"While I was busy during better times, and not paying attention to what was going on on the national scene, there were people making decisions and investments in New York City, or on the East Coast, that, when it failed for them, was going to rip my world apart."
Those are the words of a man interviewed for the Dec. 11 installment of the "Patchwork Nation" series of reports about economic distress across America, on PBS' Newshour with Jim Lehrer. In almost every sense, this man is about as far away from New York as an American can get. He lives in a small town in Oregon. He's not an employee of any major company; the little Business he runs is no part of the Fortune 500 food chain. He's an antiques dealer.
It's an ironic image. The antiques business would seem at once both precariously small, and peculiarly safe. Antiques are not articles of mass production. This is one business that should be safe from conglomerate conquest; this is one corner shop that should be immune to the predations of discount retail juggernauts. This is a trade you would want to ply to preserve your yeoman stake in the Jeffersonian vision against the impersonal immensities of modern corporate enterprise.
This is not a man who went after major power in the economy. But the major powers have come after him.
The 19th-century farmer knows the feeling. No sooner had he busted the Midwestern sod than the railroads began to cloud his horizon. The railroads -- "America's first big business", in the analysis of historian Alfred Chandler -- made Midwestern settlement & farming possible beyond all previous bounds. So the people who depended on them came to harbor the mixed feelings of dependents. The railroads did not invent the large-scale market for farm products, but they got a stranglehold on it that localized water transport never could. The American farmer imagined himself a hero of self-reliance -- and found himself all but an employee of the railroads.
So the first round of modern economic regulation in America was an answer to the prayer of the little guy. Big business had to be controlled because it exploited the humble folk. In 1884, after a decade of Congressional squabbling, the Interstate Commerce Commission became the first federal regulatory authority.
But the Industrial Revolution was transforming the economy at such radical speed that new laws were overtaken by new shocks. Even as the ICC was emerging, John Rockefeller was sweeping the American oil industry into the arms of Standard Oil. A business big enough to dictate terms to the railroads was a threat, not just to the little guy, but to the competitive soul of free enterprise. Monopoly power had to be broken. In 1890, the Sherman Act gave the federal government the power to punish "restraint of trade". 108 years later, the rugged old law was aimed at Microsoft.
History is not so long ago. If we are not as superstitious about big business as the Midwestern farmer was, we are still wary of its incongruity with American ideals. Political scientist Charles Lindblom -- no Marxist -- closed his 1977 book Politics and Markets with these words:
The large private corporation fits oddly into democratic theory and vision. Indeed, it does not fit.
This new form of hazard will lead regulation into new forms of action. In the decades after their inception, the original policies of regulation and of prosecution of monopoly resolved themselves into rival theories of government intervention. Partisans of regulation argued that big business was here to stay, so government should supervise it rather than fight it. But the trustbusters saw big business as a dam against competition: demolition was the only remedy.
Regulation typically governs whole industries -- the ICC set rates for all railroads. Prosecution of monopoly tackles individual businesses -- Standard Oil was dismantled in 1911. The new regulation of "systemically significant" individual businesses will be a fusion of two purposes that had been historically distinct; a merger of the old rivals. Even the specific regulation of the single "natural monopoly" of the local utility company is not precedent enough. That regulation was still in the passive, static tradition of approving rate changes and fee structures. The new regulation will have to be dynamic; it will have to surf the wave of risk along with management.
Life offers us our choice of drawbacks; but it requires us to choose. We have had plenty enough experience of, and scholarship about, economic regulation to know how many ironies attend its practice. Even in the early years of that experience, a Supreme Court decision waxed pessimistic:
Competition, free and unrestrained, is the general rule which governs all the ordinary business pursuits and transactions of life. Evils, as well as benefits, result therefrom . . . That free and unrestricted competition in the matter of railroad charges may be productive of evils does not militate against the fact that such is the law now governing the subject. No law can be enacted nor system be devised for the control of human affairs that in its enforcement does not produce some evil results, no matter how beneficial its general purpose may be.
(United States v. Trans-Missouri Freight Association)
The strikingly obvious fact about this passage is that -- in itself -- it is not an argument; on the contrary, it is an equation. "Evils" are attributed to the market; "evil" is attributed to regulation. The Supreme Court of 1897 was no stranger to hard times; they had lived through 2 severe economic slumps. But they could not see the future. We have had a bellyful of the evils of the market. If -- as this Supreme Court seemed to say -- it's all the same, we'd like to risk some evils of regulation for a change.
We may all be regulators now; we accept big business like the sunrise, but we don't want to get burned. Even some Republicans -- including the party's last presidential nominee -- are contending that the crash of 2008 happened because existing regulations were not being enforced. Sic transit gloria Reagan! Whether such concessions and the new public militance will be enough to demolish the legislative dam of the bank lobby on Capitol Hill . . . only your Congressman knows. But if, as we are always told, America is a pragmatic polity, preferring the lessons of experience to the precepts of textbooks, then it is time for one lesson of repeated experience to sink in. Complacence is not an option.
Copyright 2009 Charles Jolliffe
