The Great A&P and the Struggle for Small Business in America (32 page)

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By February 1939, the press was speculating that Patman’s tax bill would not even come up for a vote. The North Carolina congressman Robert Doughton, the chairman of the Ways and Means Committee, declined to schedule a hearing. Roosevelt remained studiously disinterested, declining an invitation from the National Association of Retail Grocers to endorse its “trade independent” campaign. When he spoke on May 22 to the American Retail Federation, the group Patman had investigated in 1935, he said not a word about chain stores or the tax bill, despite Patman’s pleas; Patman thought Roosevelt’s friendliness to the group might be related to the fact that his son John worked for the federation’s president, Louis E. Kirstein, vice president of Filene’s department store in Boston. Two days later, Roosevelt quashed a Patman-supported bill to let manufacturers fix retail prices in the District of Columbia.
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As the economy revived, the steam was going out of the anti-chain campaign. A
Fortune
magazine survey in February 1939 found 47.9 percent of respondents opposing further regulation of chain stores and only 6.3 percent wanting to put chains out of business. “Independents aren’t howling for chain scalps the way they once did,”
Business Week
reported. Legislative defeats of state anti-chain measures, favorable court decisions, and moves to repeal existing state and local chain-store taxes were publicized as evidence that the tide had turned. Yet opposition to chain retailing was by no means dead. More chain-tax bills were introduced in state legislatures in 1939 than in any year since 1935. New state taxes were enacted in Montana and North Carolina, and new municipal taxes in Georgia, North and South Carolina, and Virginia. Most important of all, on September 22 the U.S. Court of Appeals upheld the Federal Trade Commission’s finding that A&P had violated the Robinson-Patman Act by demanding discounts and brokerage fees from its suppliers. By refusing to purchase from suppliers that would not give it discounts, the unanimous court said, A&P “injured competition.”
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Patman pressed his case, reaching an agreement with Doughton and Sam Rayburn on June 7 that the Ways and Means Committee would hold hearings on the chain-tax bill early in 1940. Five weeks later, on July 16, a group called the Independent Business and Professional Men, comprising delegates from around the country, met in Washington to urge action against the chains. Fewer than a hundred delegates showed up for the Sunday cruise down the Potomac River to Fort Washington, and even fewer were at the Willard Hotel on Monday to endorse the Patman tax bill. “It was poorly organized and poorly handled all the way through,” recorded a spy who attended. Although speakers called for building a $2.5 million war chest to fight for the chain-store tax, delegates pledged only $4,500. The main organizer of the fiasco was the author and lecturer Charles Daughters, who had started the Freedom of Opportunity Foundation to sell his 1937 book,
Wells of Discontent
, as well as to fight chain stores. Seeing that his putative supporters among the Independent Business and Professional Men failed to provide funding, Daughters came up with an even more unlikely approach, proposing to hire an associate of Byoir’s to raise money for the cause Byoir was opposing.
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Keeping the anti-chain movement going fell to Patman himself. He likely had a hand in dumping the inept Daughters, for on September 15 he circulated a letter, on his official letterhead, stating that the Freedom of Opportunity Foundation was being run by the former Minnesota governor Theodore Christianson and that “Mr. Charles G. Daughters is no longer connected with this movement so far as I am concerned.” A few weeks later, he urged George Schulte, editor of the anti-chain organ
Interstate Merchant
, to attack the U.S. Department of Agriculture for being too cozy with the food chains. But in the changed political climate, longtime friends of independent merchants, such as the Kansas senator Arthur Capper, shied away from Patman’s tax bill. Patman was so worried that Doughton would renege on the promised Ways and Means Committee hearing that in November he asked Roosevelt to intervene, antagonizing both Roosevelt and Doughton in the process.
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In an increasingly desperate search for congressional votes, Patman revised his bill in January 1940. The tax rates on chains were cut in half. Companies operating fifty or fewer stores within a hundred miles of a single city were exempted altogether. The provision multiplying the per-store tax by the number of states in which a chain operated was suspended for seven years—but only if the chain agreed not to open new stores or relocate old ones. Patman presented this as a milder, less onerous bill, but it would still have cost A&P, which had around nine thousand stores at the start of 1940, nearly $200 million a year, eleven times annual profits. As one critic jibed, “Cutting the tax rate in half had about the same practical effect as reducing the prison sentence of a convict from 998 years to 499 years.” No votes were swayed.
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The long-awaited hearings on the chain-store tax bill were an anticlimax. After Patman threatened to force his bill to the House floor with a discharge petition—the same technique he had used to win a vote on the veterans’ bonus bill—Doughton created a seven-member subcommittee to hold hearings. He pointedly included no legislators from the South or the West, the regions where anti-chain sentiment ran strongest.

