wise violate Section 5 of the FTC Act. Most imminent business failures involve small firms, the acquisition of which would have only a negligible impaction competition.

The failing company defense would be too restrictive, therefore, only if there were larger companies which should be permitted to consummate substantially anticompetitive mergers or acquisitions but which did not meet the requirements of the failing company defense. For instance, should companies such as Philip Morris or Federal Paper Board be allowed to sell units to competitors to prevent their own actions which would cause the loss of jobs and the accompanying adverse impact on communities? In order to induce companies to keep their own plants or stores open, should companies that consider themselves weak be allowed to acquire or sell out to leading competitors? The FTC staff believes the answer to these questions is "no." The antitrust laws should not be bent or broken to suit the whim of corporate executives. Sacrificing competition is a serious ac tion with substantial costs to society. Any major weakening of the failing company defense is likely to open the floodgates for companies to trade operations and lines of business without concern for section 7. Corporations would gain an extraordinary amount of economic power, and industrial concentration would likely increase faster than the "rising tide" that concerned Congress when it enacted Section 7 in its present form. As a matter of economic, antitrust, and social policy, the FTC staff believes that the failing company defense presently has a suitable scope.

IV. DEVELOPING OTHER ALTERNATIVES

The antitrust laws have to be upheld, but we must recognize that strict enforcement has a price. Occasionally, a plant or firm will close down unless extraordinary steps are taken. Therefore, I propose that Congress consider measures that would create alternative solutions so that companies will be less likely to consider their only options to be closing their plants or merging with competitors Companies need a greater diversity of feasible options. Our objective is to keep plants open without allowing anticompetitive mergers, except in the rarest of circumstances. This approach is the most appropriate method of protecting Amer ican consumers from the economic consequences of unnecessary anticompetitive mergers.

The FTC staff has sought to develop recommendations for legislative and administrative action which may help reduce any conflicts between competition and other objectives in the context of plant closings. Creating alternative options appears especially feasible where conglomerates are involved. I mentioned earlier that the management of American Safety Razor bought that division from Phillip Morris. Private sector solutions may well be possible in a variety of cases, particularly if there are government programs to assist financing.

Of course, the FTC generally has no direct jurisdiction over plant closings per se. Rather the FTC's jurisdiction reaches proposed mergers or acquisitions which may be anticompetitive. As the FTC staff analyzes assertions of the failing company defense, we are increasingly asking companies if they have considered selling their plants to community groups or employee groups instead of to competitors. If we had an indication that a community or employee group was interested in and financially capable of acquiring the plants and therefore constituted an available alternative purchaser, we would reject the failing company defense.

Of course, employee or community ownership programs are not always ideally suited when a company decides to close its plants. If a company cannot operate a plant at a profit, or if an expensive modernization program is needed for the plant to become efficient, the costs and risks may be too great for community or employee groups.

Nonetheless, a community or employees may be willing to operate a plant at a lower profit margin-or even at a slight loss-because keeping the plant open and workers employed is of greater benefit to the community and workers. As you know, Senator Russell Long authored the tax laws that encourage the creation of Employee Stock Ownership Plans (ESOP's). ESOP's have been used successfully on a number of occasions to transfer ownership of plants and divisions to employees, and we anticipate that ESOP's will become increasingly popular. ESOP's and other forms of employee ownership may become a truly significant, and obviously preferable, alternative to allowing anticompetitive acquisitions under the failing company defense.

It is also important to note that in our Lancaster Colony-Federal Glass case and in the Justice Department's LTV-Lykes case an employee group and a community group respectively were interested in possibly buying the critical units. However, time constraints and difficulties in arranging financing prevented the Federal Glass and Youngstown groups from being successful. We hope that results in future cases will be different.

Because corporations have responsibilities to their employees and to the communities in which they operate plants, the FTC staff recommends the enactment of legislation to require that a company give timely notice of its intention to close any plant with more than a threshold number of employees-on the order of, perhaps, 100-unless the closing occurs pursuant to a judicial or other government order or the company has filed in bankruptcy. The notice should be designed to give communities and employees a reasonable opportunity to organize, conduct a study of the feasibility of community or employee ownership, and obtain financial assistance from private source and government agencies. We note, however, that some notice provisions and other limitations being considered in various States may have anticompetitive and anticonsumer effects. An excessive preclosing waiting period requirements, for instance might result in inefficiency and perhaps higher costs for consumers.

