U.S. Congress and business

Identification Legislative branch of the federal government

Date First met in 1789

As the lawmaking body of the U.S. national government, Congress is responsible for all legislation that affects American business. Its investigative powers and role in the appointment process also affect business.

Since the adoption of the U.S. Constitution in 1789, Congress has had a powerful impact on economic policy in the United States. That impact has generally increased, largely in response to economic problems such as depressions, business scandals, or the public’s desire to improve the social welfare of the American people. Members of Congress have generally been quite supportive of business interests, although some business leaders have been critical of some efforts at regulation or taxation.

Laissez-Faire and Support for Business

For most of the nineteenth century, Congress rather than the president shaped economic policy. Congress’s approach to American business during the nineteenth century was essentially laissez-faire—a hands-off, supportive attitude that did not interfere in business operations.

Congress’s approach, however, was not entirely laissez-faire. To support nascent American industry during the early years of the republic, it adopted a policy of protective tariffs. Tariffs made foreign goods more expensive than American goods and thus protected American businesses from foreign competition. They also provided most of the income for the national government throughout the nineteenth century. This support for protective tariffs continued into the twentieth century, reaching a high point with the Smoot-Hawley Tariff Act of 1930. Protective tariffs may have been essential during the early years of the republic, but their continued imposition as American industries became more mature often led American business to neglect innovative practices and led some foreign countries to impose tariffs on American goods. The Smoot-Hawley Tariff Act led to a trade war with Europe, worsening the Great Depression.

In the years before the U.S. Civil War, Congress rarely acted to regulate the American business community, nor did it impose taxes that might have inhibited business profitability. Congress established the Second Bank of the United States in 1816 as a means of providing a national currency, but President Andrew Jackson allowed it to lapse. In the absence of a centralized approach to banking, Congress left banking regulation to state governments, often producing a chaotic approach to finance.

Congress began to change its approach during the Civil War, when the financial stress of the war prompted Congress in August 1861 to create an income tax as a means of raising revenue to fight the war, although it was a tax on individuals not corporations. The tax was eliminated in 1872.

In 1862, Congress acted to support the settlement of the West with the Homestead Act, which provided for free land for people who settled on it for a period of time. In 1864, Congress provided for subsidies for American railroads to encourage the construction of intercontinental rail lines. These subsidies were tinged at times with scandal as agents for various railroads succeeded in bribing members of Congress to gain increased benefits. Taken in combination, these two acts furthered the settlement of the West and provided impetus to the developing railroad industry.

Businesses, such as steamship companies or textile mills, were allowed to operate with no national governmental oversight, in spite of poor safety records or unsafe working conditions. Only when some aspect of the business world, such as railroads during the 1880s, became so abusive as to be harmful to other segments of the economy did Congress try to apply any sort of regulation. Congress passed the Interstate Commerce Act in 1887 to try to help consumers and farmers deal with discriminatory pricing by some railroads. Congress was trying to level the playing field between business, farmers, and consumers because railroads were viewed as possessing too much economic power when it came to setting their rate structure. However, in 1895, the Supreme Court weakened the operation of the Interstate Commerce Act as impermissible interference with the railroads’ property rights.

Congress went further in 1890, passing the Sherman Antitrust Act with only a single dissenting vote, although both houses of Congress were controlled by probusiness Republicans. Although Congress was still probusiness during the 1890s, the various abuses by American railroads had led to such a clamor for reform that it could not be ignored. However, the Sherman Antitrust Act was largely unenforced for the rest of the decade.

The Growth of Activism

In the first decade of the twentieth century, Presidents Theodore Roosevelt and William Howard Taft used the Sherman Antitrust Act to break up various monopolies such as the Standard Oil Trust. As was often the case with much of the legislation affecting business, Congress legislated, but the executive branch was responsible for enforcement. The election of several progressives to Congress during the early twentieth century, coupled with the activism of Presidents Roosevelt and Taft, led to congressional action to protect American consumers from abusive practices by business and to enable the market to work more efficiently than was the case under the increasing power of monopoly capitalism. Although some business leaders such as the banker J. P. Morgan were critical of this government intervention, most Americans saw it as necessary to deal with an increasingly complex economy.

The legislation establishing the ineffective Interstate Commerce Commission had been one of Congress’s first efforts at regulating an industry. The Pure Food and Drug Act of 1906 was another early twentieth century piece of legislation that took aim at health abuses that existed in the meatpacking and drug industries. Over the years, additional legislation has flowed from these beginnings that has been directed at protecting consumers’ health and the environment, and maintaining competition. This legislation has arisen not from an antibusiness attitude in Congress but from a need to represent consumers, deal with environmental problems, and protect small businesses.

