Evening star., 1940-12-25
F. I. T.. Finds
Big Business
Less Efficient
Medium-Sized
Concerns Reported
To Lead Way
BY JOHN C. HENRY.


, Americas industrial structure are
far from the most efficient is being
submitted by the Federal Trade
Commission within a few days to
the Temporary National Economic
Committee.
Most comprehensive analysis ever
made of the relative efficiency of
large, small and medium-size
American business, the studies of
the commission showed that busi-
ness concerns classified as medium
sized in their respective fields lead
the way in efficiency in 55 per cent
of cases tested, that small concerns
are at the top in "a per cent of the
tests, and that the giants of indus
try stand a poor third with peak
efficiency in only IL per cent of the
tests.
Accomplished largely through the
coordination of data accumulated
by several Government agencies
over the past 25 years. the survey
covers l8 major industries repre-
senting approximately 25 per cent
of the value of all yearly manufac-
turing production in the United
States.
Leaves Conclusions to Committee.
In their report, expected to run
- more than 400 pages, the commits
sion carefully specifies in an intro
, duction already prepared that it
"offers no definite opinion as to
whethe, its findings 'conclusively
disprove the claim frequently made
that large size in American buSi-
ness is more efficient than medium
size or small size. But the commits
sion does believe that in transmit
ting the results of these tests to
the committee, it is contributing in
formation concerning the efficiency
Of size. which is of large public in
tereSt and of service to the COM
mittee. -" Whether the results of
the tests conducted by the commits
sion cast serious doubt on the Su-
perior efficiency of large size in
American business must be left to
the judgment of the committee"
The committee is reminded, how
ever, that 'if very large corporations
are actually less efficient than
medium-sized or small corporations
in American business, and if, in ad-
dition, the large size of such cor
porations enables them to suppress
competition and thereby to frustrate
the greater efficiency of medium
sized or small business, this size is
indefensible from, the standpoint OF
q sound and progressive capitalistic
system. Under such conditions the
' effect of large size in business is to
protect, conserve and perpetuate
inefhciency in business and to de-
stroy capitalism"
Tried Tests Applied.
For the establishment of its find
ings the commission applied two
broad measurements, both of which
are respected and often used by
businessmen and economists. First
of these was the cost-of- production
test; second. the rate of return on
invested capital.
With the corporate enterprises in
each field divided into categories of
large, medium and small, the COM
mission then applied the cost-of-
production test to individual COM
panies, to individual plants, to
groups of companies and to groups
Of plants The te-of-return test
was applied to individual companies
and to groups of companies. In
these classihcations 233 tests were
made.
Some of the results follow:
Among SO cost-o production tests
applied to individual companies only
one credited the largest company in
the array with the lowest cost. In
81 cases medium sized company
showed lowest costs and in 81 in
' stances the lowest-cost unit was a
company classified as small.
For groups Of companies. the
group containing the largest COM
panies showed lowest average costs
in only one test out of eleven
What Individual Plants Showed.
For individual plants, the largest
plant reflected lowest cost of produc-
ton in only two tests out of SO, in
81 cases the medium size plants led,
and in 26 cases the leader was classi-
fled as small plant. For the re-
naming four cases, large plants but
not the largest in their fields, showed
lowest costs.
For groups of plants, those con-
tanning medium sized entities re-
flected the lowest average costs in
every one of five tests.
In 84 tests made for the rates of
return on invested capital earned by
individual companies in the l8 in
dustries, the largest company showed
the highest rate II times, In l3
cases the highest rate was reflected
, by small company but in 81 in
stances the leader was a company
classified as medium sized.
For groups of companies, Il tests
involving both costs and rates OF
return on invested capital showed
lowest average costs for groups con-
tanning the largest companies in
three instances; for medium sized in
IA; for small companies in four.
Combined Tests Applied.
an the 233 combined tests, large
size, whether represented by a cor
poration, plant, group OF cor
porations, or group of plants,
showed the lowest cost or the highest
rate of return on invested capital
in only Is tests" the commission
summarizes. In these combined
tests, medium size made the best
showing in 1913 tests and small size
in 30 tests. Thus, large size was
most efficient, as efficiency is here
measured, in approximately IL per
cent of the total tests, medium size
was most efficient in approximately
55 per cent of the tests, and small
size was most efficient in approx
mately "a per cent of the tests"
Covered by the study were the fol-