MEMORANDUM JANUARY 3, 1969. Subject: Economic means to plan more effectively the initiation of new investigations by the bureaus. To: Executive Director. From: John J. Hurley, Economicst, Office of Program Review. This is a good time to take some stock of the practice of planning in the bureaus. With the possible exception of the Division of Mergers, the operating bureaus show few signs of planning on a rational basis the investment of their manpower in significant, new investigations. For instance, of the 56 investigations initiated by the Bureau of Restraint of Trade during the first quarter of 1969, 43 of these matters, or 77 per cent, derived from reactions to complaint letters.1 The apparent hang-up in the practice of planning at the bureau level may be due in some measure to different views on the meaning and requirements of planning. Consequently, this memorandum will deal with what planning is and what it is not. Effective planning by the bureaus can help the Commission make better decisions on what it should do. PLANNING DEFINED Planning is a concept of many meanings, but it can usefully be defined as follows: Planning is the process of preparing a set of decisions for action on what resource investments should be made, directed at achieving specific goals by choosing among alternative courses of action. Planning thus means resource investment planning or strategic planning, which has to do with what new investigations should be undertaken to make the best use of our limited funds and manpower resources. Investment planning. therefore, concerns defining major problems and illuminating different basic approaches to a desired result through the comparison of the merits and limitations of these approaches. Investment planning contrasts with the implemental kind of planning or operational planning which concerns "how-to-do-it" decisions. It would appear that the bureaus have a distinct preference for operational (implemental) planning over investment planning. This is understandable be cause operational planning is more concrete and visible. When a bureau or division head works on implementing programs he thinks in specific terms of certain people and jobs-things that he knows and sees. Investment planning is harder, more abstract, and not practiced to an applicable extent in the bureaus. This major type of planning inquires: In which direction should the bureau and the Commission move? What goals-for instance, prevention of general trade restraints in what product lines-should the Commission seek and how shall it decide on its goals. Unless the Commission finds its own answer to these questions, it will misdirect much of its resources responding to outside complaint letters. As long as the Commission is "outer-directed" instead of "inner-directed" it will not be able to hew new paths but only to follow the beaten ones. COMMON DENOMINATORS OF PLANNING Under these circumstances, some improvement in planning by the bureaus of new investigations would follow if the bureaus would use two basic ideas in economics. These are: (1) look at problems of resource investments in terms of choices or options open to the decision maker, and (2) weigh the opportunity cost of each course of action-that is, the value of the alternatives that must be sacrificed. 1 FTC Management Office, Workload and Manpower Reports, No. 23 (1968). FINDING ALTERNATIVES The process of determining alternatives is an essential common denominator of planning. This is the point where economics can make a contribution to improved decision making on new resource involvements. The particular method of economics is to factor out the costs, the benefits, and the net advantage or disadvantage of alternative courses of action. If the effects cannot be appraised in quantitative terms, then qualitative appraisals can be substituted. Put differently, the economist thinks in terms of trade-offs-for instance, the trade-off between an internally generated Commission investigation of patent monopolies in drugs and a new probe of possible price fixing in the plywood industry. OPPORTUNITY COST In a rational system of planning new investigations, the bureau would consider and estimate the full costs, not just the costs in one year, of each alternative course of action. The choice of a particular option means that certain specific manpower and money can no longer be used for another investigation or purpose; these are clearly the costs. The true measure of these costs is in terms of the opportunities they preclude the opportunity cost. (To illustrate this cost factor, if a college graduate decides to go to law school, the actual cost to him is not only law school tuition and board but also the opportunity cost in the form of the wages he would have earned if he had entered the labor market.) The economist's concept of cost-opportunity cost- involves, therefore, an explicit recognition of the problem of choice that should be faced by each bureau and the Commission in deciding on new investigations and the allocation of resources. Planning involves the development and costing of future alternative courses of action. This planning approach can help the bureaus put more emphasis on opportunities to develop worthwhile investigations on their own initiative. RECOMMENDATIONS The bureaus should be advised to instruct their divisions that proposals to start new investigations should be accompanied by reasoned alternatives. The bureaus should also take into account the opportunity cost of each proposed investigation, that is, the gains that the resource to be committed would produce in its best alternative use. In bureau planning the adoption of these two economic concepts-determining alternatives and opportunity cost in deciding new resource investments-could alone contribute to better planning by the bureaus. To increase Commission participation in the planning process, it is also recommended that the bureaus be requested to supply quarterly planning reports to you on the most significant investigations they plan to launch in the quarter ahead. To review and evaluate bureau programs a function of this officewe need an information base periodically furnished by the bureaus dealing with what they want to do and why. In this connection it would be useful to require the bureaus to prepare and submit a planning report, possibly within the next 30 days, that would cover these points: the five most promising areas of non-competition to investigate. specifying the ones not identified through outside complaints; the steps taken by the bureaus during the past year to come up with new investigations derived from sources other than complaint letters, and the results of these efforts; and the new directions in which the bureaus think the Commission should move in the year ahead. 2 Ewing, The Practice of Planning at 53 (1968). Heller, New Dimensions of Political Economy at 5 (1967). MEMORANDUM FEBRUARY 17, 1969. Subject: Policy Planning Program-First Interim Report. 