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CRIME AND WEALTH
In the quest for new wealth there are shadier avenues yet toscan. For the organized underworld has been designated by a number of recent observersas the luxuriant seeding ground for new fortunes of menacing portent.
This theory grew out of hearings before the Special Senate Committeeto Investigate Crime in Interstate Commerce, May 10, 1950, to May 1, 1951, underthe chairmanship of Senator Estes Kefauver of Tennessee. In 1952 Kefauver was theDemocratic candidate for vice president of the United States.
The germ of the theory appears in Kefauver's book based on thehearings, Crime in America (1951). With minor variants the story has sincedeveloped: Underworld characters with local political protection are acquiring legallyestablished businesses as "fronts" and are snatching working control invarious large corporations specially in hotels and hotel chains, motels and motelchains, in divers pleasure resorts and perhaps also in banks. Such characters, itis held, have made a bundle in the underworld--through gambling operations, housesof prostitution, bootlegging, assassination, smuggling, the narcotics traffic--andthey are now pyramiding their illicit gains in the labyrinthine corporate world.
Various dangers loom: They will loot companies from the inside,they will rig markets and defraud the public, they will be better able to procurepoliticians, they will prey on "legitimate" businessmen. They will turna happy, honest corporate world into a devil's den, with consequent demoralizationof an orderly society. They will, in short, act like fairly typical businessmen.
As the senator himself put it, "I cannot overemphasizethe danger that can lie in the muscling into legitimate fields by hoodlums . . .there was too much evidence before us of unreformed hoodlums gaining controlof a legitimate business; then utilizing all his old mob tricks--strong-arm methods,bombs, even murder---to secure advantages over legitimate competitors. All too oftensuch competition either ruins legitimate business men or drives them into emulatingor merging with the gangsters.
" The hoodlums also are clever at concealing ownershipof their investments in legitimate fields--sometimes, as Longie Zwillman said, through'trustees' and sometimes by bamboozling respectable businessmen into 'fronting' forthem. Virgil Peterson of the Chicago Crime Commission testified that 'hundreds' ofhoodlum-owned businesses are successfully camouflaged. He told us of having beenconsulted by a friend of his who had been offered a $25,000-a-year job to head a'new corporation.' Peterson investigated and found that 'the fellow who had contactedhim was part and parcel of the Capone Syndicate." 1
Senator Kefauver said he feared legitimate business would beused as a "front," a cover for tax-evading illegal operations; that unreliablemen would arise in industries vital to health and safety. "I, for one,"he said, "do not like to think of food products necessary to the health of mychildren, or of medicine that can mean life or death to a good many people, comingfrom plants controlled by gangsters whose code of ethics is the dollar sign, andwho do not care if that dollar sign is stained somewhat with blood." 2
But the senator nowhere gave definitions of "legitimate"and "respectable" businessmen.
Kefauver showed that mobsters were established on the fringesof seventy different industries, including drug manufacturing, baking, candy-making,food distribution and hotels. 3
While he did not enlarge Kefauver's theory, Robert F. Kennedy,chief counsel of the Select Committee (McClellan Committee) of the United StatesSenate on Improper Activities in the Labor or Management Field, subsequently attorneygeneral of the United States, and still later senator from New York, did reinforceit in his book based on the McClellan investigation, The Enemy Within (1960).For the investigation found, as Kennedy reports, direct tie-ups between extremelyvicious underworld characters, spurious labor unions and various leading corporations.4
The object of these tie-ups was to prevent effective unionizationof employees, a criminal violation of the National Labor Relations Act. Many othercrimes, such as murder, were allegedly committed out of sheer exuberance of spirits.
After diplomatically saluting "the majority of Americanbusinessmen" as above crookedness and collusion in labor-management negotiations,"Kennedy wrote that "we found that with the present-day emphasis on money andmaterial goods many businessmen were willing to make corrupt 'deals' with dishonestunion officials in order to gain competitive advantage or to make a few extra dollars.. . . We came across more than fifty companies and corporations that had acted improperly-andin many cases illegally--in dealings with labor unions . . . in the companies andcorporations to which I am referring the improprieties and illegalities were occasionedsolely by a desire for monetary gain. Furthermore we found that we could expect verylittle assistance from management groups. Disturbing as it may sound, more oftenthe business people with whom we came in contact--and this includes some representativesof our largest corporations--were uncooperative." 5
"By and large," wrote Kennedy, "little accurateinformation came to us from the business community. We received 150,000 complaintsduring the Committee's life. Seventy-five per cent of them came from representativesof organized labor, mostly rank and filers. Some came from people outside the labor-managementfield. Only a handful came from people in the business world. Certainly no investigationwas touched off by any voluntary help we received from management. And this was notbecause management had no information to give. I believe 90 per cent of the corruptdeals between business and labor could be eliminated if business officials wouldsimply talk to proper authorities." 6 Why business people, as theinstigators of the corrupt actions, would do this he didn't say.
"Often," Kennedy related, "we found that corruptdeals involving management were handled through attorneys who played the role of'middleman,' or, as we came to think of them, 'legal fixers' or 'legal prostitutes.'More often it was the labor relations consultant who played the 'middleman.'"7
Kennedy reeled off a list of names of offending companies thatreads like a miniature Social Register of big business. "Although I thoughtI had become case-hardened," Kennedy remarked, "I discovered I still wasnot shockproof when I studied the results of our investigation of the A. & P.. . " 8
The thesis that the underworld is a direct bridge into new propertiedwealth for latecoming frontiersmen is laid down flatly by Professor Daniel Bell,chairman of the department of sociology of Columbia University. 9
"The jungle quality of the American business community,particularly at the turn of the century, was reflected in the mode of 'business'practiced by the coarse gangster elements, most of them from new immigrant families,who were 'getting ahead' just as Horatio Alger had urged. 10
"For crime, in the language of the sociologists, has a'functional' role in society, and the urban rackets--the illicit activity organizedfor continuing profit, rather than individual illegal acts--is one of the queer laddersof social mobility in American life. Indeed, it is not too much to say that the wholequestion of organized crime in America cannot be understood unless one appreciates(1) the distinctive role of organized gambling as a function of a mass-consumptioneconomy; (2) the specific role of various immigrant groups as they, one after another,became involved in marginal business and crime; and (3) the relation of crime tothe changing character of the urban political machines." 11
Crime, in other words, was the road taken by many immigrants,imbued with the Horatio Alger ideal of 100 per cent Americanism to become propertyholders and escape the repressive wage yoke imposed upon them by foresightedly frugalAnglo-Saxon corporations.
As business became more organized so did racketeering and gambling,until in the 1920's and 1930's it had become "industrial racketeering"through the medium of labor disputes, a fertile field. 12
Leading entrepreneurs here were Arnold Rothstein (shot aftera high stakes card game), Louis Lepke Buchalter (executed in Sing Sing), Gurrah Shapiro,Dutch Schultz (assassinated), Jack "Legs" Diamond (assassinated) and LuckyLuciano (deported). Buchalter and Shapiro, as Professor Bell notes, in New York inthe 1930's dominated sections of the clothing industries, house painting, fur dressing,flour trucking, etc. "In a highly chaotic and cutthroat industry such as clothing,the racketeer, paradoxically, played a stabilizing role by regulating competitionand fixing prices. When the NRA came in and assumed this function, the businessmanfound that what had once been a quasi-economic service was now pure extortion, andhe began to demand police action." 13
Seeking other worlds to conquer, says Professor Bell, the criminalracketeer shifted his emphasis from production to consumption, mainly gambling, withoutwholly yielding his interest in the productive side--as his deep involvement in laborracketeering in the 1950's and 1960's attests.
The Kefauver investigation revealed the tentacles of the gamblingand vice syndicates; the McClellan investigation disclosed the seamy labor racketeersin full bloom. The latter performed the economic function of keeping labor costsdown for the owners (a function performed by the political police in Soviet Russia).The gambling entrepreneurs performed the political-economic function of helping financesurreptitiously the major local political organizations--"machines" tocritics--in Boston, Providence, New York, Philadelphia, Pittsburgh, Buffalo, Cleveland,Detroit, Chicago, St. Louis, Kansas City and other large urban areas.
Properly rejecting the Kefauver Committee's idea that a Mafiarules the underworld, Professor Bell points out that the committee failed to understand"(1) the rise of the American Italian community, as part of the inevitable processof ethnic succession, to positions of importance in politics, a process that hasbeen occurring independently but also simultaneously in most cities with large Italianconstituencies--New York, Chicago, Kansas City, Los Angeles; (2) the fact that thereare individual Italians who play prominent, often leading roles today in gamblingand the mobs; and (3) the fact that Italian gamblers and mobsters often possessed'status' within the Italian community itself and a 'pull' in city politics."14
The road of crime, in other words, was taken by some latecomingimmigrants trying to become property owners: Italians, East European Jews in thegarment trades and Irish. 15 The urban political machines levied on allof these a heavy tariff. 16
In the process many of these men became "legitimate"property holders--'legitimate" here meaning that a court will uphold one's propertyclaim. "Many of the top 'crime' figures" (I don't know why Professor Bellputs crime' in quotation marks, since they were court-certified criminals--F.L.)now derived their income from "legitimate investments (real estate in the caseof Costello, motor haulage and auto dealer franchises [Ford] in the case of Adonis)or from such quasi-legitimate but socially respectable sources as gambling casinos."17
One arrives, in short, at the big shots of the underworld, theirnames paraded anew in the Kefauver and McClellan investigations, and including such"labor leaders" as Jimmy Hoffa, Dave Beek and their henchmen--topsy-turvyRobin Hoods who gleefully robbed the poor for the benefit of the rich. These aremen who, it is widely asserted, have traveled the latest highroad to wealth and secretlyown large shares in the largest corporations. They have indeed the requisite qualitiesof ruthlessness and unscrupulousness but lack finesse.
