Business Under the X-Ray


ON the calendar of the new Congress which convenes in January a major item will be the long-awaited, much-heralded Report of the Temporary National Economic Committee; for this report, finally complete after two years of exhaustive hearings, will bring into focus one of the most momentous issues now facing Congress and the American people. This is the question of future federal policy toward American business: whether further ‘reforms’ are to be pressed, involving the continuation of an acrimonious feud and fresh economic uncertainties, or whether, in the interest of a national unity made imperative by the defense emergency, government and industry can be brought to sink their differences and pull together in building toward internal as well as external security.

Ever since its beginning, the inquiry headed by Senator O’Mahoney has been a storm centre of controversy. Unprecedented in scope, and with a blanket mandate to examine into the nation’s economic ailments, particularly as these may have been ‘caused by concentrations of economic power,’ the Committee’s proceedings have been alternately hailed as a great constructive step in solving the problem of a stalled economy and viewed with misgiving as preparing the way for extensive modifications in the capitalistic system.

Critics of industry place the TNEC hearings on a plane with those of the Industrial Commission of 1899 or with the Pujo investigation of 1907 and the Pecora probe of 1933. From the first came the first era of ‘trust-busting’; from the others came federal control of the nation’s banking system and the security markets. Through fresh revelations of business ‘abuses’ the advocates of further reform hoped that public opinion could be quickly mobilized to support still more far-reaching regulatory measures, including (a) revision of the patent laws to end controls by licensors of products, prices, and sales; (b) federal incorporation for all companies engaged in interstate commerce; (c) federal supervision of life insurance company portfolios; and (d) broad regulation of business trade ‘practices’ following the model of the Walsh-Healey and Patman Acts.

Business men, on the other hand, were from the beginning somewhat skeptical toward this search for economic ‘truth.’ They viewed the inquiry as simply another in a long series of political ‘witch hunts’ to which industry had been subjected ever since the days of T.R.’s ‘big stick. Arousing particular concern was the hybrid nature of the Committee itself — half of it composed of members of Congress and the other half representing administrative departments and federal regulatory agencies. The latter, with their ‘alternates,’ constituted a practical working majority, besides directing, by Presidential designation, expenditure of the Committee’s funds

This mixing of legislative and administrative functions was a sharp departure from precedent. But even more revolutionary was the fact that these departmental representatives were also to prepare and present the evidence which the Committee was to consider. Naturally, as an outgrowth of their own experience, these officials held preconceived ideas about regulation ; thus they were in a peculiarly strong position to use the hearings as a means of obtaining further enhancement of their own power over industry.

Notwithstanding this skept icism, leaders in the various branches of industry about to be investigated accepted Senator O’Mahoney’s assurances that the aims of the Committee were constructive and not punitive. Indeed, many progressive-minded business men were completely sympathetic and eager to coöperate with the government in a broad exploration of the economic factors which seemed to hold back and prevent normal business recovery after so prolonged a period of stagnation.

It is doubtful if American business ever prepared for anything quite as carefully as it did for the TNEC quiz. The trade groups concerned assembled every conceivable kind of data; literally hundreds of thousands of dollars were spent by the large corporations like United States Steel, General Motors, Standard Oil of New Jersey, and the Metropolitan Life Insurance Company — to name only a few of those that appeared before the Committee. Under the direction of counsel and chief executives, special staffs worked for months compiling answers to every conceivable question that might be asked regarding corporate policies or operations.

Once under way, the importance attached to the hearings, by both government and industry, was clearly evident. Business executives, in particular, were acutely conscious of the dangers which confronted them. Not only did they object to the extension of further bureaucratic controls per se, but they also saw that if managerial prerogatives were to be further circumscribed by additional governmental encroachments the system of private enterprise was itself in serious jeopardy. Adding dramatic emphasis to this point was the fact that not one but many branches of industry were, for the first time, being trussed together. The kind of blanket indictment thaL had been previously employed so effectively against the utilities and the railroads was now to be used against the w hole of industry. Certainly the stage seemed set for a great public spectacle which might provide the impetus to the possible ultimate socialization of industry.

