TEDDY ROOSEVELT AND BIG BUSINESS
12/1/2011
President Theodore Roosevelt was the first president to embrace the Progressive notion that government should be more active in social and economic affairs, regardless of whether or not such activism violated the Constitution. This was exemplified by Roosevelt’s efforts to reform and regulate business. However, his lack of private sector experience only increased the power of the corporate/government alliance in America at the people’s expense.
The “Trustbuster”
In his first State of the Union message to Congress in 1901, President Roosevelt stated, “There is a widespread conviction in the minds of the American people that the great corporations known as trusts are in certain of their features and tendencies hurtful to the general welfare.” Congress initially adhered to constitutional restraints and did not act upon Roosevelt’s push for more stringent business regulations. But that didn’t stop the president from taking matters into his own hands.
Roosevelt’s Justice Department initiated 44 lawsuits against major corporations for violating federal antitrust laws, more than any previous president and earning Roosevelt the nickname “trustbuster.” The most prominent lawsuit was against Northern Securities, a holding company that had merged two major railroads.
Government prosecutors argued that Northern Securities could potentially violate antitrust law by restraining interstate commerce. The Supreme Court agreed, and Northern Securities was ordered to disband. This was Roosevelt’s first major antitrust victory, and it marked the first time that the federal government successfully prosecuted a business for being a potential, not actual, threat. This set a damaging precedent.
Roosevelt’s antitrust crusade weakened the ability of entrepreneurs to effectively conduct business in the U.S. Over the past century, studies have revealed that most antitrust cases actually hurt small business owners more than corporations, mainly because verdicts against trusts tend to affect their entire business sector. When an entire sector is affected through more regulations or restrictions, small business is the first to feel the pinch.
Roosevelt celebrated his prosecutions because he believed that they protected the people from the manipulation of big business. However, they only compelled business leaders to seek closer ties to government through lobbying and other influence peddling, which led to more manipulation through corruption. The prosecutions also strengthened the executive branch of government beyond anything the American founders had envisioned.
Railroad Regulations
At President Roosevelt’s urging, Congress passed the Elkins and Hepburn Acts, which tightened regulations on railroad companies by prohibiting freight discounts and empowering a federal bureaucracy to inspect railroad accounts and set rates. Roosevelt particularly hailed the Hepburn Act as “a landmark in the evolution of federal control of private industry.”
These new regulations adhered to the Progressive notion that successful businesses must be punished if they are too successful or if they exceed “reasonable” profits. They also reflected Roosevelt’s reliance on “expert” commissions to solve business problems, even if the bureaucrats in these commissions had no business experience. These commissions naturally made arbitrary decisions that made little business sense, which increased federal power at the expense of consumers and the economy.
New bureaucratic regulations increased labor costs, which decreased profits that could have been better used for modernization and expansion. This in turn diminished consumer choice and service quality, which harmed the economy and partly contributed to a major recession in 1907. By the 1930s, the private management of railroads was effectively over.
The specific regulation prohibiting freight discounts was especially harmful to trading partners such as Japan, which could not afford the new higher rates. This helped to steer the Japanese toward seeking expansion through militaristic, rather than entrepreneurial, means, which indirectly led to Japan allying itself with Germany and opposing the U.S. in World War II.
Meatpacking Regulations
In 1906, President Roosevelt signed two bills into law that placed stricter regulations on food and drug production. The Pure Food and Drug Act required food and medicine companies to list their ingredients, and the Meat Inspection Act required the federal inspection and certification of meat processing plants conducting interstate commerce.
These laws were partly inspired by The Jungle, a fictional account of Chicago’s meatpacking houses by Upton Sinclair. The socialist newspaper, Appeal to Reason, had hired Sinclair to go to Chicago and sensationalize the meatpacking industry in an effort to discredit capitalism. However, Sinclair later admitted that his book and the laws it inspired actually helped the corporations more than the workers he had championed.
In fact, the big meatpackers had actually lobbied to have these laws passed because smaller competitors could not afford the new costs associated with inspection and certification. Meatpacking leaders also used the new regulations as marketing tools by announcing that their meats had been inspected and certified, which garnered public confidence. As a result, many smaller meatpacking businesses went under, and big meatpackers got bigger.
Concessions to Big Steel
President Roosevelt consistently sought to use the power of the federal government to break trusts and monopolies in business. However, leaders of the steel industry followed the meatpackers’ example by supporting government regulations in an effort to destroy smaller competitors. Ironically, this helped to create stronger trusts and monopolies than ever before.
In 1907, the leading steel companies agreed to fix prices, which would drive smaller competitors out of business. Instead of prosecuting the steel leaders for collusion, the Roosevelt administration supported the agreement, with White House representatives actually participating in the meetings.
When a major financial panic occurred in October 1907, U.S. Steel head J.P. Morgan brokered a deal among private bankers to provide corporate bailouts that prevented the panic from sparking an economic recession or worse. Roosevelt showed his gratitude toward Morgan by exempting U.S. Steel from antitrust prosecution.
The Business Legacy
Big business actually became stronger than ever during Theodore Roosevelt’s presidency, despite all his efforts to restrain corporations, trusts, and monopolies. Many of these efforts to regulate commerce either weakened industries or created monopolies that otherwise would not have existed. This reduced business competition and led to higher prices, lower quality, and diminished consumer choice. For the people, all of these did more harm than good.
The Progressive attempts to regulate big business ushered in the corporate/government ruling alliance that exists in America today, in which lobbyists influence the regulations that federal bureaucrats force the people to live by. Placing power into the hands of lobbyists and unelected bureaucrats has taken power away from state and local governments, which are more directly accountable to the people.
With Congress ultimately enacting most of his domestic agenda, Roosevelt also set the trend of presidents initiating and influencing legislation. This placed more power in the executive branch at the expense of the legislative and judicial branches of government. Successors have gradually built upon Roosevelt’s precedents, and all these trends continue today.
WalterCoffey.com
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