand play, is revealed
through the appropriations requested over the past decade and
through the hearings incident to these requests.
For example, in the 1965 Senate Appropriations Hearings
for the FTC, Chairman Dixon analysed the Agency's requests
for budget increases as follows:
This calls for an increase of $1,055,250 over
the 1964 appropriations, but more than 80% of
this increase will be required by costs over
which our agency has only limited control --
including $250,000 for a half-year cost of the
January 5, 1964 pay raise
1965 Senate Appropriations
Hearings, p. 388.
In other words, although the FTC requested new funds, they
were not funds to be applied to expanded enforcement.
Likewise, the Commission's request for 27 new personnel
that year did not imply imminent general expansion of con-
sumer-protection --- since 25 of the 27 were for the relatively
unimportant Bureau of Textiles and Furs. Id.
When Senator Magnuson asked Chairman Dixon whether he
could get along in the other bureaus without additional man-
power, the Chairman replied:
67
Well, we would be in the same position we are
in on anti-trust, and our workload increases,
and we know all we can do is promise we will
do the best we can.
Id., p. 415.
(Of course, such posturing is not all that the FTC can do
--- see Recommendations).
The Chairman's passive attitude is consistent. In the
1967 Senate Appropriations Hearings he stated heroically that
Although fiscal 1967 is certain to confront the
Federal Trade Commission with the heaviest
workload in its history, the Commission is de--
termined to tackle it with no increase in staff.
Not only are we not asking for additional
personnel but we will be required to absorb $80,000
for mandatory within-grade promotions.
1967 Senate Appropriations Hearings, p.474.
And in 1968, more than one-third of the Agency's requested
budget increases was for 26 new employees to carry out new
enforcement duties under the Fair Packaging Act (1968 Senate
Appropriations Hearings, p. 419), meaning no addition to im-
portant existing programs.
It is also necessary to take into account an additional
factor when measuring the significance of the FTC requests. A
large increase in personnel, say 6% or SO every year, would
just keep the FTC even relative to the GNP, even assuming no
new enforcement duties. Actual increases do not even match
this low standard, as the following chart illustrates.
Personnel Increases
Year
Actual
Actual
*Approximate Personnel
Appropriation
Personnel
necessary to keep even
with GNP
1962
$10,345,000
1,126
(from 1962)
1963
11,472,500
1,178
1,281
1964
12,214,000
1,144
1,351
1965
13,459,107
1,175
1,426
1966
13,500,000
1,145
1,506
1967
14,403,000
1,170
1,581
1968
15,281,000
1,230
1,671
*Note that other indices of appropriate FTC growth, inclu-
ding the merger incidence rate, the growth of advertizing, and
the receipt of applications from the public for complaint gener-
ally far outstrip the GNP in expansion over this six year period.
68
C. Failure to Seek Adequate Legislative Authority
The preceding discussion to some extent foreshadows the
final FTC failure discovered in our project: that it has done
much too little to seek the expanded statutory powers necessary
to run a proper enforcement program in the contemporary economy.
Two basic additional enforcement powers seem to be
needed -- the power to seek criminal penalties for certain vio-
lations and to seek preliminary injunctions in appropriate cases.
The former is required because it is necessary to compel wide-
spread compliance with the FTC's consumer-protection statutes.
In other words, the threat of criminal penalties multiplies the
efficiency of an enforcement agency by what is known in criminal
law theory as general deterrence. There are some problems in
applying criminal statutes effectively to corporate behavior,
but these are not insuperable (for example, a duty can be
imposed on corporate officers to learn of and control the acti-
vities of their employees). In any case, the level of need is
so great, as to require this sine qua non of effective enforce-
ment. In fact, the more limited an enforcement agency's resources
are, the stronger the argument for criminal penalties, since
these produce maximum general deterrence, that is, are the
most effective in inducing the greatest number of potential law
violators to behave. (This is especially true of highly
rational entities like corporations.)
It is particularly important to apply criminal sanctions
to dishonest corporate behavior, for it is far more damaging in
contemporary America than all the depredations of street crime.
Law and order must not stop at the doorstep of these massive
and influential institutions.
The fact is, however, that the Commission has failed to
press Congress vigorously for broader powers to seek the imposition
of criminal penalties for violations of the deceptive practices
69
language of the FTC ACT. In fact, the Chairman has recently
gone on record specifically as opposing such powers, according
to testimony given this year on a Senate consumer deception bill
sponsored by Senator Magnuson.
The Commission also requires the power to seek prelimin-
ary injunctions in appropriate cases. This power is necessary
to a respectable enforcement program for two reasons. First,
and most important, it is the only available means of protecting
the interests of the consuming public pending the disposition
of a case -- which, as will be seen, is likely to be a lengthy
affair. Preliminary injunctions, which would be sought in
cases in which violations of the FTC Act were relatively blatant,
would operate to require any respondent charged with such violations
to terminate the objectionable practices pending disposition
of the case.
The second reason for preliminary injunction power involves
delay itself: it is reasonable to assume that fewer respondents
will "waste" commission resources by litigational delaying tactics
where their major incentive to delay (continued lucrative
returns from a challenged practice) is cut off by injunction.
Thus, the net effect of a properly administered preliminary
injunction power will be to decrease some of the extreme delays
of the FTC's present enforcement procedure and at the same time
to decrease the Commission's expenses in connection therewith.
70
Once again, over the last seven years, the Commission
has done little to expand its preliminary injunction powers.
Its "Legislative Proposals" (published each year in the agency's
Annual Report) include no reference at all to such powers in 1961
or 1962, 1963, 1964, 1965 or 1966. * Only in 1967, with the
winds of consumerism blowing hard, and with goading by the
Senate Commerce Committee: does the Commission propose legislation
which would empower them to "bring suit
to enjoin
acts or practices [which violate "any law administered by the
Commission"]. 1967 Annual Report 75 (Legis. Proposal #3.) This
proposal, and a similar proposal (#6) of its 1968 Legislative
Proposals ( FTC, Proposed Legislative Program for the First
Session of the 91st Congress, 7) parallel a bill, S. 3065 ("Deceptive
Sales Act") introduced by Senator Magnuson in the 90th Congress
which would amend the FTC Act to provide power to seek temporary
injunctions against the dissemination in commerce of any act or
practice which is unfair or deceptive to consumers. In other
words the FTC was not the moving force behind this legislation.
It merely stepped into line where someone else had taken the
lead.
The FTC consistently plays the same weak role in pressing
for legislation and this is an additional serious flaw in its
performance of its duties. To show the inadequacy of the Com-
mission's legislative record over the past seven years, it is
sufficient to list the few legislative proposals it. has made.
Additional proof is provided by the infrequency with which
Congress has acted on the agency's proposals. The following
chart provides this information.
The 1961, 1962 and 1963 Reports do include a. related but
greatly inferior proposal to enact as law giving the Commission
power to issue temporary cease and desist orders pending the
determination of agency proceedings. Even this proposal is
lacking in the next three years' Reports. On the Chairman's
wavering support of the 1962 proposal, consider the following
statement about it made by him in the 1963 Senate Appropriations
Hearings at p. 972.
(In answer to a question about delay and consequent harm
to business competitors
)
You recall the President endorsed this piece of legis-
lation, not once but twice.
It is controversial,
sir. I think any time any agency or any arm of the
Government is cloaked with any kind of temporary
injunction powers, it should only be used in the
most extraordinary circumstances and with assurance
that due process and safeguards are in the law.
71
FTC LEGISLATIVE PROPOSALS - 1961 - 1968
A.
Number of proposals made by year:
1961
1962
1963
1964
1965
1966
1967
1968
4(2)
2(1)
3(1)
4(1)
4(1)
4(1)
5(3)
4*(4) **
Six proposals are claimed in 1968, but two involve state-
ments to the effect that the FTC has "no specific proposals"
on a particular topic.
**
The number: in parentheses designate proposals involving
consumer interests, not including textile and fur matters,
with the exception of Flammable Fabrics.
B. Nature of Deceptive Practice Proposals and Action Thereon:
Brief description of proposed
Legislation
legislation
Year(s) in which made
Enacted?
1. To empower FTC to issue temporary
cease and desist orders (or
"temporary restraining orders")
1961, 1962, 1963
No
2. To provide for certian disclosures
in prescription-drug advertising
1961
No (?)
3. To include flammable blankets with-
in Flammable Fabrics Act *
1964, 1965, 1966
Yes
4. To empower the FTC to seek pre-
liminary injunctions in case of
violation of any law administered
by the Commission
1967, 1968
No
5. To provide criminal penalties for
violation of FTC Act by "hard-core"
rackets (later repudiated in testi-
mony by Chairman and not recommended
in 1968)
1967
No
6. To Amend Cigarette Labeling Act in
various ways (including in 1967 a
recommendation to ban all cigarette
advertising)
1967, 1968
7. To support the "Truth in Lending Bill"
1967
Yes
8. To amend McCarran Insurance Act to
give FTC broader jurisdiction over the
insurance industry
1968
9. To support "cooling-off period"
legislation covering door-to-door sales
1968
The Commission itself had earlier interpreted this Act not
to cover blankets! See discussion below on this incident in
the context of interest-group pressure on the agency.
72
Given the FTC's mandate and massive statutory power to
gather information on consumer problems, its petty legislative
record is inexcusable. It tends to emphasize minor matters
(thus, a recurrent proposal in the middle 60's was to
amend the Wool Products Labeling Act to cover productions
made from reclaimed wool, e.g., 1966 Annual Report at 43)
and to ignore or take no stand on recurrent, pressing problems.
Thus, in 1967, the Commission refused to follow Commissioner
Elman who would have recommended legislation to deal with problems
of drug brands and prices, product warranties, consumer represen-
tation and hazardous household products. Separate Statement of
Commissioner Elman, 1-5. The Commissioners' reasons for refusing
to adopt Commissioner Elman's suggestions were varied, but
prominent was one which mimics (probably expresses) top staff
excuses for constantly deferred enforcement action (See section
on delay) the claim that much more time is needed to investigate
these problems thoroughly. Said the Commissioners of Elman's
suggestions:
(1) On drug legislation:
The Commission is aware that the problems of
drug pricing are currently under consideration by
Congress
The Commission has not had any
opportunity to study the question
'The Commission cannot at this time reasonably
propose to Congress the adoption of legislation on the
subjects
without accompanying such proposals with
careful memorandum analyzing in depth the need for
such measures
Statement by the Commission on its Legislative
Proposals 1. (hereinafter "Commission Statement").
(2) On statutory product warranties:
The Commission has not included a proposal for
legislation on the question of statutory warranties
since it is of the view that a specific legislative
proposal cannot and should not be put forward until the
feasibility of such a statute has been thoroughly considered,
The Commission does not have the kind of precise
information as to the dimension [sic] of the problem
which it needs in order to propose solutions, legislative
or otherwise.
Id. at 2.
73
Now, in these two cases it is obvious that the Commission's
excuses are more transparent than usual, for the Commission
has been studying these questions! It has had various problems
of the drug industry under investigation (at the insistence of
Congress) since as early as 1960, as disclosed by Appropriations
Hearings, for example, House Independent Office Appropriations,
1960, pp. 301-2; 1963 Id. at 956. And as for warranties, at least
as far as automobiles are concerned (by far the most significant
problem area at the moment), the Commission has been carrying
on an investigation since 1965 (FTC News Summary, 1965) and
has just issued a 250 page staff report on this problem. While
more "precise information" may be needed, the Commission's
position seems rather disingenuous, to say the least.
(3) Hazardous Household Products:
On May 31, 1967, the Commission
directed
its staff to undertake an investigation of electric
shock hazards in household electric appliances
On October 3, 1967 the Commission
directed
the staff to complete its overall investigation
and to report its recommendations to the Commission.
It would be irresponsible for the Commission, there-
fore, at this time to make any recommendations
The Commission
own studies have
not yet been completed.
Here, the Commission writing in mid-1968, is obviously right
to say that it cannot propose legislation, but it must take
responsibility for the failure of its staff promptly to complete
important investigations (dangerous electric shocks) This
sort of rationalization for Commission non-action, which is a
frequent occurrence, is particularly objectionable for it constitutes
an attempt to rationalize later failure to act on the basis of
earlier failures--a sort of pulling oneself down by one's own
shirt-tails.
TECHNIQUES OF
MASKING FAILURES
75
1. Commission Misrepresentations
Given what the project has discovered about
dimensions of the Federal Trade Commission's failures,
the question arises how the agency has been able to
maintain a relatively good public reputation for so long.
The success of the FTC in the obfuscation of its
failures can be traced to three factors: (1) the great
7
energy devoted to public relations activity, (2) the use
of secrecy, (3) the collusive relations of the FTC with
the business and government forces capable of challenge
or inquiry.
That a continual torrent of false and misleading
public relations emanates from the Commission is a theme
which runs-throughout the study. This output extends
from false claims about detection efficacy, and gross
deception about priority policies to misleading statis-
tics about enforcement effectiveness. It is disseminated
through various channels, including the numerous speeches
made by the Chairman, his testimony appropriation hearings
before Congress (and the budget justifications submitted
in connection therewith), Annual Reports, News Summaries
and News Releases, and special reports.
The standard devices include declaring all potential
problem areas "under study" for years, taking action against
a few easy and visible targets in a given problem area,
making overly optimistic estimates or "projections" of work
to be accomplished in the future, the creation and removal
of differing categories of statistical analysis as the need
for an improving image requires, and the failure, with cer-
tain exceptions, to face facts which might call attention
to what is happening in ghetto America or in the advertis-
ing offices of corporate giants.
76
The Annual Reports are a prime example. They out-
line a glib little world which simply does not exist,
discussing certain (generally unimportant) problems which
are impliedly the only ones extant, and listing the
counter-measures taken to deal with them. They are filled
with colorful, and mostly meaningless, pictures and charts,
such as a picture of the Better Business Bureau of Orange
County (see 1967 Report, p. 69), or a chart from the
Pit and Quarry Handbook showing "Capacity Concentration
in the Portland Cement Industry, 1950 and 1964" (see
1966 Report, p.49). The 1967 Annual Report devoted 25
pages to printing a list of ancient (mainly pre World War Two)
FTC investigations, but only four pages to consumer decep-
tion.
The image put forward by the Commission, and many
other facts of its operation, is systematically false.
It is, as one official put it, "all puff". The Annual
Reports, and indeed all FTC public relations, gloat
over the murmurring of such noble phrases as :
In selecting matters for attention, a high
priority is accorded those matters which
relate to the basic necessities of life,
and to situations in which the impact of false
and misleading advertising, or other unfair and
deceptive practices, falls with cruelest impact
upon those least able to survive the consequences-
the elderly and the poor. 1967 FTC Annual Report,
p. 17.
And we are assured by the Chairman's testimony in the
hearings of the Senate Subcommittee of Independent Offices
for 1967 that "with our limited staff I can say to you
that we are paying more attention to perhaps the 200
largest corporations in America that control in our basic
economy a substantial share of the sales in the various
industries.' The absurdity of these representations should
be clear from the sections above on priorities.
77
Another misrepresentation involves the FTC com-
pliance monitoring program for advertisements. In a
1962 Advertising Alert (No. 2, Feb. 12, 1962) the FTC
states that "The review of written continuities is sup-
plemented by some direct monitoring of broadcasts
Attorneys determine whether the Commission Orders to Cease
and Desist, and Stipulations, are being violated. Other
commericals are analyzed to determine the effectiveness
of Trade Practice Rules and the Guides program." The
discussion of detection and compliance above reveal the
falsity of these representations.
In a typical speech before the Division of Food,
Drug-and Cosmetic Law of the ABA ("Guidance and Enforce-
ment," Before Division of Food, Drug and Cosmetic Law of
the American Bar Association, Montreal, Canada, Aug. 10,
1966, p. 7), Chairman Dixon outlines a rather simplistic
picture of the theoretical advantages of the FTC's
voluntary enforcement measures. He categorically states
that "the Federal Trade Commission has faced up to the
realities of its law enforcement job to an extent unpre-
cedented in its 51 years of existence." The Chairman
probably knows how ironically true his statement is:
The new precedent is not one of dizzy heights but of
abysmal depths. The voluntary measures have failed entire-
ly because of a number of fallacious calculations previous-
ly discussed in this report, and the formal enforcement
measures are declining in number. In addition, the
Commission has made more specific claims concerning, for
example, its quick dispatch of cases in contrast to the
findings hercin (see section on delay).
78
Another representation made by the FTC through
Chairman Dixon is its adherance to the principles behind
the recent Freedom of Information Act. In a recent
letter Chairman Dixon quoted from President Johnson's
statement upon signing the Freedom of Information Act on
July 4, 1966:
This legislation springs from one of
our most essential principles. A democracy
works best when the people have all the
information that the security of the Nation
permits. No one should be able to pull
curtains of secrecy around decisions which
can be revealed without injury to the public
interest. Letter from Mr. Dixon to Ralph
Nader, Sept. 27, 1968.
These sentiments, however, do not seem altogether
consistent with subsequent (and prior) FTC behavior, or
even with the FTC regulations adopted under the Act. The
Moss Congressional Subcommittee on Foreign Operations and
Government Information findings, referred to in the section
on secrecy as well as other materials contained therein,
reveal the hypocrisy of the Commission.
The final misrepresentation indulged in by the
Commission through its Chairman concerns the character-
ization of the Nation's modest organized consumer protection
groups and interests. Mr. Dixon loves to view them as
wild-eyed zealots threatening the values of federalism
and free enterprize. Meanwhile, he sees himself as the
chief protector against their nefarious schemes for govern-
ment control and tyranny.
After listening to one of Mr. Dixon's speeches to a
trade association, Sidney Margolius, a respected author
and columnist on consumer subjects and a member of the
79
President's National Commission for Product Safety,
wrote the following letter which indicates the tenor
of the Chairman's attitude toward the groups which should
be its allies.
April 5, 1966
Mr. Paul Rand Dixon
Federal Trade Commission
Washington, D.C. 20580
Dear Mr. Dixon:
I am dismayed by the speech you gave before
the Kansas City Ad Club. I am concerned about
your effort to minimize high pressure selling,
and to refer to people seeking legal protection
against abuses in the marketplace as "zealots",
and your claim that it is only a few business-
men who engage in high pressure methods.
In my experience as a reporter on consumer affairs,
I don't think it is just the fringe who charge
higher prices than necessary and are responsible
for many of our problems. In the credit field,
very often the high pressure credit sellers are
financed by big respectable banks and finance
companies. Nor is it the fringe sellers who are
charging 18 to 22 percent for revolving credit
accounts, and fighting fiercely against the
true-interest bill. It is the biggest retailers.
in the country.
As for deceptive and exaggerated packaging, some
of it is practiced by some of the most "reputable"
big companies in the country, whatever your word
"reputable" means or is worth.
In case you have forgotten your own experience,
it is the biggest and best known drug manufacturers
who are forcing the public to pay many times the
manufacturing cost for vital medicines, and still
are despite the Kdfauver Drug Amendments. And it
is practically all the drug manufacturers, isn't
it? Not just a few? And what about the tire
jungle? Are all the exaggerated claims and decep--
tive qualities, etc., just a few manufacturers,
or is it. practically all the "reputable" ones?
When you speak of "zealots" seeking legislation,
do you include Senators Kefauver, Hart, Douglas,
Neuberger, Nelson and the dozens of other fine
Congressmen trying to help the consumer? Or
about whom are you speaking?
I could go on, about whether its few" as you
maintain, or many. But it seems to me that
80
you could have made your points about
"self restraiht" without exaggerating
about "zealots" for more and bigger
government trumpeting the misdeeds of
the few as an argument for more central
authority".
Sincerely,
Sidney Margolius
But it is the ghetto dweller whose home has just
been lost to a fraudulent aluminum siding swindle who
knows what real tyranny is. Anf it is the American
housewife exploited by games, gimmicks and deception
who is in need of protection.
The Chairman cannot honestly believe that economic
forces are incapable of tyranny, and he undoubtedly
realizes that government is the consumer's only viable
resort for redress or for relief. Further, it is hard
to believe that he is not aware, despite indications to
the contrary, that the chief responsibility for these
crimes must ultimately be placed on big business, not
on the occasional fly-by-night operation attended to by
the FTC and the Better Business Bureaus. Drugs, fake
promotional games, automobiles, buses, oil depletion
allowances and special tax privileges, pollution, pipe-
lines, radiation, contaminated meat and fish, false pack-
aging, dishonest lending practices and many other crucial
problem areas of the recent past and of the present involve
primarily big corporations.
A more accurate description of the Chairman's motiva-
tion is that it is a form of indolence. It is simply
easier to ride with the tides of power and to dismiss those
who question or suggest action, than to take action
against the economic forces so well represented in Washing-
ton, D.C., (see section on collusion).
81
2. Secrecy
The members of the FTC investigatory team had a. three
month opportunity to observe at first hand the operation of
the Commission's information policies. They were dealt with as
members of the general public --- not as litigants, business-
men, members of Congress or representativesof the White House.
This section will demonstrate that where such "average citizens"
seek information relevant to consumer problems and/or FTC
performance of its regulatory duties, the normal agency response
is either total secrecy or subtle forms of minimal disclosure.
To begin with, the FTC's official policy regarding
confidentiality, set forth in its Rules of Procedure, is in
blatant conflict with the recently passed Freedom of Information
Act (hereinafter FOI Act). That statute, as members of the
press well know, constitutes a clear Congressional command
to federal regulatory agencies to disclose to the public
all but a limited number of kinds of information. * Or, as
stated in The Freedom of Information Act, Compilation and
Analysis of Departmental Regulations Implementing 5 U.S.C. 552
90th Congress, 2nd Session, Committe on Govt. Operations, 1-2
(1968) (hereinafter cited as Analysis)
through the act the Congress has adopted a philosophy
that "any person" should have clear access to agency
records without having to state a reason for wanting
the information
the burden of proving withholding
to be necessary is placed on the Government agency.
(emphasis supplied)
The FOI Act requires all affected agencies to publish
in the Federal Register regulations implementing the new act
and its policy -- spelling out each agency's organizational
structure and procedures, including specific procedures by
which persons can gain access to information.
The Analysis evaluates the implementing regulations of the
various agencies required to publish them, focusing on
*
Information which may -- but need not --- be withheld under
the act must fall withmone of
nine specific
exemptions are paralleled in the section of the FTC's Rules
covering confidential information. See discussion below.
82
"the degree to which they implement the law in accordance
with the intent of the Congress." (Analysis 2). It concluded
that
most [agencies'] regulations
meet the letter
and spirit of the law. A few, however, contain
language showing that arrogant public-information
policies still endure in agencies. (Analysis 4)
It found that the FTC's regulations are among the latter --
and that the agency has given no indication that it is in
the process of revising the regulations. Says the Analysis,
in a section entitled "Released Confidential
Information,' the FTC flouts the law by resur-
recting from the prior law* the phrase "for
good cause shown. " It directs that the requester
state in writing and under oath the nature of his
interest and the purpose for which the information
will be used if the application is granted. The
section concludes: "Upon receipt of such an
application the Commission will take action thereon,
having due regard to statutory restrictions, it rules
and the public interest." The FTC obviously fails
to recognize that the [FOI] act specifically pro-
vides that persons requesting information no longer
are required to state why they want it. Any infor-
mation not falling under any of the law's nine
categories of exemptions is deemed public information
and is to be released without qualification.
This official opinion is supported by the views of
competent individuals in the private sector. For example,
Mr. Sam Archibald of the Missouri School of Journalism,
who has done his own survey of agency regulations under the
FOI Act, says those of the FTC are the worst.
Because of their complexity, the Commission's information
policies and practices will be analysed in sections.
(a) Public documents. Sec. 4.9 of the Commission's
Rules of Practice designates specific documents as "public.",
including annual report, descriptions of FTC organization,
etc., cease and desist orders, industry guides, "texts or
Technically, the FOI Act is an amendment to Section 30 of
the Administrative Procedure Act, which formerly read, in
pertinent part
(c)
matters of official record shall
be made
available to persons properly and directly
concerned except information held confidential
for good cause shown. (Emphasis supplied)
83
digests of selected advisory opinions" (emphasis supplied),
rules, reports of FTC decisions in adjudicative proceedings
(including "initial decisions" of hearing. examiners) a record
of votes of Commission members on every proceeding, pleadings,
motions, orders, transcripts of hearings, exhibits, etc. in
adjudicative and court proceedings, published staff and
Commission reports, agreements containing consent cease and
desist orders, news releaases, copies of laws, approved
compliance reports and assurances of voluntary compliance
(except where, upon an application showing proper justification,
the party filing a compliance report or assurance may have granted
his request that it be classified as confidential). The pro-
ject found several of the above categories of documents to be
less public in practice than on paper. Advisory opinions are
never printed in full text, for example. Only digests are
made public, with no identifying details or background infor-
mation. This policy is objectionable, for it precludes
effective public criticism of important Commission decisions
for under the agency's rules, Sec. 1.3, Advisory Opinions
are binding on the Commission until revoked. The Commission
keeps secret the identity of applicants for advisory opinions
because, says, guaranteed confidentiality is necessary to
"attract" businessmen into the program. Now, there are
several responses to this. One is that government must not
be allowed to engage in secret lawmaking, especially where,
as here, it is possible to take financial or political
advantage of secret dealings. And to compound the problem,
secrecy prevents members of the public who might seck
revocation of an advisory opinion because of its background,
contents or lack of compliance there-with from knowing about
it. This is particularly serious since the checking on
such matters. See section on compliance.
84
Another response is that no evidence exists that
businessmen would make less use of this program if the
secrecy were removed. In fact the available evidence points
the other way: in the last couple of years, the contents
of consent cease and desist orders have for the first time
been made public; yet, according to staff interviews, this
change in policy had no discernible adverse effect on the
number of businessmen electing to proceed by this route.
In any case, relat ely few advisory opinions* are sought by
businessmen, and this is for a reason which has nothing
to do with secrecy. According to interviews with lawyers
who deal frequently with the FTC, most businessmen avoid
seeking advisory opinions mainly because they know that the
Commission is likely to advise them conservatively.
The FTC frequently explains its reasons for refusing
to divulge the identity of and information about applicants
in terms of protecting trade secrets, etc. If this were really
the case then information should be withheld only in cases in
which individual business entities seek advice, not where
industry-wide trade associations apply for opinions -- since
presumably trade associations, generally interested in self-
little
regulation, have need to keep information secret. Project
requests, however, for access to full texts of advisory opinions
given to trade associations were consistently denied, except that
one opinion --- given to the National Association of Retail
Druggists --- was finally made available to us, but only
because we [the Commission] have been informed
that the requesting party published [the opinion]
in its Journal at the time of issuance. (Letter
from Chairman Dixon to John Schul' Z, October 25, 1968)
A grand total of 260 Advisory Opinions were issued between
Aug. 1964 and June 25, 1968 -- or about 65 per year.
This constituted the Commission's reply to the project's
formal request for information under Sec. 4.11 of the
Commission's Rules. For more on 'the fate of this request
see discussion below.
85
The fate of that opinion is instructive of an additional
disadvantage of advisory opinion secrecy. Not only was it
published in a trade journal, as the Commission stated, but
the attorney who obtained it-former FTC Chairman Earl Kinter-
shared in the publicity. This experience suggests that FTC
advisory opinion secrecy permits recipient attorneys to
publicize them selectively as they choose, thus in effect
marketing their dealings with government.
Finally, if protection of trade secrets is a central
concern of advisory opinion confidentiality, there should
be some sort of statute of limitations on secrecy. There
is none, as we were informed by staff in the Division of
Advisory Opinions as well as the Chairman himself.
Assurances of voluntary compliance and compliance reports,
while generally available to the public in some sense of
the word (we were assured by staff interviewed that very few
of these documents are held confidential), in fact provide
minimal disclosure of information. The agency achieves minimal
disclosure-in-fact of these documents in two ways. First, the
only text it permits to be made public is extremely general
and conclusory--public assurances of voluntary compliance and
compliance reports both contain only language like "X.Y.Z. has
ceased to carry on its business in the manner disapproved of
and will not do so again. All detailed communication? from
challenged businessmen- the real meat of such cases--are held
absolutely confidential (we requested and were refused them
by. everyone up to and including the Chairman). Second, to say
that these texts are made "públic" is to stretch the word: a
single copy of each is placed in ring-binders in the docket
room of the agency's central office building in Washington, D.C.
But no copies are made or distributed to anyone and no news
86
releases on them are issued. * In other words, there is
little likelihood that the public will ever learn of a
businessman's transgression. The handling of these records
provides an example of partial secrecy at the FTC. As such,
it permits the agency to proclaim (when challenged) that such
information is public while effectively keeping it from the
general public.
Other examples of partial secrecy at the FTC include
consent orders and news releases. Proposed consent orders
are made "public" without publicity -- a single copy is
placed at the central office; they remain public for thirty
days. As for News Releases, even where they are issued about
deceptive practice cases, for example, they are typically so
laced with opaque legalisms that (even in the opinion of
members of the trade press in Washington D.C.) it is difficult
to extract any usable information from them. If reporters
trained in the field can't get the message, how can consumers?
A final example of limited publicity is the Commission's
handling of the transcripts of such important "public hearings"
as those held earlier this fall on consumer protection. The
normal practice (which will be followed in this case too, according
to Chairman Dixon) is for the Commission to purchase one copy of
a hearing transcript and place it in the Docket Room of its
central office in Washington D.C. * Of course, any interested
*
Except that, in the case of assurances, a release appears
every few months which summarizes very briefly all assurances
accepted in the previous few months. These summaries typically
tell only how many assurances have been received --- usually
80 - 90 --- then give about three very brief examples. of problems
involved, thout identifying any respondent.
In one earlier case, the tire hearings of Jan. 1965, a single
additional copy was made available by the agency because of
extreme public pressure at its Chicago field office.
Chairman Dixon refused to print the hearing record, saying that
the FTC' contract with Ward & Paul precluded it. This
illustrates the Chairman's talent in turning consensual contracts,
entered into at his direction, into immutable force majeure.
87
(affluent) citizen can purchase his own copy of any hearing
transcript from Ward & Paul, stenographers, at only 50 a
page.
(b) Confidential Information, § 4.10 specifies certain
rather broad categories of matters specifically deemed
confidential by the Commission. These categories are roughly
those defined as exemptions in the FOI Act, thus
S4. 11 Confidential Information.
(a) The records of the Commission which are
exempt from availability for public inspection
include
(1) Records related solely to the internal
personnel rules and practices of the Commission
(2) Trade secrets and names of customers and
commercial or financial information obtained from
any person which is customarily privileged or
which is expressly received by the Commission in
confidence, inculding
reports of compliance
and assurances of voluntary compliance classified
as confidential pursuant to $4.9(f);'
(3) - Official minutes of Commission meetings;
(4) Interagency or intra-agency memorandums which
would not be available by law to a private party
in litigation with the Commission;
(5) Personnel and medical files and similar
files which would constitute a clearly unwarranted
invasion of privacy;
(b) Investigatory files compiled for law enforcement
purposes except to the extent available by law to a
private party
(c)
All other records and information of the
Commission not clearly identifiable not listed in the
current index of the public records of the Commission
also constitute a part of its confidential records
We found that in practice the Commission appeals broadly
and woodenly to most of these categories to support non-disclosure
of various kinds of documentary information, and that it uses
other tactics to avoid disclosure of agency records.
Trade secrets, commercial and financial information, etc.
One example of the use of this category of exemption is
discussed above (advisory opinions). A more significant example
is the unsuccessful series of attempts made over the last year
by Professor Kenneth Culp Davis to secure Commission disclosure
of samples of pre-merger clearances issued by the FTC.
*
See discussion of these above.
88
Professor Davis' ordeal began in August 1966, when he
visited Chairman Dixon and requested "to examine Commission
files showing clearances for mergers
(Letter to
Chairman Dixon, Nov. 14, 1966). Mr. Dixon refused, suggesting
a request by letter, which Professor Davis obligingly made in
November. Id. In December, he made a revised request, limited
to the files of "the three latest cases in which the Commission
has granted clearance for merger." (Davis' letter to Dixon,
Dec. 22, 1966). On Jan. 13, 1967, Chairman Dixon responded,
agreeing to make public only digests of pre-merger matters,
on the specific analogy of advisory opinions. (Dixon's letter
to Davis, Jan 13, 1967). Professor Davis wrote back immediately
expressing his dissatisfaction as a scholar with digests:
[I]t [publication of digests] does not meet my
need to examine the files. You are quite right in
saying that I want to know the law and policy of the
Commission with respect to such clearances, but such
digests clearly will not suffice.
