IV. Executive and administrative support A. Executive Direction and Program Review B. Financial and Administrative Management There follows now some brief comments on the staff plans and proposals discussed within the indicated program framework: I. Maintaining competition The Bureau of Restraint of Trade report did not evaluate the division plans or rank priority projects considered from a bureau standpoint. For improved planning by major objectives, we need to get away from thinking in terms of Division involvements. The bureau memorandum did not coordinate and consolidate projects in different divisions dealing with the same industry and evaluate them as a whole. On the division level, the Merger Division to its credit identified its priorty projects, apparently on the qualitative basis of its experience and know-how. But it at least made a judgment and provided the Commission with some choices. The two listed highest priority industries for merger enforcement are grocery products and automotive parts. I take issue with the relatively low priority given by the division to merger enforcement in the lumber and building supplies field. The Merger Division states that it has deferred investigations in these lines due to lack of resources. Considering the 30% rise in wholesale price of lumber in 1968, and the national goal to contain inflation, it seems mandatory that the merger staff get on at least the largest lumber consolidation and divert its staff now on non-priority projects. The Merger Division planning memorandum did not state its investigational perspective on conglomerate mergers. Hardly any of the new conglomerates come close to the size and financial power of such long-standing conglomerates as General Motors, du Pont, and General Electric, as pointed out in the attached analysis by the program review office. How is the merger staff winnowing out the truce chaff among conglomerate mergers? In the general trade restraints area, the reported top priority matter is the reciprocity project that involves several basic industries such as chemicals and paper products. But the division report did not make any proposal for a new investigation in fiscal 1971. This division did indicate interest in developing new planned projects by means of a joint legal-economic nucleus force to investigate and hold hearings in some industries that have structures conducive to trade restraining practices. I suggest the formation of at least one such unit in fiscal 1971, possibly covering a major joint venture in iron and steel. The Bureau of Restraint of Trade could create some elbow room for planned projects in the general trade restraints area by directing the weeding out of division projects that involve respondents with less than $100 million assets. In the discriminatory practice area, the division program memorandum proposes a new investigation in the appliance industry against induced discriminations advantaging large department stores, and I endorse this move. I have some reservations, however, about the division proposal aimed at retailer-owned cooperatives obtaining preferential prices from hardware manufacturers. This project reflects a complaint-letter orientation involving relatively small respondents. Possibly some trade restraints staff might be used to advantage during fiscal 1971 in a planned project designed to curtail illegal practices that derive from financing by large manufacturers of inventory purchases and expansions of their franchised retailers and other customers. In a recent novel Supreme Court ruling the decision held that tie-ins of credit availability and product purchases are illegal on their face when a large manufacturer is able to make credit available to customers on more favorable terms than other competing manufacturers. The decision remanded to a Federal court a private treble-damage suit brought against U.S. Steel by a Louisville home-building concern. But the program review role does not involve proposing specific ad hoc projects on short notice. The basic efforts of this office have been devoted to developing a planning system to put Commission planning on a more systematic basis. The bureau program memoranda should include, however, some inquiry as to what is next on the periphery of the relevant law it enforces. Then it could propose a challenging project that might push back the frontier of the law and make Commission action timely and effective. II. Consumer protection We understand that there are serious initial problems in establishing planning procedures in a bureau with expanding diverse responsibilities such as Deceptive Practices. The bureau planning memorandum contains a general statement on consumer problems and the bureau's role in mounting a consumer protection program. Neither the Bureau of Deceptive Practices nor Restraint of Trade, however, specify its six to ten bureau-wide priority projects to enable the Commission to determine the Commission's main strategy directions. The planning document of the deceptive practices bureau notes (page 8) that a large majority of bureau resources are committed to "mandatory projects", such as the Fair Packaging and Labeling Act and so on. The statement seems to infer, and perhaps this inference is not fully warranted, that such mandatory commitments preclude planning. But even in such areas as packaging, industries and products must be selected for surveillance and legal actions by scarce manpower resources on the basis of some rational plan. In food and drug advertising, new programs are proposed in such product lines as breakfast cereals, stimulants, and tranquilizers. In the general practices division area, the submittal supplies a listing of onging matters and no new projects. To make a rational judgment on committing resources to a particular project, however, the decisionmaker needs concrete information on what it will cost, what it will accomplish, how long will it take, and what is the magnitude of the relevant industry and the size of the proposed respondents. As a way to strengthen planning in the deceptive practices field, the bureau might increase the use of doctors and borrow economists to serve on its planning unit in determining new investigations to start. To concentrate more of its legal staff resources on significant projects, economic tests should be used increasingly in opening new projects, such as, the size of the proposed respondent and the volume of product advertising. Priorities would be set for