From One Roosevelt to Another: How We Repressed Corporate Power and Built a Middle Class
This is the second in an occasional series on the new threat of monopoly power to the American economy and political system. Read Part 1 on efforts to curb monopoly power in the 19th century.
In 1912, former President Theodore Roosevelt and New Jersey Governor Woodrow Wilson took the country by storm to debate how to fight corporate power. This colorful election also featured President William Howard Taft and socialist labor leader Eugene V. Debs, but its key impact was to provide Americans a clear choice on how to manage monopoly power. Their decision enabled the New Dealers, two decades later, to finally succeed in freeing the economy from corporate domination.
Despite being the first trustbuster, by 1912 Roosevelt had abandoned antitrust. The platform of the new nationalism he developed saw monopolies as both efficient and inevitable. Instead of attempting to break up monopolies, Roosevelt believed that big business should come under the tutelage of a powerful central government that could regulate them to meet the needs of society; from the perspective of intellectual leaders such as Robert Reich would marry decades later.
Wilson articulated a vision that put power in the hands of small businesses and workers, the producers of society. His views were strongly shaped by lawyer Louis Brandeis, who had fought against monopolies and became “the people’s advocate”. Together they would attack what Brandeis called the curse of greatness.
This attack won Wilson’s election and resulted in a wave of reform. The Federal Reserve System was created to stabilize the financial sector and divert power from Wall Street. The Federal Trade Commission was created and given a broad mandate to control anti-competitive behavior and protect consumers. The Clayton Act strengthened antitrust laws and prohibited various types of anti-competitive behavior. This included price discrimination, charging different prices for identical goods or services such as walmart extract discount from suppliers. The law also prohibits exclusivity, which requires companies to use a dominant firm. Google’s contracts preventing smartphone makers and wireless service providers installing competing search engines is a modern example.
It must be said: Wilson, the first Southern president since before the Civil War, was also a hardcore racistand his achievements in economic policy are now rightly overshadowed by his decision to allow the segregation of the federal workforce and to nod approvingly to racial terrorism by hosting a private screening at the White House of “Birth of a Nation”, a film that promotes the Ku Klux Klan.
Before Wilson’s “new freedom” could be fully realized, World War I began and internal affairs took a back seat.
It took the Great Depression to reignite a spirit of economic populism, but the turmoil set the country on a path to victory over corporate power. President Franklin Delano Roosevelt’s New Deal is often remembered as a vast expansion of the welfare state, but it reduces the power of financiers and monopolists, but not before an ideological tussle ensued that resembled the 1912 debates between central planners and populists.
Initially, central planners won out, creating the National Industrial Recovery Act, which granted companies exemption from antitrust laws if they adhered to a series of industry codes regulating wages and prices. The NIRA, who contributed to an inflation-fueled recession, was eventually overturned by the Supreme Court, opening the door to FDR’s populists. None was more important than a Wyoming lawyer named Thurman Arnold.
Despite having write a book critical of antitrust, Arnold was appointed assistant attorney general of the antitrust division in 1938, but soon adopted a new posture, helped in part by the monopoly-fueled rise of fascism. Arnold grew his division from 15 lawyers to nearly 600 in 1942 and brought more antitrust cases than those filed in the previous 50 years. The concerted attack on big business helped keep inflation in check – prices in industries targeted by Arnold dropped from 18 to 33% – and lifted the country out of recession while reducing income inequality.
The New Deal also reduced the impact of Wall Street, with new agencies like the Securities and Exchange Commission protecting small investors, and laws like Glass-Steagall creating a boring banking era and financial stability that has freed communities from the grip of financiers.
A particular goal of New Deal-era anti-monopoly reforms was to protect independent retailers and other small businesses. The 1930s generated a mass movement against chain stores — like the Atlantic & Pacific Tea Company — who used their power to bully suppliers and undermine competitors, much like Walmart and Amazon today.
In Minnesota, the anti-chain movement has been led by organizations like Break The Chains and the Association of Independents, which have found a champion in Floyd B. Olson. After losing in 1924, Minnesota’s first Farmer-Labour governor rode the wave of anti-chain sentiment to victory in 1930, stressing the need to limit the power of chain stores and protect community loans by prohibiting bank branches. Minnesota Passed a Chain Store Tax in 1933 and Adopted Fair Trade legislation of 1938that protected small businesses from predatory pricing.
Much like Iowa’s antitrust law in the 1880s, anti-chain activity in the states created momentum for the adoption of the Robinson-Patman Act in 1936, reinforcing the Clayton Act prohibitions on price discrimination; and the Miller–Tydings law in 1937 that gave states the power to pass fair trade laws.
Independent pharmacist and Minnesota Senator Hubert Humphrey was a champion these protections for small businesses, fighting for a national fair trade law, as well as a strong small business administration. Reflecting on the times in 1970, Humphrey wrote that the New Deal had “broken the power of big business and brought the reins of government back from Wall Street to Washington, DC.”
In 1976, however, even as Humphrey was calling for a new era of trustbusting, the wind began to turn. Anti-monopoly had faded, a victim of its own success, and an intellectual revolution was underway that would destroy the protections against corporate tyranny.