GENERAL ARTICLES

COMPETITION

"It continually compels the redistribution of wealth . . . Under Private Enterprise the buying public is boss"

EDGAR M. QUEENY January 15 1944
GENERAL ARTICLES

COMPETITION

"It continually compels the redistribution of wealth . . . Under Private Enterprise the buying public is boss"

EDGAR M. QUEENY January 15 1944

COMPETITION

"It continually compels the redistribution of wealth . . . Under Private Enterprise the buying public is boss"

EDGAR M. QUEENY

GENERAL ARTICLES

Edgar M. Queeny is chairman of the Boarxl of Monsanto Chemical Company and one of the leading industrialists in the United States. Believing that the case for free enterprise has been obscured during recent years, he wrote a book, “The Spirit of Enterprise," which has attracted considerable interest. His chapter on Competition sets forth reasons for his belief that the enormous contributions to civilization made possible by individual in Umide operating under a free competidle system cannot be duplicated in a bunaucraiy. Maclean's publishes it as an interesting contribution to the discussion on Free Enterprise vs. State Control of Industry.

ALL OF the elements of competition might be illustrated by a conversation which hue often taken place:

“I’m through with that X auto! Had to put my car in the shop three times before they fixed it.”

“Try the Y car! Its gas consumption is low and it has that new transmission. Their agency doesn’t rob you, either, and gives good, snappy service.”

If the maker of the X auto and its agency go out of business, eventually, they will be only two of several hundred thousand American and Canadian enterprises that fail every year. Mortality averages 20% a year among the 2.000.000 American businesses. Grocery stores and automobile agencies fail. Men with new ideas or patented products build plants and start production, only to find the public does not want or will not pay the price of their products. Doors close and capital is lost.

This is the risk element of private enterprise. Several hundred thousand such hopefuls get into this “battle royal” annually. Some fade out during their first year; some last two or three years—but each year some, with a new and useful product giving greater value or better service, will, with good management, grow. A few become big business. But the average life of all businesses is about five years. In times of prosperity the number of companies doing

business increases because new ones outnumber the ones which fail. In times of depression there are more failures than new ventures. Thus competition continuously compels the redistribution of wealth and its control.

Look back! Remember all the good automobiles that are no more? Pierce-Arrow! Peerless! White Steamer! Rambler! Stutz! Mercer! Jewett! Chandler! —and dozens more that fell by the wayside because customers thought others gave them more for their money.

Can you recall when they used to sing, “Get Out and Get Under,” and the family Rambler went out, with four spare tires, two strapped pessimistically on either side of the running board? Can you remember how the auto grew up, bit by bit?

The old Rambler’s finish had 16 coats of paint and varnish and each year its face was lifted with another 16 coats. That took 30 days, and the owner walked until the job was finished, or he put on the spare body.

After World War 1, a company, searching for uses for old smokeless powder, developed an auto lacquer. At first it didn't look quite as good as varnish. It was used only on cheap cars. But paint companies conducted research and competed in its development until lacquers had the color depth and gloss of varnish. The factory’s finishing time was cut from four weeks to a matter of hours. One hundred dollars was lopped off the cost of each car and competition saw that the saving was promptly turned over to the customer in the form of a lower price. Further, lacquer was good for many years—that saved more money—and we didn’t need a spare body.

Chemical Scramble

THEN chemical companies started to make resins from which paint companies developed baking enamels. Automobile companies jumped at another way to improve appearance and durability. Far-

sighted paint companies producing the first enamels got the most business, and some lacquer companies fell by the wayside. New resin compames sprang into being and there was, and still is, a scramble among chemical companies to please their customers—the paint companies—with new and better resins. There is a scramble, too, among the paint companies, to please their customers with a greater variety of more beautiful, more colorful, more durable finishes. The last car off the assembly line in the spring of 1942 had a lustre that would last the car’s lifetime. And at that time still better finishes were being perfected and tested.

Our friend in dusters who bounced around in the Rambler did not dare leave home without a jack and tire pump, for he probably would have at least one puncture. However, tire companies worked on their compounding, put more carbon black into the rubber, and soon we began to see advertisements, guaranteeing the old whining vacuum cups for 3,500 miles! Then one company made tires out of cotton cord instead of fabric. Another added chemicals to rubber to speed the curing time. And this promoted a race among chemical companies to produce the best rubber chemicals.

Do you remember how the old-time rubber bands, after a year or so, cracked and gnarled to look like thin strips of alligator hide, and how easily they broke? They had become oxidized ! That was before chemical companies developed rubber antioxidants. And so today, because of competition between chemical companies and tire companies, 30,000 miles is the standard life of a passenger tire. Owners of transcontinental truck fleets are reporting averages of 70,000 miles on trailer tires.

