II

THE RECOGNITION OF INDUSTRIAL ORGANIZATION

The central government in its policy toward the large corporations must adopt one of two courses.  Either it must discriminate in their favor or it must discriminate against them.  The third alternative—­that of being what is called “impartial”—­has no real existence; and it is essential that the illusory nature of a policy of impartiality should in the beginning be clearly understood.

A policy of impartiality is supposed to consist in recognizing the existence of the huge industrial and railroad organizations, while at the same time forbidding them the enjoyment of any of those little devices whereby they have obtained an unfair advantage over competitors.  It would consist, that is, of a policy of recognition tempered by regulation; and a policy of this kind is the one favored by the majority of conservative and fair-minded reformers.  Such a policy has unquestionably a great deal to recommend it as a transitional means of dealing with the problem of corporate aggrandizement, but let there be no mistake:  it is not really a policy of strict neutrality between the small and the large industrial agent.  Any recognition of the large corporations, any successful attempt to give them a legal standing as authentic as their economic efficiency, amounts substantially to a discrimination in their favor.

The whole official programme of regulation does not in any effective way protect their competitors.  Unquestionably these large corporations have in the past thrived partly on illegal favors, such as rebates, which would be prevented by the official programme of regulation; but at the present time the advantage which they enjoy over their competitors is independent of such practices.  It depends upon their capture and occupation of certain essential strategic positions in the economic battle-field.  It depends upon abundant capital, which enables it to take advantage of every opportunity, and to buy and sell to the best advantage.  It depends upon the permanent appropriation of essential supplies of raw materials, such as iron ore and coal, or of terminals in large cities, which cannot now be duplicated.  It depends upon possibilities of economic industrial management and of the systematic development of individual industrial ability and experience which exist to a peculiar degree in large industrial enterprises.  None of these sources of economic efficiency will be in any way diminished by the official programme of regulation.  The corporations will still possess substantially all of their existing advantages over their competitors, while to these will be added the additional one of an unimpeachable legal standing.  Like the life insurance companies after the process of purgation, they will be able largely to reduce expenses by abolishing their departments of doubtful law.