QUALITY STABILIZATION-1963

FRIDAY, APRIL 26, 1963

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCE AND FINANCE OF THE

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The subcommittee met, pursuant to recess, at 10 a.m., in room 1334, Longworth House Office Building, Hon. John D. Dingell presiding. Mr. DINGELL. The Subcommittee on Commerce and Finance of the Committee on Interstate and Foreign Commerce will come to order. The committee is hearing this morning witnesses on H.R. 3669 on the bill by the distinguished chairman called the quality stabilization bill.

The Chair is very happy to welcome our beloved colleague and distinguished friend, the Honorable Chet Holifield from California, to be our first witness.

STATEMENT OF HON. CHET HOLIFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. HOLIFIELD. Mr. Chairman, members of the committee, my support for the quality stabilization bill is well known to you, but I do appreciate your permitting me to come before you to express my views regarding this vital legislaiton.

I have introduced H.R. 3863, which is identical to H.R. 3669, sponsored by your chairman, the Honorable Oren Harris.

The fact that this bill is impressively bipartisan is significant.

But even more significant is the fact that it is backed by men who are experienced in the area with which the legislation is concerned. It is no accident that Senator Monroney, a former retailer, is fully behind the principles of this bill. It is not a coincident that Senator Humphrey, Representative Nygaard, Representative Stubblefield, and myself are sponsoring the bill.

It is because we as small businessmen have personally experienced the unfair types of competition that threaten the small businessman's existence.

That is why we are working so hard for the enactment this year of the quality stabilization bill.

The small businessman should have a fair profit on his investment and for his long hours of work.

I might interject here a remark not in my prepared testimony, that I am very pleased to note that some of my friends who are representatives in the unions are here this morning. I think it is time for them to receive a few grains of truth on this subject and dispel some of the

theoretical positions which they have maintained for so long and which I believe are inimical to the average wage earner.

Mr. DINGELL. I would just as soon the gentleman direct his attention to the committee.

Mr. HOLIFIELD. I am directing my attention to the chairman of the committee and I am expressing my pleasure that some of the representatives of labor are here today.

Fair union wages are set by eliminating "scab" labor, thereby modifying the factor of competition in the labor cost area, not creating a monopoly, but modifying pure competition; union labor calls "scab” labor unfair and Congress has legislated procedures to protect decent levels for wage earners. In so doing, Congress has recognized that unrestrained competition in the wage area is unwholesome for our society.

Retailing is the final step in the chain of production and distribution. It is just as necessary as any other step. It is entitled to some protection just the same as are the people engaged in all the other links in the chain. I am not asking complete protection, I am asking for a fair amount of protection.

I do not ask for complete protection, nor do I think it will completely protect the small businessman. He has many factors against him in this struggle to stay alive.

Let me describe to you the chain of production and distribution of a national branded item of merchandise. I use an Arrow shirt, for example, as I am now, and have been a retailer of Arrow shirts and other national brand items of union-made men's wear for more than 25 years.

Link No. 1. Production of cotton: Competition modified by legislation (crop control and price support).

The Congress just yesterday passed a bill for price support in feed grains. They have been passing similar bills for 30 years. Every time they pass this bill or a similar bill in this or any other area of agriculture, they modify competition, and they do it for the purpose of the beneficial, allover impact on society as a whole.

Link No. 2. Transportation costs from raw cotton to the retailer's store. Here competition again is modified by legislation of Congress, and I need not call this to the attention of the members of this great committee, because this is their important duty in the field of all regulatory agencies dealing with transportation.

And they set the interstate commerce rates or give the legislative authority to setting interstate commerce rates based on the cost incurred by the transportation companies, including the component union-wage level of all employees.

Link No. 3. The production of textile cloth and manufacture of the same into final garment; this is indeed two links. Every link of production is based on fixed costs, including union wages.

Link No. 4. Distribution of the final garment to the consumer. Now, it is in this field that no legislative protection exists for the independent businessman, who serves in this final link in the chain of production and distribution. Here we have pure competition; we have complete competition; unmodified by any type of legislative protection. As a result, "scab" practices run wild.

The decent merchant who wishes to retail good merchandise made in union-wage factories finds himself at the mercy of the "price gimmick," "deceptive advertiser," the mass handler of nonunion-made merchandise from various parts of our country or from Japan. These operators use national brand merchandise as "come-on" for the purpose of unloading on the consumer a large amount of nonstandard, nonunionmade merchandise.

Such practices as I have outlined are threatening this last link in the distributive chain.

