We've all bemoaned frivolous or excessive regulations. But we’ve also wished that some things — electronic spam, marketing calls, phone scams — were better regulated. The past 100 years has featured US industry and the government in a game of regulatory see-saw over exactly how much regulation is enough, and there still seem to be more questions than answers.
The first federal regulatory agency wasn’t formed until 1887, when the Interstate Commerce Commission was created to combat price gouging by the railroads. Three years later, the Sherman Act forbidding restraint of trade and monopolies was passed. Then Teddy Roosevelt started the 20th century off with a ‘trust-busting’ campaign in 1901. The biggest target? John D. Rockefeller’s Standard Oil, which controlled 85% of the country’s oil refining capacity. Fueled by public sentiment, the company was charged with predatory pricing, the filing of frivolous lawsuits, and bribery and was broken up in 1911. In the interim, the publication of Upton Sinclair’s The Jungle led to the Pure Food & Drug Act, the Meat Inspection Act, and, one supposes, a lot of converts to vegetarianism.
WWI and the Roaring ’20s cooled the regulatory jets for a time, but the monster hangover of the Great Depression led to Roosevelt’s New Deal and a strong desire for a government net under life's high wire. In short order, the Federal Deposit Insurance Corporation (1933), the Securities and Exchange Commission (1934), and the National Labor Relations Board (1935) were created. More extreme measures passed in 1933 included the Agricultural Adjustment Act, which encouraged farmers to plant less, and the National Industrial Recovery Act, which encouraged cartels in order to raise prices and wages. (Both were declared unconstitutional and repealed in 1935.)
With our savings, stocks, and employment rights protected, the country focused its attention on WWII. In 1945 the government broke up ALCOA, which controlled about 90% of the aluminum market, but by most accounts was guilty of nothing more than foresight and good business. The post-war boom years were a bust for regulation lovers; apparently people were too busy making babies, buying big convertibles, and listening to Elvis to worry much about red tape. That – and fear of an antitrust case – undoubtedly kept many companies from pushing things too far. GM’s chairman from 1937 to 1956, Alfred D. Chandler, has noted that the company was terrified of going over a 45% market share and being slapped with an antitrust suit.
In 1962 Rachel Carson’s Silent Spring sparked the environmental movement and a considerable number of people began expecting more than increased shareholder value from corporations. The now-familiar cigarette warning labels were mandated in 1965. Speaking of warnings; tune in, turn on – but for God’s sake don’t get in that Corvair – was the mantra as Ralph Nader and Timothy Leary shared the cultural landscape in 1966. Nader’s Unsafe at Any Speed is seen by many as the start of the modern consumer movement.
Before the decade was over, the government went after IBM, which had about 65% of the computer market. (When the government finally dropped the case in 1982, IBM’s mainframe market had been largely superseded by PCs and the company was in a different kind of trouble.) Nader and like-minded consumer activists were behind a slew of lawsuits and regulations during the 1970s, but allegations that they were to blame for the decade’s fashions are unsubstantiated.
After the regulatory excesses of the 1960s and 1970s people were ready for a change – proposed and adopted regulations filled almost 90,000 pages in 1980’s Federal Register. Ronald Reagan was elected president and delivered deregulation (trucking, banks) and federal funding cutbacks galore. It was under his tenure, however, that the landmark anti-trust case against AT&T was settled. In 1982 the company was broken into a long distance company and seven local phone companies ("Baby Bells"). In 1990 George Bush signed a sweeping amendment to the Clean Air Act, which, while increasing compliance costs, allowed the government to grant tradable emissions permits.
 |
 |
 |
Tobacco has been a favorite target of government regulators for decades.
|
 |
Ironically, many new government edicts are designed to undo or modify past regulations. For example: The Energy Policy Act (1992) laid the groundwork for deregulating the wholesale electricity market to increase competition; in 1995 Congress abolished the Interstate Commerce Commission; and the Telecommunications Act of 1996 was designed to spark competition in the telephone industry. Most recently, President Clinton signed a bill repealing the 60-year-old Glass-Steagall Act, which separated banking and investment activities. The bill clears the way for banks, insurance companies, and securities companies to merge.
Now, it seems, people are often more worried about business poisoning government than vice versa. Corporations are involved in activities that were until recently the exclusive domain of government, including prisons, hospitals, fire departments, ambulance services, highways, and even social services such as foster care.
As the century draws to a close, the spirit of laissez faire is winning – although Bill Gates would argue the point. Mega-mergers and joint ventures are the norm as businesses struggle to compete in the global marketplace. In 1998 there were $1.6 trillion worth of mergers and acquisitions in the US (74% more than 1997’s record number). Some of the more notable deals involved Travelers Group and Citicorp in financial services, Daimler Benz and Chrysler in the auto industry, AT&T and Tele-Communications, Inc. in communications, America Online and Netscape in the Internet, and Exxon and Mobil – both former Standard Oil companies – in the energy sector.
The tobacco industry has been a notable exception to government’s regulatory seesawing. Uncle Sam has pursued the Marlboro Man and his ilk with increasing vigor since a federal statute first required warning labels and barred television and radio ads in 1965. Ironically, the presence of a warning label provided tobacco companies with a near invulnerability to lawsuits. More recently all 50 state governments have successfully sued for reimbursement of smoking-related health care costs and been awarded some $250 billion to be paid over 25 years. The FDA is even angling to regulate tobacco as a drug, arguing that it falls under the 1938 Food, Drug, and Cosmetic Act.
Bill Gates and stock investors take note: In 1911 Rockefeller was worth $300 million; two years after the breakup, he was worth $900 million. That was more than 2% of the GNP — if Gates had a similar percentage today, he’d be worth something in the neighborhood of $190 billion.
Joe Simonetta is a writer for Hoover's Manufacturing and Industry team.
Next: The Creation Of Interstate Highways »