Without harrowing the reader with details of the lengths towhich I have gone to verify this notion of the criminal underworld as the sourceof great new wealth, let me categorically say this: There is nothing to it. Whileit is no doubt true that people like Costello have accumulated a nest egg of dimensionsthat might be envied by the common man I doubt that it is very great in the termsunder discussion. If Costello or any other underworld character as of 1965 had anet worth of more than $5 million it would be surprising. No available evidence showsgreat underworld wealth unless Wall Street is located in the underworld.
Senator Kefauver cites incomes of various gambling groups takenfrom income-tax returns, which the underworld dislikes falsifying since Capone andothers were caught at it and jailed for long terms, but though some of these figuresare impressive, even if understated, it is only in a small way. They seem in thecategory of the marginal speculative businessmen scanned toward the end of the previouschapter, at best.
The reason for this low pecuniary estate is simple. The underworldin its public operations--gambling, prostitution, other variants of vice (as distinctfrom secret operations such as dope peddling)--is subject to "the split."It must share its receipts (Kefauver estimated the gambling turnover alone at $20billion a year) with local politicos, and the police from the beat patrolman up tothe precinct captain.
This necessity diminishes the net return to the operators who,themselves a group, must also split. I should imagine the net return on total "sales"to be a good deal less than I per cent. On $20 billion (a figure pulled from theair) I per cent is $200 million, and even $200 million is far more than is likelyto reach underworld coffers. For in addition to payoffs to winners, the gamblersmust make heavy payouts for judicial fixes and lawyers. They must constantly yieldtribute to hijackers. And when the residue is split among hundreds of operators thereisn't much left for each. The "take" in prostitution is less and subjectto a bigger overhead.
Someone who was known to be "on the take" for manyyears was Mayor Frank Hague of Jersey City, long a power in national councils ofthe Democratic Party (he might just as well have been a Republican). For Hague therevenue from gambling was steady. As a formal Catholic he frowned on prostitution.At his death he left an estate valued at $5 million. 18 If Hague, startingas a poor youth and never leaving the receiving end, could do no better than that,what must the so-called syndicate heads have made? Even if we allow that Hague spent$5 million additional in high living, his receipts would not have been more than$10 million for a very large, enduring and central gambling-political operation.While a goodly sum, this is not really "big" money. And Hague was not himselfa gangster.
According to the newspapers, some criminal--usually Italian,Irish or Jewish--establishes an organization. Then he shops about for "politicalprotection" and manages to seduce some respectable churchgoing American officialwith a charming wife and children and a dog, cat and canary. A really decent chap,you know, until sweet-talked and bribed by an agent of the Mafia.
What actually almost always happens is that an established groupin business and/or politics, having decided what the prospects are, looks about fora strong-arm man. If he can't be found locally he is imported, as Costello was importedinto New Orleans to run slot machines, as Johnny Torrio and Capone, Brooklyn men,were imported into Chicago to dominate vice in general and as Harry Bennett was broughtto Detroit by Henry Ford.
Something to notice about nearly all the underworld figuresin their public appearances is that they are unsure of themselves. In fact, if theydidn't have sponsorship they wouldn't have the assurance to set up extensive publicoperations. The newspapers require one to believe, for example, that the Anastasiabrothers jumped ship and then proceeded autonomously to establish themselves on Americansoil as general strong-arm men and assassins. If one will only notice one's own uncertaintyin a strange city (much less a strange country with a strange language) one willsee how unlikely it is that lower-class people who don't know the language wouldtake to large-scale lawbreaking in a strange land. But--if someone in authority convincedthem it was all right to break the law, that they would be protected and paid, andif he was able to prove this on numerous touch-and-go occasions--one would producethe pattern of sullen, defiant, wordless behavior of lower-class thugs at the barwith which the public is familiar.
The core of the Chicago prohibition mobsters, now world famous,was originally recruited by Chicago newspaper publishers who were engaged in literalgun battles for newsstand position--the "Circulation War." All of the gunplayof the 1920's had a long dress rehearsal before World War I in the newspaper war.The participants learned through the Chicago newspaper attorneys how "the fix"worked and, later under political protection, they functioned the same way in theprohibition gangland wars. 19
Newspapers also purvey the fiction that once an operation hasbegun another independent comes along and tries to "muscle in," and thengang warfare breaks out. This is seldom true, although some independents (perhapsmisled by reading the newspapers) have lent color to the theory, to their own undoing.
Most cases of urban gang warfare in the United States, apartfrom juvenile gangs, are expressions of factions in the local political party structure.Local branches of the two major parties or factions thereof extend protection todifferent strong-arm men, in gambling, prostitution, bootlegging, "protecting"small businessmen, and similar enterprises. Out in the field the cohorts of one ganginfringe on the supposed territory of another, each catering to the hoi polloi.Formally outside the law, there is no way out for them except to fight or retreat.In some cases, no doubt, there have been retreats. In the known cases, violence hasbeen the arbitrator.
The strong-arm men occasionally trip over the law (though therehas not been a single conviction other than for the murder of a newspaperman forhundreds of gang murders in Chicago since World War 1), but rarely are their politicalprotectors laid by the heels. One exception was James J. Hines, Tammany districtleader and the political connection for the Dutch Schultz gang, who was convictedand sent to jail in the late 1930's by Thomas E. Dewey, later governor of New Yorkand twice the Republican candidate for president. Somewhat later James J. Moran,fire commissioner under Mayor William O'Dwyer, was imprisoned for simple extortionas a result of disclosures before the Kefauver Committee. O'Dwyer himself stood clear.
But political protectors usually stand apart from gang affraysand may or may not come to terms among themselves. If they don't, as in Chicago inthe 1920's, the various gangs--Gennas, Capones, Morans, O'Bannions, O'Donnells etal.-- fight a war of extermination. Capone swept the field, in part through greatercunning, in part because he introduced the machine-gun into his operations, a technologicaladvance with devastating results. (Capone was a machine-gunner in World War I.)
Kefauver named a number of the Republican and Democratic Illinoislegislative connections of Capone's successors. 20 The list could be greatlyextended.
Sometimes outsiders do "muscle in." One such was Vincent"Mad Dog" Coll in the 1930's, who preyed on various "banks" and"drops" of the rackets in New York City and is reported to have kidnappedfor ransom some leading mobsters. Coil was abruptly shot to death in a telephonebooth.
On rare occasions, a member of the underworld approaches officialswith a view to buying political protection. A danger in doing this, shown in a caseKefauver cites, is that the official may be untouchable and may successfully turnand prosecute his tempter. For attempted bribery is, odd as it may seem, illegal.
But in these operations, the strong-arm men-agents of politicalparties or business groups--are the low men on the totem pole rather than the swashbucklingchiefs depicted by the newspapers. For it is they who are investigated, put on trial,pilloried in newspapers, sometimes jailed or executed, and murdered. It hardly seemsa desirable way to make a living. Their ulcer rate must be high. Even Frank Costello,referred to as "The Prime Minister of the Underworld" and in the 1940'sa modest Warwick in elevating chosen men to local office, has been shot, narrowlyescaping with his life. Most of the men summoned before Kefauver showed either physicalscars or the ravages of tension and dissipation. None, despite possession of massivehouses, swimming pools and cars, is really a winner. In their public appearances,they look congenitally unhappy. One pities their wives and children. A hard life,all in all, in the great American quest for property.
Crime: The Highroad to Wealth
Either sound instinct or a certain knowledge led Kefauver, Kennedy,and Bell to link notorious underworld figures with the business world. For crimeis an historically established highroad to American fortune-building, as was firstdetailed by Gustavus Myers in The History of the Great American Fortunes andlater by Matthew Josephson in The Robber Barons. If earlier men came intothe upper propertied class by means of violent crime, it would seem that later criminalpractitioners might be heading toward the same dubious salvation. So assiduouslyand unscrupulously did the earlier fortune-builders work that one might suppose theybelieved that in attaining wealth they were attaining eternal life.
Honoré de Balzac (1799-1850) held that behind every fortunethere is a crime, a judgment with which I would disagree if he intended to suggestthat in every case the fortune is conceived in crime. Another Frenchman, Pierre JosephProudhon (1809-1865), in soaring hyperbole simply stated: "Property is theft."With these notions--flares on a distant horizon--we need not concern ourselves here.But today, in view of what we are now about to consider, it could be said with somejustness in paraphrase of Proudhon: "Business is crime." And if this wereso, businessmen would be, in all simplicity, criminals.
Both the Kefauver and Kennedy investigations were rooted toa considerable extent in newspaper preconceptions. And the standard newspaper patternof crime in the United States is based on and has itself shaped the FBI's annualFederal Uniform Crime Reports, with variations here and there to suit individualeditorial prejudices. These reports consist solely of crimes known to the police.
In this pattern thousands of individuals each year commit crimesranging from petty larceny to murder. Some of these offenses, particularly theft,are committed for gain; many, particularly murder, are committed under emotionalstress. Most convictions for theft, rape and assault involve members of the lowersocio-economic classes. The culprits number few property holders except an occasionalembattled husband and wife, ]over and mistress, or small-business arsonist.
