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.
After World War II and the Korean War, in the midst of an economic boom of unprecedented proportions, the American public for a while accepted economic concentration as necessary and inevitable. Apart from a few sensational pricefixing cases, the Justice Department enforced the antitrust laws halfheartedly. The FTC occupied itself with policing imported goods to ensure that their foreign origins were properly labeled.
The pendulum's third swing toward antitrust was spurred on by a series of Supreme Court decisions beginning in 1962. In the first of these cases, the conrt declared illegal a proposed merger between two shoe retailers -- notwithstanding that their combined sales represented only 5% of the national market -- because the merger would create a chain powerful enough to threaten independent retailers. Chief Justice Earl Warren reasoned that the underlying purpose of antitrust laws was "to promote competition through the protection of viable, small, locally owned businesses "
This made sense to a nation that was once again becoming disenchanted with its giant corporate enterprises. America's discovery in the mid-1960s of mass poverty within its borders, followed by widespread concern about the role of its "military-indnstrial complex" in extending the cold war into Vietnam, and Ralph Nader's exposes of corporate irresponsibility at General Motors Corp. all served to rekindle suspicions that the public interest was not synonymous with the interests of America's largest corporations.
The third era of antitrust also expressed itself in a string of bills introduced in Congress to break np America's 200 largest companies. The bills were defeated by narrow margins. Meanwhile, new regulatory agencies sprang up to protect the public from corporate venality And a reinvigorated Justice Department and FTC both launched investigations of industries dominated by a few very large producers -- such as oil, steel, and autos.
But the pendulum swung the other way again in the mis-1970s, as the American economy slid into low gear. The Arab oil boycott and the recessions of 1975 and 1979 once again raised the vision of a national economic mobilization. Apart from the public's lingering distrust of the oil companies, a consensus seemed to be emerging that recovery could come about only through massive investments by large corporations in new plant and equipment, coupled with the cooperation of big labor in holding down wage demands and of the government in reducing taxes and regulations.
On cue, Presidents Carter and Reagan both came to the aid of corporate Arnerica in distress. Chrysler Corp. received massive government loan guarantees. Big Steel got a "trigger price" system of import controls on foreign steel. The auto manufacturers got a "voluntary" restriction on the importation of Japanese autos. Big Oil got deregulated prices and subsidies to develop synthetic fuels. Large manufacturers got accelerated depreciation on capital investments. (The 1,700 largest U.S. corporations have received more than 85% of the tax benefits from the Accelerated Cost Recovery System.) The government abandoned its antitrust cases against the oil companies, the cereal manufacturers, AT&T, and IBM. The Federal Trade Commission was defanged. And William F. Baxter, the new head of the Justice Department's Antitrust Division, stated that he would not enforce the antitrust laws against most "vertical restraints" -- agreements among manufacturers, wholesalers, and retailers to set prices or marketing terms
The present Administration's benign attitude toward mergers unleashed a fury of takeovers. Acquisitions involving more than $80 billion took placein 1981 So far, small business has failed to raise the hue and cry it raised in the past.
It is time to recognize once again that the "mobilization" approach to managing our economy serves us poorly in the long run. The public is worried about the use of corporate cash to buy up other corporations, to finance political campaigns, and to purchase "image advertising" rather than to invest in new productive capacity. Many people also are beginning to understand that technological breakthroughs critical to economic growth come from smaller businesses that must innovate in order to survive, rather than from large, comfortable corporate bureaucracies whose survival is guaranteed by their size and political connections.
Perhaps more important, the weakening of the dynamic small business sector threatens to hasten the corporate state that John Sherman, Woodrow Wilson, Thnrmond Arnold, and Earl Warren warned us about. For those who cherish the ideals of entrepreneurship and decentralized power, the present quiescence of small business on the subject of antitrust is cause for alarm