Financier Carl C. Icahn yesterday defended corporate raids such as his attempt to take over Phillips Petroleum Co. as necessary actions of a free market to oust poor managers -- and said that attempts to limit such shareholder controls on corporate decision-making could mean economic disaster.

"I believe that you have in this country a lot of incompetent management," Icahn told a congressional hearing. "Unless democracy is allowed to flourish in corporations today, we're going to have a repeat of the steel industry, a repeat of the railroad industry. . . . The country is going to go downhill."

But a Phillips official, at the same hearing, attacked Icahn's pursuit of his company as economically unhealthy. "The critical issue is whether we want to encourage the short-term speculator out for a quick buck over the long-term interests of our corporations," said Charles Kittrell, Phillips' executive vice president. "We oppose the kind of takeover activity now seen more and more because we believe it is an abuse of the free market. . . . In our view, this activity is not in the national interest."

And Kittrell defended Phillips against Icahn's insinuations of bad management. "I don't think our company has anything to be ashamed of when it comes to how much money we're making," he said. "If that's bad management, then a lot of companies need more of it."

The hearing, before the subcommittee on telecommunications, consumer protection and finance of the House Energy and Commerce Committee, brought together most of the main players in the battle for Phillips: Icahn; Kittrell; an investment banker; the head of one of Phillips' biggest institutional stockholders, and Mesa Petroleum Co. Chairman T. Boone Pickens Jr., whose abortive attempt to take over Phillips last December triggered Icahn's interest in the company.

Pickens, no stranger to the corporate wars, said challenges such as his to Phillips -- and previously to the managements of Gulf Corp., Cities Service Co. and other companies -- have awakened many managements to the frustrations of shareholders and forced them to take steps to increase stock values. "I see a new vitality here that causes management to get on its toes and do some things that should have been done a long time ago," said Pickens, who echoed Icahn's position by saying: "Mergers and acquisitions are a natural function of the free market. They serve as discipline for weak managers."

Phillips' own attempts to appease stockholders have so far met with criticism from Icahn and others. The company said yesterday it would announce on Monday the results of shareholder balloting on a controversial plan to refinance the company, which Phillips officials had hoped would buoy the company's stock price. Icahn and many Wall Street experts, however, have called the plan inadequate, and Wall Street sources believe that Phillips shareholders have voted down the proposal.

The hearing, the first of several to be held on Capitol Hill in coming weeks, resumed a process that began last year after the takeover of Gulf Corp. by Chevron Corp. but later petered out. The Phillips imbroglio has rekindled interest in the subject of regulating corporate raids, and one bill has already been introduced in the House calling for a moratorium on corporate takeover activity.

But most of the witnesses at yesterday's hearing argued that the system was fine as is, and that imposition of more regulation might only diminish shareholder rights and entrench managements. "The companies involved in mergers and acquisitions are not owned by managers, but by shareholders," Pickens said. "It is the shareholders' interests that should be paramount."

"For my own part, I question whether this is the time for a legislative solution," said New York City Comptroller Harrison J. Goldin, who was at the hearing as head of five New York municipal pension funds with $21 billion in assets and as a representative from the Council of Institutional Investors, a powerful coalition representing $100 billion in investments. Goldin suggested, however, that legislation might be needed to control "greenmail" -- the payment of a high price to a corporate raider in exchange for his stock and the company's freedom.

But another witness, Frederick H. Joseph, head of corporate finance at Drexel Burnham Lambert, the investment banker used by Icahn, said market forces were already forcing out such controversial defensive tactics as greenmail and the scorched earth defense, in which a company tries to prevent a takeover by selling its most valuable assets. "Both scorched earth strategies and greenmail have been so negatively received by shareholders recently that they appear to be virtually outmoded," Joseph said.