Deviating a bit now from the annual Federal Uniform CrimeReports, the newspapers also recognize organized underworld crime and crime committedby politicians. The latter in the main, according to the press, receive bribes andgraft, and are seldom caught; it is usually a red-letter day for the newspapers whenone is convicted, providing much ground for editorial moralizing: the sanctity ofthe home, American institutions, the Founding Fathers. . . .
But the most threatening sort of crime to news editors is organizedcrime, carried on by Mafias, Cosa Nostras, Syndicates, gangs, mobs, and other nefariousenterprises. Sometimes these appear as coast-to-coast operations, under a shadowyboard of sinister directors, wrong guys all. At other times they are purely regionalbut interlocking with other regional enterprises. The syndicates rule over gambling,prostitution, white slaving, drug peddling, smuggling, counterfeiting, fencing stolengoods, shady hotels, night clubs, bootlegging, labor racketeering and all mannerof systematic evil, public and private. They are protected by politicians, a disturbingspecial species, who participate in the ill-gotten gains and snicker all the wayto the bank.
Although these phenomena are indeed all present in profusion,as a full pattern of American crime the picture is false and has been shown to beso by the scientific experts in the field--the criminologists. Nonetheless, everynewspaper continues to present it, which is much like ignoring Pasteur's germ theoryof disease in reporting on medicine.
Nearly all of these newspaper-featured crimes are crimes reported,if reported at all, to the police, although bribery of public officials and of the,police themselves is rarely so reported. But criminologists, interested in all crime,cannot confine themselves to police-reported crimes. They are interested as sociologists(criminology is a subdivision of sociology, the study of group behavior) in (1) crimesthat may not be reported at all and (2) crimes reported to administrative agenciesother than the police, such as juvenile boards. Many crimes are never reported. Rapeis often not reported--some say 80 per cent of the time--because the victim, subjectto twisted puritanical values, feels disgraced, stigmatized. Again, special agencieshave been established for taking cognizance of many crimes, as of juvenile delinquentsand businessmen, and newspaper reporting of the work of these agencies is extremelytentative.
The sorts of crimes ignored by newspapers in their bulk andpersistence are what the late Professor Edwin H. Sutherland (1883-1950) of IndianaUniversity called "white collar crime." Sutherland was known as "thedean of American criminologists." He was a former president of the AmericanSociological Association and chairman of his department. Out of his work, as outof Pasteur's, albeit on a smaller scale, there has grown an internationally reputedschool of specialized researchers.
Sutherland like other criminologists was interested in the causesof crime, for which there are many divergent and irreconcilable theories. 21He analyzed these theories, showed them defective. As a sociologist Sutherland wasimpressed as long ago as 1925 with the fact that more than 98 per cent of the prisonpopulation came from the lowest socio-economic classes; less than 2 per cent camefrom the upper classes. 22 To explain this disparity criminologists haddeveloped two special theories: that crime is caused by poverty, that crime is causedby mental illness.
But Sutherland could accept neither as overarching in its explanation.He noticed, first, that well-to-do people showing no signs of mental disease commitwhat everybody agrees are serious crimes (murder, for example) and be then noticedthat most of the poor were painfully law-abiding. And if poverty was not a causeof crime it did not account for the patent fact that most people in prison were verypoor.
Reaching for a more enveloping standard, Sutherland concludedafter prolonged study that crime--apart from impulsive crime--is no more than learnedbehavior that deviates from some prescribed norm. It may be learned in various waysor by face-to-face association with dominant persons who prescribe and approve thedeviant behavior, giving rise to Sutherland's differential-association theory. Thecriminal, in acting, simply substitutes a different norm in accord with the teachingsof those on whom he is dependent, usually the younger vis-a-vis the olderon all social levels. Sutherland did not pursue the question of why some personalitiesmade apt learners and others did not.
But, if this is so, it does not account for the preponderanceof poor people in prisons unless one is to conclude that they alone have been instructedin deviant values. Why this preponderance? And why do some well-to-do lawbreakersland in prison and not others?
Sutherland after much inquiry noticed that the laws are writtenand administered with different emphases. In general, crimes in which property orthe propertied might be injured, even though the nonpropertied might be injured bythem as well, were implemented with much more severe sanctions than other crimes.
Most offenses open to members of the upper socio-economic classother than those traditionally proscribed, as he found, were dealt with by specialadministrative tribunals. The offenses were mostly variants of fraud or conspiracy.Where they were committed against the broad public they called for relatively lightpenalties, seldom prison terms. Verdicts against the offender were often carefullyphrased so as to be nonstigmatic. But the crimes accessible to the lower classes,involving violence or direct theft or some of each, called for penalties that werephysically severe and were intensely stigmatic in their language, some so stigmaticthat the victims themselves could not use it--e.g., rape and blackmail.
Even when a member of the upper socio-economic class was foundguilty of a stigmatic crime and was about to be sentenced, there was a marked differencein language of the judge. Often in the case of a culprit of the lower classes thejudge administered a savage tongue-lashing, while the defendant hung his head andhis family sobbed, terrorized. But when upper-class culprits had been convicted incriminal court of using the mails to defraud the general public, the judge (as quotedby Sutherland) typically said: "You are men of affairs, of experience, of refinementand culture, of excellent reputation and standing in the business and social world."They were in fact, as the judicial process had just disclosed, criminals.This difference in attitudes of judges is often pronounced. Severely reprehendingtoward members of the lower classes, the judges become wistful, melancholy or sadlyphilosophical when sentencing men of the upper class. (After all, this isn't strangeas they both come from the same class, may have gone to the same school and may belongto the same clubs.) And a sad duty does indeed confront the judge in contrast withthose joyful occasions when he can say to some despicable specimen just convictedof armed robbery: "I sentence you to twenty years at hard labor."
When Sutherland inquired closely be found, contrary to the establishedsupposition, that many members of the upper classes did commit offenses for whichthe government held them accountable. But in most cases special arrangements hadbeen made to handle them with kid gloves and in many cases to administer by way ofpunishment a slap on the wrist. 23
Nor was the reason for differential formulation and applicationof the law hard to find. The class whose members were being proceeded against wasthe class that had the dominant influence in the government and supported the politicalparties at the top. It was, indeed, their government and their political partiesengaged in running their very own plantation.
As to the vast volume of crimes of all kinds in modern society,upper-class and lower-class, Sutherland is very clear about general background. "Afterthe disappearance of the nobility," he says, "business men constitutedthe elite, and wealth became respected above all other attainments; necessarily,poverty became a disgrace. Wealth was therefore identified with worth, and worthwas made known to the public by conspicuous consumption. The desire for symbols ofluxury, ease, and success, developed by competitive consumption and by competitivesalesmanship, spread to all classes and the simple life was no longer satisfying.. . . High crime rates are to be expected in a social system in which great emphasisis placed upon the success goal--attainment of individual wealth--and relativelyslight emphasis is placed upon the proper means and devices for achieving this goal.In this type of social organization the generally approved 'rules of the game' maybe known to those who evade them, but the emotional supports which accompany conformityto the rules are offset by the stress on the success goal." 24
What Sutherland referred to as white collar crime did not concernsome kind of newly discovered crime nor was it an extension of the concept of crime.He employed the white collar notion as Alfred P. Sloan had employed it in TheAutobiography of a White Collar Worker. It referred simply to crimes open tocommitment only by the upper, respected, approved and socially preferred class. Notreported to the police, these were of little interest to simple-minded police-orientednewspapers; they were reported to special administrative agencies.
Sutherland first presented his thesis in a speech in 1939 tothe American Sociological Association. He later published a series of monographsand in 1949 a book, White Collar Crime. 25 This book isalready a classic of sociology, ranking in the opinion of some professionals withworks like Emile Durkheim's Suicide and perhaps even Max Weber's ProtestantEthic and the Spirit of Capitalism. It is required reading for anyone who wantsto understand American society as well as crime and modern criminology.
"The thesis of this book, stated positively," saysSutherland, "is that persons of the upper socio-economic class engage in muchcriminal behavior; that this criminal behavior differs from the criminal behaviorof the lower socio-economic class principally in the administrative procedures whichare used in dealing with the offenders; and that variations in administrative proceduresare not significant from the point of view of causation of crime. Today tuberculosisis treated by streptomycin; but the causes of tuberculosis were no different whenit was treated by poultices and blood-letting." 26
Sutherland accepts the combination of two abstract criteriaused by legal scholars to define crime: a legal description of an act as sociallyinjurious and a legal provision of a penalty for the act. 27
White collar crime, as Sutherland makes clear, is far more costlythan crimes customarily regarded as constituting the "crime problem."
A distinction between most white collar crime and most ordinarycrime is that the white collar criminal does not usually make use of violence; hedepends chiefly on stealth, deceit or conspiracy. In the case of illegal labor practices,however, he does often through agents employ violence leading to death of workers.And there may be violent, even fatal, reactions to some of its nonviolent forms,such as the consequence of adulteration or improper preparation of foods and drugs.
The "white collar criminals, however, are by far the mostdangerous to society of any type of criminals from the point of view of effects onprivate property and social institutions." 29 For their predationsgradually tend to undermine public morale and spread social disorganization. 30Large-scale stock swindles, bank manipulations and food and drug adulteration administerparticularly convulsive shocks to broad segments of the populace. The volume of totalviolations, much of it officially unchallenged, leads to a spreading mood of publiccynicism and more and more rank-and-file lawbreaking. It is finally echoed in thestatement: "There's one law for the rich and another law for the poor."Government itself stands impugned. The stage is set for anarchy, sometimes emergingin riots.
An equally grave consequence, which Sutherland does not noticebut upon which I shall later touch, is that the attempt to gloss over, conceal, minimizeand apologize for white collar crime in general and in specific cases trammels thechannels of public communication, undermines the terms of public debate and cloudsthe critical faculties even of many scholars.
The laws relating to white collar crime, as Sutherland remarks,tend to "conceal the criminality of the behavior" and thus do not reinforcethe public mores as do other laws. 31
Sutherland surveyed the laws and took note of those instancesin which white collar crime is explicitly stated to be crime and those where it isonly implicitly indicated. White collar crimes are committed by individuals and bycorporations, mostly the latter as the transmission mechanisms of widespread illegalplanning. They are committed against a small number of persons in a particular occupationor against the general public; it is rarely a case of individual versus individual.Individuals only commit such white collar crimes as embezzlement and fraud, and whenthey do they come under statutes clearly labeled criminal.
But there are many newer statutes, developed incident to theemergence of machine technology and the modern corporation.
There are, first, the antitrust laws--the Sherman Act, the amendmentthereto establishing the Federal Trade Commission, the Clayton Act and other amendments.The Sherman Act is explicitly stated to be criminal law, and various of its amendmentsexplicitly define violations as crimes. The amendments are largely under the jurisdictionof the Federal Trade Commission, which may issue cease-and-desist orders or enterinto stipulations for the termination of some behavior. If a stipulation is violatedthere may be issued a cease-and-desist order, and if this is violated there may beissued a court injunction, the violation of which is punishable as contempt of court,provided for in the original Act. If the interim procedures (similar to probationin the ordinary courts) are not effective, fines and imprisonment may be imposedfor contempt. An unlawful act, as Sutherland remarks, is not legally defined as criminalby the fact that it is punished but by the fact that it is punishable. Itfollows from these and other considerations that "all the decisions made underthe amendments to the antitrust law are decisions that the corporations committedcrimes." 32
Laws against false advertising, designed to protect competitorsand consumers, and the National Labor Relations Law, designed to protect employeesagainst coercion and the public from interference with commerce, are adaptationsof the common law to modern conditions. Laws against false advertising relate tocommon-law fraud. There are, too, laws against infringement of patents, which relateto the common-law prohibitions of restrictions on freedom in the form of assault,false imprisonment and extortion. Prior to the enactment of these and other lawsthe basic common law already expressed itself against restraint of trade, monopolyand unfair competition.
False labeling, a variant of false advertising, is defined ascrime in the Pure Food and Drug Act. False advertising in the Federal Trade CommissionAct is defined as unfair competition, and comes under the same criminal procedureas its other violations. It is fraud.
As to the National Labor Relations Act, "all of the decisionsunder this law, which is enforceable by penal sanctions, are decisions that crimeswere committed." 33
Most white collar criminal statutes are relatively nonstigmatic--thatis, they don't arouse an automatic reaction of reprehension in the broad public.That someone has been convicted of using the mails to defraud, or has restrainedtrade, does not sound as heinous as if he had been convicted of robbing post boxeseven though in the first cases very large sums may have been illegally taken frommillions of people and in the latter case perhaps only a Social Security check froma single individual.
The crimes of the lower socio-economic classes, however--mostof them embalmed in the Federal Uniform Crime Reports-- do carry with themdeep social stigmas, They are, in part owing to newspaper emphasis, socially disgraceful.They exclude one from respectable society and curtail one's civil privileges.
In the case of most crimes in the white collar area, too, thepenalties are notably lighter than for crimes reportable to the police. Few of thesecrimes, even when they individually involve sums greatly exceeding all the burglariesand bank holdups in a year, call for prison sentences. Most call for nominal fines,and some require that the defendant merely not repeat the crime. In a few the actionis broken off with the defendant signing a consent decree agreeing to terminate alucrative course of illegal action.
There would be difficulty in imposing jail sentences or executionsin many of these cases, because the defendants are usually corporations. While thecourts have decreed in their wisdom that corporations are "persons" andare entitled to all the protections of persons, it is a fact that one can't jailor execute a corporation. And officers of a corporation, being quite different persons,cannot, it seems, justly be held responsible by a careful Congress for the acts ofthe corporation. Even where the acts of the corporation have netted millions in illicitgain, the fines prescribed by a benevolent Congress are trivial compared with thegains. It is true that the legislation establishing the Sherman Act and the FederalTrade Commission did provide for prosecution of officers of offending corporations;but such prosecutions have rarely been launched by business-minded public officials.And prosecutions under the Sherman Act are wholly at the discretion of the AttorneyGeneral. They are not mandatory, hence are subject to political juggling.
Sutherland centered his study on the behavior of corporations,the instruments of much steadily continuing crime. 34
He took the seventy largest nonfinancial corporations as givenon two lists, that of Berle and Means in The Modern Corporation and Private Property(1933) and that of the Senate Temporary National Economic Committee (1938). He thenexcluded from these lists public utility corporations (he examined fifteen powerand light companies separately) and the corporations in one other industry. Leftwith sixty-eight corporations, he added two that appeared on the list of 1938 andnot on the list of 1929. It was a list representative of the cream of corporate society,the elite. 35
The average life of these corporations was forty-five years.Their criminal histories were traced through official records, which Sutherland names.
He found a total of 980 decisions against these corporations,with a maximum of 50 for one and an average per corporation of 14.0. No fewer than60 (or almost all) had decisions against them for restraining trade, 53 for infringements,44 for unfair labor practices, 43 for a variety of offenses, 28 for misrepresentationin advertising and 26 for rebates. In all there were 307 adverse decisions on restrainingtrade, 97 on misrepresentation, 222 on infringement, 158 on unfair labor practices,66 on rebates and 130 on other cases.
One hundred and fifty-eight of these decisions were enteredin criminal court, 296 were in civil court, 129 were in equity court, 361 were bycommission order, 25 were by commission confiscation and 11 were by commission settlement.
Even if the analysis had been limited to explicit criminal jurisdiction,60 per cent of the corporations (or 42), with an average of four convictions each,had experienced that particularly stigmatic jurisdiction. As Sutherland points out,in many states persons with four convictions are defined as habitual criminals or"repeaters." Applying this concept to corporations, on the average at least60 per cent of the leading corporations are habitual criminals.
Few cases initiated after 1944 are included in the Sutherlandstudy, and the author warns that his work does not include all violations that havetaken place because not all administrations were vigorous in enforcing the law andnot all cases were systematically recorded. In general, there was lax enforcementunder Republican Administrations--only 40 per cent of the cases from 1900 to 1944date from prior to 1934--and more alert enforcement under Democratic Administrations.The most serious attempts at enforcement occurred under the New Deal, although thebulk of the laws had been on the books for many decades. One gets some insight hereinto reasons for the pre-Johnsonian enthusiasm of the corporate world for the foot-draggingRepublican Party as well as some understanding of the quid pro quo for heavynational campaign contributions.
Of these seventy corporations, Sutherland found, thirty wereeither illegitimate in origin or began illegal activities immediately thereafter.Eight others, he found, were "probably" illegal in origin or in beginningpolicies. The finding of original illegitimacy was made with respect to twenty-onecorporations in formal court decisions, by "other historical evidence"in the other cases.
Sutherland does not attempt any estimate of the total loot (alldepressing to the common living standard) produced by these and unadjudicated violations,But, as many violations continued for long periods of time, it must run into largesums that make the work of Mafias, Cosa Nostras, and spurious labor unions look likeextremely petty operations. One cannot, of course, attribute the entire income ofthese corporations to criminal behavior although a part of net income was the consequenceof criminal activity. In the case only of the twenty-nine that were born in crime--towhich Balzac's phrase would certainly apply--could one attribute all the subsequentearnings to criminal behavior. But the total criminal haul, throwing a garish lighton the maxim "Crime doesn't pay," ran into billions upon billions of dollarsfor these seventy corporations alone. Crime, carefully planned and executed, is demonstrablythe royal highroad to pecuniary success in the United States.
Corporate crime is, indeed, crime in the grand manner. But itisn't part of the pattern of crime as presented by the newspapers. Why the newspapersaren't fully alert to this sort of wrongdoing apart from ineptitude, why they don'tinclude it in the standard pattern of crime, is not difficult to decide. Nearly allthe advertising revenues of the newspapers and mass magazines, as well as of radioand television stations and networks, come from these same corporations and theirsmaller counterparts. Although reporting individual large cases as they arise (notalways prominently or fully) the newspapers have never despite recent sociologicalrevelations ventured statistical summaries of the situation as they regularly dowith lower-class, police-reported crimes--a marked case of class bias. Even the largeindividual cases are only reported fully in a few leading metropolitan papers. Theytend to be ignored by the many hundreds of others.
Not only are acts of commission unreported or diminished insignificance, but those who commit these acts with the corporations as pliant toolsare in their general modus operandi held up to public view as the cream andbulwark of society, the very pillars of the nation. Such a strange state of mindis inculcated in the public that a correct statement of the facts inevitably seemsbizarre, overdrawn, tendentious and even perversely subversive.