Davis letter to Dixon, Jan 19, 1968
He then repeated his request, stressing the scholarly
nature of his interest:*
My purpose is wholly scholarly. I have
absolutely no interest in the kind of business facts
a corporation typically wants kept confidential
;
such facts can be taken out of the files I examine. My
lifetime project is to try to understand the administrative
process
This letter was apparently ignored, and Professor Davis
sent two follow-ups in October and one in November, 1967,
requesting "permission to examine Commission files showing
interpretations made in pre-merger clearances during 1966
and 1967 Davis' letter to Dixon, Oct. 13, 1967 Finally,
on Nov. 27, 1967, came the Commission's single-spaced three-page
response--denying Professor Davis' request.* In this letter,
pre-merger clearances have been fully conceptualized as advisory
opinions, and the agency goes on record as exceptionally solicitous
of information handed over to the agency by persons who approach
it voluntarily, thus:
[P]arties who approach the agency in this posture
[voluntarily] are entitled to an even greater degree of
protection than those against whom it has been necessary
to invoke mandatory procedures for no law compels. them
to come in and make the disclosures they make. Instead
*
Professor Davis is a foremost authority on administrative
law, the author of a four-volume treatise on the subject.
But making available a larger sample of digests and some
statistics.
89
they do SO of their own free will in order to avail
themselves of the services which the agency affords,
secure in the knowledge that the secrets which they
voluntarily unfold will be held in strictest confidence
by the public agency
Commission letter to Davis, Nov. 27, 1967, 1-z
But Commissioner Elman disagreed, convincingly, in a
separate statement:
In my view, there is no substantial interest which
would be harmed by letting Professor Davis examine these
materials. Professor Davis is not asking to see any
correspondence or records which the Commission secured
under a pledge that they would be kept secret.
Id. p.4
Professor Davis answered on Nov. 29, 1967, citing
relevant provisions of the FOI Act and commenting that he
intended to bring the matter to the attention of various other
governmental agencies if not satisfied with the Commission's
handling of the matter. This produced a bristling Commission
response dated Dec. 15, 1967, in which Professor Davis' view
of the FOI Act was hotly rejected and the following statement
appeared:
In closing, the Commission wishes to add one or
two other observations. While it feels that there
must somewhere be an end to this dialogue, you may be
assured that it is also our desire to have you work with
us rather than against us and that the Commission has here
evidenced a wish to cooperate with you in every way it
properly can. A great number of our top level personnel
has spent a great deal of time in making available to
you all the information which could be released and the
Commission itself has spent an unusual amount of time in
considering this individual request because it considered
the matter to be important and because it wished to
cooperate with you in the work you are doing. But it
is evident that cooperation involves considerable give
and take on both sides and not the complete capitulation
of one side to the other. Certainly, this Commission will
not be forced into that sort of cooperation by undisguised
threats that request will be made for Congressional action,
which are not to be expected from one of your outstanding
reputation and which the Commission connot believe were
intended in the manner stated.
Commission letter to Davis at 2,
Dec. 15, 1967
Once again, Commissioner Elman disagreed, stating that he
does not regard Professor Davis' letter
as
carrying any 'threats'. A citizen has the right to
bring matters of public concern to the attention of
interested committees of Congress. No government
agency should feel threatened by such a proposed
course of action.
Id. 3.
101
THE CORE OF THE PROBLEM: PERSONNEL
102
1. Partison Political Activity
The official image of the Federal Trade Commission ic,
as it should be, that of a non-political agency regulating
interstate commerce against anti-compotative and unfair practices
in the public interest. In order to insulate the agency from
party politics, the original law provided that no more than three
Commissioners could be from the same political party. For the
same reason the Commssioners' tenures run for seven years at
staggored intervals. On the staff level the Hatch Act, 18 U.S.C.
Sec.
602 (1964), prohibits the soliciting of political:
funds by government employees. In addition the Civil Service
Commission forbids party discrimination in hiring policy.
Yet in the case of the present regime at the FTC, the
Hatch Act and the Civil Service Law are regarded as mere rhetoric
to which lip service is paid publicly, but which are in reality
either ignored or circumvented. Most attorneys at the FTC
arc labelled as either Democrat or Republican and their party
affiliation has a definite impact on the positions they are
offered. All staff attorneys at the FTC from Bureau Chief*
to Executive Director hold their positions on appointment
from Chairman Dixon who, in effect, may replace them whenever
hc desires and reduce them from a supergrade to a GS-15.
Ideally then, the Chairman rotates the FTC staff in order to
place the best men at the top of each operating burcau. When
Mr. Dixon became Chairman in 1960, it seems that the "best "men"
were all Democrats and so any Republican in a high positon was
offered the choice of either becoming a trial lawyer at the bottom
of the organization chart or, of course, resigning from the
Commission:
As a result of this extremely partisan policy, fourteen
highly experienced career FTC men left the commission almost
Division chiefs were removed under the cover of a
general reorganization of the Commission. A similar
reoganization took place in 1952 when the Republican came
in, but was initiated and planned from outside the agency.
Chairman Dixon, however, was the chief architect of the
1961 roorganization.
163
immediately. In November of 1961, Advertising Age claimed
partisan politics as the major consideration in a reorganization
of the FTC and that, as a result the quality of key personnel
(d) deteriorated". Advertising Age, Nov. 20, 1961 p.13.
In time, most of the other Republicans found it hard to swallow
their pride and left. A few able Republicans such as the former
Assistant Executive Director, Basil Mezines, and attorney
John Walker have stuck it out. For eight years, however,
their position as being "out" men, has grown increasingly
uncomfortable.
of the nearly five hundred lawyers working for the
Commission only about forty are now Republicans with approxi-
mately twenty of these being located in the central office.
At the present time only one Republican holds a position of
any prominence in the operating bureaus of the FTC: Mr. Charles
Moore, who has recently succeeded Sam Williams as Chief of the
Bureau of Field Operations. Mr. Moore is a Republican, but
in his case there is the extenuating factor of his coming
from Johnson City, Tennessee. See P.1.10 below. The extreme
partisanship of the higher staff combined with the control they
wield over the selection and promotion process has made these
results inevitable. See P.120, below.
In addition to permitting his staff to violate both the
spirit and the letter of the Civil Service Law in promotion
and hiring practices, Chairman Dixon, himself, has violated
the Hatch Act. Highly reliable sources at the FTC revealed
to this project that until recently Mr. Dixon was notorious
for dunning the agency's personnel down to the GS-14 level for
political contributions. This group includes approximately
one quarter of the more than 450 lawyers working in the central
office in Washington. The chief collector of dues used to
be Fletcher Cohn who holds the title of Assistant General
104
Counsel for Legislation with a salary of $24, 177 per year.
Mr. Dixon reputation with the democratic fund raisers is
reported to be excellent. It is also known in the high
cchelons of the Commission that Chairman Dixon is openly
proud of his fund raising, and well hc might bc. His methods
would make any chairman of an alumni fund raising committee
jealous. Members of the staff have testified to receiving
solicitation cards from the Democratic National Committee with
a code number in the corner which everyone involved knew
would indicate to Chairman Dixon who gave and who did not.
This outrageous method of soliciation was not well received
by those who were being coerced to give against their will.
Eventually, the threat of action by the Justice department
under the Hatch act forced Chairman Dixon to give up this political
exploitation of his employees. He now uses more discreet methds
to do his political fund raising inside the FTC. Now, for
example, he personally asks his subordinates to buy $100-a-
plate tickets to Democratic fund raising dinners. Thus
Chairman Dixon persists in playing partisan politics, while
neglecting his responsibilities as a public servant.
105
2. The FTC and Congress
Even more destructive for the Commission's sense of
purpose and for its non-political image are the Congressional
politics which permeate the FTC. Response to Congressional
pressures has had a telling effect on possible priorities
for action, theoretically set according to the importance of
the social issue involved.
According to Joseph W. Shea, Secretary of the FTC, any
letter which comes in to the Commission from a Congressman's
office is marked specially with a sticker saying "expedite".
The sticker gives the letter a special priority and assures
the Congressman of an answer within five days. No distinction
is made between letters from complaining constituents which
Congressmen routinely "buck" over to the FTC and those from the
Congressmen. Approximately 110 letters are received from Congress-
men each month with only a few of these originating in the
Congressman's office (see appendix 12). Yet all these lotters
are answered in detail by younger members of the staff for whom
this type of busywork is a constant annoyance. As one attorney
complained, "A letter comes in from a Congressman and every-
one drops whatever they are doing and takes care of it
Great importance is attached by the higher staff to answering
these letters fully and properly
How can you do a job with
that kind of continual interruption?"
The irony of this situation is, of course, that all
matters which the Congressmen deem important are handled by
telephone or in person. Such personal contacts are not very
difficult to arrange for, as one lawyer in the Bureau of
Deceptive Practices stated, "Everyone who wants to go anywhere
at the FTC has a political connection," and then quite forth-
rightly named the Congressman who was his sponsor.
106
The personal influence of Congressmen begins at the
top of the agency. Chairman Dixon was appointed by President
Kennedy under heavy pressure from the late Senator Kefauver.
The runner-up for the chairmanship, A. Everette MacIntyre, was
sponsored by Rep. Wright Patman of Texas. He was given the
next available Commissioner's post as a consolation prize.
Casual scrutiny of the FTC reveals a number of other political
sponsors. One day late last summer I was fortunate enough to
find Mr. William Jibb in his office. (According to reporters
who deal with the Office of Information regularly, Mr. Jibb,
the Office's Director, is rarely there. From my own experience
I have found this to be true. Mr. Wilbur Weaver, Mr. Jibb's
assistant, seems to be able to run the office quite capably
without apparent aid from Mr. Jibb.) Mr. Jibb insisted on
telling me that he had been an old college roon/ate and political
aid to Sunator Smathers of Florida.
Other members of the Commission's staff are less talkative
about their political connections, which are none the less
well known. Take Mr. Joseph W. Shea, for example. He
comes from Boston and his official title as stated on his
biography reads, "Secretary and Congressional Liason Officer",
although in the Commission telephone book and budget control
reports that he is listed simply as "Secretary". His
biography also notes that he "came to Washington, D.C., April
19, 1934, under sponsorship of Speaker John W. McCormack as
a clork at $1,000 per annum and attended evening law school. "
Around the Federal Trade Commission he is known "to be like
a son" to the speaker of the House. His biography also notes
mysteriously that he "has accrued sick Leave of 2,211 hours
and maximum annual leave", a piece of information not normally
placed in FTC biographics. The 1965 Civil Service Commission
study of FTC anagement practices seemed disturbed by this
107
fact and the unumally high supergrade of GS-16 with &
selery of $25,875 occupied by Mr. Shea. Their report
stated:
The Secretary's position WELD placed in grade
GS-16 upon the statements of the Chairman re-
garding the personal contributions the
Secretary has made to the Commission through
his highly successful personal contacts outside
the Commission. Personal contributions of this
nature do not permit their delegation to subor-
dinates in the principal's absence. The other
responsibilities of the Secretary --i.c., the
preparation of the Minutes and maintaining the
official records of the Commission ---- were not
factors influencing the classification of this
position. p. 48.