Like Saul of Tarsus, industry suddenly saw a great light. These serious political implications were not lost on industrial leaders. Rather belatedly they recognized that, before the bar of public opinion, they had little or no standing. They realized, finally, that public good will could not be acquired overnight, nor, in the face of a new ‘smear’ campaign, could silence pass for virtue.


The setting for the TNEC hearings resembled a great surgical operating amphitheatre. The patient was American business, suffering from some strange new disease, or a complication of ailments. Gathered about the table were a group of scientific specialists, each with a special kit of instruments designed to explore and test out various kinds of economic theories.

Particularly noteworthy was the eclipse of lawyers, and their replacement by university professors, economists, and other experts retained by the government to collaborate in preparing the various bills of particulars that were to be filed against different divisions of industry. The language of Blackstone and legal presentations, while still used on occasion, were largely subordinated to the new jargon of economics and to vast arrays of charts and statistics.

Business men do not yet appreciate the implications which may arise from this important innovation in procedure.

The outline of what the government expected to show was first presented in broad generalizations by economists Willard Thorp, Isador Lubin, and Leon Henderson. Then each particular branch of industry, as its turn came to appear before the Committee, was forced to sit helplessly by —unable even to object or protest — while its special iniquities were spread upon the record. Government witnesses followed each other in a prearranged continuity; supplementing these economic dissertations and briefs came letters and other data extracted from corporation files which high-lighted intra-industry agreements and secret understandings. These memoranda, often written innocently enough, were given sinister and antisocial connotations when read years later before a suspiciousminded committee. Since cross-examination and rebuttal were seldom permitted, the charges made against business which filled newspaper headlines could not be challenged.

Against this heavy factual barrage, the usual type of legal defense proved to be ineffectual. Industry was taken unawares, with the government’s economists and experts easily outpointing its own lawyers. Some industries received sharp grueling; others got off lightly with only mild rebukes. The glass companies were pilloried as an unconscionable monopoly buttressed by patent controls which, although admittedly legal, were nevertheless assailed by the Department of Justice as a menace to the public. Automobile manufacturers, on the other hand, were praised for ‘pooling’ all new inventions without royalty surcharges to the customer.

The investment banking business, slrictly policed by the SEC under the Securities Act, likewise listened impotently while days were spent trying to prove that, through Morgan, Stanley and Company (an independent firm in which Morgan partners held only a preferred stock interest), J. P. Morgan and Company circumvented the restrictions of the Banking Act and still dominated the underwriting of railroad, utility, and other gilt-edged bonds. Insurance companies were charged with having self-perpetuating boards of directors under ‘Wall Street control’ and ignoring the interests of policyholders. Once more the oil industry was attacked as a monopoly based upon control of pipe lines and marketing facilities by twenty-two major corporations.

Only United States Steel was adequately prepared to meet these new Committee techniques. To match the government’s economists it had assembled an equally imposing staff headed by Professor Theodore O. Yntema, of the University of Chicago. The government’s studies of industry’s problems, such as the basing-point system of prices, were offset by equally authoritative studies setting forth the Steel Corporation’s position with regard to particular policies. After the hearings were completed, the Corporation issued a comprehensive three-volume summary presenting its full evidence, which otherwise would have remained completely buried in the record.

But this example of modern publicrelations methods stands entirely alone. Unfortunately, it was not followed by other branches of industry. In rationalizing or defending affirmatively trade practices and policies under attack, witnesses for business were generally no match for the agile minds of the government’s economic staff.

And when questions turned, as they frequently did, to the interpretation of social and economic trends, many important industra lists were obviously embarrassed. They had neither the broad perspective nor the mastery of fact to challenge the conclusions advanced by the different departmental representatives.

In many instances the chief executives of important corporations had sought to make advance personal preparation for Committee examination. Some had retained as special coaches well-known economists; others had drawn heavily upon the Harvard Graduate School of Business Administration and kindred institutions. In a few weeks’ time they had sought to attain a specialized knowledge which had taken their preceptors years to acquire.