The leading stockholders in these corporations--80 per centof all stock being held by 1.6 per cent of all adults--consist of the wealthiestproperty owners in the country. The leading company executives are the most highlypaid group in the country, drawing remuneration astronomically exceeding that ofskilled professional people. 36
Corporations as Ideal Delinquents
Sutherland compares the behavior of corporations and their officerswith that of the professional thief, "the ideal delinquent, of which he madea special almost classical study. 37 Both are "repeaters," persistentoperators; illegal behavior of both is more extensive than complaints and prosecutionsshow; neither loses status with associates but may instead be admired; each customarilyorally expresses contempt for law, government and governmental personnel; and thecrimes of both are not only deliberate but organized. They are, however, differentin their self-conceptions. The professional thief recognizes himself as a criminaland is so regarded by the public; the corporate man thinks of himself as respectableand is generally so regarded by the public.
But white collar criminals often, as Sutherland points out,admit to being "law violators," a distinction without a substantial difference.Another difference is that the crime of the professional thief is plainly visiblewhereas the crime of the corporation is camouflaged, hard to detect. Corporate men,unlike professional thieves, rationalize their acts by semantic substitutions. Fraudulentrepresentation is excused as merely puffing one's wares, and so on. Extravagant orinsistent claims are called "the hard sell," conspiracy in restraint oftrade is "a gentleman's agreement," price fixing is "stabilizing themarket," monopolistic practices are suggested as laudatory evidence of "ahard competitor." Yet both the professional thief and the corporation use aliases,the latter by forming subterfuge subsidiaries, dummy companies, inventing new brandnames for the same product to escape new regulations or developing "fighting"brands. In public defense both employ "mouthpieces." The professional thiefusually has only a lawyer, but the corporation and the corporate man have lawyers,advertising agents and public relations counselors. These latter influence lawmakingand law enforcement as they relate to the corporation as well as defend the companyin court and before the public. The object is the same in both cases: to get theclient off scot free.
But although different from the professional thief in that itis directed by a group and thus invokes for itself the maximum of rationality, thecorporation is similar, says Sutherland, in that it selects crimes risking the leastdanger of detection and identification and against which victims are least likelyto struggle. It selects crimes that are difficult to prove and it engages in thewholesale "fixing" of cases. The corporations when they encounter officialsthey cannot "fix" have gone as high as the president of the United Statesto remove them. In general, says Sutherland, the "fixing" of white collarcriminals is much more extensive than that of professional thieves. It is also muchmore costly, and he cites the case of the bribe of $750,000 by four insurance companiesthat sent Boss Pendergast of Missouri to jail, later to be pardoned by PresidentTruman (who originally belonged to the Pendergast organization). It was almost tenyears before the insurance companies were convicted. Then they were only fined; noinsurance executives went to jail.
There was, too, the case of Federal judge Martin Manton whowas convicted of accepting a bribe of $250,000 from agents of the defendant whenhe presided over a case charging exorbitant salaries were improperly paid to officersof the American Tobacco Company. While the attorney for the company was disbarredfrom the federal courts, the assistant to the company president (who made the arrangements)was soon thereafter promoted to vice president: a good boy.
In the case of white collar crimes of corporations, if any individualis punished (usually none is) it is only one or a very few. The authorities do notdig pertinaciously with a view to ferreting out every last person who had anythingto do with the case. But, as Sutherland points out, it is different with crimes ofthe lower classes. In kidnapping, for example, the FBI, in addition to seizing thekidnappers, flushes to the surface anyone who (1) rented them quarters to concealthe kidnapped person or to hide out in; (2) acted as unwitting agents for them inconveying messages or collecting ransom; (3) transported them; (4) in any way innocentlygave them aid and assistance; or (5) was a witness to any of these separate acts.The government men do such a splendid job that almost everyone except the obstetricianswho brought the various parties into the world are brought before the bar, wherethe aroused judge "breaks the book over their heads" in the course of sentencing.Sovereignty, it turns out after all, is not to be trifled with.
It may be argued that kidnapping, which resorts to violence,is a more serious crime than bribing a judge. With this I would disagree. Gravelyserious though kidnapping is, its commission strikes directly at only a few, andin most cases involves comparatively small sums--even though they seem large to theordinary man. But bribing a judge--and in the Manton case far more than any knownkidnap ransom was at stake--strikes at a very broad public and, indeed, at the foundationsof social institutions in general. It is subversive in the deepest and truest sense.
Emulatory Crime in the Ranks
What is of particular interest is the vast amount of emulatorycrime white collar crime inspires among underlings, insiders and outsiders, muchof this never reported to the police. Companies, as many reports since World WarII show in Fortune, the Wall Street Journal and other business papers,are increasingly subject to constant depredations. Specialty, department and chainstores are subject to a continuous pressure of theft, which led one security officerto state his opinion publicly that 25 per cent of the public is absolutely honestand wouldn't steal under any circumstance, 25 per cent is systematically seekingopportunities to steal and 50 per cent is ready to steal at any time it feels certainof escaping detection.
There is a constant assault on the corporate fortress from theinside as well, by employees who steal from stockrooms and loading platforms andwho gave in some cases organized truly gigantic withdrawals of goods. Embezzlementis rife. Only a few years ago some of the police in Chicago and Denver were foundto be practicing old-fashioned burglary on a large scale as a supplement to low salaries.
If money is evidence of personal worth, then many persons areout to prove they are as worthy as anyone in Wall Street.
In eight and one-half concentrated pages Sutherland gives asynopsis of crime in the United States. 38 Fraud is extensive in the professions--legal,medical, clergical--although he rates physicians and surgeons rather favorably onthe whole. Bribery of officials, particularly by businesses selling goods to municipalities,counties and states, is common. But within private business itself corruption isinternally quite common. He reports: "Buyers for department stores, hotels,factories, railways, and almost all other concerns which make purchases on a largescale accept and sometimes demand gifts of money payments." Again, "Thepolice constantly break the laws. The laws of arrest are rigidly limited, but thepolice exercise their authority with little reference to these limitations and inviolation of law. Hopkins refers to illegal arrests as kidnappings, and in this sense,the number of kidnappings by the police is thousands of times as great as the numberof kidnappings by burglars and robbers. The courts, similarly, are not immune fromcriminal contagion, and this is true especially of the lower courts."
'The United States, the plain unvarnished facts show, is a verycriminal society, led in its criminality by its upper socio-economic classes.
Contemporary Big Business Crime
Has the ominous outlook altered since Sutherland terminatedanalysis as of 1944?
It has not changed in the slightest. In the two decades since1945 the acts cited by Sutherland continued--in many cases with redoubled force;for the penalties imposed by law are obviously not of sufficient weight to deter.One can make large sums of money in business by breaking the law up to the pointwhere one is ordered to stop or is indicted.
In the Federal Trade Commission alone, from January 1, 1945,through fiscal 1965 as given in annual reports, there were 3,991 cease-and-desistorders for violations by enterprises large and small. 40 The largest corporationswere conspicuously represented, along with ambitious small fry. The specific violationswere: false or misleading advertising, using a misleading trade or corporate name,using false or misleading endorsements, removing or concealing law-required markings,disparaging competitors' products, misrepresentation and deception, false invoicing,misbranding and mislabeling, deceptive pricing, failing to make material disclosures,offering deceptive inducements, obtaining information by subterfuge, using misleadingproduct name or title, shipping for demand-payment goods not ordered, etc., etc.
In the Food and Drug Administration, which administers the amendedFood, Drug and Cosmetic Act of 1938, there were 5,208 criminal prosecutions from1945 through 1961, an average of 306 per year. 41 Many of these were fordistributing poisonous or contaminated products. Fines and jail sentences were usuallymeted out.
In its 26th annual report, the United States Securities andExchange Commission, empowered to supervise the issuance, sale and resale of securities,reports that "From 1934, when the Commission was established, until June 30,1960, 2,777 defendants have been indicted in the United States District Courts in645 cases developed by the Commission, and 1,385 convictions obtained in 585 cases.The record of convictions obtained and upheld is over 85 per cent for the 26-yearlife of the Commission." 42
"During the past fiscal year," says the 1960 report,"53 cases were referred to the Department of Justice for prosecution. This isthe highest number of referrals in the past 18 years and the second highest in theCommission's history and is in line with the continuing increase in the number ofreferrals during the past several years. As a result of these and prior referrals,43 indictments were returned against 289 defendants during the fiscal year."43
The Securities and Exchange Commission, of course, deals withthousands more cases each year in which it issues orders to discontinue illegal practices.
The National Labor Relations Board, which processed only a fewmore than 1,000 cases in 1936 and now processes more than 25,000 a year, enforcesfair labor practices as defined in the twice-amended National Labor Relations Actof 1935. Most of its rulings on appeal to the courts have been sustained.
Of 2,719 cases subjected to judicial review up to June 30, 1964,the orders of the NLRB were fully affirmed in 57 per cent of the cases and affirmedwith modifications in 20 per cent. In only 18 per cent of the cases was the Boardcompletely overruled. In appeals to the Supreme Court, the Board was affirmed in63 per cent of the cases and affirmed with modifications in 8 per cent. The SupremeCourt overruled the Board completely in 17 per cent of the cases. 44
This Board, a quasi-judicial tribunal similar to the FederalTrade Commission, the Securities and Exchange Commission and the Food and Drug Administration,issues injunctions and supervises violators and, according to the National LaborRelations Act, "Any person who shall willfully resist, prevent, impede, or interferewith any member of the Board or any of its agents or agencies in the performanceof duties pursuant to this act shall be punished by a fine of not more than $5,000or by imprisonment for not more than one year or both." Complaints under thiscriminal statute are brought by individuals and unions against employers and by employersagainst unions. 45
Business or white collar crimes are usually thought of as nonviolent,thus placing the culprits in public opinion at least a peg above such unorthodoxbusinessmen as Frank Nitti, Tony Accardo and Frank Costello. But this differentiationis clearly false, as is shown in many cases of record before the National Labor RelationsBoard. A recent pattern, as brought to light by the McClellan Committee, is for CompanyX to hire "labor relations adviser" A who in turn enrolls certified thugsT1, T2, and T3, to beat up, bribe, drive away or destroy labor organizer L.
