From one Roosevelt to another: How we cracked down on corporate power and built a middle class

The New Deal is remembered as a vast expansion of the social welfare state, but it also curtailed the power of financiers and monopolists

Thurman Arnold, assistant attorney general for antitrust under FDR, once wrote a book critical of antitrust policy, but he was converted by monopoly-fueled rise of fascism. (Photo courtesy of Library of Congress).

Thurman Arnold, assistant attorney general for antitrust under FDR, once wrote a book critical of antitrust policy, but he was converted by monopoly-fueled rise of fascism. (Photo courtesy of Library of Congress).

By Justin Stofferahn

(Editor’s Note: This is the second in an occasional series on the new threat of monopoly power on America’s 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 Gov. Woodrow Wilson barnstormed the country debating how to tackle corporate power.

This colorful election also featured President William Howard Taft and socialist labor leader Eugene V. Debs, but its key impact was providing Americans a clear choice on how to handle monopoly power. Their decision made it possible for the New Dealers two decades later to finally succeed in unshackling the economy from corporate dominance.

Despite being the original trustbuster, by 1912 Roosevelt had abandoned antitrust. The New Nationalism platform he developed viewed monopolies as both efficient and inevitable. Instead of attempting to break up monopolies, Roosevelt believed big corporations should fall under the purview of a powerful central government that could regulate them to meet society’s needs; a view intellectual leaders such as Robert Reich would espouse decades later.

Wilson articulated a vision that entrusted power in small businesses and workers, the producers in society. His views were heavily shaped by attorney Louis Brandeis, who had battled monopolists and become “The People’s Lawyer.” Together they would attack what Brandeis called the curse of bigness.

That attack won Wilson the election and resulted in a wave of reform. The Federal Reserve System was created to stabilize the financial sector and shift power away from Wall Street. The Federal Trade Commission was established and given a broad mission to police anticompetitive conduct and protect consumers.

The Clayton Act strengthened antitrust law and prohibited various kinds of anticompetitive conduct. This included price discrimination, which is charging different prices for identical goods or services such as the discounts Walmart’s extracts from suppliers. The law also prohibits exclusive dealing, which forces firms to utilize a dominant firm. Google’s contracts preventing smartphone manufacturers and wireless service providers from installing rival search engines is a modern day example.

It must be said: Wilson, the first southern president since before the Civil War, was also an inveterate racist, and his achievements in economic policy are today rightly clouded by his decision to allow the segregation of the federal workforce, and nod approvingly toward racial terrorism by hosting a private screening in the White House of “Birth of a Nation,” a film that valorizes the Ku Klux Klan.

Before Wilson’s “New Freedom” could be fully realized, World War I began, and domestic affairs took a backseat.

It took the Great Depression to rekindle 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 primarily as a vast expansion of the social welfare state, but it also curtailed the power of financiers and monopolists, although not before an ideological tug-of-war ensued that resembled the debates of 1912 between central planners and populists.

Initially, it was the central planners who won out, creating the National Industrial Recovery Act, which gave companies an exemption from antitrust laws if they adhered to a series of industry codes regulating wages and prices. The NIRA, which contributed to an inflation-fueled recession, was eventually struck down by the Supreme Court, opening the door for FDR’s populists. None were more important than an attorney from Wyoming named Thurman Arnold.

Despite having written a book criticizing antitrust, Arnold was named the assistant attorney general for the antitrust division in 1938, but quickly adopted a new posture aided in part by witnessing the monopoly-fueled rise of fascism. Arnold grew his division from 15 lawyers to nearly 600 by 1942 and brought more antitrust cases than had been filed in the previous 50 years. The concerted attack against big business helped tame inflation —prices in industries targeted by Arnold dropped 18-33% — and lifted the country out of recession while reducing income inequality.

The New Deal also shrank the impact of Wall Street, with new agencies like the Securities and Exchange Commission protecting small investors, and laws like Glass-Steagall creating an era of boring banking and financial stability that freed communities from the grip of financiers.

A particular focus of New Deal-era anti-monopoly reforms was protecting independent retailers and other small businesses. The 1930’s generated a mass movement against chain stores — such as the Atlantic & Pacific Tea Company — that used their power to bully suppliers and undercut competitors, just like Walmart and Amazon today.

In Minnesota the anti-chain movement was spearheaded by organizations like Break The Chains and the Association of Independents, which found a champion in Floyd B. Olson.

After losing in 1924, Minnesota’s first Farmer-Labor governor rode the wave of anti-chain sentiment to victory in 1930, emphasizing the need to curb the power of chain stores and protecting community lending by prohibiting branch banking. Minnesota adopted a chain store tax in 1933 and passed fair trade legislation in 1938, which protected small businesses from predatory pricing.

Much like Iowa’s antitrust law in the 1880s, the anti-chain activity in the states created momentum for passage of the Robinson-Patman Act in 1936, strengthening the Clayton Act’s prohibitions on price discrimination; and the Miller-Tydings Act in 1937 that granted states the authority to adopt fair trade laws.

Independent pharmacist and Minnesota Sen. Hubert Humphrey was a champion for these small business protections, fighting for a national fair trade law, as well as a strong Small Business Administration. Reflecting on the era in 1970, Humphrey wrote that the New Deal had “broken the power of big business and returned the reins of government from Wall Street to Washington, D.C.”

By 1976, however, even as Humphrey was calling for a new era of trustbusting, the tide was beginning to turn. Anti-monopoly had faded from focus, a victim of its own success, and an intellectual revolution was underway that would undo the protections guarding against corporate tyranny.

Justin Stofferahn lives in White Bear Township and is a public affairs professional who has worked on a variety of tax and economic development issues and is a member of the Minnesota Main Street Alliance leadership team. He wrote this piece for the Minnesota Reformer, a sibling site of the Pennsylvania Capital-Star, where it first appeared

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Capital-Star Guest Contributor
Capital-Star Guest Contributor

The Pennsylvania Capital-Star welcomes opinion pieces from writers who share our goal of widening the conversation on how politics and public policy affects the day-to-day lives of people across the commonwealth.