carriers say it is not an evil for the public to have the unqualified benefits of lowcost water transportation. They add that even assuming that the railroads have proved that their traffic load is somewhat diminished by the transportation opportunities offered by the small water carriers to the public is an "evil" from the railroads' point of view, that the proof of the existence of an alleged "eyil" is of no consequence if the cure is an even greater “evil.” Before imposing all of the burdens of regulation on the carriers that have been enumerated herein and many more that could be spoken of, the proponents of the legislation should be required to make their case beyond a reasonable doubt. This they have not done. They have only cried out.

III. REGULATION OF THE DRY BULK CARRIERS WOULD BRING CARTELIZATION OF THIS SEGMENT OF THE INDUSTRY IN ITS WAKE

In this discussion I hope to show two things:

First, that the recommendation in the Cabinet Committee report to regulate small water carriers is diametrically opposed to the administration policy and I believe the present congressional policy of freeing business from as many of the strictures of government control as possible. And, second, that the recommendation is at variance with representations that have been made to the Congress by the administration to the effect that regulation brings cartelization in its wake and that this end result is inherently bad.

Let me begin this way:

It is pertinent in this legislative inquiry to consider the fruits of free competition. It makes available to our citizenry of goods and services, including water carrier service, at the lowest possible price and cost. Government regulation places ceilings and floors on these factors. In so doing it brings cartelization in its wake.

On June 26, 1953, Attorney General Herbert Brownell, Jr., announced his intention to establish a national committee to study the antitrust laws. Its goal, as he put it, was "a thoughtful and comprehensive study of our antitrust laws." The President expressed the hope that this group would "provide an important instrument to prepare the way for modernizing and strengthening of our laws to preserve American free enterprise against monopoly and unfair competition." The Chairman of this Committee was the Honorable Stanley N. Barnes, Assistant Attorney General in charge of the Antitrust Division. The Honorable Sinclair Weeks was a member of this Committee, which was constituted of distinguished members of the bar, law professors, economists, and others, "all specialists in the antitrust or cognate fields."

In its final report, this Committee stated: "This Committee, we repeat, endorses competition as the major rule in our private enterprise economy. We recognize that competition can be impaired either by conduct transgressing the antitrust laws or by Government regulation fixing prices or rates or restricting freedom of entry. The Committee notes an apparent trend toward such Government control. We call attention to the fact that such regulation tends to beget further regulations. *** we urge that moves toward regulation be taken only with full recognition of the effects of such exceptions to the policy favoring competition which, as a general rule, we endorse."

"Even in the areas where Congress has adopted the policy that 'competition' may [not] have full play, we feel that unless Congress has expressly provided to the contrary, the regulatory guide consistent with the 'public interest' as applied to mergers must include the principles of free enterprise which have long distinguished our economy.' It is no longer subject to challenge that 'competition is a relevant factor in weighing the public interest.''

The foregoing quotation from this monumental report follows an analysis by the Committee of the extent to which regulatory agencies of Government, including the Interstate Commerce Commission, have been allowed to approve mergers and consolidations of carriers in the presence of findings that the public interest would be promoted by such consolidation. Consolidations thus approved under this special legislation were expressly exempted from the antitrust laws. The Committee found that, pursuant to such authority, the Interstate Commerce Commission, in the principal decision construing this power to exempt carrier consolidations, the McLean case, upheld a merger of the seven largest eastern motor carriers. The Interstate Commerce Commission found that before consolidation the carriers competed with each other for more than a third of the

'McLean Trucking Co. v. United States (321 U. S. 67 (1944)).

mileage of their combined routes. Nonetheless, the Commission concluded that"On completion of the merger 'there would remain ample competitive motor carrier service throughout the territory involved"."

The Supreme Court upheld the Commission in this decision, reasoning that— "As a factor in determining the propriety of motor carrier consolidations, the preservation of competition among carriers, although still a value, is significant chiefly as it aids in the attainment of the objectives of the national transportation policy."

The majority stated that

"The wisdom and experience of that Commission, not of the courts, must determine whether the proposed consolidation is 'consistent with the public interest"." The dissenters argued that the "exercise of the administrative authority to grant exemptions from the antitrust laws should be closely confined to those where the transportation need is clear."