Other officers in high positions at the FTC have political
contacts or relations similar to Mr. Shea's. John W.
Brookfield, (GS-15, $22,695) the Chief of the Division of
Food and Drug Advertising in the Bureau of Deceptive Practices,
is the nephew of the former Chairman of the House Rules Commit-
tee, Rep. Howard W. Smith. Fletcher Cohn (GS-1,, $24,477)
is a product of the old Memphis political machine of Boss
Crump and was retired to the FTC after failing to win a
third term to the Tennessee logislature. According to Richard
Harwood of The Washington Post, Mr. Cohn is "the FTC's
lobbyist and Ambassador to Capitol Hill". Washington Post,
March 27, 1966, p. El. Cecil G. Miles (GS-17, $26,960) is a
close acquaintance of his follow Arkansan, Representative
Wilbur D. Mills and also Bureau Chief of the Bureau of
Restraint of Trade. Michael J. Vitale (GS-16, $24, 477)
from Newark, N.J. is sponsored by his Congressman, Rep.
Rodino, and at the present time is a Division Chief in the
Bureau of Deceptive Practices. And the list goes on.
Perhaps the Congressman with the most inficence in the
decisions of the FTC is Rep. Joe Evins of Tennessee, who is
also Chairman of the House Appropriations subcommittee which
approves the FTC's budget. As one staff member of the FTC
108
put it, "Ambitious steff attorneys at the FTC who are from
Termessee have to know Joe Evins." Thus, when a political
friend, Judge Casto C. Geer, desired a job in Tennessee near
his home town, the FTC Was obliging and set up an office in
Onl: Mage, Tennessee, although the Commission doesn't have
offices in such urban areas as Detroit and Philadelphia.
When the FTC wanted an economist for its Division of
Economic Evidence, it selected Harrison P. Houghton, the
chief economist from Joe Evins' Select Committee on Small
Business. Mr. Houghton has subsequently been made Acting
Director of the Bureau of Economics.
It would be wrong to say that all Congressional pressure
is bad. The FTC has reacted to the demands of such men from
the Hill as Senator Warren Magnuson and Representative Benjamin
Rosenthal, the results being investigations into insurance
frauds, home improvement frauds, deceptive auto warrantics
and deleterious frozen foods. In all these cases, however,
the issues were important, pressure was applied openly
for the public good, and the FTC should indeed have acted.
on its own.
Unseen influences from other Congressmen, however,
have had other effects. Sometimes they amount simply to
the misallocation of scarce resources for a small investigation
in a Congressman's home district. In other cases, such as
109
the quict opening of the Oak Ridge Office to accomodate
Rep. Evins' political crony, we have a gross misallocation
of public funds. Most horrifying of all, however, were
those cases when the influence of a Congressman actually
presents a danger to human life. Such Was the case with
flormable baby blankets when, in the 1950's, Rep. Albert
Thomas of Texas was occupying Rep. Joe Evins' present Chairman-
ship of the House Sub-committeion Appropriations for
Independent Agencies. Representative Thomas, on behalf of
Texas cotton interests, influenced the Commission to rule
that baby blankets were not covered by the flammable fabrics
law. Baby blankets, the Commission said, did not qualify
as "clothing".
In short the situation has not changed since Richard
Harwood writing for the Washington Post in 1966 stated:
The ties between Congressmen and commissioners and
between staff members and their political sponsors
to Dixon, are proper ---- including political
contributions and other forms of political activity
'When a man comes to Washington,' (Dixon) says; he
doesn't disfranchise himself.
.1
110
3. The Collective Background of the FTC
Party politics and congressional tius have vitiated to a great
extent the was which the nc should be doing. For the most part,
change problems are only symptomatic of the collective personality
of the FTC hierarchy.
During the probusiness days of the Republican administration
of the twenties, the FTC, for lack of any other use, became a dumping
ground for political patronage. President Roosevelt, recognizing the
potential of the FTC tried to reform the Commission's personnel and use
it to spearhead his New Deal program. When, however, his attempts
to remove the worst of the commissioners was rebuffed by the
Supreme Court in the case of U.S. V. Humphrey's Executor, 55 U.S. 869(1935)
on the grounds that a commissioners position was quasi-judicial,
Roosevelt gave up on the FTC and used it to his political advantage by
granting it as a political fiefdom to Senator Kenneth McKellar of
Tennessee. T he fiefdom was managed for McKellar and "Boss" Crump's
Memphis political machine by another Tennessean, Commissioner Edwin
C. Davis, From 1933 to 1949.* Positions were openly given throughout
this period on the basis of personal connections and pilitical
patronage with southernDemocrats receiving the lions share.
The Republican years from 1952 to 1960, were lean years for this
group at the FTC, but they managed to survive and ,with a democratic
administration and Mr. Dixon's appointment things were back to normal.
Most of the top staff now at the Commission either came during the
period of the "Tennessee gang" or are clud house friends. As one
disgruntled observer stated to a Wall Street Journal reporter five
years ago, "The atmosphere of the agency was like a southern county
courthouse, and it is again." July 23, 1963, P 20. From the projects
Commissioner Davis distinquished himself by ,his annual gift to
Congress of appropriated funds which had not been utilized." This
parsimonious spirit and desire to please Congress with economy is
a dubious tradition which continues to manifest itself in Chairman
Dixon's testimony to Congress for annual appropriations. See P.
111
observations the situation has not changed since 1963.
As a result the men who control the FTC are simply incapable of
understanding the complex problems and processes of our urban society.
A symptomatic problem indicative of this point was revealed by a sing-
ularly capable GS--15 at the Commission. He was amazed by his colleagues
lack of knowledge of record keeping procedures in large corporations.
In addition interviews with personnel in the records division has
revealed that none of the staff has yet recognized the worth of the
computer. The 1965 Civil Service Report on the FTC indicated that
this problem also existed three years ago. The report suggested that
Chairman Dixon's administration
provide for a comprehensive study of the use of the
computer in order that it may be brought into full
productive use in providing:
1. Management data essential to manpower
control, utilization, and planning.
2. Program resource data which will result in
either increased productivity or reduced
manpower requirements. Evaluation of
Personnel Management, 1965,p 9.
(Civia REPORT)
Since 1965 no compre};Ensive study of the sort called for by the
Civil Service Commission Report has been instituted by Chairman Dixon.
Priority planning, selection of cases to investigate issuance
of complaints, and the tactics and legal weaponry to be used in each
case is essentially decided by the staff. Chairman Dixon (Nashville,
Tennessee, pop. 170,874) is given by law general responsibility for
overseeing and planning the work of the staff. His chief-of-staff
is the Executive Director, John Wheelock (Spring City, Tennessee,
pop. under 2,500), but the assistant to the Chairman, John Buffington
(Castleberry, Alabama, mp. under 2,500) acts as Chairman Dixon's
liaison man and watchdog for the work of the Executive Director.
Beneath Wheelock are the six Bureau Chiefs. The Bureau of Economics
is the only operating bureau which does not hire lawyers for substantially
all its staff. It is presently headed by Harrison F. Houghten (Des Moines
Iowa, pop. 282,902) whose appointment has already been discussed.
See p.ic8. The following is a list of the other five bureau chiefs
and their native towns:
Cecil G Miles (Prairic County, Arkansas, pop. of county
10,515) Bureau of Restraint of Trade.
Frank Hale (Madisonville, Texas pop, under 2,500) Bureau.
of Deceptive Practices,
112
Chalmers 0. Yarley (Milterboro, South Carolina, pop.
5,417) Bureau of Industry Guidunce.
Charles R. Moore (Johnson City, Tennessee, pop, under
2,500) Sureau of Field Offices.
Henry D. Stringer (Winfield, Texas mp. under 2,500)
Bureau of Textiles and Furs.
In addition to the operating bureaus there are two offices consisting
cntirely of lawyers which are influential in the Commission's policy
T
making process.
he Office of the General Counsel is headed by James
McI. Henderson ( Daingerfield, Texas, pop, 3,133) and the Director of
the Office of Hearing Examiners is Luther Edward Creel (Albertville,
Alabama, pop 8,251). Of the thirty-five Assistant Bureau Chiefs
and Division Chiefs, only fifteen biographies were available from
the Office of Information. Of those fifteen, nine were from a small
town southern background. In the field offices a reverse carpetbagger
effect has taken place. The Attorney-in-Charge of the Kansas, City Office
comes from Bowdon, Ga. (pop. under 2,500). The Attorney-in-Charge
of the Los Angeles Office transferred there from the Atlanta Office and
the Attorney-in-Charge of the San Francisco Office comes from Virginia.
protection
This common background of policy making personnel perhaps
of the
Door
explains why the Commission did not start to police the exploitation
consumer
of the ghetto poor of the D.C. area until late 1965, and then only
because of constant prodding by Sen. Warren Magnuson (Seattle, Washington)
and Commissioner Mary Jones (New York, New York). Even the FTC's efforts
since 1965 in the D.C. project have so small and half-hearted
that it can only be called a showcase for publicity purposes. One finds
in this case another example of what this report labels "scoping",
see P. i/-1
The D.C. Project opened 98 investigations over a
period of three years. From these 27 formal complaints were issued
with only 19 final orders being entered. Of the final orders only
seven wcre accepted as adequate with the others still "under investi-
gation" FTC Report on District of Columbia Consumer Protection
Program P. 1 (1968)
113
The D.C. project is also an outstanding example of the reluctance
of the FTC to use rigorous enforcement penalties. The Commission has the
PENALIZE
right to
up to $5,000 per day for each violation of its final
order. Moreover, according the the D.C. report,
Of the 15 final orders for which compliance orders have
become due, seven reports of compliance have been acceptediby
the Commission. Four respondents did not submit any compliance
reports and three respondents submitted inadequate reports. All
seven cases were accordingly sent into the field for investigation
the Commission has put itself in a position whereby it
can state unequivocally
that if violations are going on they
are known to the Commission and are under active investigation.
D.C. Report, P. 12.
However, despite the Commission's knowledge of these violations, it
has still failed to issue a single penalty. If the Commission's
resources are so limited that it cannot afford to divert more funds
to the vital D.C. project, it might at least consider making more
ef fective use of the legal resources it does have.
One major point stressed by the Kerner Commission Report on Civil
Disorders was that the ghetto poor justifiably felt that they had been
unfairly exploited by local white merchants. (Report of the National
Advisory Commission on Civil Disorders, Chap. 8; see III, "Exploit-
ation of Disadvantaged Consumers by Retail Merchants.' See also
The Dark Side of the Market Place by Sen. Warren Magnuson and The Poor
Pay More by David Caplovitz.) This exploitation was also documented
by a 1968 report prepared by the FTC's Bureau of Economics.
Sen. Magnuson states the plight of the poor consumer most
movingly:
Entrapped by devious clauses in contracts and duped by the lies
of fast-talking salesmen, many of the victimized poor do not have
the faintest notion of what has happended to them; they know only
that they have been badgered by bill collectors, lost their jobs,
seen their furniture or homes swept away, and that the law is
somehow implicated. Worst of all, these poor people are nearly
helpless to fight back, for they do not know their rights nor
how to exercise them. The Dark Side of the Market Place P. 53.
In the American tradition of despairing dobtors, which dates back to
Shay's Rebellion in 1787, the ghetto dwellers used violence to attack
the source of their frustrations. Thus, during the D.C. riots there
were selective firebombings of local merchants and finance companies.*
*
This practice was not an exclusive feature of the D.C. riots.
According to Son. Magnuson, "A number of witnesses called before the
114
If the FTC had started a vigorous consumer protection program
for the D.C. area in 1960 instead of the weak program started in
1965, perhaps a major cause of the D.C. riots would have been removed.
Such action, however, would have required social concern, imagination
and foresight -- the very qualities which are inhibited by limited
groups of people suffering from a lack of diversity. A small clique
of attorneys with an identical background far removed from the important
issues of the day should not have control over an institution with
the important responsibilities of the Federal Trade Commission.
The unique common background of the Commission's line personnel
in combination with the political nature of the Commission has produced
a reluctance on their part to disturb their political friends on the
Hill by radical action. Thus both Commissioner Dixon and Commissioner
MacIntyre objected to a proposal that the Commission publicize
discrimination in housing by investigating deceptive newspaper
advertising that covered up discriminatory practices.
iring from
Chairman Dixon's attitude in the above case is paralleled by
inority
roups
his stance vis-a-vis the hiring of minorities. The following data on
minority group employment in the FTC comes from the Study of Minority
Group Employment in the Federal Government which is prepared annually
by the Civil Service Commission.
PROPORTION OF NEGROES TO ALL EMPLOYEES
Federal Trade Commission
GS 9-18
GS 5-8
GS 1-4
June, 1965
0.98%(6/611)
11.0%(33/299)
24.6%(51/207)
June, 1966
1.28% (7/547)
9.5% (25/263)
34.5% (69/200)
November, 1967
0.78% (5/638)
12.0% (33/274)
42.6% (104/244)
As these figures show, the FTC has not been averse to hiring
Negroes, but only "in their place,' 11 i.e. the lowest GS 7-4 positions
Governor's Committee investigating the Watts riots did testify that
the prime targets of violence. WOTC the eotablishments of merchants
who engaged in sharp selling practices." And again, "During the
cutastrophic Detroit riots in June 1967, arsonists. systematically
burned stores known to engage in sharp solling and credit practices."
The Dark Side of the Market Place, P. 57.
115
The cheened of changes since mid-1965 in the preportion of Negross
in the GS 5-8 levels indicates that Chairman Dixon has not encouraged
the promotion of Nugroes to supervisory positions. Those in the GS 5-8
grades are trained clerical help, and it would be reasonable to expect
hiring on the basis of equal opportunity to produce a proportion of
Negroes somewhat higher than one-sixth the proportion of Negroes in
the Washington population. The 1965 Civil Service Report on the
FIC noted in its summary that one of the conditions in the Commission
was that: "The program for equal employment opportunity has not been
effectively implemented throughout the agency." Civil Service Report,
p.7.
In the same report, the Civil Service Commission argued:
Much greater of fort must be made to seek out minority group
candidates for professional positions. The system of almost
total reliance on walk-ins must be replaced with a program of
aggressive search if the Federal Trade Commission is to be
assured that it is getting its fair share of top quality minority
group candidates. Civil Service Report, PP. 9-10.
There are currently five Negroes in the GS 9-18 grades for professional
employees. One is a librarian, three are attorneys and one is a textile
investigator. According to a member of the Office of Personnel who is
in a position to know about the FTC's recruiting effort, Chairman
Dixon has effectually disobeyed this Civil Service Commission directive.
According to this source, Chairman Dixon has no desire to encourage
Negroes to join the FTC and as a result no change in recruitment policies
vis-a-vis minority groups has taken place since' 1965. Two years ago
an attorney was going to be sent to Howard Law School to do special
recruiting, but because of minor disturbances on the campus, decided
not to go. Since that attempt the personnel office has justified not
visiting Howard Law School by invoking the general rule that they
don't send interviewers to any of the D.C. law schools. A major
problem is that the FTC has no young Negro attorneys who can be sent
to interview Negro law students, but this problem would solve itself
if the Commission were to follow the edict of the Civil Service Comm-
ission and make a vigorous effort to hire competent Negro lawyers.
116
The final suggestionsof the Civil Service Report are two-fold:
The FTC should provide:
(a) an intensive educational program to assure
full understanding of the equal opportunity
program by all personnel.
(b) a positive recruiting program to utilize vacancies
which are occurring, in the field in particular, to
place qualified clerical and professional candidates
in offices which have few or no minority group
members on the rolls. P. 11.
As of last fall, three years after the issuance of this report,
the FTC had acted on neither provision.
117
problems
In an article entitled "The Dim Light of Paul Rand
of the
higher
Dixon, " Milton Viorst concludes about Mr. Dixon:
staff
Paul Rand Dixon's chief failure
seems to
be that he's been with the Federal Trade Commission
far too long. Dixon is so accustomed to doing what
he's always done that he finds it difficult to con-
ceive of doing anything very different
He simply lacks the clarity of conception necessary
to give the FTC broad now objectives, as well as the
tennedty of spirit needed to build a staff equal to
achieving them. Washingtonian, Oct. 1968, p. 82.
With this kind of leadership it is not surprising that
a large number of the "old timers" have lapsed into a state
of lethargy. The Office of the General Counsel epitomizes
this problem. Including the General Counsel, there are thirty-
two attorneys in the Office. Of these thirty-two, twenty-two
hold a GS rank of 15 or higher, which carries a salary of
$20,000 to $25,000, primarily because of their long tenure
at the Commission. GS- 15 is as high as one can go without
getting into supergrades. Another five are GS-14's, three
are GS-13's, one is a GS-11, and one is a GS-9. The pro-
gression, then, is the exact opposite of a normal hierarchy.
The General Counsel, who is in charge of the Office
is James McI. Henderson. He is a Johnson man from Texas,
who started his political career clerking for the late Senator
Marvin Sheppard of Texas. In better days he occupied a number
of significant governmental positions. Now as General Counsel
to the FTC, he is frequently absent from his office. In two
separate attempts to interview him made by the project, he
was: not in his office, and his embarrassed secretary could
not say when he would be back or whether he was on extended
leave, vacation or what. At other times during the summer
telephone calls were made to his office producing similar
results.
Most young attorneys at the Commission, and a few in
high GS levels, are critical of the personnel in the General
118
Counsel's Office. "It is the office of sinecures, 11 one
remarked. And another commented, "there is alot of
'deadwood' on the fifth floor.
Some of the men in the General Counsel's Office
are despirately in need of face-saving. One of these
is Charles Grandey. When two members of the project
went to interview Mr. Grandey in his office, they found
him fast asleep on a couch with the sports section of
the Washington Post covering his head. They woke him
up, and hc walked to his desk where he propped his chin
up with his hands on top of a pile of books. Asked
what his work entailed, Mr. Grandey gave a very vague
reply. Further inquires with other FTC attorneys estab-
lished that he really did very little, his chief occupation
being to abstract cases which are pertinent to the Com-
mission's work. His yearly salary is $22,695. He is
officially listed in the Commission telephone book as
the Assistant General Counsel for Voluntary Compliance,
along with the other Assistant General Counsels who head
divisions. He is also listed on organization charts in
the same manner, but in the confidential Budget Control
Reports, he is simply placed along with the Assistants
to the General Counsel. And just exactly what the Division
of Voluntary Compliance does is a mystery which is not
solved even by the FTC's Justification of Estimates of
Appropriations for Fiscal Year, 1968 and 1969, which are
onese
presented to Congress. In
tomes the Division of
Voluntary Compliance mysteriously disappears and remains
unjustified.
*The fifth floor houses the entire Office of the General
Counsel, Chairman Dixon's office, Commissioner MacIntyre's
office, and the office of the Executive Director.
The Office of the General Councel with all its
inefficiencies resulting from too many high-ranking
staff autorneys is representative of the whole central
in the Commission. or the 297 attorneys in the
central office (there are 156 attorneys in field offices),
3165 are GS-15's or higher, 22% are GS-14's, 15% are GS-13's,
G,0 are GS-12's, 10% are GS-11's, 13% are GS-9's.* These
percentages do not include: the Commissioners, the Executive
Director, or the Hearing Examiners, all of whom are located
in the central. office and hold supergrades above GS-1.5.
In short, the FTC is suffering from a bad case of too
many chiefs. A constant complaint heard from younger
attorneys concerned interference from higher-ups due to
overlapping jurisdictions and "their desire to direct,
not work. "
Here again we find a situation which was vigorously
brought to Chairman Dixon's attention by the 1965 Civil
Service Report. In the "Summary Evaluation of the Report,
the following points are made:
- A number of key positions have overlapping, duplicative,
conflicting assignments of duties and responsibilities.
= Positions are assigned grade-influencing duties that
are not being performed.
- Attorneys are not assigned work commensurate with
their grade level.
- The head of the agency is not meeting those respon-
sibilities placed upon him by the Classification Act
of 1949. Civil Service Report, p. 7.
Our investigations have shown that in the three
years since the Civil Service Report was issued, Chairman
Dixon's style of running the FTC has continued to clog the
gears of an agency which should be streamlining itsclf
to deal with a growing and complex economy.
GS-10 rank is not applicable to attorneys.
120
11. Miring of New Attnineys
The myth concerning hiring at the Federal Trade Commission is
that the best young attorneys are sought and offered appointments.
Confidential interviews told a different story. Young attorneys
are accepted for various reasons. Some on the merits of their case--
grades, extracurricular activities and LSAT scores. But many others
are accepted because the interviewers "liked" them, or for old school
ties, regional background, or a political endorsement.
The major hurdle for a graduating law student who wishes an
appointment is the interview with either the Bureau Chief or an
assistant in the bureau he wishes to join. He is, in addition, required
to fill out a formal application which asks for school, grades, academic
honors, LSAT scores, home state, and pertinent courses he might have
taken in law school. But, according to all those concerned in the
administration of the admission process, it is the interview which
makes or breaks the applicant. From 1958 to 1959 a Tating sheet for
attorney applications" was instituted. The rating sheet based offers
of appointments on a point system which minimized the effect of the
interview. The Bureau Chiefs, however, became very dissatisfied with
this system and it was discontinued. *
The myth of going after the best available legal talent has been
dispelled by Chairman Dixon who has been quoted as saying: "Given
*
Boreau Chiers
Much to his credit, the Director of Personnel is again attempt-
ing to minimize the effect of the
by using mid-level attorneys
instead of Bureau Chiefs for a number of the interviews. The Bureau
Chiefs, of course, still have a veto OVER the offers made for their
burcaus, but now it is more difficult for them to raise objections to
particular applicants on the basis of an interview. Already, however,
a number of the higher-ups at the FTC have objected to this innovation
and it will probably go the way of the rating sheet.
a choice between a really bright men, and one with is merely good, take
the good Mall. He'll stay Jonger." Advertising Age, Nov. 20, 1961, P.
