Let's Bring Back Antitrust

For the third time in a century, our government wants to abandon antitrust enforcement. It is time for small business to sound the alarm.

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The Reagan Administration's relaxation of antitrust enforcement has brought nary a whimper from the small business community. That is unfortunate. Much of U.S. economic history has been a struggle between small and large business for control over production, marketing, and distribution. Small business today needs to recognize this struggle because its long-term survival will depend on it.

Twice in this century a movement arose to keep entrepreneurship, risk taking, and diffused power from being engulfed by big business and big government. But each time, the movement was buried by national mobilizations brought on by the demands of war. And each time, our economy became more rigid and less adaptable.

A third trust-busting campaign grew up in the 1960s. But the same phenomenon that crushed it before -- the apparent need to mobilize the economy to achieve vast efficiencies of scale -- is working again today. Let's compare how this happened in the past to the current situation.

The small farmers and entrepreneurs who made up this country in the nineteenth century fiercely resisted any threat to their autonomy. This was evident, for example, in their uprising against the Bank of the United States during the Presidency of Andrew Jackson. In their view, concentrated private power represented a threat to democracy.

By the 1880s, however, Standard Oil Co., through a device called a "trust," or loose agreement to coordinate prices and output, managed to gain control of 90% of the nation's petroleum refining. Other industries soon followed. In response, small businesspeople and farmers set the antitrust pendulum swinging.

To Sen. John Sherman, author of the 1890 antitrust act that bears his name, what was most threatening about the trusts was the "inequality of condition, of wealth and [of] opportunity that has grown within a single generation out of the concentration of capital into vast combinations to control production and trade and to break down competition." Unless trusts were checked, he foresaw a "trust for every production and a master to fix the price for every necessity of life."

For Presidents Woodrow Wilson and Theodore Roosevelt, and the antitrust reformers of the early years of this century, freedom and democracy could be meaningful only when people were independent economically An open government, according to Wilson, depended on an open economy in which opportunities existed for "the beginner," "the man with only a little capital," "the mnn on the make." In the Presidential campaign of 1912, Wilson warned that "The masters of the government of the United States are the combined capitalists and manufacturers of the U.S. . . .the government of the United States at present is the foster child of the special interests."

But in 1917, the nation suddenly was faced with the monumental job of organizing physical and human resources for war prodnction. Large corporations, with their centralized and bureaucratic form organization, were ideally suited to the task "Volnntary" industry anthorities were endowed with regulatory powers coordinated and certified by the Chamber of Commerce of the United States. Not surprisingly, large government contracts went to big businesses that could quickly supply the Army's needs.

After the war, impressed with the experience in mobilization, the nation flirted with the notion that its bnsinesses could be organized into a vast system of interlocking industry associations to rationalize and systematize all facets of production. Herbert Hoover, Secretary of Commerce during most of the 1920s, promoted this "associationalist" ideal through numerous conferences and multifarious government bureaus. The Federal Trade Commission, created by Wilson in 1914 to function as a kind of permanent antitrust court, all but gave up its antitrust role, instead, it began conducting "trade practice conferences," in which industry leaders came together to develop common strategies.

The idea of a cooperative association of industry culminated in 1933 -- in the steadily worsening economic crisis -- with Franklin D. Roosevelt's National Recovery Administration. Under NRA auspices, industry associations took responsibility for developing "codes" governing prices and production. Needless to say, the largest producers dominated the associations, and the codes tended to reinforce their dominance.

The NRA didn't work. The Depression deepened. The public once again grew suspicious of big business. The small business community reasserted itself. Within three years, the industry codes were abandoned; Congress passed the Robinson-Patman Act, preventing large manufacturers from giving preferential price reductions to large wholesalers and retailers; and a muckraker named Thurmond Arnold was recruited to head the Antitrust Division of the Justice Department. Arnold's cases were not haphazard. He systematically probed entire industries -- radio broadcasting, pharmnceuticals, housing, petrolenm, motion pictures, and food -- in an attempt to reform their structures by removing bottlenecks and monopolies and by opening up more opportunities for small businesses.

But the second swing of the antitrust pendulum ended as quickly as the first and for the same reason America once again needed to mobilize for war. After Pearl Harbor, the U.S. government became the primary purchaser in the economy, and large businesses became the primary source of supply. Of the $175 billion in contract awards to more than 18,000 corporations from June 1940 to September 1944, two-thirds went to 100 large companies.

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