The independent operator cannot last if he is forced to operate in a cost of operation area where his costs are rigid until it reaches the point of delivery to the consumer. There it is suddenly faced with ruthless competition. I would assume that everybody within reach of the sound of my voice would agree with me that the small businessman is a desirable factor in our society, that he does perform a service and that he is worthy of his hire-and his hire is reasonable profits.

Now, let me further explain the independent businessman's present dilemma as a result of fixed costs of operation and unmodified com-‹‹ › petitive conditions in selling.

1. The article he sells in a national brand item is a nonmonopoly item. Similar articles are made by dozens of competitors. Again let me refer to Arrow shirts. I cite "Manhattan," "Van Heusen,' "Jayson," "Hathaway," plus hundreds of less well known shirt manufacturers.

So there is no doubt that in selling this nationl brand item, he is selling a nonmonopoly item.

An important point to remember is that the quality stabilization bill cannot be applied to a monopoly item. There must in every instance be similar items available to the consumer.

2. The independent retailer's cost area contains many noncompetitive areas. I cite a few:

(a) Wages, in most areas unionized. They are fixed.

(b) Rents. Percentage of sales based on a retail scale related to different kinds of businesses plus traffic count of people who would pass in front of his door.

(c) Insurance. All old line insurance companies charge almost identical rates.

(d) Interest rates on commercial loans.

Usually the smaller merchant pays in an identical rate from all banks in a trade area.

(e) Transportation costs on goods; as noted before, these costs are noncompetitive, fixed by interstate commerce rates.

(f) Utilities. All fixed noncompetitive rates set up by public utilities commissions which, incidentally, include a floor of guaranteed profits to the utilities above their investment and costs. And in most instances, a guaranteed wage to their employees. A fixed wage to their employees, fixed by negotiation.

(g) Last, but not least, the manufacturer must supply the retailer any specific item at a nondiscriminatory price (Robinson-Patman Act). I refer, of course, to the provisions of the Robinson-Patman Act.

The nondiscriminatory price for an identical item gives the retailer some protection as between himself and a competitor retailer, but it

also establishes a fixed noncompetitive price for the wholesale cost of the item.

As a result of all these areas of fixed or semifixed costs, the retailer does not have the benefit of competition in the components of his cost of doing business. His investment in inventory is a cost which deserves a fair profit return. His time and skill deserve a fair recom

pense.

If we demand that he face unmodified competition at the point of distribution, we deny him the right to a fair profit and say that the law of the jungle must control and apply to this area only in our distributive system.

I say that a principle of equity is involved which is identical to the basic principle involved in securing a fair wage for the wage earner. If we do not permit by legislative approval the extension of reasonable and fair protection to the independent retailer, as we have to the wage earner, we are neither just nor consistent.

Now I've heard the theorists get up and expound that the quality stabilization bill is no good because it will raise prices to the consumer. This is hogwash. The Nation's small independent retailers who so desperately plead for the enactment of this quality stabilization bill do not want it as a means to gouge their neighbors and lifelong friends who helped them build their business.

In the first place, the quality stabilization bill is specific on this point. The law cannot be used unless (paragraph 8 of the bill):

Goods usable for the same general purpose are available to the public from sources other than the owner of such brand, name, or trademark, and are in free and open competition therewith ***.

Of course, the Department of Justice will probably come in here and say they got on their bicycle and made a survey in various stores in various areas and their conclusion is if this bill is enacted it will cost the consumer dearly. But that's only one side of the story. Let's look at the other side.

The Federal Trade Commission is a historic opponent of resale price maintenance of any kind. Therefore, its conclusions favorable to resale price maintenance are entitled to a great deal of weight, as a sort of "admission against interest." In a 1945 report on reseale maintenance, the Federal Trade Commission published the fol

price significant material:

One reason for this general absence of important effect of minimum retail price maintenance upon actual retail prices was that the minimum prices stipu lated by the manufacturers were put at or near the prices that were previously being charged by their large customers-the chainstores or the supermarkets. The manufacturers' policy was to limit price cutting in leader advertising rather than to raise prices above those at which their large customers were selling normally. Moreover, only a comparatively few brand owners placed their products under resale price maintenance; consequently, they were careful not to name prices that would be out of line with non-price-maintained competitive brands (from p. 636).

This factor always obtains in the marketplace if you are talking about a nonmonopoly item. And this is a most important factor. The idea that because you have a right to sell something in a nonmonopoly industry gives the manufacturer or the retailer a chance to gouge the market is completely erroneous. completely erroneous. It may be justified by theories, but in the practical application of it, this is just simply a factor that doesn't obtain.