113. Chairman Dixon's well-known projudice against "Ivy League
Inwyers" is deeply rooted in southern populist tradition, which
is the background of the Commission's ruling clique.* As a result,
graduates of prestigious law schools such as Harvard and Pennsylvania,
which have very capable anti-trust professors, do badly at the FTC
when compared to law schools such as Kentucky and Tennessee. Over
the past two years cleven Harvard graduates from the classes of '67
and '68 applied to the FTC and only four were of fered appointments.
nine
From the University of Pennsylvania, only three of
applicants
were given offers, while at Kentucky it was nine out of eleven and
at Tennessee six out of sixteen. It is possible, of course, that on
an individual basis the applicants from the latter schools were
better than those of the former. The fact is, however, that the
system is geared to exclude able young law students who are in the
middle of their class at high grade law schools. Although LSAT
scores, the only common denominator available, are asked for, they
are generally ignored in the admission process. This leaves interviews
and law school grades as the basis for choosing attorneys.
The attitude of the Bureau Chiefs is such that they prefer
attorneys who will not
their mediocrity or disturb the work
patterns of their bureau. It is easy to eliminate the bright young
fellows from national law schools by objecting to them on the basis
of their interview and, for a clincher, pointing to their class standing.
A typical applicant from a prestigious eastern law school will have
a lower class standing than one from the mediocre state law schools,
though the former person may be much brighter and better trained.
The-desire to perpetuate mediocrity goes beyond a phobia of the East.
Thus a graduate of Virginia Law School, which has a reputation as a good
national law school, is as badly treated as the graduate of the good::
castern schools. Of the thirteen Virginia graduates from the '67 and
'68 classes who applied to the FTC, only two were accepted.
*
prominent role in populist demonology. It is unfortunate that the
The "eastern conspiracy" of bankers and lawyers has played a
122
Sectionalism and school ties do, however, also play an important
role in the acceptance policy of the FTC, as the charts and discussion
in Appendix 13 (p. 168) domonstrate. These charts were distilled from
computerized lists of applicants and offers of appointment which give
home state, law school, LSAT score; and, for 1968 graduates, an honors
code number which indicates a combination of class standing and extra-
curricular activities.
The conclusion drawn from Appendix 13 may be summarized as
follows: Despite equal abilities as far as class ranking in law school
and law aptitude scores are concerned, graduates from the South have a
two to one acceptance rate over graduates from the North and this
figure increases to three to one for offers to join one of the bureaus
in the central Washington office. Certain southern states for political
reasons have an advantage over other states. Tennessee has an acaptance
rate of 52%, while Texas has an acceptance rate of 53%. In addition,
a detailed comparison of LSAT scores and honor code numbers (ranks in
class) between those applying and those being accepted by the commission
further demonstrates the point made before -- that the FTC tends to
accept less capable students from inferior schools. School ties also
make a big difference in an applicant's chances for success, with
George Washington University and the University of Texas faring unusually
well for good law schools.
situation
Thus we find that for the most part the FTC Bureau Chiefs, either
of the
lower
consciously or unconsciously, seek their own image among young lawyers.
staff
The process of absorption into the hierarchy, however, only begins here.
Within four years 80% of the new lawyers leave the FTC.
Their reasons
for leaving vary from a better paying job to complete disgust with
present lethargy of the Commission has drained from its members the
intense hatred of monopoly which is one of the good characteristics
of southern populism.
the agency. Allogether the project talked with five young attorneys
who had either left or WOTC about to leave the Commission. Three
were working for law firms in Washington, one was at the Justice
Department and one was getting ready to leave the Commission. A
brief conversation was hald with a sixth, but he subsequently balked
at a full interview fearing recriminations in the form of bad recom-
mendations from the FTC. He too was in the process of quitting the
FTC.
All of these attorneys were unanimous in the opinion that the
FTC was a discouraging place to work for a young attorney. Most
stayed on for the amount of time they did only to finish their
"graduate on-the job training" in anti-trust law and to qualify for
good recommendations.
A lawyer who had been at the FTC in the late 1950's and carly
1960's stated that the aggressive trial approach of Chairman Kintner
was ideal for young lawyers who wanted to take responsibility. He
calculated that he had tried 19 cases in his first two and a half
years because his boss was a lazy man who liked nothing better than to
shift his workload onto willing young attorneys. After those exciting
first years, however, things slowed down under Dixon's voluntary
compliance approach. The younger lawyers "got pissed, II he said, when
the higher-ups started to let cases they had prepared for trial sit
around for months without any action. This lawyer stated that he
had once prepared a memorandum recommending complaint and that 18
months later it had not left his boss' office.
Another lawyer who had been at the FTC during the same period of
transition said that there had been a lot of "esprit de corps" in his
bureau (Sestraint of Trade), but that it had diminished by 1963
because SO few bases WOTC being tried. He explained that the young
trial lawyers love to fight big companies, but that the hicrarchy
of the FTC normally ends up going after the little guy at the request
of Congressmen. Another frequent complaint -- the existence of two
many chiefs interfering with the real work heing done by the young
attorneys -- has already been mentioned (see P.#9).
124
An old hand at the Federal Trade Commission stated that there
were two kinds of people among the lawyers that decided to make a
career of the FTC:
(a) the intelligent, idenlistic public servants who also desire
a certain degree of socurity, or
(b) the not SO smart lawyers who need the security of the FTC.
Most of the career men at the FTC fall into the second category. * An
interview with one of the few in the first category showed him to be
a frustrated man, working under comparatively inept superiors, and doing
his work, now, with more professional pride than idealism.
In the last analysis, the major problem at the FTC is a motiva-
tional one. The men who lead the Commission desire only to do the
work they have always done in a manner which recalls Samuel Beckett's
existontial tragedy Waiting for Godot. In the meantime the young
attorneys at the bottom languish for want of direction and remind
themselves they are there only for a short while to receive a practical
legal education.
According to Robert Sherwood, the Director of Personnel, one
of the most important factors in the number of applications to the
FTC is the state of the economy. More attorneys apply to the FTC in
hard times than in boom times, apparently because of the economic
security of fored by a government job.
125
5. Need for Professional Personnel other than Attorneys
An additional personnel problem at the Commission is its
excessive reliance on attorneys to do all the agency's jobs, or,
more accurately, its consequent lack of technical competence in
other relevant fields.
This problem manifests itsolf in several ways, only two of
which will be discussed here. A prime example involves the Division
of Food and Drug Advertising in the Bureau of Deceptive Practices.
This division is responsible, inter alia for detecting and pre-
venting deception in the advertisement of drug products, yet it is
staffed entirely by lawyers and has no doctors or scientists to
advise it, according to Dr. Barbara Moulton*of the Division of
Scientific Opinions (the latter division only evaluates claims
referred to it by the Division of Food and Drug Advertising -- it
does no monitoring on its own). With such a set-up, it is not
surprising that the Division of Food and Drug Advertising is
presently operating at a low-level of energy (6 of 21 staff attorn.
having left between June, 1966, and June, 1968, according to Division
Chief John W. Brookfield) or that it presently does nothing at all
to enforce the agency's laws in the area of therapeutic devices
(the statute includes "foods, drugs and devices". FTC Act € 12).
A second example of lack of technical expertise and its consequences
is the well known "odometer" case, referred to earlier in our
discussion of excessive delay. Briefly, the salient feature of the
case is that for some thirty years the FTC failed to act although it
know that automobile odometers (mileage-registering devices) consistently
over-registered to the benefit of auto companies (and car rental
concerns) and detriment of car owners. It turns out that the major
reason for this delay was that the FTC was duped by an excuse
percnnially put forth by the auto manufacturers: they claimed they
*
Note: Dr. Moulton's statement is substantiated by FTC Budget Control
Records, June 30, 1968, which show all professional personnel in the
Division of Food and Drug Advertising (15) to be attorneys, see
appondix 15.
126
had to make adometers register high because state highway officials
demanded that they make speedometers register high (to diminish
actual driving speeds) and that the two were inseparably connected.
Well, the fact of the matter is that odometer and speedometer
are not connected, as any mechanical engineer would have
known. (Since they work by different mechanisms, the odometer
by gears, the speedometer by magnetic induction, it is
perfectly foasible to adjust one without affecting the
other).
Unfortunately, the FTC did not then have any engineers
on its staff, nor does it now. And now, as the complexity
of consumer products increases, this sort of technical expertise
is needed more than ever. Who on the FTC knows about the
complex features of modern automobiles or their accessories?
Who about household appliances and their qualities? Who about
new construction materials and their properties? Who about
electronic computers and their capabilities?
127
FINDINGS AND RECOM ENDATIONS
128
1/ As disclosed by the preliminary sections of this
report, a growing problem faced by the American consumer is
industry's increasing use of subtle but extremely powerful
psychological appeals in advertisements. It may be that such
appeals to strongly irrational forces in the human personality,
when coupled with the broad and pervasive impact of modern media
of communication, will require some governmental intervention
to protect and preserve "rational" consumer choices.
We understand that this is a very difficult subject and
that little is known about it. For that very reason, as well
as because of its growing importance, the Federal Trade
Commission should begin to consider whether sophisticated
motivational .. research advertising may violate the FTC Act.
In doing so, it must grapple with the question whether such
advertisements can be classified as either "deceptive" or
"unfair" practices.
2/ The FTC's present methods of becoming aware of consumer
problems are wocfully inadequate. It relies almost exclusively
on letters of complaint from the public to detect possible
violations of its laws, yet cannot obtain monetary satisfaction
for injured individuals. As a result, there is little incentive
to report deceptions to the Commission. Moreover, since many
contemporary deceptive business practices are extremely subtle,
victims of them may never know clearly that they have been
deceived.
To remody this situation, the Commission must begin to
investigate consumer problems as such, making maximum use of
its compulsory information gathering powers. It should, for
129
example, focus 188 attacks on specific pressing problems
by mobilizing task force - scale efforts similar to the
recent "Special Project" in Washington D.C. In connection
therewith, it should hold frequent public hearings, publishing
reports based on them, and pressure other government agencies,
such as the Departments of Defense and Agriculture, to divulge
information of interest to consumers.
The Commission's attorneys must make contact with the
people and the problems of the ghetto. Either through the
roving task-force approach suggested above, or through the
establishment of storefront offices in ghetto areas, the FTC
must become visible to disenfranchised America. Commissioners
and staff down to the lowest levels must establish contact
with the burgeoning grassroots self-hclp organizations forming
in every large city. Talks before trade associations must be
deferred in favor of meetings with the poor and exploited where
meaningful two way communication can be initiated. Field
offices must be relocated, particularly the one in Oaklidge,
Tennessee, and must become centers for aggressive investigations.
The FTC should consider requiring manufacturers, advertisers
and so on of major and/or potentially harmful products to
file reports on their products containing data to substantiate
claims made about them. This would shift the burden of proving
such matters to the businessman -- as is already done by the
FDA in regulating new drugs.
Simultaneously, the public complaint system itself should
be beefed up, perhaps by passing legislation to let "injured won.
sumers sue for treble damages using FTC cease and desist orders
to establish a prima facie case. Massive and pointed consumer
130
education can also help.