Up to 1945, according to Sutherland, labor relations decisionshad been made against 43 of the 70 large corporations, or 60 per cent, with 149 decisionsin all. All 43 were "repeaters": 39 used interference, restraint and coercion;33 discriminated against union members; 34 organized company unions; 13 used laborspies; and 5 used violence. Such violence was largely confined to the steel and automobileindustries.
The late Henry Ford was quoted as saying in 1937: "We'llnever recognize the United Automobile Workers Union or any other union." TheFord Motor Company had long maintained a service department under Harry Bennett,a former pugilist, staffed with 600 men equipped with guns and blackjacks. With referenceto this service department Frank Murphy, then governor of Michigan, said: "HenryFord employs some of the worst gangsters in our city.
According to undisputed testimony before the NLRB, in 1937 theUnited Automobile Workers Union started to organize employees at Ford's River Rougeplant. It was announced that Organizers would distribute literature outside the plantat a specified time, and reporters and photographers were present in force. Saida guard to a reporter: "We are going to throw them to hell out of here."Upon arrival the organizers went up an overhead ramp to one of the entrances, wherethey were told they were trespassing. Witnesses said they turned and started away.As they left they were assaulted by service department guards--beaten, knocked downand kicked. Witnesses testified that it was a "terrific beating" and "unbelievablybrutal." Among those severely beaten were Walter Reuther and Richard Frankensteen,officials of the United Automobile Workers Union.
The guards followed out into the street. One man's skull wasfractured, another's back broken. Cameras of photographers were seized by guardsand the films destroyed. Two reporters were chased by automobile at eighty milesan hour through Detroit streets until they reached the sanctuary of a police station.Later when women organizers attempted to distribute literature outside the plantthey were attacked by guards, knocked down and beaten. City policemen who were presentduring these events stood by and did not interfere--testimony to the local powerof Henry Ford. 46
From fiscal years 1959 through 1965, inclusive, the AntitrustDivision of the Department of Justice won 147 formally designated criminal casesagainst companies and lost 24. It won 206 civil cases and lost 9. 47
Other disciplinary bodies to which one should turn for a morecomplete picture of such business violations as are judicially decided are the FederalCommunications Commission, the Civil Aeronautics Authority, Federal Aviation Agency,Federal Power Commission and the Interstate Commerce Commission.
There is no federal agency that compiles, correlates and makespublic the statistics on corporate crimes as the FBI does with diverse police-reportedcrimes in the Federal Uniform Crime Reports. If there were, there would beshown a much larger volume of corporate crime than reported here. It is well recognizedby experts that the enforcement of laws against corporate crimes is at best of asporadic token character carried on by understaffed and underfinanced agencies.
The Federal Uniform Crime Reports serve a purpose beyondmerely informing the public of the incidence of crime, which they do only very lopsidedlyand exaggeratedly for these particular crimes. The Reports have the intent,as evidenced in many public expressions by J. Edgar Hoover, the redoubtable G-man,of encouraging greater public support for more repressive police measures and stifferpenalties (against errant members of the lower socio-economic classes, who generallycommit these direct-action crimes). Some future reader may assess the sagacity ofthis writer when he says that after this disparity in reporting lower-class and upper-classcrimes has been sharply pointed out there will be no change: No federal agency willmake a comprehensive annual statistical report on corporate crimes as such, althoughWashington is literally crawling with expert statisticians who could whip the figurestogether in a trice. Nor will the penalties for corporate crimes likely be increasedto the point where they realistically deter. The offenders will continue to be treatedas though they were somewhat crotchety but beloved maiden aunts who have been inexplicablynaughty.
The Great Electrical Industry Conspiracy
While the bulk of the cases cited have involved the uncamouflagedcriminal jurisdiction, with the judges properly accoutered with everything exceptthe black cap, there have been many recent thumping reminders that carefully plannedcrime is an inseparable companion of big business. Three cases involved whole basicindustries: the electrical, aluminum and steel industries. None of the protagonistswas sponsored by the Mafia. They clearly prove that "the bad old days,"thought to be conquered by the New Deal, are still with us.
The Great Electrical Industry Case came to a climax in 1961.It involved forty-five individual blue-ribbon defendants and twenty-nine corporations,including ultra-ultra General Electric Company and Westinghouse Electric Corporation,which together lovingly shared more than 75 per cent of the market. As Fortuneremarked, it was the "biggest criminal case in the history of the Sherman Act."
United States District Judge J. Cullen Ganey heard the casein Philadelphia. The prosecution was by the attorney general of the United States,in full panoply. It was crime, crime, crime all the way, front and back, up and down,back and forth. This needs to be emphasized because Fred F. Loock, president of Allen-BradleyCompany, one of the defendants, said: "It is the only way a business can berun. It is free enterprise."
The charge was specifically the dark one of conspiracy--in thiscase to fix prices, rig bids and divide markets in a series of secret cartels onelectrical equipment valued at 81.75 billion annually. The leading defendants pleadedguilty to the most serious counts, no contest to the rest. The conspiracies extendedover many years, going back prior to World War II and in the opinion of some observersto 1896. Surprisingly, this conspiracy was carried on with all the guilt-consciouscloak-and-dagger techniques known to spies: secret codes, mysterious meetings inhotel rooms, queer notes, guarded telephone calls, concealed records, fictitiousnames, burned memoranda and the like. No patron of TV or the films, watching theactors, could have failed to recognize that an authentic, vintage conspiracy wasafoot. Only sinister music was lacking.
Although operating departmental executives stood in the dockand the top managements of GE and Westinghouse virtuously disclaimed knowledge ofthe whole affair, Judge Ganey felicitously remarked before sentencing: "Onewould be most naive indeed to believe that these violations of the law, so long persistedin, affecting so large a segment of the industry and finally involving so many millionsupon millions of dollars, were facts unknown to those responsible for the corporationand its conduct. . . . I am not naive enough to believe General Electric didn't knowabout it and it didn't meet their hearty approbation." But although the governmenthad gathered monumental evidence it had not been able to connect the very top executivesdirectly to the conspiracy in ways required by law.
Judge Ganey imposed total fines of $1,924,500. General Electricwas fined $437,500 and Westinghouse $372,500. Damages of $7,470,000 were also assessed.Upon twenty-four individuals in the case jail sentences were imposed--and suspendedowing to their advanced ages. William S. Ginn, vice president of General Electric,was given thirty days in jail and fined $12,500. Six other company officers drewfines of $1,000 to $4,000 and thirty days in jail. And it was the unusualness ofsentencing these high-salaried company men to thirty days in jail, the usual police-courtsentence for disorderly conduct, that attracted special attention. Corporation executivesare rarely sent to jail even for brief sojourns. Indeed, they are far more immuneto jail terms than high Russian Communist Party officials.
The Great Electrical Industry Conspiracy emerged in a curiousway. The Tennessee Valley Authority one day in the 1950's received identical sealedbids from various suppliers of heavy electrical equipment. The fact came to the attentionof Senator Estes Kefauver, who threatened to start his own investigation if the EisenhowerAdministration did not act. The Department of justice was alerted and began lookinginto the case, but at first found it difficult to pick up the threads of wrong-doing.It decided to subpoena various records of the companies and finally obtained an accountof conspiracy from the official of a small company. His story implicated GeneralElectric.
Queries to General Electric provoked an internal inquiry bytop management, which was truthfully informed by some of the operating vice presidentsof what went on. Top management professed to be shocked, put pressures on the menand eventually forced all to resign or fired them. This strong line by GE sent angryinsiders and their lawyers scurrying to the government with their stories, and thenet of evidence wove itself more tightly. In the other companies men were not removed.
General Electric had for many years had a policy formally callingfor strict compliance with the antitrust laws. This policy was implemented by writtenorders conspicuously sent from time to time to operating executives. Nevertheless,General Electric was an old offender, in the 1940's alone being snared in thirteenantitrust cases.
The convicted executives maintained that they had simply inheritedprocedures carried on by predecessors and were acting under direct orders from higherups. One of the men knew that he held his job "under risk" for two yearsunless he increased profits. There was evidence of men who had held some of the samepositions earlier, who had refused to, enter into collusive arrangements with competitorsand who had lost their jobs. Top officials denied everything. Judge Ganey clearlydid not believe them.
Policy for General Electric was set by Chairman Ralph Cordiner,who, president since 1950, became chairman in 1958; his predecessor, Charles E. Wilson,had left to become chief of national defense mobilization. While Cordiner has beencriticized for rudely dumping his men for doing what everybody did in this and inother industries (illegal price-fixing is standard business practice) his theoreticalposition was much sounder than that of others. Cordiner was an avowed devotee ofcompetition, and public policy avowedly requires competition. There is, however,little competition in the American economy. But if this fact were to be formallyadmitted or authoritatively asserted the way would be paved for sweeping changescostly to big proprietors.
General Electric in sacrificing its men as it did acted in thestyle of governments who, having found some diplomat or espionage agent embarrassing,simply disavow him. (Most of these men, happily, were later hired by other companies,some at advanced levels.)
