In the heyday of the Robber Barons in the 1870s Cornelius Vanderbilt bluntly asked, “What do I care about the law? Ain’t I got the power?” Although they now consult public relations advisers and attorneys before issuing statements, the CEOs of transnational firms such as Enron, WorldCom and Global Crossings in our “deregulated” economy have long practiced what Vanderbilt preached more than a century ago.
Yet the high flyers of corporate America have had their wings clipped before with effective regulation. Perhaps now is the time for more of the kind of radical changes the New Deal instituted when it established the Securities and Exchange Commission (SEC) in 1934. The Securities Exchange Act compelled publicly traded firms to provide listings of their assets and liabilities. It also outlawed various practices used to manipulate stock prices for speculative purposes.
The legislation of the 1930s, including the Banking Act of 1933, which established the Federal Deposit Insurance Commission, and subsequent banking legislation that divorced investment and commercial banking, protected the savings of millions of small depositors and barred the sort of stock market speculation by banks that caused thousands to collapse in the early 1930s. Those measures passed only after tens of millions of people voted for political leadership committed to changing an economic system that had led to mass unemployment and a huge decline in living standards.
As a result, FDR’s denunciation of the leaders of industry and finance who resisted regulation and reform as “economic royalists,” rallied the people. His New Deal supported the growth of trade unions to balance employers’ power and established old age pensions, unemployment insurance, and other social protections. Those regulatory reforms were successful, even though the new regulatory agencies were often staffed with appointees who were much more sympathetic to business interests than were the original New Dealers.
The present crisis stems from the successful weakening of those reforms in recent decades. In an attempt to save capitalism from itself, Roosevelt demonized corporate arrogance and business greed. Fifty years later, President Reagan directed the deregulation of energy, public utilities, banking and finance while demonizing welfare recipients. He sharply reduced federal funding for a wide variety of social welfare and education programs.
Reagan revived the “trickle down theory” associated with Andrew Mellon, financier and secretary of the treasury in the conservative Republican administrations of the 1920s. According to these ideas, policies of deregulation, detaxation and privatization would free investment and stimulate economic growth, since private enterprise was inherently good and the public sector was inherently wasteful.
In effect, Reagan transformed generations of criticism against the abuses of “big business,” which had produced regulatory reforms, into a generation of criticism against “big government.” His administration’s deregulation policies led to the savings and loan disasters of the late 1980s. The administration of George H. W. Bush continued these policies, even though runaway deficits compelled it to raise taxes. The Clinton administration did little to reregulate business and joined with Republicans to eliminate much of the New Deal’s federal welfare program, Aid to Families with Dependent Children (AFDC), in 1996. Before the present embarrassment from corporate corruption and bankruptcies, the current Bush administration was intent on returning to hard-line Reaganism.
The scandals of today, the billions extorted from California for electricity and the Enron and WorldCom stock and accounting swindles, are the result of deregulation. They are evidence that deregulation is part of the problem, not part of the solution, in maintaining a healthy and stable economy.
A national energy policy, based on regional versions of the New Deal’s Tennessee Valley Authority (TVA), which produced public power for its region in cooperation with local communities, would have prevented the energy speculation that produced such a disaster for California. FDR and the National Resources Planning Board, a New Deal agency, saw such a policy as a long-range goal in the 1930s.
Strengthening the Federal Trade Commission and the SEC to outlaw the shady mergers and self-serving accounting practices that have turned the stock market into a great engine of speculation would force CEOs to implement policies fostering productive long-term growth to provide dividends for shareholders rather than raising short-term stock prices at all costs.
If we are really at war, or an open-ended “war against terrorism,” as the Bush administration regularly reminds us, reviving FDR’s World War II proposal for an income cap on executives, brokers and bankers would deter business leaders from acting like Robber Barons and creating more Enrons, just as team salary caps in professional sports have tried to keep greedy owners from destroying competition and inflating costs to everyone.
The United States has never fought a war with tax cuts for the rich and corporations and a call for weak, decentralized national government. Turning a blind eye to corporate profiteers is destabilizing the economy. In the present situation, serious change means radical change in government’s relationship to business.
Norman Markowitz is a member of the history faculty at Rutgers University in New Brunswick, N.J., and a writer for the History News Service.