The Commission's public-interest guide, the dissent continued, "includes the principles of free enterprise, which have long distinguished our economy

Then, the Committee found: "Were motor carrier entry unrestricted, rarely. if ever, would a consolidation raise important antitrust problems. Apart from Commission permission to operate over a given route, either by direct certification or by purchase of operating rights from another carrier, the cost of entry is so low that competition would be an adequate safeguard against private regulation of the market by would-be monopolists. Because entry is limited, however, the principal motivation for most acquisitions is the desire to obtain additional operating rights. Those rights have substantial value, reflected, of course, in higher fixed costs of motor-carrier operation and therefore higher rates to the public. The competitive consequences of a motor-carrier merger depend largely, therefore, on its effect on combining carriers' operating rights."

The Committee thus leaves the impression in its report that it does not agree with the majority decision in the McLean Trucking Co. case and "proceeded upon the premise that there is a broad national policy favoring competition and it enjoined administrative agencies to keep the preservation or promotion of competition ever in mind when they are determining what is in the public interest." (I am inclined to think that such advice to the Interstate Commerce Commission, in view of the presence of the McLean case on the books has about as much practical significance as does the making of a ringing denunciation of sin.) As one writer has put it:

"The problem is not an academic one of what administrative agencies should do; rather, it is the pragmatic one of what a litigant can do if the agencies don't do what they should do. Such problem is difficult, if not impossible, to solve so long as our courts continue to adhere to the substantial evidence rule in reviewing administrative determinations."

Attorney General Barnes recently appeared before the Select Committee on Small Business of the United States Senate and made a further statement with respect to the administration of the Motor Carrier Act by the Interstate Commerce Commission as it affects small truckers and shippers. This colloquy took place: "Dr. ADAMS. Judge, may I call your attention to some of the recommendations in the report of the Attorney General's National Committee To Study the Antitrust Laws? On page 269, the last paragraph, and I am quoting now: 'Even in the areas where Congress has adopted the policy that "competition may [not] have full play," we feel that unless Congress has expressly provided to the contrary, the regulatory guide consistent with the "public interest" as applied to mergers must "include the principles of free enterprise which have long distinguished our economy." It is no longer subject to challenge that "competition is a relevant factor in weighing the public interest."'

"Do you endorse that view?

"Mr. BARNES. Yes, sir.

"Dr. ADAMS. Would you endorse the statement contained in the report on page 270, the end of the second paragraph: 'Where Congress has been silent, the basic policy of our antitrust laws requires the Court's conclusion that competi tion, at least where all other considerations involved are equal, is in the "public interest"? In all instances, the courts, in reviewing agency discretion, should recognize that "administrative authority to grant exemptions from the antitrust laws should be closely confined to those [instances] where the *** [regulatory] need is clear."'

"Do you endorse that view?

"Mr. BARNES. Yes, I agree with that. That has been the Department's position, for example, in the McLean case, where I believe you are quoting from the dissenting opinion."

In commenting about the action that the Interstate Commerce Commission had taken in two cases involving water carriers, Judge Barnes stated:

"Also important to farmers are Department of Justice actions aimed at striking down Commission decisions prejudicing shippers by barge. As a good example we confessed error in the Mechling case. The record there revealed that for many years eastern railroads had carried grain from Chicago eastward for reshipping rates some cents per hundred pounds lower than local rates. Up to 1939 these reshipping rates from Chicago east had been identical for grain whether brought to Chicago by connecting railroads or connecting barge lines. The result was that the combined barge-rail rate was considerably cheaper than the haul on straight rail rates-the difference measured by the relative cheapness of shipping over the barge leg of the through route.

"This difference operated against the railroads. To counteract the lower barge rates, the eastern railroads filed schedules with the Commission which imposed on ex-barge grain the local rate from Chicago eastward but allowed ex-rail grain the benefit of the lower reshipping rates on the eastern haul. The Commission approved the schedules. Mechling and others, including the Secretary of Agriculture, sued in the district court to enjoin the enforcement of the Commission order. They alleged that the order was void because it approved rail rates which penalized ex-barge grain solely because the grain had been transported to Chicago in barges. The United States, represented by the Department of Justice, admitted the truth of these allegations and opposed the order. The Interstate Commerce Commission intervened and defended the order. Rejecting the Commission's position, and adopting this Department's, the district court invalidated the rate schedule prejudicial to barge shippers. And this opinion the Supreme Court affirmed.

