‘Trustbusting’ Helps Consumers

Breaking up big business into smaller, more competitive companies is viewed as good for consumers by “trustbusters,” and many old-fash­ioned free enterprisers. Much more surprising is the historical evidence that splitting up giant corporations, under our anti-monopoly laws, has been very good for shareholders as well.

One year after the breakup in 1911 of the enormous Standard Oil trust into 33 separate companies, share­holders’ value rose 47 percent while the Dow-Jones industrial average rose only 7.6 percent. After the industry-wide divestiture in 1935 under the Public Utility Holding Company Act, share values soared well above market averages over the next decade and a half. In some remarkable and lit­tle noticed Senate testimony two years ago on Sen. Philip Hart’s Industrial Reorganization Act, Don­ald E. Weeden, chairman of the Wall Street securities firm of Weeden & Co., said:

“From my own knowledge of prior deconcentration cases, they general­ly have demonstrated that the sum of the parts equals and often exceeds the price of the concentrated whole.”

Weeden then went on to observe how the break-up of the Big Three auto companies, General Motors(GM), Ford and Chrysler, into more companies would produce more inno­vation in transporation vehicles, at­tract more capital and very probably help shareholders. He accused GM of downplaying its mass transportation divisions because producing automo­biles is more profitable.

“So long as one bus,” Weeden testified, can do the job Of 35 Cadillacs, one subway car, 50 Olds-mobiles — and one train, 1,000 Chevrolets — the pressure on the most public-spirited, well-meaning corporate managers at General Motors will he overwhelming to push private cars rather than mass tran­sit.

“Reorganize GM’s present bus and locomotive divisions into separate independent companies and the amount of private capital willing to invest in mass transit solutions might increase beyond the equity under­writer’s fondest dream.”

Splitting up the Big Three would allow for more precise investment and spring loose managerial en­trepreneurs who are now stifled by endless committee meetings, con­cluded this outspoken Wall Streeter.

The justice department is suing IBM with the objective of di­vesting some of its operations. Busi­ness Week quotes one securityanalyst as saying, “IBM’s European operations alone are worth more than the entire market value of IBM’s stock.”

If shareholders of concentrated industries realized that they would likely grow wealthier if their large company were divested into several firms, support for anti-monopoly en­forcements could grow by leaps and bounds.

Presently, the Federal Trade Com­mission (FTC) is trying to break up the breakfast cereal and oil industry giants. FTC specialists claim consumers are being overcharged many millions of dollars annually by these corporate goliaths.

Within and without the gov­ernment, there are legal and economic experts urging deconcentration of several other industries. But because the effect of higher prices from concentrated industries on consumers is so diffuse and hid­den, there has never been a roaring constituency for enforcing the anti­monopoly laws.

Suppose shareholders were to an­ticipate higher values for their shares in the companies newly formed after divestiture of the large corporations. Imagine the dilemma of the corporate managers when con­fronted with their owners saying, “Break us up, Washington, so we can make more money.”