Origins of Anti-Monopoly Doctrine
The anti-monopoly doctrine was originally developed by individualbusiness people in Europe who struggled against Crown monopolies in late medievaltimes. The earliest reported case in England was Darcy v. Allen in 1602 (11Coke 84). In 1623 Parliament passed the Statute of Monopolies, abolishing nearlyall existing monopolies as unlawful (St. 21 James 1, c. III). Englishmen from earlytimes were always opposed to voluntary self-restraints of tradesmen by contract,and English courts refused to uphold such agreements (William Howard Taft, J., AddystonPipe case, 85 Fed. 271). The "business revolutions" of 1688 in Englandand 1789 in France were in part directed against such monopolies. Trade was to befree and open; and the public, in return for granting the trading privilege, wouldbenefit from the resultant low prices wrought by competition. This, too, was theAmerican idea.
In time, particularly in the United States, small businessesgrew into large quasi-sovereign businesses and the large businesses found they hadbecome (usually through illegal behavior) large monopolies such as the Aluminum Company,the Standard Oil Trust and many others. Broken up by government action or evolvingin separate units, the various industries found in time that two to five or six companiesdid 75 to 90 per cent of the business and many small companies--tokens of competition--theremainder. This pattern is what economists call oligopoly or rule by a few. Pricesare usually set by one company, the "price leader," and others follow theleader. When the few tacitly agree so to "follow the leader," as they usuallydo, there is in effect a general subtly maintained monopoly.
But if monopolies are indeed tolerated in the American system,if enterprises are not competing so that buyers get the lowest possible prices, whatis the constitutional warrant? How does the situation constitute equal protectionunder the law? There is, in fact, no constitutional warrant. Monopoly is fundamentallyillegal, with or without the Sherman Act, which refers to it as a "high misdemeanor."Why should a select few have the public market as a private plaything?
But, having broken up the electrical and various other clearlyproved monopolies, can we not say that the government is keeping the market opento free competition? While many would so argue, concentration and monopoly grow steadily.In view of the steady denunciations, official and unofficial, and of specific lawsagainst monopoly, how can this be?
Issues and Solutions
The mystery, if such it ever was, is neatly dispelled by judgeThurman Arnold in his The Folklore of Capitalism. Arnold was from 1938 to1943 in charge of the antitrust division of the Department of Justice, and knew whereofhe spoke. The operative function of the Sherman Act, Arnold holds, is to make possiblefrom time to time ceremonial observances of the American belief in competition. Theseceremonial observances take the form of criminal prosecutions, so that a concernedfraction of the public may believe the competitive situation is being defended. Meanwhileconcentration and monopoly advance in rapid strides from decade to decade as in Europe.Those convicted do not alter their behavior.
And now we come to the basic issue, which the General Electricupper moguls perhaps had in mind in talking and acting as virtuously as they didfor the record. If these industries are indeed monopolies that continually strengthentheir position and do not give the public the advantages of competition, then theyshould be subject to regulation at least as strict as that accorded the public utilitiesin their "natural" monopolies. But it is just this sort of cartel regulationthat the corporations fear. They would particularly abhor effective regulation evenwith stabilized prices. For at what level would the prices be set? At the other extremefrom regulation there would be outright government ownership, with profits beyondthe recovery of costs going, a la Russe, into the general government operatingfund.
No accepted politician in the United States takes either ofthese positions. All profess themselves in favor of the present situation, whichimplies only that they fundamentally line up with the big proprietors who find thepresent situation precisely to their taste: monopoly with ceremonial overtones ofpseudo-competition.
A third course might be to break some of the big companies intotheir constituent parts. General Electric under Cordiner, for example, was foundto be organized into twenty-seven autonomous divisions consisting of 110 small companies.Each of these latter was run as if it were a single enterprise, with the boss ofeach making up his own budget. But there was constant pressure from the top executivesuite on the boss of each unit for greater profitability.
This particular course of action, too, would be distastefulto the big companies, most of which are cannibalistic agglomerations, although theirphysical productivity would not be adversely affected by it. Indeed, it might beenhanced. One consequence of such action would be to produce more top executive jobs,which should be of interest to ambitious middle-class people.
The behavior of corporate man shows that he entertains certainunconscious beliefs, which he never expresses: that it is "his" market,filled with vassals in the form of "his" customers and "his"employees, and that government officials are "his" officials. While inlegal theory the corporation exists to serve society, in the unconscious and correctbelief of corporate man, society and government operationally now exist to servethe corporationthe be-all and end-all of everything.
In the electrical industry both the men and the companies camein for somewhat rougher treatment than is usually the case. As heavy equipment wasinvolved, the companies were deluged by lawsuits from public utility companies, municipalitiesand government agencies. In 1965 a judgment was turned in against GE, Westinghouseand some others for $16,863,203 on behalf of a group of midwestern power and lightcompanies. In all, 1,912 civil antitrust suits were filed against the companies,costing GE a reported $225 million, Westinghouse about $110 million and Allis-Chalmers$45 million. Most were settled out of court for undisclosed sums but, all in all,the moneys involved were considerable even if they came short of erasing illegalprofits.
The Prevalence of Price-Fixing
Has price-fixing been terminated by the electrical industrycase? The reader can supply the answer for himself by checking competing productsin his various stores. Somehow they are all priced about the same--soap, sugar, milk,salt, cereals, automobiles, appliances, cigarettes, etc. By regions the same gradesof gasoline have the same prices under various brand names, except for an occasional"price war." But a "price war," which is ordinary competitionfor business, is rare, as everyone knows. Established business considers price warspathological and will do anything to avoid them. For while business believes in freeenterprise--freedom to do whatever it desires--it abhors free competition, whateverit may say to the contrary. The government for its part, while condemning price-fixing,itself supports agricultural prices.
T. K. Quinn, a former vice president of General Electric, hasrecorded his belief that a third of the American economy--automobiles, steel, cigarettes,cement, oil products, chemicals, roofing material and machinery--is price-stabilizedthrough agreements of the leading companies. But corporation men, precisely likemembers of the underworld, have their own peculiar definitions for every situation.Thus, Roger Blough, president of United States Steel, has said "a price thatmatches another price is a competitive price," with which doctrine few nonbusinesspeople would agree. If every baseball game ended in a tie most fans would begin tosuspect that the outcome was "fixed."
Westinghouse stockholders, when called upon to pass on the conductof their management, voted overwhelmingly to endorse it. General Electric stockholderssimply shouted down any attempt to question the management and approved it by 98per cent.
Yet this elaborate charade about monopoly, in which many people(including the judge in the case) seriously believe, is played at a price: The bigcompanies, backbone of the American economic system, are formally stigmatized ascriminals.
In this respect General Electric (along with many other companies)is what Professor Sutherland calls a "repeater." Attorney General RobertKennedy in what was perhaps a grandstand flourish after the trial suggested thatan injunction he brought against General Electric, which had twenty-nine adjudicatedconvictions on its record, to keep it from repeating its conduct under the threatof more severe penalties; this was much as though a lawbreaking ex-convict shouldbe enjoined from breaking the law. To implement this directive the Justice Departmentin December, 1961, sought a court order to make General Electric subject to unlimitedfines if it ever again violated any requirement of the antitrust laws. In supportof its action the Justice Department cited 39 antitrust actions against GE, 36 filedsince 1941, including here the 29 convictions as well as seven consent decrees andthree "adverse findings" by the Federal Trade Commission. Such a record,the Justice Department said, revealed "General Electric's proclivity for persistentand frequent involvement in antitrust violations" in all branches of production.The record of Westinghouse was hardly less immodest. 48
"Has the industry learned any lessons?" asked Fortune."'One thing I've learned out of all this,' said one executive, 'is to talk toonly one other person, not to go to meetings where there are lots of other people.'Many of the defendants . . . looked on themselves as the fall guys of U.S. business.They protested that they should no more be held up to blame than many another businessman, for conspiracy is just as much 'a way of life' in other fields as it was inelectrical equipment. 'Why pick on us?' was the attitude. 'Look at some of thoseother fellows.'"
In so saying these men showed they did not understand the ceremonialuses of sacrifice. The high Indian civilizations of South and Central America hadthe custom each year of sacrificing to the gods, by burning or other violence, themost beautiful maidens of the city. By destroying what was manifestly so desirable,the men of the nation showed piety. By stigmatizing with criminal convictions thesehigh-salaried executives, paragons of the mass media, the United States similarlytestified to its pious belief in competition even as competition approaches the vanishingpoint.
As an immediate aftermath to the case, President Robert Paxtonof General Electric at the age of fifty-nine, with six years still to go before hiscompulsory retirement, resigned "because of ill health." 49
Of a pending series of seven criminal indictments of the steelindustry, in the summer of 1965 the companies were first found guilty in two highlysignificant decisions.
In the first case eight companies were found guilty in federalcourt of conspiracy to fix prices on carbon sheet steel, which makes up an annualmarket of $3.6 billion--far larger than the electrical industry haul--and entersinto a wide range of consumer products from automobile bodies and kitchen cabinetsto refrigerators, washing machines and office furniture. The companies were fined$50,000 each, the maximum under the applicable section of the law; and sentencingof two principal officers was deferred.
The guilty companies composed most of the steel industry--theUnited States Steel Corporation, the Bethlehem Steel Company, the National SteelCorporation, the Great Lakes Steel Corporation, the Jones and Laughlin Steel Corporation,the Armco Steel Corporation, the Republic Steel Corporation and the Wheeling SteelCorporation. Named as co-conspirators in the indictment but not as defendants werethe Youngstown Sheet and Tube Company, the Granite City Steel Company and the PittsburghSteel Company. The companies had felt emboldened to commit the sinister offensescomplained of between 1955 and 1961, when a Republican Administration had brieflyreturned to power.