"Similarly, in Tennessee Valley Authority, et al. v. United States, this Department's action should benefit free competition and the farmers of our country. There goods moved on barges floated on the Tennessee River into Knoxville. When barges docked at Knoxville the goods were removed and placed in railroad cars. The Commission approved the action of the railroads in establishing switching charges at Knoxville, which placed a higher charge for switching these ex-barge cars than for switching any ex-rail cars from place to place in Knoxville. A three-judge court set aside the order of the Commission, holding that the Commission had misapplied the law by failing to make the basic findings required to support its order. We confessed error in this case because of our desire to preserve rail-water competition, and their respective inherent advantages. We believed, and the Court agreed, that the Commission had erred as a matter of law." The Secretary of Commerce embraced this same administration philosophy in his statement to the Select Committee on Small Business of the United States Senate in defending the merits of the Cabinet Committee report on transportation. To this committee, the Honorable Secretary said:

"In this connection, I invite your attention to the declaration of policy contained in section 202 of the Small Business Act of 1955 (Public Law 268, approved August 9, 1955), which states that the essence of the American economic system of private enterprise is free competition ***. The preservation and expansion of such competition is basic, not only to the economic wellbeing but to the security of this Nation.'

"Such sentiments parallel the thinking of the Presidential Advisory Comimittee on Transport Policy as an appropriate philosophy for the regulation of transportation. The recommendations for changing the national transportation policy are, I believe, in accord with the spirit of the Small Business Act.

*

"On many occasions I have stated that free and fair competition is in the best interests of small business. Small business also has a very real interest in the other major concern of the Advisory Committee on Transport Policy: preservation and strengthening of a healthy common carrier service. No area of business activity has a greater dependence on common carriers than has small business."

To House subcommittee the Secretary said: "In the channels of commerce, we exercise vigilance under antitrust laws to prevent combinations which throttle competition. But in transportation, instead of using competition to spur the carriers to greater efficiency, we impose ratemaking restraints that inhibit the carriers from demonstrating true cost and service capabilities and to a large extent substitute Government fiat for free market judgment.

**** A sharing of the market arranged by regulation is the same in effect as a sharing arranged by competitors in other fields of endeavor. Neither should

be sanctioned by law, since both are opposed to the fundamental American theory of fair competition."

The thing that we believe is wrong with Secretary Weeks' endorsement of this policy of free competition in the interest of small business is that he isn't consistent in his advocacy of its application. He and the Cabinet Committee argue strongly in favor of lifting regulatory restraints on common carriers, who are under regulation and at one and the same time they want the little carriers who are not under regulation to be placed under the heavy hand of Government control.

He rationalizes this inconsistency by saying, as he did to the Select Committee on Small Business of the United States Senate, that: "Small business (meaning small business generally and not necessarily small transportation business) also has a very real interest in the other major concern of the Advisory Committee on Transport Policy: Preservation and strengthening of a healthy common carrier service. No area of business activity has a greater dependencye on common carriers than has small business." Apparently it is the idea of the Honorable Secretary that competition of the small water carriers should be harnessed and proscribed, so that one type of business might profit thereby, to wit, the common carriers, many of whom, including the railroads, are big business-not small. The flaw in this type of reasoning is that small business, to wit, the shippers and users of water carrier transportation, are already profiting by being able to deal with these hundreds of unregulated small water carriers who have proved through the years that they, and only they, can offer the lowest cost transportation for many commodities. Of course, these costs will go up in the presence of artificial Government controls and small business of all kinds will suffer first by having to bear the higher costs of operation and secondly by losing the advantages of low-cost water transportation. The Secretary of Commerce cannot have his commerce and eat it too. And the Congress cannot fix it so this is possible without destroying a vital part of the flow of commerce now moving via these unregulated water carriers because of the attraction of low costs of operation.

The basic inconsistency of approach and policy is confusing enough, but even worse is the end result, cartelization of the industry.

If cartelization is bad, and, as a country, we seem to think it is, the surest way to bring it about in the water carrier field is to place these hundreds of small going water carriers under regulation. Exactly the same thing will happen to them as has happened and is continuing to happen to the Nation's interstate motor carriers since they were placed under regulation. Paraphrasing the findings of the distinguished antitrust committee, it can be safely argued that were water carrier entry into business, that is water carriers of the kind of which we are here dealing, left unrestricted rarely would consolidation take place, and if it did, it would raise no antitrust problems. The fact that it is possible for such carriers now to come into being with the minimum amount of business struggle that their creation presently entails carries an adequate safeguard against takeover of the low-cost water carrier service market by monopolistic interests. If, however, their entry is limited and they are placed under regulation relating also to their rates, routes, and services, then there will immediately arise the necessity and the desire on their part to obtain additional operating rights, for such rights have substantial value. There will also arise a practice of bargaining "horse trading" for these rights expressed in terms of merger and consolidation.

The extent to which merger and consolidation is accelerated under regulation is indicated by the figures placed of record relating to motor carriers in the hearings before the Select Committee on Small Business of the United States Senate by the Interstate Commerce Commission. It is therein indicated that (p. 328) since 1935 and prior to November 1, 1955, 6,123 applications have been filed with the Interstate Commerce Commission involving mergers, acquisitions of control of two or more motor carriers or other unifications of motor carriers or unification of motor carriers and other types of carriers. As of November 1, 1955, the Commission had granted 4,510 of these applications, denied 1,216, and there remained pending 397.

The extent to which regulation of motor carriers has caused the carriers to strive to extend their operations is illustrated by the following figures also excerpted from the Commission's prepared statement to the Select Committee on Small Business of the United States Senate: There were filed between 1935 and November 1, 1955, 51,720 applications for certificates or permits to institute new operations or to extend operations, 9,638 applications to register State cer

tificates; 48,539 applications for temporary operating authority; 15,372 applications for extension of temporary authorities; 33,194 applications under section 212 (b), to transfer or lease certificates or permits.

These figures should be contrasted with the number of applications filed by barge lines for certificates and permits between January 1, 1946, and September 1, 1954, which we set forth below:

There can be no doubt, whatsoever, in view of the foregoing data, that regulation brings in its wake all of the manifestations of cartelization. It, therefore, appears to be beyond cavil, as the distinguished antitrust committee recognizes, that "competition can be impaired either by conduct transgressing the antitrust laws or by Government regulation fixing prices or rates or restricting freedom of entry." And as this committee noted, there is an apparent trend toward such cartelization under Government control. This tr nd persists despite the fact that, in its administration of the Interstate Commerce Act, the Commission has in effect been enjoined to take note of Sherman Act and Clayton Act principles.

Personally, I believe that progress under the competitive system comes from the constant development of new forms and methods and their entry into free competition with the old. Unless and until they have been demonstrated to be detrimental to the public, they should, so far as possible, be allowed to find their proper place in the industry, rather than have a place assigned to them by a dominant group with monopolistic power. The erection of a fence around an industry to keep out newcomers is basically repugnant to the policy which underlies our antitrust legislation. It is only justifiable when there is an overruling public need therefor.

Through the years the Interstate Commerce Commission in the face of its present desire to be given extended authority to regulate several amended water carriers has taken note of this policy. It did so even before the Sherman and Clayton Acts were enacted, saying as early as 1 I. C. C. 278 in Re Southern Railway & Steamship Association, in a report prepared by the first and great Chairman of the Commission, Judge Cooley:

"In thus deliberately making provision for competition,

Congress must be supposed to have done so because the public interest required it. That competition is the life of trade is one of the most generally accepted of maxims; among its principal benefits is the protection it gives against extortionate charges'

In the first volume of motor carrier reports, the Commission took the same position, saying in Pan American Bus Lines Operation (1 M. C. C. 190, 208): "Public regulation can enforce what may be called reasonable standards of safe, continuous, and adequate service, but it can hardly be expected to take the initiative in experimentation and the development of new types of service. In fact the carriers would probably resist regulation in the courts, if it did undertake to follow such a line, on the ground that it was an invasion of managerial prerogatives and discretion. Competition is the best known spur to such an endeavor and we are not persuaded that Congress intended to eliminate it. ** *** [Italics ours.]

The same deference to the theme of competition in the national interest runs through other Commission reports. Collating just a few: "Both the courts and this Commission have long recognized that reasonable competition is clearly in the public interest." Santa Fe Trail Stages, Inc., Common Carrier Application (21 M. C. C. 725, 749); "Healthy competition between different agencies of transportation is undoubtedly in the public interest." Naval Stores from Mississippi to Gulf Ports (235 I. C. C. 723, 733). "The public ought not to be deprived of the benefit of improved service merely because it may divert some traffic from other