While a few of these witnesses acquitted themselves well, by and large this type of last-minute economic cramming was only partially successful. By the very nature of things it was not sufficiently comprehensive to provide that seasoned judgment which is the real objective of postgraduate study.

Take for example the case of an industrialist who has grown up from the ranks. He knows the practical workings of his company from A to Z, be it oil, steel, or any other industry he may be in. He knows the engineer’s language, the whole nomenclature of his business, but this economic and social quizzing is all something foreign to him. The very highly specialized vocabulary of economists is alone enough to stump him.

Questions with important underlying social connotations were often fumbled, while damaging admissions were sometimes made of which the witnesses remained in complete ignorance. And when it came to expressing opinions on subjects afield from their own highly specialized activity, these practical business men were hopelessly at sea. They were what they were — extremely able and efficient managers, but badly inarticulate when it came to defending the principles of the enterprise system.

Perhaps the most disquieting fact revealed at these TNEC sessions was the plainly evident widening of that gulf of misunderstanding which, during recent years, has so seriously impaired the relationships of business and government. Viewpoints of government officials and these leaders of business differed so completely that each might have been speaking a different language. Even statistics presented to the Committee were subjected to contrary interpretations; one attacked, the other sought to justify, industrial policies. A conflict of minds and ideology, which had been years in the making, was now openly visible.


Quite aside from the published findings, the TNEC proceedings provide industry with at least three important object lessons. The record alone, as a guide to the determination of future industrial policies, deserves far more careful study than it is likely to receive.

First and foremost, increased recognition must be given to the growth of that social consciousness which is now so strong a factor in American political life. To ignore this trend merely means the raising of still greater difficulties for business in the future.

The corollary of this development is that in an era of change, when public attitudes play such a decisive part in the framing of government policy, business leaders can no longer rely, as they have done in the past, too exclusively upon lawyers as mentors and advisers in their relationships with government and the public.

Industry can also profitably follow the example set by the TNEC in experimenting with the use of new techniques. Not only must business men learn to draw upon the economist and other experts much more extensively than in the past, but they too must learn to talk in a language the public understands.

Whether business men like it or not, whether future administrations are Republican or Democratic, the Federal Government is destined to play an evergrowing role in shaping the nation’s economic destiny. Thus these new professional experts, because of their ability to rationalize and interpret complex economic activities, will exercise a steadily expanding influence both in the determination of federal regulatory policies toward business and in their administration. What is now vitally important is that their kind of abstract and theoretical knowledge be tempered with that practical experience which can come only from first-hand contact with the problems of business. It is here that misunderstanding begins.

Today in the Securities and Exchange Commission, the Federal Trade Commission, the Department of Commerce, the Department of Labor, the National Labor Relations Board, and other agencies, large research staffs are at work analyzing not merely special phases of business activity but the detailed operalions of all major corporations. The information so gathered is freely interchanged between these departments. This exhaustive research material, and the conclusions and interpretations that are drawn from it, place industry completely on the defensive; industry, being without such information of its own, cannot challenge but must accept whatever facts and figures the government has prepared.

In acknowledging the failure of business to recognize adequately the importance of this new science of economics, Dr. Virgil Jordan, president of the National Industrial Conference Board, recently remarked: ‘ Most modern business executives keep an economist or a statistician or two about the premises the way their forefathers kept a tutor in the home for French and music, without much harm to their native intelligence and manners.’

Dr. Jordan was not reflecting upon the competence of business men. Pointing out the comparative newness of the research tool, he wont on to say: —

It is hard to realize today that twenty-five years ago, when the Conference Board began its work, business charts were a curiosity and statistical measurements of business conditions an esoteric amusement in business management. When we entered the World War, there was no such thing as a monthly index of the cost of living for the country as a whole, or even any regular monthly information about wages, working hours and employment, until the Conference Board undertook to provide such information. . . . It is striking, too, that not until the depths of the great depression were reached was any serious effort made to measure the extent of unemployment.