Automotive engineers, always on the lookout for improvements, quickly seized upon the steel companies’ new continuous processes which cut the cost of steel sheets. As a result, safe, cheap, noiseless steel bodies arrived—wider bodies with roomier seats. Two hundred different alloys of steel—stainless, high tensile and others—were made available and adopted. Automobiles became lighter yet stronger.

When chemical companies made safety glass available, one company put it in windshields. Then another company put it all around, and competition forced the rest to follow. Early safety glass soon turned yellow, cracked and split, but in time competition among chemical and glass companies made it clear, tough and good for a lifetime.

As soon as aluminum became cheap enough, engine heads were made out of it; motors ran cooler and at higher compressions, aiding speed and acceleration. Gasoline consumption was lowered.

Oil companies competed among each other to produce new and better gasolines, so octane numbers rose. Ethyl gas appeared, engine knocking stopped, and smaller, more powerful fuel-sa ving engines were possible. By improving oil refining methods and by adding chemicals, new properties not found in nature’s product were created—oil that remained fluid in cold weather and oil that functioned efficiently under high pressures. New oils permitted the use of cadmium bearings and engine performance stepped up again.

We have almost forgotten when the family handy man spent an hour every morning polishing up the Rambler’s brass. Now chromium plate needs only an occasional shower and wipeoff.

If our friends in the Rambler dared to stay out

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past twilight, they pulled up to the roadside and put water in the carbide generator. When the Prestolite tank appeared messy carbide was eliminated. Later, electric companies competed with each other for the growing auto business and now, without moving from one’s seat, one switches on the lights with a finger and dims them with a foot pedal. A switch turns on the heater and the windshield defroster; another, the radio. Push a button on the dash and the motor starts. Push another one on top of the steering post and a horn clears the road.

As a result of competition among auto companies and their suppliers, today’s Ford or Chevrolet is ever so much better than yesterday’s PierceArrow or Cadillac. It is more reliable and more comfortable and it costs only a quarter as much.

When we thought the automobile industry had settled down into rivalry between two giants—Ford and General Motors—-and a handful of able companies in second place, there appeared on the scene a new man, a new face. He gathered around him an aggressive groupmen with vision and zest. Starting from scratch a quarter óf a century late, but with a high-compression engine that customers wanted, with a new styling that appealed to women, and with daring, advanced engineering, the Chrysler Company zoomed up through the ranks and stuck its head up where two had been

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company. Chrysler was able to advertise, “Look at all three!”

Such is the power of the customer in an age when some people bemoan lack of opportunities and philosophize that the time has passed when men can rise from the ranks. Walter Chrysler, who started at a locomotive shop bench, and his right-hand man and successor, self-educated K. T. Keller, the son of river boat people, fought in a fair fight some of the most powerful industrial units in America, it’s one of the things that can, and still do, happen here, where men are free to pursue happiness in the field of their choice.

What happened in the automobile industry has happened in every other industry, for directly and indirectly, the products of all reach the consuming public. Radio, appliances, household gadgets, clothing, railroads, transportation companies, the telephone company, movies—all are continually improving their product or service. Companies which do not keep pace fall by the wayside and new and more aggressive ones take their place.

Not only have manufacturers whose products go directly to consumers done a good job, but so have their suppliers and their suppliers’ suppliers. Their roots spread deep, searching for nature’s raw materials—oil, coal, water, air, ore—into trees and across the seas to the plantations and mines of the four corners of the earth. Where each capillary of this industrial system’s root meets the fibre, and the fibre a branch, and the branches meet at the crown, there is the relation of seller and customer, and there is competition.

Guardians Against Monopoly

The hundreds of thousands of purchasing agents are the real guardians of the people against monopoly. The purchasing agents have business sense, not political sense. It is they who are insisting on two or more sources of supply. It is they who daily insist that the prices they pay bear reasonable relationship to cost. And, where necessary, it is they who induce new producers to start in business. By

vying to produce better or cheaper products or something that will do a new and useful job, competition forces all companies to work for the ultimate consumer.

Not only do individual companies within an industry compete with each other but there is interindustry competition for the customer’s dollar.

Excepting public utilities, where monopolies are chartered, the importance of monopolies in commercial fields shrinks to insignificance. Though a company might have a monopoly on the supply of a commodity such as aluminum, this monopoly loses much of its force because of competing commodities performing similar functions.

Aluminum, for instance, competes with copper for power transmission lines, stainless steel in the production of railroad cars, magnesium alloys in aircraft, and zinc and plastics in smaller fabricated articles. There is no use for aluminum that cannot be satisfied by a competing article. If the price of aluminum were raised to its old figure of $2 a pound, very few of the articles that now use aluminum would disappear from the market. They would simply be made of other materials.