deceptions that pose serious threats to consumer health and physical safety and for the practices of large corporations. As a constructive proposal for fiscal 1971, the bureau and the Commission might consider investigating over-the-counter drug advertising in sleeping aids and cough preparations. In the textile products area, the Commission should direct a substantial shift of its resources away from labeling inspections to affirmative investigations that could ascertain flammable fabrics violations using a large sampling of manufacturers. Existing staff resources could cover the entire universe of the textile industry by adopting scientific sampling techniques. The program memorandum of the Bureau of Textiles and Furs proposes projects on such practices as passing off dyed mink garments as natural and passing off used fur garments as new. These inspection projects warrant low priority as long as there are violations prevalent that involve the protection of life and the access of low income consumers to basic necessities priced above the competitive level. In the industry guidance sector of the consumer protection field, the Commission now faces a frontal decision on whether or not to de-emphasize the handholding of business. Has the pendulum swung too far in the direction of nonlitigation and consent settlements without divestiture or with divestiture of the respondents' least economic plants (Long Star Cement)? However, the program memorandum of the Bureau of Industry Guidance is useful and responsive to the Chairman's directive. New programs and public hearings are proposed to develop rules or guides in such lines as price advertising of automobiles and advertising of franchise offers-areas where antitrust complaints could be issued against the largest producers. Turning now briefly to the General Counsel's program memorandum, we recognize its principal function as a legal support unit. Nevertheless, some worthwhile new projects could be planned in areas of new legislation, export trade and federal-state relations. To use an example, the General Counsel could open at least one investigation to determine whether the acts of an export association is in restraint of trade within this country or illegally depresses domestic prices of commodities of the class exported. The legislation staff could also plan to overcome some loopholes in existing Commission-administered laws or devise a new law to cover grey trade regulation areas such as refusal to deal. III. Economic Research and Program Development Except for omitting cost estimates of proposed economic projects, the economics bureau program memorandum appears responsive to the Chairman's request. New projects for fiscal 1971 to develop policy recommendations include economic studies of major concentrated industries: steel, automobiles, drugs, electrical machinery, energy industries and chemicals. In addition, the economics bureau makes a basic proposal for centralizing the financial reporting program, now shared with the SEC, in the Federal Trade Commission. The program review office recommends that the Commission approve this proposal. Among its advantages, it would provide this Commission with critical information on a continuing basis covering quarterly changes in concentration in the major industries, as well as annual changes in who controls the largest corporate manufacturers. IV. Executive and Administrative Support In my memorandum of April 3 to the Chairman, I analysed the economic forces that are pertinent to policy planning. That report indicate that competition has undergone a mutation. The essence of the mutation, caused by concentration and other indicated economic trends, is the ability of producers in some spheres of production to affect prices. Then the report presented an investigational planning framework for the Commission based on Commission-initiated industry analyses. JOHN J. HURLEY, Economist. MEMORANDUM APRIL 25, 1969. Subject: Ideas and basic plans for fiscal 1971 budget. To: Chairman, via Executive Director. Forwarded herewith are memoranda from each of the divisions of this Bureau pursuant to the Chairman's memorandum of March 20, 1969, dealing with significant projects planned or proposed for fiscal 1971. With respect to the coverage of the submissions by the Bureau's three enforcement divisions, we would make certain initial observations: (1) A substantially complete critical survey of the universe of mergers (at least of the larger mergers) over a given time period, is accomplished in the conduct of section 7 enforcement, providing a readily usable basis for comparative evaluation of competitive impact in different industries and marketing environments related to particular acquisitions, mergers or merger trends. (2) In the instance of practices not similarly available to roll call, nor involving the same essential evaluation criteria for legal as well as planning of budget justification purposes, different considerations obtain. When the existence of particular unfair methods of competition are reasonably indicated, a number of other and separate criteria for planning purposes, not necessarily critical to the issue of law violation, must additionally be developed and evaluated, e.g., of what significance is the existing practice relative to the overall competitive situation within the affected industry? How debilitating to competition is the practice and what is the extent of its employment and range of effects? Is the practice one which if not dealt with at an early stage is likely to occasion a more costly confrontation later? What would be the consequences in particular markets or industries upon a failure or refusal on the part of the Commission to take any action? Accordingly, the projects of the Division of Discriminatory Practices and General Trade Restraints are differently derived and developed and do not rest upon a completely comparable basis as those originating in the division of Mergers. (3) Commission directed major projects in the non-Section 7 statutory areas comprise a large part of the manpower commitments of the Divisions of Discriminatory Practices and General Trade Restraints. Such matters have been separately reviewed and evaluated by the Commission relative to their significance and merit, and are noted herein only insofar as they represent commitments extending into or beyond fiscal 1971. The Division of Mergers lists eight major projects, by industry, looking to containment of illegal mergers and