The activities of the Conference Board are now supplemented by other organizations like the Brookings Institution, the Twentieth Century Fund, the Falk Foundation, and so forth. Yet the outreach of these agencies is extremely limited. Their findings aid in filling in the much neglected economic background in which industry today operates; but, being couched in scientific terms, they seldom reach down to the kind of language that is readily understood by the average manufacturer, much less even by the man-in-the-street.

Yet, if millions of voters are to be made to see how the enterprise system operates, and to understand its points of superiority over other forms of social and industrial organization, it would seem obvious that the case must rest on something more substantial. Industry must begin by telling its own story, its interpretations of the economics of business, not from the top down, but from the bottom up. Once each company understands that it has its own definite responsibility, — in helping to remove the factor of mystery from business, in clearing up often unseen causes that breed suspicion and distrust among employees, stockholders, and customers, in improving t he status of its own citizenship obligations, in personalizing company leadership to win and hold public respect, — then the critical problem which now causes such great concern will be well on its way toward solution.

Finally, the appearance before the TNEC of this imposing array of industrial and financial executives provided an unusual opportunity to evaluate and appraise America’s present business leadership. Its strength and its weaknesses were thrown into sharp relief against the political backdrop of Washington. Particularly important are the deficiencies that were thus revealed.

The management of business has, like the country itself, undergone many changes during the past decade. Industry is in a period of transition, forced to readjust from the easy, lush era of the ‘20s to the sober realities of the ‘30s. The witnesses who followed one another on the stand particularly emphasized the difference in viewpoint that now exists between older executives and the younger generation of business leaders who are stepping into posts of authority.

The first group, stiff and unyielding, still refuse even to compromise with their altered surroundings; their economic outlook remains thoroughly conservative and orthodox. They believe in Adam Smith laissez faire, and the kind of enterprise system which has made possible their own advancement.

Among the younger business leaders, on the other hand, there is today an acceptance of a new philosophy of trusteeship, which, for this new type of executive, Lewis H. Brown, president of Johns-Manville, has thus defined: —

He must plan ahead with the vision of the engineer. In estimating prospective income and expenditure, he must be as accurate as the mathematician. He must have a knowledge of finance and law approaching that of the banker and the attorney. Like the research student in the laboratory, he must be keenly receptive to advances in technical knowledge. In directing his staff, he must have the qualifications of the teacher, plus the psychologist’s insight into human nature. If the business executive is to anticipate the ups and downs of the business cycle and make his decisions accordingly, he must be much more than a rudimentary economist. He also must find time to keep abreast of the literature of this new profession, which is already as voluminous as that of law or medicine, architecture or engineering.

And in addition to all these facets which must constitute today’s executive, he must be acutely sensitive and adaptable to everchanging social and economic thought. The tempo of the times is such that any static attitude carried over from the past becomes a positive handicap not merely in evaluating present-day conditions but in anticipating tomorrow’s developments.

This transition, however, has not yet reached the point where there has emerged for industry, taken as a whole, genuinely accredited national leadership. What there is of business leadership is still largely parochial rather than national in character. Within a given industry cert ain individuals may have personal influence, but even that outreach is extremely limited in extent. Resolutions passed by important trade organizations, speeches made by outstanding industrialists, reflect little more than wishful thinking or pious gestures. Competition and the antitrust laws prevent any such integration. As between its various constituent parts, the American enterprise system still operates without centralized direction; being completely laissez-faire, it cannot be bound to any uniform program of policy or action.

Here we encounter one of the basic causes of industry’s present difficulties. No longer can any business man be a law unto himself. In the absence of national leadership to establish a given course, individual companies must carry a correspondingly greater moral responsibility. Otherwise the good works performed by the few may be completely nullified by the failure of others voluntarily to follow the example that has been set.

What must now be recognized is that public opinion toward industry inevitably will be determined, not by what the progressive company docs, but by what those in the rear ranks, who refuse to move forward, fail to do.

(In the February ATLANTIC Mr. Batchelor will describe with equal candor what government officials must do if they, in turn, are to meet business halfway. — THE EDITORS)