A curious comment at the time the indictments were handed upwas made by Edmund F. Martin, vice chairman of Bethlehem Steel: "Even assumingthat the matters charged were true, the Department of Justice is seeking not to correctany illegal or improper present-day situation, but only to harass the industry forpractices which, even under the allegations of the indictment, have been abandoned."This is much as though a man charged with a three-year-old burglary were to claimthat authorities were not dealing with current crime but were harassing him, sincehe had been "going straight" ever since. 50
A few days later another federal judge fined four leading makersof steel forgings and a steel trade association a total of $150,000 after findingthem criminally guilty of price fixing and bid rigging in the sale of open die steelforgings to the Army and Navy as well as to private companies from 1948 to 1961,an interval that embraced the Korean War. Bethlehem Steel, second in the industry,was fined $40,000; United States Steel, $35,000; the Midvale-Heppenstall Companyof Philadelphia, $35,000; the Erie Forge and Steel Corporation, $25,000; and theOpen Die Forging Institute, Inc., $15,000. The defendants did an estimated $100-millionbusiness a year in this line.
While ship shafts for the Navy and cannon for the Army wereinvolved in the forgings, an interesting sidelight was that the defendants were foundto have illegally set identical prices for rotors and generator shafts sold to GeneralElectric, Westinghouse and Allis-Chalmers, the top defendants in The Great ElectricalIndustry Conspiracy. The difference in the size of fines in the steel and electricalcases stemmed from the number of indictments on each charge. The Sherman Act as amendedpermits a maximum fine of $50,000 on each charge. In the electrical case there weretwenty charges in all, although every company did not fall under each charge.
Asked by the Times whether they intended to start civilsuits for treble damages against the steel companies, General Electric said nothinghad been decided and Allis-Chalmers said it had no comment; but Westinghouse valiantlyreported: "So far as we know, we have received full value for our purchase ofsteel which we believe to have been made at competitive prices."
In this case five executives of the companies were fined anaggregate of $44,000 on October 25, 1962, on the same criminal indictment, whichthey did not contest. 51
The fines in these cases, in relation to the amount of illegalbusiness done, were obviously of the order of a $5 slap on the wrist for grand larceny.
The number of big recent cases-in oil, asphalt, milk, steel,electrical goods and the like--is too great to detail here. No fewer than ninety-twoantitrust suits, a record, were begun in 1960 under the Republicans, although enforcementactually eased off sharply under President Kennedy and came to a virtual halt underPresident Johnson. 52 The Johnson Administration has practically givenBig Business the green light on mergers and regulation in general, in return forwhich the presidential Business Advisory Council, composed of about 100 chairmenand presidents of the biggest corporations, appears to have given its full endorsementof Mr. Johnson's personally engineered disastrous Vietnam war. 53
In these upper reaches of power everything is strictly on aquid pro quo basis.
The New Higher Politics
Let us look at all this lawbreaking from another point of view.Perhaps the statutes are somehow misbegotten, as many corporation heads freely assert,even though they are simple expressions of the common law upon which the entire Anglo-Americanlegal system rests. But possibly this legal system, too, is misbegotten and shouldbe scrapped or radically overhauled.
In his devotional biography of John D. Rockefeller I, ProfessorAllan Nevins, the Columbia historian, suggests that the common view of Rockefelleras the epitome of ruthless Pecuniary Man, freely breaking the law in quest of profitsin any and every accessible field, is entirely mistaken. Professor Nevins in hissummation (which may be taken as applying just as well to any industrial tycoon)indirectly suggests that Rockefeller is representative in his way of Political Man--thatis, a person planning and providing for the entire community even if in ways notreadily understood by lesser mortals. This is evident, for example, when ProfessorNevins says: "Behind this organizing genius, which has analogies with Richelieu'sor Bismarck's, lay a combination of traits not less interesting because of theirsimplicity, conspicuity, and harmony." And Rockefeller's single-mindedness,says Professor Nevins, "reminds us of Cecil Rhodes." 54 In brief,Rockefeller reminds Nevins of commanding political leaders.
Had Professor Nevins chosen for comparison political personalitiesfrom nearer home, readers might more readily have detected the untenability of offeringRockefeller as an example of Political Man, acting according to some conception ofthe general welfare of society rather than milking society for personal gain throughthe most effective monopoly of all time. Rockefeller in his heyday in fact stoodadverse to the common interest and this was formally found to be so by United Statescourts.
Professor Nevins has generalized beyond Rockefeller: "Thearchitects of our material progress [if such they ever were--F.L.]--the men likeWhitney, McCormick, Westinghouse, Rockefeller, Carnegie, Hill and Ford--will yetstand forth in their true stature as builders [if indeed they ever were--F.L.] ofa strength which civilization found indispensable."
In this connection Professor Nevins went on to contend grotesquelythat these and other men like them "saved the world" in World War I andlater helped the world meet "a succession of world crises." He thereuponcalled for a revision of history, at which historians so far look with deep reserve,to give these unjustly evaluated men their proper due as builders and saviors ofcivilization. 55
As to the role in 1914-18 of the industrial tycoons, Americanand foreign, far from saving the world, they were the chief operative factors inproducing World War I, as a wealth of research conclusively shows. Again, it wasthe American business leaders who pushed the United States into that war from farout in left field on fantastic grounds of insuring freedom of the seas, terminatingmilitarism and saving the world for democracy. 56 Nearly every major difficultyof the contemporary world can be traced directly to the governments of the majorpowers, the United States included, in 1914-18, and the leading property holderswho stood solidly behind them. They produced, among other things, totalitarian communismas an outgrowth of the situation.
But even though Professor Nevins and others who argue like himare not plausible, there does exist this view that Corporate Man is a disguised PoliticalMan. And if this were so, then the lawbreaking in question might not only be condonedbut might even be praised. For if these men are merely trying to get rid of a seriesof progress-stifling, retrograde laws by wholesale violation and evasion in orderto establish industrial feudalism, they may be looked upon as forward-planning politicalsaboteurs, even revolutionaries, who should be compared with and differentiated fromLenin, Trotsky, Gandhi and Mao Tse-tung. It is true that no such general intentionhas been openly avowed; but perhaps the intent is secret. Perhaps there exists aclandestine political conspiracy to undermine the present form of government andproduce the Good Society according to the conception of the U.S. Chamber of Commerce--thatis, industrial feudalism. As for Richelieu, Bismarck and Rhodes, none of them wasat odds with the system in which he found himself. None was ever found guilty ofserious crimes in his nation's courts.
But although the corporation leaders do not seem to be consciouslypolitical beyond seeking at all times to install opportunistic puppets and cat's-pawsin office, it is a fact, as Professor Sutherland notes, that:
During the last century this economic and political system has changed. The changes have resulted principally from the efforts of businessmen. If the word "subversive" refers to efforts to make fundamental changes in a social system, the business leaders are the most subversive influence in the United States. These business leaders have acted as individuals or in small groups, seeking preferential advantages for themselves. The primary loyalty of the businessman has been to profits, and he has willingly sacrificed the general and abstract principles of free competition and free enterprise in circumstances which promised a pecuniary advantage. Moreover, he has been in a position of power and has been able to secure these preferential advantages. . . .
The restriction of free enterprise has also come principally from business men who have constantly sought to increase government regulation in their own interest, as in the case of tariffs, subsidies and prohibition of price-cutting on trademarked items.
In fact, the interests of businessmen have changed, to a considerable extent, from efficiency in production to efficiency in public manipulation, including manipulation of the government for the attainment of preferential advantages. . . . But the most significant result of the violations of the antitrust laws by large business concerns is that they have made our system of free competition and free enterprise unworkable. We no longer have competition as a regulator of economic processes; we have not substituted efficient government regulation. We cannot go back to competition. We must go forward to some new system--perhaps communism, perhaps co-operativism, perhaps much more complete governmental regulation than we now have. I don't know what lies ahead of us and am not particularly concerned, but I do know that what was a fairly efficient system has been destroyed by the illegal behavior of Big Business. 57
One can, then, take these various behaviors of the corporations,owned 80 per cent by 1.6 per cent of the populace, in one of two ways. If the corporatemen and their principals are struggling to undermine the political system of 1789,the one established by the Founding Fathers, in order to achieve a new one nearertheir heart's desire, they may be looked upon as political engineers and (at leastfrom the point of view of the big property interests) as admirable men such as ProfessorNevins finds Rockefeller to have been. But, on the other hand, if the system of 1789is the good one, and to be defended (as in my own prejudice I suppose it generallyto be), then the corporate men stand before history as convicted habitual criminals,true subversives and enemies of established society.
In any event, returning to our initial inquiry, in looking forcriminals in the business system one need not look for denizens from the underworldwho have wormed their way in. There is, furthermore, no concrete evidence that underworldfigures have done so, although anyone may buy stock in the open market. The big criminalsconsist of the ordinary corporations and their officers--agents and instrumentalitiesof the rich--and this is a fact repeatedly certified by the federal courts and thequasi-judicial tribunals of the United States of America.
We must confess, then, to failure in the attempt to find membersor agents of any Mafia, Cosa Nostra or underworld syndicate of any kind high in thebusiness world, although the established entrepreneurs, securely installed, givea lusty account of themselves in the matter of lawbreaking. Comparatively they makeMafias and Crime Syndicates look like pushcart operations.