Our aircraft would be made out of plywood, plastics, magnesium alloys and stainless steel, and after manufacturers had time to perfect the use and application of the alternative products, the resultant airplane would eventually be as good.

The manufacturers of aluminum had a choice of selling one pound at $2 or a carload at 15 cents a pound. Because the large volume of business at the low price yielded so much more profit than the small volume at the higher price, the price gradually fell to the lower level.

A budget is usually established when one builds a house, and the choice of materials entering into its construction is determined by the relative contribution each makes to its beauty and utility as weighed by cost. Stone, brick, wood and tile all compete with each other for outer walls. Copper, iron, tile and now plastics compete for the piping. Plaster, wood and wallboard compete for interior surfaces, and so on. The selection in each case is governed by its cost in relation to the utility and beauty desired.

Wallboard manufacturers know that if they can bring their prices down their product will be chosen more often. Therefore they constantly strive to reduce costs of raw materials and processing to achieve this objective. So it is with all other producers.

Each housewife has her budget. Naturally she allocates her expenditures to those goods or services from which she believes she gets the most enjoyment or utility. It may be a question of a trip or a new refrigerator; a chair or a new radio; a new automobile or a new and bigger apartment. And the money goes where the best value is offered. Therefore every businessman’s enlightened self-interest demands that selling prices be kept to the lowest point compatible with reasonable profit.

Easy to Criticize

Who runs our enterprise? The ultimate consumers! We spend our money where we think we get the best value or service. All enterprise is competing for our favor. It is the people who run private enterprise.

The temptation to criticize that with which one is not familiar is always

great. Never do I travel by train that I am not prompted to think I could run a railroad better than railroad men. But the faults I find are so obvious it is impossible that the management is unaware of them. It knows the reasons or conditions which would make what I believe a simple solution impractical. And the monographs being put out by organizations of propaganda for the overthrow of our competitive system consider private enterprise from a similar nonparticipant viewpoint.

The irony of the monographs is that not one of the authors has made a contribution to the system of private enterprise he criticizes. Most have never left the abstract scholastic atmosphere of the social science classrooms. None of the authors has had business experience and there is room for one to doubt if many of them have ever seen the inside of a factory.

These men live under the suzerainty of a doctrine that business consists of chicanery, greed and disregard of the rights of others, and that the bigger a business is the worse it must be. Their prejudice reaches back for centuries. Miriam Beard recalls that “even in the sixteenth century the trader and banker already found arrayed against them the scholar, the poet and artist whom they patronized. The libraries and universities they had founded nourished their detractors.” It was in the deepest pit of inferno, where sinners by fraud and treachery “with their hands kept warding off, sometimes the flames, sometimes the burning soil,” that Dante placed the bankers and merchants of Florence.

As the solution to problems whose practical import they do not understand, these idealists offer the coercive power of the State over enterprise and the lives and habits of the people. They offer political central economic planning.

A succinct and lucid statement of “planning” is found in L. E. Hubbard’s authoritative “Soviet Money and Finance.” “Planning,” he explains, “is the attempt to concentrate in the hands of the Government the whole power of deciding a comprehensive program of production, distribution and consumption, aiming at an accurate and continuous direction of production to authoritatively determine consumption

and the elimination of the periodic fluctuations inherent in capitalist economy. Planning can be complete only when the State owns or entirely controls all means of production and distribution. This condition has effectually been reached in the Soviet Union. Industry as a whole may be compared to a gigantic combine in which the individual industries and individual enterprises have a considerable measure of independence, but are controlled by a central organization which determines all matters of major policy.”

Suppose planning had been in effect 20 years ago. Suppose Henry Ford had been commissar of automobiles. It would have been a popular appointment. Ford had led the industry in cutting prices—in mass production. He led in high wages. He was a pioneer, proved, honest and fearless. But with his power to veto any suggestion with which he did not agree, is there not a chance we might still be riding around in something resembling Model T’s? Ford believed in them so thoroughly that he refused to change his production until it was almost too late. Indeed the Ford Company never recaptured the lead it once held. Had Ford been commissar, might not his decision have been to concentrate and standardize on Model T’s—a ruling which would have been made in all sincerity.

And do you remember when he is supposed to have said: “The people can have any color car as long as it is black.”

Had Ford believed in Chrysler’s engineering he would have so designed his cars. In a planned economy, Commissar Ford probably would have turned down Chrysler’s petition asking to be allowed to make such a car. Looking at his five-year plan for the automobile industry, Ford undoubtedly would have said, “No. There is ample capacity now for all the cars this year’s and next year’s plan calls for. And, besides, your design has no particular merit!”

This decision would have been made honestly and would have been well justified by facts as Commissar Ford saw them. In Canada and the U. S. under the enterprise system, the public is boss. They had the opportunity to render their own decisions—and did!