1. Interpretation of Request. As I interpret the Commission action of January 24, 1969, the five Commissioners all expressed their concern with the need for reexamination of policy determination and effectuation. My assignment, as I understand it, is not just to present my conclusions on what should, or should not, be done to institute a new policy planning program, but rather, in consultation with my fellow Commissioners (because this is a Commission, not a Nicholson, project), to gather information and ideas and alternatives for the Commission to consider in deciding upon what kind of a program it might want to adopt, and how that kind of a program might be implemented. I assure the Commission that I do not intend to present a report which reflects only my conclusions, but rather a number of approaches and alternatives, since policy is determined, in my opinion, by the opportunity for choice. 2. Initial Conclusions. There are four initial conclusions which were quickly reached in looking back into the history of policy planning at the Commission. First, since 1947 there has been a continuing concern within the Commission and its staff with the necessity for planning policy. Second, although there are periodic efforts made to give attention to the problems of planning policy and priorities by the Commission and the staff, these efforts fizzle out, and, except for determination of policy from time to time in special projects, there is no coordinated planning effort. Third, the inconsistency between the desire for policy planning and the failure. over-all, of effectuating that desire, is due to the absence of sufficient priority being given to the planning function itself by both the Commission and the staff. and the failure to build into the programs adopted from time to time a means by which policy is subjected to continual review. Fourth, the organizational structure of the Commission is not an essential factor to effective policy planning. In the past, structural reorganization has been substituted for planning, while planning can really be made to fit almost any structure. Effective policy planning may, however, indicate where structure enhances or impedes the effectuation of that policy, and thus some structural changes may eventually flow from planning. 3. Plans for Implementation of Request. To date, my efforts have been directed toward "getting a feel" of the area of policy planning through reading, talking to staff members to see why we haven't accomplished our goals to date, and frankly, just thinking about the problem. My future efforts will include: (a) Discussions with Commissioners. Since policy planning is our joint responsibility, each of us has ideas on the subject. Accordingly, I would appreciate the opportunity to discuss the project with each of you, and as the program develops, to have your assistance. The staff, and eventually the public, must be made aware that this is an effort of all five Commissioners, and is a joint concern of all. (b) Discussion with the Staff: (1) All supervisory personnel of the Commission will be asked to contribute their thinking on the subject of policy planning. (2) A representative cross section of the medium level staff will be interviewed. (3) A representative cross section of the younger staff will be asked for their views. (c) External Contacts. Subject to the suggestions of my fellow Commissioners and to additions which may follow as this project develops, the following individuals and groups will be contacted: (a) John W. Gardiner-Urban League, former HEW Secretary. (b) James E. Webb-Former Administrator of NASA; former Director of Bureau of the Budget; former Assistant Secretary of State. (c) Robert Hampton, Chairman, Civil Service Commission. (d) Faculty of Harvard Graduate School of Business. (e) Robert A. Hammond III, First Assistant, Antitrust Division, former Director of Policy Planning. (f) Bozell & Jacobs or a New York firm composed of former Bozell & Jacobs personnel. (g) Rand Corporation, or some other "think tank" type of organization. 4. Commission Direction and Participation. I intend to keep the Commission informed through individual meetings and periodic report memorandums, of which this is the first. If any Commissioner feels that I am misdirecting my efforts, I would suggest the question be raised promptly. If any Commissioner has any suggestions, I would appreciate your thoughts. If any Commissioner would like to participate more directly at this, or any other stage, your assistance is solicited. 5. Target for Completion. I hope to present the report to the Commission for its consideration by March 30. MEMORANDUM JANUARY 16, 1969. Subject: Ecomonic Means to Plan More Effectively the Initiation of New Investigations by the Bureaus-Comments by Dufresne. To: John N. Wheelock, Executive Director. From: Joseph P. Dufresne, Chief, Division of Special Projects. The following are my comments regarding the memorandum dated January 3, 1969 by John J. Hurley, Economist in the Office of Program Review (copy attached). I believe it appropriate to mention that they are based primarily on my experiences as Chief of the Division of Special Projects and as a senior trial attorney in the Division of Mergers. In view of this specialized experience it may be that my comments have a bias which you would not find in comments from others. With regard to Mr. Hurley's introduction, I don't believe any of us would seriously argue against continuous planning on a rational basis, regarding the best use of our resources. Whether one Division does a better job in this regard than others, I believe, is debatable. I certainly do not concede that our present bases are not rational, impressions Mr. Hurley may have to the contrary, notwithstanding. Complaint letters, it seems to me are an excellent basis-among several-for deciding what investigations we will docket. In this same connection, and in fact I wonder whether it isn't a bit misleading, if not inappropriately pejorative to say, in effect, the docketing is a "reaction". Complaint letters and I define these as letters from the general public, including consumers, retailers, distributors and suppliers-are an excellent source of information as to what trade practices are offensive to the letter writer. They serve to bring our attention to practices in current use which have led "someone" to write to us and tell us about it. The staff member who receives the letter for handling must make the first judgment as to whether the matter warrants docketing. The Chief of the Division to which he is assigned and the Bureau Director or his representative also review the recommendation so the docketing definitely is not merely a "reaction". Hopefully in making this judgment, all the staff members are influenced by : 1. The administrative instructions regarding starting new cases. (See pages 5, 6 attached memo dated 10/24/68 from Frank C. Hale to the Commission.) 2. The frequency with which he has heard the complaint. 3. His personal experiences. With the present administrative reports we are using, your office and other upper echelons of the Commission are regularly and frequently apprised as to what we are doing. Other factors affecting our planning, of course, are requests for action based on Commissioners' requests, letter inquiries or suggestions from Senators and/or Representatives, agencies and departments in the Executive Branch, as well as legislative fiat e.g. Fair Packaging and Labeling, Truth-inLending, Fur and Flammable Fabrics Acts, etc. I believe we do engage in "investment planning" (see fourth paragraph, Hurley memo) but perhaps not in the academic fashion suggested by Mr. Hurley. And it may be worthy of special note that we operate under considerable pres |