Presidential Leadership

During the twentieth century, it was often presidents who took the lead in establishing economic policy, as they sent legislative packages to Congress. Individual representatives and senators continued to be protective of business interests in their home states, but the balance of policy-making power was slipping into the hands of the presidents.

Spurred on by President Franklin D. Roosevelt, Congress took major action after 1933 in trying to find means to bring the United States out of the Great Depression. One example was the reestablishment of a national banking apparatus with the Federal Reserve System set up by the Glass-Steagall Act in 1933. New Deal legislation was directed at creating jobs, at times via public works projects such as the construction of the Hoover Dam that benefited corporations involved in the projects; reforming the banking system; and regulating the stock market to help ensure that a future crash would not occur.

In the years after World War II, Congress, often in response to presidential legislative initiatives, continued to be supportive of American business, although it also displayed a concern for consumers and workers. For example, some business owners criticized congressional increases in the minimum wage, the imposition of health and safety standards in the workplace, or consumer product safety legislation, but the majority of Americans considered this sort of legislation necessary to even the balance among business and labor and consumers. Congress continued to be supportive of low corporate tax rates and still protected favored industries from foreign competition.

Late in the twentieth century, Congress began to produce environmental legislation such as the Clean Air Act of 1963 or the Resource Conservation and Recovery Act of 1976, which was designed to regulate industry conduct directly or to provide incentives for business to operate in a more environmentally friendly fashion. Some business leaders complained that such legislation interfered unjustly in their operations. Supporters of the legislation pointed out that much environmental legislation was designed to force businesses to pay for the costs of operation such as air or water pollution that they imposed on others (what economists call externalities). Debate also swirled around the 1994 North American Free Trade Agreement (NAFTA). Opponents such as the textile industry said that Congress was hurting their industry by allowing cheaper foreign goods to enter the U.S. marketplace. Businesses that profited from foreign trade were, however, supportive of NAFTA.

The operation of NAFTA helps illustrate the impact of Congress on American business. Legislation has, at times, benefited particular industries to the disadvantage of others. On occasion, Congress has granted special benefits to certain industries, often as a result of lobbying by these businesses. The American sugar industry, for example, has long benefited from protective tariffs that have kept the price of sugar artificially high. Lobbyists for the sugar industry have been quite effective at influencing enough members of Congress to maintain this situation.

American businesses have always been effective at presenting their case to Congress through lobbying, campaign contributions, advertising, and turning out the vote. Campaign reform legislation in the twentieth century has imposed some limits on the use of corporate power such as contribution limits, but corporate America remains effective at often influencing the course of legislation. As the economy has become more complex, the business community is at times divided in its objectives as different businesses take opposing sides in trying to influence legislation before Congress. The rise of labor unions and consumer and environmental groups has provided some checks on business influence in Congress so that the legislative playing field became more equal by the late twentieth century than it had been before.

Congress during the early twenty-first century remained supportive of American business but also tried to maintain a broader view that takes into account the concerns of all Americans. Senators and Representatives were also responsive to nonbusiness interests among their constituents. Political scientists have long labeled this situation “interest group pluralism” to describe the various influences brought to bear on Congress. Even during the early years of the republic, business interests were often balanced by other interests, such as those of farmers. Some business leaders, aware of the benefits that may accrue to themselves from this balance, have been supportive of this balanced path followed by Congress.

The presidency of Donald Trump introduced yet another twist, as the real-estate-mogul-turned-reality-TV-star-turned-president brought a distinctly business-oriented perspective to the White House. He worked to roll back business regulation in many areas, such as environmental protection. An avid protectionist, Trump pleased businesses that benefit from tariffs but troubled those that benefit from free trade. Trump imposed steep tariffs on China, among other nations, and did away with NAFTA, although the deal he replaced it with, the United States–Mexico–Canada Agreement (USMCA), left many of the provisions of NAFTA in place. In Trump's first two years in office, a Republican-controlled Congress mostly applauded these actions.

Bibliography

Arnold, R. Douglas. The Logic of Congressional Action. New Haven: Yale University Press, 1990.

Burda, Joan M. An Overview of Federal Consumer Law. Chicago: American Bar Association, 1998.

Davidson, Roger H., Walter J. Oleszak, Frances E. Lee, and Eric Schickler. Congress and Its Members. 14th ed. Washington, D.C.: CQ Press, 2018.

Gordon, John Steele. An Empire of Wealth. New York: Harper Collins, 2004.

Quirk, Paul J., and Sarah A. Binder, eds. The Legislative Branch. New York: Oxford University Press, 2005.

Vogel, David. Fluctuating Fortunes. New York: Basic Books, 1989.