One after another, representatives of the groups so carefully cultivated by Carl Byoir came to Capitol Hill to testify against a bill that, a few years earlier, many of them would have endorsed. State labor federations in places with strong anti-chain movements, such as Texas and Louisiana, now opposed the federal chain-store tax. So did the International Typographical Union, whose members did A&P’s printing. “Mass production methods are here to stay as long as consumers demand them,” said Patrick Gorman of the Amalgamated Meat Cutters’ union, adding that sixty-three hundred of the ninety-four hundred A&P butchers now belonged to his union. Matthew Speedie of the Retail Clerks association praised chain stores while criticizing “unsanitary and uninviting” mom-and-pop stores, which “constitute a menace to the retail industry, because they divert a certain part of the trade from other merchants and operate without profit.” Edward O’Neal of the American Farm Bureau testified that the chain-store tax would force up food prices and thereby limit consumption, reducing farmers’ potential sales. The National Council of Farmer Cooperatives opposed the scheme, and so, at the other end of the political spectrum, did the National Association of Manufacturers. Consumer groups also appeared in force, with Harriet R. Howe of the American Home Economics Association and Caroline Ware, speaking for the American Association of University Women, criticizing Patman’s tax for raising shoppers’ costs.
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With the chain-store tax headed for certain defeat, the Roosevelt administration finally showed its hand. “We think it would be unwise and unnecessary to give up the economies which have been brought about by chain store distribution,” Agriculture Secretary Henry Wallace wrote to Doughton in opposition. The Commerce Department’s Business Advisory Council opposed the bill because “it kills efficiency in distribution and encourages inefficiency,” and Edward J. Noble, the acting secretary of commerce, echoed the advisory council’s views. The Treasury Department’s tax office deemed the bill unconstitutional. Patman met with Thurman Arnold, the assistant attorney general for antitrust, to solicit support, but Arnold opposed the tax bill. The Federal Trade Commission, which had aggressively investigated A&P two years earlier for violating the Robinson-Patman Act, declined to endorse the tax, suddenly discovering that it lacked up-to-date information about chain stores. Sam Rayburn, who had tolerated his fellow Texan’s anti-chain efforts for years, now steered clear; the mail from his constituents in rural northern Texas ran heavily against the tax. In desperation, Patman sought the support of the retired Supreme Court justice Louis Brandeis, a critic of big business since the turn of the century. Brandeis, then eighty-three, responded with a friendly letter carefully worded to avoid an endorsement.
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In the second week of May, as the hearings ground to a close, Patman made a last-ditch effort to save his bill. For eight consecutive nights, he held forth on the Columbia Broadcasting System, arguing his case to radio listeners nationwide. Moving from the book of Genesis to Leonardo da Vinci to the American farmer, he returned again and again to the idea that the independent merchant was the nation’s bulwark against monopoly. The following week, on the NBC Blue Network, he went even further. “We, the American people, want no part of monopolistic dictatorship in either our American government or in our American business,” he said. “Think of Hitler. Think of Stalin. Think of Mussolini. Let’s keep Hitler’s methods of government and business in Europe.”
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Such inflated rhetoric did not serve Patman’s cause. Nor did Patman’s last-minute attacks on Byoir on the House floor and then on a national radio broadcast, in which he referred to the A&P strategist as Hitler’s “first agent” in the United States and suggested that he had disclosed military mobilization plans to Germany. On June 18, the Ways and Means subcommittee, headed by the Massachusetts Democrat John W. McCormack, refused to report out the bill to the full committee, effectively killing it. If fear of monopoly justified legislation, McCormack said, “such legislation should be of a regulatory nature and not punitive through the exercise of the taxing power.”
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As a political movement, the anti-chain campaign was dead. Political scientists have speculated ever since about the reasons for its demise. Some point to the movement’s lack of leadership. Others emphasize the difficulty of maintaining a coalition of small, widely dispersed merchants with very diverse interests. Some find explanations in the economic recovery that drove unemployment in 1940 to the lowest rate in nine years, or in the evident rise in wage levels, or simply in Americans’ increasing familiarity with chains. Whatever the case, a cause that had burned fiercely for years no longer resonated in 1940.

Yet seen in another way, the anti-chain movement was a remarkable success. Against long odds, it held back the chain-store tide, withstanding pressure from Wall Street and big business to preserve the livelihoods of hundreds of thousands of people engaged in wholesaling and retailing. In 1929, before the start of the Great Depression, 1.4 million Americans ran family-owned retail stores, nearly one-third of them in the food line. A decade later, the ranks of small merchants had swelled to 1.6 million, and there were more mom-and-pop grocers than ever (
Table 3
). Independent grocers’ share of the nation’s food sales, 66 percent in 1939, declined only two percentage points over the decade. The number of wholesale establishments rose 19 percent during those years—and the number of unincorporated wholesalers, the small firms that gained the most from restraints on chain retailing, rose even faster. If their cause was to preserve opportunity for the independent merchant, the warriors of the anti-chain-store crusade succeeded beyond all expectation.
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This job preservation came at a cost: through the 1930s, the distribution of grocery-store products became more, not less, of a burden on the economy. One measure of that burden was the gross margin of participants in the grocery distribution chain—the difference between the price they paid for their goods and the price at which they sold them. In the retailing of manufactured foods, non-manufactured foods, and cleaning supplies, gross margins were far wider in 1939 than they had been in 1929, an indication that grocery stores had become less rather than more efficient. Much the same was true of food wholesalers. In 1929, shoppers buying non-manufactured foods such as produce paid 47.9 percent more than the amount received by farmers. By 1939, with chain retailers restrained from cutting prices and more mom-and-pop stores in business than ever before, that margin widened to 58.5 percent.
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To be sure, mom and pop were not getting rich. In the food trade, the largest single slice of retailing, the ranks of independent merchants included 179,335 keepers of traditional grocery stores, with average sales of about $8,000 in 1939, and 166,276 proprietors of combination stores selling an average of $20,255. These businesses were tiny even by the standards of the time: the average chain-owned combination store had five times the sales of the average independent store. But no matter how marginal they were in economic terms, these independent stores sustained millions of people during the U.S. economy’s most difficult decade, when jobs of any sort were hard to come by. In that sense, the opponents of chain retailing could justifiably claim victory. And despite their political weakness, they were not done fighting.

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THE FOURTH REVOLUTION