Keeping plants open, if feasible, without allowing anticompetitive mergers except in the most extraordinary circumstances will require greater coordination among the interested State and Federal agencies when a threat of closing surfaces. In the type of merger activity I have been discussing, the ability to act quickly is essential. Although the Economic Development Administration (EDA) of the Department of Commerce administers financial assistance programs under titles II and IX of the Public Works and Economic Development Act of 1965, EDA frequently receives no notification of anticipated plant closings.

In this connection, the FTC staff has begun negotiating with the EDA staff to establish a procedure whereby we would notify EDA of a company's assertion that it intends to close its plants unless we approve a merger with a competitor. We expect that this notice procedure would enable EDA to begin to analyze the feasibility of community or employee ownership of the plants and to expedite the processing of any financial assistance applications. Businesses should also recognize that when their close-down threats appear serious, we are prepared to begin the process of assisting in ownership transfer.

I believe that community groups and employee groups would be better able to step in and prevent catastrophic unemployment and economic dislocation if the EDA were to help such groups through ownership feasibility studies and expediting applications for federal financial assistance. Community and employee ownership programs, of course, can also help protect competition by preventing the elimination of competitors through merger or business failure. I also believe a substantial increase in EDA's budget would enable EDA to help more communities. Congress may consider it appropriate to direct EDA to give priority to employee groups trying to prevent plant closings, provided that a feasibility study supports such efforts.

Corporations should understand that the failing company defense cannot be lawfully accepted if the company has any reasonable alternatives to business failure. Most firms understand the limits of the failing company defense, but every year a few companies which know they have no such defense attempt to subject us to a form of extortion by threatening to close plants if we challenge a merger or acquisition. We resist such extortion, as we must, and we will try to induce companies to find appropriate alternatives so that their plants can remain open.

I am especially pleased to see considerable congressional attention focused on ways to prevent plant closings. Senator Stewart's Small Business Employee Ownership Act (S. 388), which passed the Senate in May, would authorize the Small Business Administration to provide loan guarantees and other forms of assistance to employee organization attempting to buy firms that are closing, relocating, or being sold. This bill won't directly affect the situation I have been describing because it deals with smaller firms than we would in all probability to concerned with. Nevertheless, it strikes us as being a step in the right direction. Further, Congressman Kostmayer's Voluntary Job Preservation and Community Stabilization Act (H.R. 2203) and Senator Gravel's companion bill (S. 1058) would expand EDA's authority to make loans to assist employee stock ac

quisitions involving companies that are in danger of closing down or moving. We support this approach.

Finally, I understand that Senator Williams and Senator Long are particularly interested in plant closing and employee ownership issues, and that Congressman William Ford intends to introduce legislation on plant closing notification periods. We believe that all of these bills and discussions of these issues are timely and important and should be recognized as relating to antitrust concerns because of their relevance to the failing company defense.

SUMMARY

The FTC's responsibility is to enforce the antitrust laws. Neither the FTC nor its staff operates in a vacuum: we seek to be fully aware of the likely impact of our actions and decisions. The FTC staff believes that the Supreme Court has established very reasonable, and very narrow, grounds for the failing company defense. We believe that the public interest is served by countenancing the failing company defense only when its strict requirements are met. We will continue our endeavors to enforce merger law strictly by insisting upon a diligent search for alternative purchasers before a failing company may sell to a competitor and by insisting that companies explore the possibility of selling to employee or community groups before concluding there are no alternative purchasers. We will do what we can to notify the Economic Development Administration when we learn that a company may close its plants. I believe it is possible through these means to reduce the likelihood of and mitigate the consequences of plant closings without being forced to attempt an often impossible accommodation between competition on the one hand and community well-being and employment on the other hand.

Mr. Chairman, thank you again for giving me this opportunity to present the views of the FTC staff. I will be happy to answer any questions you may have. [Whereupon, at 11:40, the hearing was adjourned, subject to the call of the Chair.]

APPENDIX

Plant Ownership Characteristics and the Locational Stability of Rural lowa Manufacturers

David L. Barkley