trust busting -- 8/7/23

Today's selection -- from Accumulation and Power by Richard B. DuBoff. The trust-busting activities of Theodore Roosevelt and William Howard Taft, culminating in the famous antitrust actions of 1911 against Standard Oil and American Tobacco, barely slowed the trend toward oligopolies in American business:

“Most of the trusts and combinations put together through the turn of the century aimed at guaranteeing profitable growth through vertical integration or substantial control over product markets, or both. Large-scale private capital was obviously groping its way toward a new distribution of economic power and testing the outer limits to industrial concentration in the brave new world of nationwide markets, high-speed transportation and communication, and science-based techniques. 

“The instability of this formative phase of oligopoly was aggravated by an unprecedented and unrepeated series of antitrust actions. Under President Theodore Roosevelt, 19 civil suits and 25 criminal suits were brought; his successor, William Howard Taft, initiated 78 more between 1909 and 1913. Following the Northern Securities case of 1904, the two major ‘trust busting’ decisions of the Supreme Court were the 1911 breakups of the Standard Oil holding company and the American Tobacco Company, a single manufacturing concern. Both were judged to have used monopoly power intentionally to reduce competition, an ‘unreasonable’ restraint of trade; they were dissolved into 34 and 16 parts respectively. Between 1911 and 1918 antitrust suits were also filed against International Harvester, U.S. Steel, Armour (acquired by Greyhound in 1970, sold to Conagra in 1983), Swift (acquired by Esmark in 1973, in turn acquired by Beatrice in 1984), and American Sugar Refining--all among the top ten industrial firms in 1909--as well as GE, Eastman Kodak, Corn Products, Du Pont, and American Can. Horizontal mergers by already-dominant firms seemed more likely than anything else to trigger antitrust action, although government policy may have looked less predictable to the empire builders of the time. 

“This period of economic and legal uncertainty, however, was actually solidifying the displacement of competitive markets by the constrained rivalry of increasingly stable oligopolies. In the legal sphere, the antitrust decisions of 1904-1911 served to reinforce the consolidation movement, as the judiciary allowed that not every restraint of trade was unlawful under the Sherman Act. Even though sheer size conferred market power, it did not per se transgress the law. This ‘rule of reason’ (1911) was followed by the Clayton and Federal Trade Commission Acts of 1914. They prohibited several ‘unfair’ and discriminatory trade practices, and they barred corporation executives from serving as directors of competing companies (interlocking directorates) and acquiring the stock of competing companies. Section 7 of the Clayton Act went beyond Sherman, outlawing mergers that ‘substantially lessen competition or tend to create a monopoly,’ so that federal action might ‘arrest ... monopolies in their incipiency.’ 

“These decisions and laws were not only the high-water mark of antimonopoly policy; they simultaneously cooled anticorporate ire by convincing the public that their government was taking resolute action against ‘bad’ trusts. The corollary was that ‘good’ trusts did exist and should be left alone because they did not lessen competition or engage in predatory activity. U.S. Shoe Machinery and U.S. Steel were duly exonerated of antitrust violations in 1918-20, because they had not committed undesirable acts and had been losing ground to competitors (U.S. Steel's share declined from 65 percent of the nation's output in 1901 to 40 percent in 1920). Joe Bain, an authority on industrial organization, appraised ‘the total effects’ of all antitrust prosecutions through 1915-20 as ‘not very great.’ The Sherman Act's ban on monopoly was not directed at the phenomenon of industrial concentration or market control . . . but rather at specific actions designed to exclude competitors or to restrain their ability to compete. . . . The courts showed no disposition, therefore, to apply the penalties of the Sherman Act to the already typical American case of a highly concentrated industry, the ruthless tactics of whose member firms were in the past, their purpose having been accomplished. ... Concentration was accepted as a fait accompli. ... The Sherman Act had lain idle when it might have been employed to prevent concentration; it now appeared that it could not be used to dissolve most well-established combinations. 

A 1902 anti-monopoly cartoon depicts the challenges that monopolies may create for workers.

“Across industry and finance, the movement toward oligopoly was powerful and, in practice, irreversible. In industries like oil, steel, sugar, and metal cans, monopolized in the ‘robber baron’ era of 1865-1900, the market shares commanded by the ‘trusts’ actually declined, as it did for Standard Oil and American Can. Smaller and more innovative firms often took business away from the oversized, conservative giants. ‘Big Steel,’ for example, was content with fat profit margins and a stable price environment and thus extended an umbrella over the industry, allowing a newcomer, Bethlehem Steel, to expand after 1913 through the introduction of new processes. But firms like Bethlehem were very large by the standards of three decades gone by. The smaller companies created in 1911 out of the dissolutions of Standard Oil and American Tobacco would have been seen as titans in the 1870s, and they quickly proved to be formidable oligopolistic competitors--Socony Mobil (now Mobil), Sinclair Oil (acquired by Arco in 1970), Texas Oil (now Texaco), American Tobacco (later American Brands), and Liggett and Myers (acquired by Grand Metropolitan, a British conglomerate, in 1980) all had assets of $150 million or more in 1919.

“By purely competitive norms, entry was becoming more difficult in a widening array of industries. The new oligopolies could be reasonably effective in stabilizing prices and muting the cutthroat competition that had proved so dangerous for large-scale business. Price leadership without formal collusion was becoming standard practice, but competition by other means was not eradicated. Big corporations continued to fight for market share by advertising, after-sale service, credit, and constant product innovation and differentiation. Profits also ‘resulted from continued cost cutting, improved administrative coordination, greater use of existing facilities, and expansion overseas.’

“Indeed, just as small capital germinated giant enterprise, so national accumulation was beginning to overspill its home boundaries. This story is taken up in Chapter 8; here it suffices to say that as early as 1865, oil, the foundation of the best known trust, had already become the nation's sixth-ranking export and that in 1879 Rockefeller began extending his operations overseas to guarantee marketing channels and, after 1900, sources of supply. Ford, Singer Sewing Machine, and Eastman Kodak had two or more plants abroad by 1914, inaugurating the age of multinational enterprise that flourished after 1950. The vertical integration of the years before 1915-20 can best be understood as a reaching backward into raw materials, both domestic and foreign, and forward into development of a national and international marketing apparatus. Such efforts also erected barriers to entry and strengthened the positions of the largest firms.

“By 1916-20 the era of corporate instability was drawing to a close. There appear to be two reasons. First, the gloomy economic climate of 1907-1915 was reversed by the export-led expansion of World War I, which was followed by a postwar boom lasting until early 1920. In the sixty-one months between December 1914 and January 1920, the economy underwent only one minor recession, from August 1918 to March 1919, even though business investment remained nearly stagnant the whole time. Second, forces rooted in competitive capitalism were producing on an aggregate level what they have been producing ever since in one new industry after another--a ‘shakeout’ ushering in relative stability featured by an uneasy coexistence among oligopolistic rivals. They created barriers to entry that consolidated the positions of a few large firms no single one of which was strong or efficient enough to establish a pure seller's monopoly (one firm with 100 percent of the market).

“In the corporate world, the turnover rate of the biggest firms, or exits by companies from the top 100 industrial corporations, started dropping substantially after 1910-15. ‘By the early twenties--certainly by 1923--the system had “stabilized,” and relatively little change has occurred since then.' Corporations that emerged as industry leaders by 1920 continued to dominate over the next half-century and beyond. Exceptions were few in textiles, furniture, drugs, and of course in brand-new industries like airlines and computers. In the majority the oligopolistic structure set in place by 1920 endures today. The names are familiar. Among the largest manufacturing companies in 1919 were Alcoa, Bethlehem Steel, Borden, Chrysler, Firestone, Ford, General Motors (GM), Goodyear, Gulf, International Paper, Mobil, R. J. Reynolds, Standard Oil of New Jersey (now Exxon), Union Carbide, Weyerhauser. Fifty-five others, several dating from 1875-1902 (see Table 4.1 and p. 59), survive today or else have been absorbed by other firms in mergers that perpetuated the lives of both. The same trends are evident in other sectors--telephone, gas, and electric utilities, life insurance companies, merchandising firms, and banks: of the largest in 1917-19, the majority continued among the top ten or fifteen into the 1970s.”



Richard B. DuBoff


Accumulation and Power




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