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REPORT

OF THE

COMMISSIONER OF CORPORATIONS.

DEPARTMENT OF COMMERCE AND LABOR,

BUREAU OF CORPORATIONS,
Washington, April 8, 1912.

SIR: The actual dissolution of two great corporate combinations, ordered by the Supreme Court in the Standard Oil Co. and American Tobacco Co. cases, has thrust forward the whole problem of our policy toward industrial corporations. If it was not plain before, it is certainly clear now that the Federal Government must have a permanent administrative office through which to supervise interstate corporate business.

There is little dispute as to the object of our corporate policy. We want a business machinery of high efficiency, serving the best interests of the citizen and returning ample reward to the ability and industry of those who use that machinery fairly. But the means to this end are now in debate.

Two great restraints may be imposed upon business. One is the automatic regulator, competition; the other, direct governmental intervention. It is indeed true that under some conditions even fair competition may result in combination. The further question is then raised, How far is it desirable to enforce competition by dissolving such combination? That question, however, need not be discussed here.

Whatever shall be our ultimate policy, however, whether of preserving competition, of enforcing competition, or of direct governmental regulation of business operations; or whether, as is perhaps more likely, our policy will be a combination of these various principles, in any event such a permanent administrative system is a necessary part of it. That system must have broad powers of investigation, taking continuous cognizance of the operations of large industrial corporations. Such administration is necessary for either of the foregoing policies described, while it does not exclude the others. By publicity and supervision it will preserve competition and provide equal opportunity; by an expert knowledge of current business conditions it will display the working of competition, and the cases, if any, where this fails to be of benefit. It will always be in a position to furnish, through its permanent force of trained specialists, the information needed for legislation or regulation. It will also have the knowledge and data that may be required properly to enforce competition and to carry out the intent of any decree of dissolution entered under the antitrust law.

A convincing object lesson on the need of such administrative system is now before us. The American Tobacco Co. and the Standard Oil Co. having been disintegrated, the resultant units are now started on a new career. These disintegrations have been accomplished only after long litigation and at much expense. The purpose was to benefit the public by a broad reform in economic conditions. And yet the country has no effective means of ascertaining how far the desired reform will really be carried out. No one can foresee the future of these new units in the two great industries. It will be purely an economic and financial process. No judicial machinery is adapted to handle this novel problem. Indeed, the Circuit Court expressly refused the suggestion of the Attorney General that the tobacco case be kept open for three or more years for such purpose of supervision.

Public interest requires that these two groups of companies and any others in like circumstances, should be at once obliged by law to submit to constant inspection by a Federal office organized on lines similar to those suggested above. In these two cases, which are but current examples of a general principle, both public and private rights are involved. The public has no means of following the development of competition therein through succeeding years, nor have the security holders in those corporations certainly, at least, those not "on the inside "-any means of judging the value of their holdings under the novel conditions now operative.

In short, under present conditions, as well as in whatever future course may hereafter be followed, a permanent administrative office will be absolutely necessary. The vast complexity of corporate business and its constantly changing conditions make it wholly impossible to enforce effectively any real system of restraint through the courts alone.

The exact form of such an administrative office is a matter for further detailed consideration. The essentials are permanence, expert training, administrative flexibility, effective investigation, and publicity, all covering those interstate industrial corporations whose size and operations make them of public importance.

The Bureau during the past fiscal year has been applying, within the narrow limits possible to it, the principles of publicity above referred to. The total appropriations for the Bureau for the fiscal year 1911 were $254,200. The number of employees on June 30, 1911, was 127.

On September 26, 1910, the Bureau published Part III of its Report on Transportation by Water in the United States. Parts I and II, already published, dealt with physical characteristics of waterways, floating equipment, and water-borne traffic. Part III took up exhaustively the subject of water terminals, pointing out the importance of the terminal as a vital part of an effective water transportation system; the striking degree to which water terminals are now controlled by the railroads, the natural competitor of waterways; the lack of any consistent policy of water terminals; the disastrous effect of the present situation on water traffic; and the need for cooperation between the Federal Government and localities in providing terminals. This report has had a very gratifying effect, both in influencing public opiníon generally on the subject and in its use

in specific controversies, where it has been referred to by various bodies, and also by the courts, as authoritative in setting forth certain principles of transportation.

On February 13, 1911, the Bureau published a summary of Part I of its Report on the Lumber Industry. This part dealt with the standing timber of the country, its amount, distribution, and ownership. The most important facts shown in the report relate to the concentration of a dominating control of our standing timber in a comparatively few vast holdings, the enormous increase in the value of this resource, and the unfortunate effect that our long-standing public land policy has had in producing such concentration.

At the end of the fiscal year the Bureau issued Part I of its Report on the Steel Industry. This part dealt with the organization, investment, profits, and position of the largest corporation in the country, the United States Steel Corporation. It gave an elaborate analysis of the relation of assets to capitalization, and especially criticised the Corporation's tendency toward monopolistic control of ore, the basis of the industry, particularly as evidenced in the socalled "Hill lease." It also criticised the unduly high freight rates charged by the Steel Corporation for carrying ore over the Corporation's ore railroads. Within a few months after the issuance of the report, the Corporation announced its intention to cancel the Hill lease, and also reduced by about 25 per cent the ore rates on its northern ore railroads.

At the end of the fiscal year there were still pending, as work on hand, investigations into the International Harvester Co. and concentration of water power ownership, as well as continued investigations of the steel, tobacco, and lumber industries, transportation by water, and corporate taxation.

The Bureau is now allowed by law to publish only 2,500 copies of a given report in one fiscal year. This unfortunate restriction should be enlarged. The present and increasing demand for these reports is so great that the Bureau's supply is frequently exhausted in three or four months, and large numbers of requests must be denied. Considering the importance of the subject matter of these reports, the vast amount of work involved therein, and the urgency of the demand, the limitation of 2,500 copies is absurdly inadequate.

Very respectfully,

To Hon. CHARLES NAGE

HERBERT KNOX SMITH,
Commissioner of Corporations.

Secretary of Commerce and Labor.

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