acquisitions, in order of priority, as follows: Grocery Products; Automotive Parts; Cement; Commercial and Industrial Equipment, Machinery and Supplies; Metals, Minerals and Mining; Lumber and Building Supplies; Apparel; and Paper and Paper Products. Enforcement on a case-by-case basis is the general practice and the continuing course proposed by the Division, characterizing industrywide enforcement programs pursuant to declared industry enforcement policies, where applicable and appropriate, as the "next best alternative." Such industrywide enforcement policies have been promulgated by the Commission for the cement and food distribution industries. The economic and competitive significance of each of the foregoing industry projects is discussed in the Division's memorandum. Each is a project of indefinite commitment but definitely projecting beyond fiscal 1971. In addition to these industry projects, the Division has significant work commitments in connection with the conglomerate merger study and for conduct of the new program for pre-merger notification by large corporations. Seventy-one pending investigations under the "miscellaneous" and "non-priority" classification, may be expected to commit additional manpower in fiscal 1971. Such industries as Insurance, Department Stores or Mobile Homes, could well require priority consideration by or before fiscal 1971, as well as areas not now under investigation. Present manpower limitations within the Division of Mergers has required a degree curtailment or deferral of action with respect to matters in the Automotive Parts, Apparel, Cement and Lumber and Building Supplies industries. With respect to estimated manpower and dollar costs as estimated by the Division of Mergers, as well as the other divisions within the Bureau, a formula has been used equating 1 man-year with 1800 hours, and with an estimated "average" man-year dollar cost. The Commission's Comptroller suggested this formula to the Bureau based on past Commissionwide over all averages. The average man-year dollar cost figure suggested by Mr. Glendening however, as applied to this Bureau, appears to us to be extremely low. Each of the divisions has used the suggested man-year cost figure of $13,000, with the exception of the Division of Discriminatory Practices which used an average mau-year dollar cost figure of $20,000. Without any presently known data as to the actual average man-year dollar costs applicable to this Bureau, the estimates of man-year commitments only are noted by the Bureau for purposes of this memorandum. The Division of Discriminatory Practices identifies four major projects which will carry over to fiscal 1971, instituted at Commission direction. These involve Apparel, Fresh Fruits and Vegetables, Tri-partite Arrangements and the Publishing Industry. A total manpower commitment of 12 man-years in carrying out these projects is estimated for fiscal 1971 by the Division. An additional 2 manyears is projected for work in the Drug Industry in connection with the alleged diversion of institutional and professional drugs to commercial channels, responsive to recommendations by the House Select Committee on Small Business. Among the other existing and proposed major projects of the Division of Discriminatory Practices, are several which are essentially "power-buyer" oriented. The substantial manpower commitment in connection with the distribution of food products in the Chain Grocery Industry is considered fully warranted. It is the Bureau's view that the intensive anti-merger program with respect to Grocery Products requires an equally intensive anti-discrimination program to maintain effective competition in this industry, with particular emphasis on discriminations in price and promotional payments induced by the major grocery chains. This is true also of the Division's going project in the Dairy Industry. The Division proposes a new major investigation of the Appliance Industry, involving both manufacturer and private brands of major home appliances, with special emphasis on "power-buyer" induced discriminations such as discriminations advantaging major department store chains. The Bureau recommends a separate limited investigation directed to the top department store chains to explore the extent and nature of discriminatory advantages in price and promotional allowances obtained by them in the purchase of manufacture-brands of consumer products. Another area in which effective competition in consumer goods may be threatened by concentrations of buying power, encouraged and fostered by discriminations in price, is the Hardware Industry. The Division has proposed a new major investigational project here. With the Commission's growing emphasis on consumer protecting programs, a substantial manpower commitment to these proposed areas for fiscal 1971, is believed warranted. The Division of General Trade Restraints also has substantial manpower commitments in fiscal 1971 as a result of Commission directed major projects. Among such projects listed in the Division's memorandum are: investigations involving "Reciprocity" by major industry factors in the designated industries, requir ing a 3 man-year commitment according to the Division's estimate; investigation of the Hearing Aid Industry, involving an estimated 3 man-year commitment; the Newspaper Industry with an estimated 4 man-year commitment; TV advertising, involving no specific commitment; attempted monopolization of multi-media advertising in the Washington area, estimated by the Division to require 2 manyears; and, the LP Gas Industry, with an estimated 3 man-year commitment. In addition to these, the Division is undertaking an investigation of the Record Industry pursuant to Commission Minute, focusing particularly on the possible foreclosure of new entry due to acquisitions of record distributors by major producers of records, which will, in the Bureau's opinion, require the full-time efforts of at least two attorneys through fiscal 1971. Additionally, a major indus- . trywide investigation has been directed by the Commission relative to the anticompetitive effects of "confinement" programs by concerns engaged in the manufacture, distribution and sale of man-made and natural fibers. The Bureau would estimate that this will require at least a 3 man-year commitment by the Division in fiscal 1971. The total indicated manpower commitment by the Division with respect to Commission directed projects amounts to 20 man-years. |