3/ The FTC still fails to select only important cases
for prosecution, exhausting its limited resources in handling
trivial cases as it has for more than fifty years. Little
can be recommended except that it finally begin to make
decisions according to the criteria it claims to use (size
of company, scriousness of deception, class and number of
consumers affected). Practically, a good start would be to
find a hard-hitting replacement for Mr. Charles Sweeney,
Program Review Officer, who recently dicd. The new Program
Review Officer should have solid grounding in cost-benefit
analysis, computer operation, and should be provided with
thorough, honest and intelligently shaped performance
statistics (which do not now exist).
4/ The Commission fails woefully to enforce its laws
properly in the context of its present powers. It relics
much too heavily --- nearly exclusively on "voluntary,"
non-binding enforcement tools. These cannot be expected to
work at all unless backed up by stricter coercive measures,
which are almost completely lacking now.
The agency also permits flagrant delays to sap its
enforcement program. Both in the administrative handling of
formal orders and in the investigative reports, the Commission fails
to press forward with dispatch. This means toothless enforcement
activity and. long periods "of" inaction with regard to the most
pressing problems.
Finally, the FTC fails to perceive and take advantage of
the enforcement potential of its most extensive authority -
the power to require disclosure of information and publish it
131
in the public interest.
To improve its enforcement program, the Commission
must begin by jottisoning its excessive reliance on
voluntary means of securing law enforcement. Where these
means are used, compliance with them must be checked more
carefully and enforced more stringently. The coercive
enforcement methods available must receive greater emphasis.
At present, these powerful tools are almost entirely unused.
The Commission must institute more frequent use of civil
penalty and suits for preliminary injunctions and criminal
penaltics under the Flammable Fabrics Act and the food and
drug provisions of the FTC Act.
The Commission must begin a program of periodic compliance
checks on the entire number of outstanding cease and desist
orders and begin to punish non-compliers harshly.
Delays must be routed by marshaling sufficient legal
and monetary resources to prosecute cases smartly and by
enjoining practices pending disposition of cases. Every
matter taken up should be brought to a prompt and clean
conclusion; never should announced investigations be allowed
to vanish without a murmur.
The threat of prompt, effective and widespread publicity
about objectionable corporate behavior must finally be
recognized and made use of as a potent enforcement tool.
Paradoxically, large corporations are remarkably thin-skinned.
5/
The Commission has not vigorously pressed for increased
statutory authority either across the board or in specific
consumer problem areas. In general, it needs authority to
seek proliminary injunctions and criminal penalties in cases
involving S 5 of the FTC Act. It should also seck changes in
132
the Act's language regulating its jurisdiction to make
it clear that it has power to deal with intrastate matters.
In areas of specific problems the Commission should seek
various appropriate enforcement tools on the analogy of the
SEC's power to stop stock brokers from trading and the FDA's
authority to seize offending drugs in condemnation proceedings.
On a different plane, the FTC should begin to lobby
vigorously for the passage of "baby FTC Acts" by individual
states in order to increase the total of law enforcement activity
for consumer protection.
In pushing for all this necessary new legislation, the
Commission should be prepared to utilize its publicity and
informational powers to mobilize maximum political support
among consumers. And it should not fail to press for the
necessary appropriations and manpower to carry out its proper
role. An appropriations increase of from eight to nine times
the agency's present allotment would constitute a minimum
initial target.
6/ The FTC makes a fetish of secrecy. It masks from public
view much of its regulation of business, preventing evaluation
of its performance as well as of business practices involved.
The solutions to this problem must be sought on all
levels. The agency's policies regarding confidentiality should
be changed to conform to the requirements of the Freedom of
Information Act. Public logs should be kept of all conferences
between businessmen and Commission staff in order to minimize
behind-the-scenca whitewashing of agency reports and unwholesome
coziness between private attorneys and agency staff members.
Public information must be made truly public by general
publication and dissemination; news releases must be made more
133
concrete and informative.
In cases of decisions not to take action, the FTC
should publish reasons therefor rather than merely quietly
shelving possibly important inquiries.
Briefly, the FTC must change its philosophy so as to
understand that citizens have as much right to important
information as members of Congress and officers of large
corporations.
7/ There is little doubt as to where the leadership of
the Federal Trade Commission resides -- it is with Chairman
Paul Rand Dixon. Professor Kenneth C. Davis, after
surveying the regulatory agencies in person, observed that
no other regulatory agency has witnessed such a concentration
of de jure and de facto authority and power as that possessed
by Chairman Dixon.
With greater centralization of agency power and authority
go commensurately higher levels of responsibility. As the
tenure of Mr. Dixon's chairmanship enters its ninth year, more
and more of the Commissions problems and defaults are
attributable to his failures of leadership and not to the
legacy of his predecessors. Unlike his predecessors, Mr. Dixon
could have been the beneficiary of the recent upsurge in the
consumer movement with its growing constituency at many levels
of society, from community organizations in the slums to
Congress. Not only has he failed to take advantage of the
growing concern for the consumer, but hc has chosen to view
it skeptically and with not a little disdain. While even the
White House has passed him by in delineating now consumer
protection horizons, Mr. Dixon has trundled along and
134
institutionalized modiocrity, rationalized a theory of
endomic inaction, delay and secrecy, and transformed the
agency into the Government's Better Business Burcau. He
had-managed the not inconsiderable foat of turning the
Federal Trade Commission into a patterned and intricate
deceptive practice unto itself.
Such accomplishments could not be mismanaged without
lieutenants. One of Mr. Dixon's undoubted skills is the
alacrity with which he filled the Commission with his
cronics. One of the most dismaying attributes of cronyism --
especially when it comes from the boss -- is that there is no
structure of internal criticism that can evaluate the costs.
This is not the time to engage in a case by case evaluation of
Bureau Chiefs and other high Commission staff. But it is
highly appropriate to note that alcoholism, spectacular
lassitude and office absenteeism, incompetence by the most
modest standards, and lack of commitment to their regulatory
missions are rampant at these staff levels. They are well
known to the Chairman, who somehow has found that they add
to the congenial environment and unquestioned loyalties that
surround his office. Even high officials of the Commission,
who despair and depict in detail these staff liabilities, shy
away from further action out of deference to the Chairman's
power. Thus, the FTC is witness to a phenomenon of government
that can be described at best as sinecures and at worst as
$27, 000 a year welfare cases.
Thus, at the higher staff levels,
where policy direction, courage, and, new ideas should prolifer&
unproductive overhead and featherbedding prevail as major
demoralizing influences that filter down to the flodgling
FTC recruit who soon realizes that life's potential is better
tapped in other fields.
The public arena for the PTC's floxing of its consumer
protection muscle has been growing larger with every passing
month -- such is the ambience that has flourished in recent
years. Yet the Chairman has chosen to dance on the head of
a pin and use its perilous perch as the pretext for non-perfor-
mance. Most of the Commission's weaknesses and misdirection
can be laid at the doorstep of the Chairman as the primary
"responsable." Seen in the detailed study of his record
since 1961 and his rigid and complacent view of his post,
Nr. Dixon's chief and perhaps only contribution to the
Commission's improvement would be to resign from the agency
that he has so degraded and ossified.
His resignation will indicate to the American consumer,
who has been deceived, defrauded and ignored for profit by
corporations both large and small, that the FTC is prepared
to protect his interest as demanded by law.
8/
The new Chairman should undertake the formidable task
of uprooting the political and regional cronyism which has
for years prevented the FTC from achieving its mandate to
defend the hapless consumer. The present bureau chiefs must
be judged not on the strength of political friends, but in the
light of personal abilities and motivations. Those who do not
measure up must be replaced without regard for seniority.
Concurrently, junior attorneys must be granted easy access to
the commissioners in order to prevent the normal channels of
communication through the division and bureau chiefs from
stifling innovative ideas and vigorous action.
136
9/ To obtain the best available logal talent, changes must
be made in the present hiring system. Institutionalized
discrimination against the nation's top law schools can be
eliminated by a sophisticated system relating class standings
with aptitude scores to grade various law schools. In addition,
evaluations of anti- trust and consumer law programs should be
considered. Middle grade attorneys from at least below the
division chief level should conduct all interviews and take an
active role in the acceptance process. This will prevent the
current major problem -- an upper management out of touch with
the times seeking its own image and perpetuating its outmoded
values. If gradual change is not built into our institutions,
violent change will be the inevitable result.
10/ The FTC should hire a limited number of engineers,
doctors and product experts on a full time basis to
supply continual advice to attorneys investigating the
complex products and drugs which are the hallmark of modern
society. This should be done even if it means reducing the
number of attorneys.
11/ At a minimum, the FTC must react to the mild criticisms
of the Civil Service Commission. As the project report has
shown, Chairman Dixon has completely ignored the mandatory
provisions of the Civil Service Commission 1965 Report. He
has not instituted computer education for his staff. He has
not aggressively sought attorneys from minority groups. And
he has increased, not decreased, the number of high level
attorneys whose jobs do not justify their civil service ranks.
Disclosed in this report for the first time publically.
See PP. 43, 18, 111, 115, 116, 119 for Civil Service Commission
criticisms ignored by Chairman Dixon and his staff.
137
12/ This report reveals that the Federal Trade Commission's
performance of its regulatory duties has been shockingly
poor for the last seven years. Due to the Commission's
fetish for secrecy, however, what was discovered is only
the visible fraction of what is probably a veritable iceberg
of incompetence and mismanagement.
The Federal Trade Commission is much more open to
scrutiny by its congressional watch dog committees than
by mere citizens. These committees, the Senate Commerce
Committee and the House Interstate and Foreign Commerce
Committee, should undertake a full scale study of the
consumer protection activities of the Commission. Such
an investigation should determine in greater depth what can
be done to reorient the agency towards its proper role as
protector of the American consumer, and to prevent future
deviations from that role.
138 1
139
Appendix 1.
Budget Analysis
(S's)
1965*
1966*
1967*
1968**
Anti-monopoly
Investig. &
Litigation --- 6,246,000
5,937,000
6,258,000
6,168,000
Economic
Reports
850,000
955,000
992,000
1,052,000
Trade-practice
Conferences - 170,000
241,000
282,000
297,000
Deceptive Practices
Investig. &
Litigation --- 3,373,000
3,633,000
3,813,000
4,232,000
Conferences - 341,000
490,000
564,000
593,000
Textile & Fur
Enforcement - 1,209,000
1,272,000
1,283,000
1,375,000
Executive
Direction
-----
299,000
325,000
338,000
344,000
Administration 779,000
815,000
848,000
864,000
Total
13,410,000
13,671,000
14,378,000
15,225,000
Personnel --- 11,362,000
11,705,000
12,376,000
13,026,000
Permanent
Personnel, -- 11,288,000
11,642,000
12,329,000
12,972,000
*Actual
**Requested
140
Appendix 2
2938
FY 1968
3rd Quarter
INFORMAL CORRECTIVE ACTIONS 1
3121
FY 1967
3394
FY 1966
Includes figures in Chart V plus preliminary matters.
it
1/-
1
Va