Every week, headlines reveal some scandal involving politicians, lobbyists, corporate cash, and allegations of bribes. CEOs get face time with senators, cabinet secretaries, and presidents. Lawmakers and bureaucrats take laps through the revolving door between government and corporate lobbying. Whatever goes on behind closed doors between the CEOs and the senators can’t be good or the doors would not be closed.
Just what is big business doing with all this influence? There are many assumptions about big business’s agenda in Washington. In 2003 one author asserted, “When corporations lobby governments, their usual goal is to avoid regulation.”
That statement reflects the conventional wisdom that government action protects ordinary people by restraining big business, which, in turn, wants to be left alone. Historian Arthur Schlesinger articulated a similar point: “Liberalism in America [the progression of the welfare state and government intervention in the economy] has been ordinarily the movement on the part of the other sections of society to restrain the power of the business community.” The facts point in an entirely different direction:
- Enron was a tireless advocate of strict global energy regulations supported by environmentalists. Enron also used its influence in Washington to keep laissez‐faire bureaucrats off the federal commissions that regulate the energy industry.
- Philip Morris has aggressively supported heightened federal regulation of tobacco and tobacco advertising. Meanwhile, the state governments that sued Big Tobacco are now working to protect those same large cigarette companies from competition and lawsuits.
- A recent tax increase in Virginia passed because of the tireless support of the state’s business leaders, and big business has a long history of supporting tax hikes.
- General Motors provided critical support for new stricter clean air rules that boosted the company’s bottom line.
The Big Myth
The myth is widespread and deeply rooted that big business and big government are rivals—that big business wants small government.
A 1935 Chicago Daily Tribune column argued that voting against Franklin D. Roosevelt was voting for big business. “Led by the President,” the columnist wrote, “New Dealers have accepted the challenge, confident the people will repudiate organized business and give the Roosevelt program a new lease on life.” However, three days earlier, the president of the Chamber of Commerce and a group of other business leaders met with FDR to support expanding the New Deal.
Almost 70 years later New York Times columnist Paul Krugman assailed the George W. Bush administration: “The new guys in town are knee‐jerk conservatives; they view too much government as the root of all evil, believe that what’s good for big business is always good for America and think that the answer to every problem is to cut taxes and allow more pollution.” At the same time, “big business” just across the river in Virginia was ramping up its campaign for a tax increase, and Enron was lobbying Bush’s closest advisers to support the Kyoto Protocol on climate change.
Months later, when Enron collapsed, writers attributed the company’s corruption and obscene profits to “anarchic capitalism” and asserted that “the Enron scandal makes it clear that the unfettered free market does not work.” In fact, Enron thrived in a world of complex regulations and begged for government handouts at every turn.
When commentators do notice business looking for more federal regulation, they mark it up as an aberration.
When a Washington Post reporter noted in 1987 that airlines were asking Congress for help, she commented, “Last month, when the airline industry found itself pursued by state regulators seeking to police airline advertising, it looked for help in an unlikely place—Washington.” In truth, airline executives had been behind federal regulation of their industry for decades and had aggressively opposed deregulation.
In fact, for the past century and more big business has often relied on big government for support.
The History of Big Business Is the History of Big Government
As the federal government has progressively become larger over the decades, every significant introduction of government regulation, taxation, and spending has been to the benefit of some big business. Start with perhaps the most misunderstood period of government intervention, the Progressive Era from the late 19th century until the beginning of World War I.
President Theodore Roosevelt is usually depicted as the hero of this episode in American history, and his “trust busting” as the central action of the plot. The history books teach that Teddy empowered the federal government and the White House in a crusade to curb the big business excesses of the “Gilded Age.”
A close study of Roosevelt’s legacy and that of Progressive legislation and regulation, however, yields a far different understanding and shows that the experience with meat—big business calling in big government for protection—was a recurring theme. Roosevelt expanded Washington’s power often with the aim and the effect of helping the fattest of the fat cats.
Today’s history books credit muckraking novelist Upton Sinclair with the reforms in meatpacking. Sinclair, however, deflected the praise. “The Federal inspection of meat was, historically, established at the packers’ request,” he wrote in a 1906 magazine article. “It is maintained and paid for by the people of the United States for the benefit of the packers.”
Gabriel Kolko, historian of the era, concurs. “The reality of the matter, of course, is that the big packers were warm friends of regulation, especially when it primarily affected their innumerable small competitors.” Sure enough, Thomas E. Wilson, speaking for the same big packers Sinclair had targeted, testified to a congressional committee that summer, “We are now and have always been in favor of the extension of the inspection, also of the adoption of the sanitary regulations that will insure the very best possible conditions.” Small packers, it turned out, would feel the regulatory burden more than large packers would.
Consider the story of one of the most famous “trusts” in American folklore: U.S. Steel.
In the 1880s and 1890s, rapid steel mergers created the mammoth U.S. Steel out of what had been 138 steel companies. In the early years of the new century, however, U.S. Steel saw its profits falling. That insecurity brought about a momentous meeting.
On November 21, 1907, in New York’s posh Waldorf‐Astoria, 49 chiefs of the leading steel companies met for dinner. The host was U.S. Steel chairman Judge Elbert Gary. The gathering, the first of the “Gary Dinners,” hoped to yield “gentlemen’s agreements” against cutting steel prices. At the second meeting, a few weeks later, “every manufacturer present gave the opinion that no necessity or reason exists for the reduction of prices at the present time,” Gary reported.
The big guys were meeting openly— with Teddy Roosevelt’s Justice Department officials present, in fact—to set prices.
But it did not work. “By May, 1908,” Kolko writes, “breaks again began appearing in the united steel front.” Some manufacturers were undercutting the agreement by dropping prices. “After June, 1908, the Gary agreement was nominal rather than real. Smaller steel companies began cutting prices.” U.S. Steel lost market share during this time, which Kolko blames on “its technological conservatism and its lack of flexible leadership.” In fact, according to Kolko, “U.S. Steel never had any particular technological advantage, as was often true of the largest firm in other industries.”
In this way, the free market acts as an equalizer. While economies of scale allow corporate giants more flexible financing and can drive down costs, massive size usually also creates inertia and inflexibility. U.S. Steel saw itself as a vulnerable giant threatened by the boisterous free market, and Gary’s failed efforts at rationalizing the industry left only one line of defense. “Having failed in the realm of economics,” Kolko writes, “the efforts of the United States Steel group were to be shifted to politics.”
Sure enough, on February 15, 1909, steel magnate Andrew Carnegie wrote a letter to the New York Times favoring “government control” of the steel industry. Two years later, Gary echoed this sentiment before a congressional committee: “I believe we must come to enforced publicity and governmental control… even as to prices.”
When it came to railroad regulation by the Interstate Commerce Commission, the railroads themselves were among the leading advocates. The editors of the Wall Street Journalwondered at this development and editorialized on December 28, 1904: