Seeking Truth and Finding Oil

In a new political detective story, set in the Middle East, Charlotte Dennett combines oil pipeline politics, 

relentless journalism and revealing family 

biography to unravel the Great Game

By Greg Guma

All families have unsolved mysteries, stories lost or rarely told. But few if any have a storyteller as prepared or as dogged as Vermont lawyer and journalist Charlotte Dennett — or a family saga so entwined with the politics of oil and pipelines in the Middle East. 

In a new book, The Crash of Flight 3804, Dennett melds two narratives, the personal and the geopolitical. The subtitle suggests its scope: A Lost Spy, a Daughter’s Quest, and the Deadly Politics of the Great Game for Oil. It’s an epic yet intimate voyage full of dark discoveries, suspenseful, brave, ambitious and detailed.

The Great Game before 911

Let’s look at those four qualities, beginning with a bit of the suspense. In 1943, Charlotte’s father, Daniel Dennett, went from a life of teaching and scholarship to wartime espionage. A Harvard-educated Mideast specialist who spoke Arabic, French and German, he taught English in the 1930s at the American University in Beirut. That made him a good catch for either the State Department or the Office of Strategic Services (OSS), precursor of the CIA. 

But as the Agency proudly points out on its website — now that it has finally recognized Dennett as its “forgotten first star” — he chose intelligence over diplomacy.  

In 1944, Dennett became the OSS chief of counterintelligence in Beirut, re-assigned to the Strategic Services Unit (SSU) once the war ended. By 1946, at age 36, he was running Beirut intelligence operations, just as the Central Intelligence Group (CIG) was morphing into the CIA. Dennett’s CIG code name was Carat. His cover was cultural attache, but he felt engaged in cultural warfare, and not only with the Russians but also with some allies, notably the British and French. Financier Bernard Baruch had just named the unfolding struggle: “We are in the midst of a Cold War.”

On March 19, 1947, Dennett boarded Flight 3804, a C-47 army transport plane, bound from Jeddah in Saudi Arabia to Ethiopia. At this point one part of his job was helping to negotiate the route of a new, US-controlled Trans-Arabian oil pipeline that would run across Arabia to either Lebanon or Palestine. Where it would end was becoming a key sticking point. In his last correspondence, Dennett talked about US oilmen arguing over a final terminal on the Mediterranean, and Syrians balking over transit rights.

The stated mission was to deliver top secret communications equipment, take and deliver aerial photos, and meet with Sinclair Oil officials. On board, along with Dennett and the flight crew, were Donald Sullivan, a US petroleum attache inspecting holdings and projects, and John Creech, the intelligence agency technician responsible for the equipment. The plane never landed, instead slamming into a mountain north of the capital. 

The first person to reach the crash site was an unnamed British officer. The official explanation was a weather-related accident. 

Charlotte Dennett, less than two months old when her father died, has spent much of her life searching for the truth about what happened, and the bigger picture surrounding that personal loss. Among the more revealing documents she found along the way was Daniel Dennett’s 1944 “analysis of work” for the OSS, in which he acknowledged that Saudi Arabia’s oil deposits were so enormous “that we must control them at all costs.” That phrase, “at all costs,” resurfaces frequently, and headlines the last chapter. 

An Evil Power: Oil & Empire in the Middle East (3 minutes)
“Oil is an evil power,” wrote Upton Sinclair, “luring nations to destruction by visions of unearned wealth, and the opportunity to enslave and exploit labor.” 
Iran history, with animation from ARGO, and commentary 
by Groucho Marx and Orson Welles. 

The book opens with a brief foreward by another Dennett, Charlotte’s older brother, also named Daniel. He is known as one of the “the four horsemen,” thought leaders of the new atheist movement. The others are Sam Harris, Richard Dawkins and the late Christopher Hitchens. If the four horsemen were a rock band, Dennett would be the quiet one.

“The Great Game for Oil is one of civilization’s dirty secrets,” he explains, one perhaps understood best by persistent journalists like his sister and master spies like his dad. And he introduces Kim Philby, who played a crucial role in post-war intelligence, a high-level British double agent who ultimately defected to the Soviet Union. Both Daniel and Charlotte Dennett see motives for Philby and British involvement in their father’s untimely death. As head of UK counterintelligence for the Middle East, Philby certainly had the opportunity and was linked to other sabotage. 

But would the British make such a move? And why? Like many questions posed throughout the book, these can’t be definitively answered. But Dennett often presents a persuasive case, or admits to speculating when a trail runs dry. At one point, she bravely asks whether her father was tolerant and humane as a spy. Whose interest did he serve? Did he know or care, she wonders, “about what was happening to the Jews of Europe when he strove to make Lebanon safe for the Trans-Arabian Pipeline?” This is impossible to determine, but the question itself is laden with meaning. Sometimes she sees him as a victim of the Great Game, sometimes as a player and master spy.

In any case, if Daniel Dennett’s death wasn’t an accident, were the British directly implicated, or did Philby point the Soviets (or some other group) toward his activities in the region? That’s one type of question. The title of Chapter Five poses another: Is the Syrian War a pipeline war? As you might suspect, her answer to this one is yes. And although recent conflict has delayed projects involving that country, she predicts, “covert pipeline wars between the west (seeking to bypass Russia) and Russia (seeking to consolidate its hold over pipeline routes to Europe) will no doubt resume.”

At times The Crash of Flight 3804 reminds me of Fate is the Hunter, a 1964 aviation disaster film. The main storyline concerns the crash of a commercial airliner. Investigators initially point to pilot error (Dennett’s crash was blamed on uncertain weather.) But Glenn Ford, playing the airline’s Director of Flight Operations, won’t accept conventional wisdom and eventually discovers the real reason — a complex chain of coincidences. In the process, the film explores the lives of passengers and crew, the technical operations of aircraft, the process of investigation, and the pressures of relentless news media and industry politics.

Dennett employs a similar approach. After introducing her father and briefly describing the crash, she uses various chapters to chronicle oil politics in Afghanistan, Iraq, Syria, Turkey, Saudi Arabia, Yemen and Israel, along the way introducing journalists and others who have provided inspiration or uncovered key facts, while exploring her family’s connections to various events and places. The structure is ambitious but can prove frustrating at times, offering up recent history with only a tangential connection to the main narrative. But unlike the film, Dennett rarely equivocates. Rejecting fate or coincidence, for instance, she says British interests were the most likely outside factor in Daniel Dennett’s death, probably involving sabotage with Ethiopian participation, and possibly orchestrated by Kim Philby. 

A British hand makes sense. In March 1938 the Standard Oil Company of California (renamed Aramco in 1944) had discovered vast oil deposits in Saudi Arabia. Britain still dominated the region, but was feeling the pressure. King Abdul Aziz Al Saud, known as Ibn Saud, thought his future might be with America and considered his 1945 meeting with Franklin Roosevelt “the high point of my entire life.” By 1947, the US had replaced Britain as Saudi Arabia’s favored trading partner. Winston Churchill was furious about the loss of influence. 

In his last letter home, Dennett expressed concern about British colonialism and the adoption of similar policies by Aramco. In addition, however, he was heading to a meeting with Sinclair Oil, which often broke step with the industry. According to Harvey O’Connor, who wrote a 1955 precursor to Dennett’s book called The Empire of Oil, Sinclair’s founder, Harry Sinclair, was the only oil magnate to sign an agreement with the Oil Workers International Union. “Repeatedly, he delighted in breaking the Standard of New Jersey wage program by giving advantageous terms to the union,” O’Connor wrote. Standard of New Jersey meant Rockefeller power. 

After decades of research on the region, however, there are matters beyond her father’s case on Dennett’s mind. “Telling the truth had been drummed into me in childhood by my mother (despite the fact that my father was a spy who by profession, was taught how to lie!),” she writes. Nevertheless, she has often found herself “seeking truth and finding oil.” Looking back at seven decades, as well as recent violence in Syria, Iraq, Gaza and Yemen, she forcefully argues that “the timeworn quest for oil — to be pursued and protected ‘at all costs’ — lies at the heart of many of these tragedies.” 

Dennett acknowledges that some may consider this conclusion an oversimplification, and allows room for other arguments. Some wars and violence in the Middle East do appear to have multiple causes. Despite the evidence she assembles, that looks like the case in Syria and Yemen. On the other hand, there is little doubt that oil was a decisive factor in the Iraq War of 2003, and it has been a driving force elsewhere. There is important, fresh information and insight in Dennett’s reading of recent Middle East events. But the granular details of pipeline schemes can become a distraction, diverting focus from the central storyline.

___________________

“Everywhere it has been hunted as a wild animal, and the law of the jungle has entered into the heart and sinew of the industry. The sordid and bloody story has been told in local and world wars, in revolutions and corruption, in continuing world turmoil.” - Harvey O’Connor,
The Empire of Oil

______________

As someone who has known Charlotte Dennett for more than 30 years, I’m familiar with her political views, and have read both her 2010 book, The People V. Bush: One Lawyer's Campaign to Bring the President to Justice and the National Grassroots Movement She Encounters along the Way, and her previous work with husband Gerard Colby. As she explains in the new book, for years “we followed the trail of US evangelical missionaries and spies from Latin America to Southeast Asia and Africa and inevitably found oil and fundamentalism as common denominators of conquest.” The result was a massive book with an equally big title, Thy Will Be Done: The Conquest of the Amazon: Nelson Rockefeller and Evangelism in the Age of Oil.

What intrigued me more and kept me reading this time were the twists and turns of her personal journey, as well as her family’s deep and complex connections with the Middle East. They go back much farther than 1975, when Charlotte dodged gunfire in Beirut as a young reporter; or 1947, when she was born there and her father’s plane went down; or even 1931, when 21-year-old Daniel Dennett arrived in Beirut to teach. Her grandmother, Elizabeth Redfern, spent three years in Turkey as a missionary educator from 1900 to 1903, teaching biology at the American College for Girls. 

And it was no accident. Redfern’s father, a Massachusetts lumber merchant, thought that was an excellent idea. In fact, he needed her “to be his eyes and ears in Turkey as the United States entered the Great Game.” The race was on to build railroads, and white pine from Maine made good railroad ties. “My grandmother was there to see it all, whether or not she understood its ramifications,” Dennett writes. 

Apparently, Elizabeth Redfern wasn’t the only amateur spy at the school. With daily horseback rides other missionary teachers “did their part in informally gathering and passing on intelligence to the school’s wealthy trustees.” It was all there: missionaries, spies, commercial scheming over transportation and oil in the Middle East. 

Despite its connection to her husband’s death, Charlotte’s mother loved Beirut, and managed to return as a librarian in 1963. Charlotte finished high school there, two years that changed her life, introducing her to “an interpretation of the Middle East that was entirely different from anything I’d seen in the United States.” In the 1970s, she came back as a reporter, writing sunnily about developments in rapidly changing societies. In Abu Dhabi, for example, she reported that petroleum “has launched a small, poverty-stricken country into space age modernity and affluence.” 

But some stories couldn’t be published, material that ended up in a file called “What Charlotte couldn’t write.” Things like tyrannical rule in Iran under the US-backed Shah, men in dark suits and sunglasses surveilling street corners for any disturbances, universities plied with drugs to keep the students pacified, and the Shah’s sister trafficking opium. Once she teamed up with Colby, however, to investigate the connections between Rockefeller, missionaries, CIA operatives and genocide in the Amazon, self-censorship was no longer an issue.

That makes the last chapter of the book a bit surprising, although a fitting climax for her quest. It begins with two CIA men visiting their home for a chat in April 2019, and culminates in May with handshakes, promises and speeches at CIA headquarters as Dennett wonders whether Big Oil can be restrained or the agency can change its ways. “Are we on the cusp of something new? Or the same old story...”

In 2007, after repeated rejection of requests for documents on her father’s death, Dennett sued the CIA. This attracted some press, including coverage by the Village Voice and New York Times. The court backed the agency’s typical national security argument and her case was dismissed on appeal. But the spooks took notice and apparently had another move.

When Mark Schwendler, a CIA historian, and David Marlowe, assistant director of the Near East Mission, showed up in Burlington last year it was all smiles and jokes. Colby and Dennett were skeptical: “We figured that they surely must have researched us ahead of time and discovered that I was writing a book about my father.” Apparently, Schwendler was conducting related research, following up on a 2008 think tank recommendation that Dennett be added to the CIA’s memorial wall. It still sounded suspicious.

Schwendler then provided crash documents that pointed to weight, weather and pilot problems. But Dennett had seen reports that contradicted those theories. By the end, it was obvious that the writers knew more than the CIA men. The visit concluded with a promised tour of the agency’s spy museum and some creepy final words: “Welcome to the family. We are all family.”

On May 21, 2019 Dennett and Colby got their tour and more. In a Langely, Virginia conference room, renamed for the two fallen heroes, they saw tributes and heard warm remarks by Marlowe. They visited Dennett’s star, newly engraved on the CIA wall, and took part in an emotional ceremony. There was even a private meeting with CIA Director Gina Haspel, who called her father a role model and agreed to consider releasing more documents. The agency delivered on that in January 2020, removing some redactions and releasing more Information about the elder Dennett’s last months.

The real surprise was Charlotte’s take away from the charm offensive: “Apparently my wanting to do justice to my father won them over to our patriotism and the sincerity of our work, despite some understandable misgivings about our previous books.” Really? Despite knowing well that spies routinely dissemble, she considered the respect and sensitivity shown at the CIA that day to be genuine. Well, possibly. But it might also be strategic, keeping potential threats as close as possible.

“These Americans (being part of an oath-taking secretive organization) do not get the same public accolades as our armed forces on Memorial Day,” Dennett also notes. “Intelligence agencies are needed... members of the CIA may not always feel comfortable in what they are ordered to do, but they strongly believe in the overall mission: that ultimately, they are protecting democracy itself.”

That argument seems out of place, a soft defense of an intelligence community that has often backed repressive regimes, created massive chaos, and helped private interests protect oil and pipeline routes “at all costs.” Then again, most spies probably do believe that protecting democracy and American interests are closely linked, if not the same thing. And her father clearly had some misgivings, at least about the “imperial drift” of oil companies like Aramco. On the final page, Dennett does balance her qualified support with mention of a recent questionable CIA operation, running local militias in Afghanistan that commit serious human rights abuses. 

Her last thoughts also suggest that we live in unsusual times, when members of the intelligence community can be whistleblowing fighters against a corrupt federal regime, and patriots can be liberals who love their country while criticizing its shortcomings and mistakes. This is intriguing. Yet she provides no details and offers no advice on how to avoid the next showdowns over oil, beyond responsible individual acton and insistence on the right to be fully informed.

Instead, Dennett asks more questions: Have we turned a page? Will the truth about Americans trying to grab Ukrainian natural gas be exposed? Can a powerhouse like Saudi Aramco, the personification of big oil in league with big banks, “be restrained by the heartfelt pleas of millions of young climate activists?” We need frank, intelligent investigations and discussions about such issues. But she doesn’t pretend to offer all the answers. Rather, Dennett’s combination of oil pipeline politics, relentless journalism, and revealing family biography makes for an absorbing political detective story, one likely to leave you with new questions of your own.

Prologue: When Ida Met HDL (Exposing the Godfather of Big Oil)

For more, read Blind Ambitions: Iran, the Shah and his Friends

When Ida Met HDL: Exposing the Godfather of Big Oil

When Ida Tarbell decided to take on John D. Rockefeller’s Standard Oil, an earlier muckraker wasn’t impressed and told his contacts to avoid her — at first. Then he met her and changed his mind.

Preparing to review The Crash of Flight 3804, a new book by a colleague, Charlotte Dennett, on the deadly politics of oil, I recently discovered a intriguing connection between an earlier investigator of the same industry and another old friend. In 1900, Ida Tarbell was looking for a way to show how ownership of oil interests was moving toward control by a few. With a push from Ray Stannard Baker, she developed the outline for a series that would approach the business as an historical narrative and submitted it to the editor of McClure’s Magazine.

Tarbell began with an open mind, noting that she wasn’t certain that John D. Rockefeller had done anything illegal. But she remembered well the effect his company had on her own family. Her father Frank Tarbell had prospered in the oil business, that is, until his operation was crushed by monopoly power. Her hometown had risen in protest, and Ida was no longer on speaking terms with some old neighbors who sold out to Rockefeller’s Standard Oil. 

She knew little about the company until then. Key documents had disappeared, those who sold out to Rockefeller at a profit wanted no trouble, and those who held out feared what he would do. Her father warned her not to write about it, predicting “they will ruin the magazine.”

Tarbell dismissed suggestions that Standard might kill or main her. But she knew they were already aware of her. One night, at a party given by Alexander Graham Bell, a vice-president of the Rockefeller-controlled National City Bank had beckoned her into a private room for a talk. Frank Vanderlip, a popular DC bachelor, then told her bluntly that his bank was concerned about her project. She was stunned by the implied threat, and also by the thought that she was being watched. But she replied boldly: “Well, I am sorry, but of course that makes no difference to me.” 

Henry Demarest Lloyd

Standard didn’t make an immediate move. But Henry Demarest Lloyd, great grandfather of my friend Robin Lloyd, was not impressed and said so. A decade earlier HDL had written an indictment of monopoly power, Wealth Against Commonwealth. Tarbell had read the book, but rejected Lloyd’s argument for socialism, which she considered idealistic but not practical. “As I saw it,” she recalled, “it was not capitalism but an open disregard of decent ethical business practices by capitalists which lay at the bottom of the story Mr. Lloyd told so dramatically.”

Lloyd’s theme was the negative power of wealth. To illustrate his viewpoint, he focussed on Rockefeller businesses and practices — but did not name John D. Tarbell wanted to go deeper and name names. She also wanted to ask Standard Oil to comment on what she found. When Lloyd heard about that, he warned independents that she had been hoodwinked by the oil company and advised key people to avoid her.

Tarbell couldn’t figure out why her old neighbors wouldn’t help. “It was a persistent fog of suspicion and doubt and fear,” she said. Nevertheless, she persisted and managed to prove that Rockefeller was the linchpin of an illegal ring — the South Improvement Company — that had transferred its tactics to Standard Oil. The arrangement gave Rockefeller’s group so much power that even other oilmen started calling it an octopus. 

Three initial articles were ready for print in 1902. The first opened with the discovery of oil, the second covered Standard’s formation, and the third chronicled an 1872 “oil war” in which independents defeated the South Improvement Company. 

One anecdote, first unearthed by Lloyd, focused on a woman who was defrauded by Rockefeller. Finding the story intriguing, Tarbell asked Lloyd for documentation about the widow Backus. Court records had been stolen, he explained. It took her several weeks to locate copies. At this point, the relationship between the two muckrakers became more like a tango. Each was dedicated to the subject and sensitive to the protocols of professional courtesy. Finally recognizing Tarbell as an effective critic, Lloyd realized he should meet the woman whom he had already attacked.

In September 1902, Tarbell visited HDL in Rhode Island. Lloyd was a charming, silver-haired man in his mid-50s. She outlined her series and he shared his research. Tarbell was impressed by the encounter, but Lloyd remained skeptical about her desire to create a “balanced” presentation. And despite their comfortable seaside location, he managed to make her feel guilty about her love for expensive things.

“I cannot tell you what a good time I had and what an impulse you gave me,” he wrote afterward. “With my radical leanings I sometimes grow very restive in my practical and rather conservative — though I think entirely sincere — surroundings. It does me good to run up against the people in the advance line where I believe most of us will be one day.”

In her series, Tarbell retold the widow’s story accurately, but with less passion than Lloyd had employed. Basically, a successful business woman had allowed herself to be frightened and failed to see the significance of contracts she had signed. It illustrated, thought Tarbell, how Rockefeller could terrorize and eliminate successful competitors.

Lloyd approved of her interpretation. “When you get through with ‘Johnnie’ I don’t think there will be very much left of him except something resembling one of his own grease spots,” he joked.

The Standard Oil series debuted in November 1902, just as a coal strike gripped the country. Pennsylvania’s National Guard were ordered to quell the riots, and mine operators refused a presidential request to resume work. The dispute was finally settled through arbitration.

A century later: disastrous effects continue

In the second installment, Tarbell named the original Standard partners. Worse for Rockefeller, the article revealed him as the force behind the South Improvement Company. As Tarbell’s father had explained to her, the federal government granted railroads subsidies and rights of way on the condition that railroads would act as public utilities — equal rates for all and no consideration for the volume of business. Rockefeller and others had abused these rules.

As the series continued, skeptics who had fought Standard Oil began to trust Tarbell. “I have been having a very interesting time here with the Standard work,” she wrote. “It is very interesting to note now, that the thing is well under way, and I have have not been kidnapped or sued for libel as some of my friends prophesied, people are willing to talk freely with me.”

One of her new fans was Lewis Emery. A hero among oilmen after he had frustrated Rockefeller’s control of railroads by building a pipeline, Emery had known Tarbell since her birth. He was one of the most successful independents, yet sometimes described himself as Rockefeller’s helpless victim. After reading Tarbell’s early installments, he wrote to Lloyd.

“I shared your misgivings relative to the motive prompting Miss Tarbell to write such a history,” Emery wrote. “I have been watching her articles closely and have expressed to her personally my doubts as to her sincerity in writing a truthful history of the acts of the men composing that company.” On the other hand, he also visited her in New York and they spent several hours discussing her work. 

After reviewing her future plans Emery changed his mind and decided to help. “I shall assist her as best I know how to prepare certain articles on the independent movement,” he informed Lloyd. He also asked for the return of refinery photos he wanted to share with Tarbell.

Lloyd still had reservations. Tarbell had won his confidence, but not McClure. An ad for the series was too even-handed, he thought, and he was concerned that the publication might yet come out on the company’s side. He forwarded the photos along with a worried letter. 

“I have not the least doubt as to the honesty and good intentions of Miss Tarbell,” Emery replied, “but you have opened my eyes to a certain extent relative to the publishers and the whole milk in the coconut.” He asked for permission to forward Lloyd’s letter to Tarbell. HDL agreed, as long as there was no wording that implied criticism of her.

LLoyd did not live to see completion of The History of the Standard Oil Company. He died suddenly six months after this correspondence, while leading a Chicago campaign for municipal ownership of street railways. With other journalists like Lincoln Steffens, Tarbell went on to spearhead a surge of investigations and joined the larger stream that came to be known as the progressive movement.

Merger Madness and the Reagan Revolution's Big Fail

"Over the last 30 years there has been a transfer of trillions of dollars from the middle class to the top one-tenth of one percent." 

- Bernie Sanders on Twitter, Dec. 26, 2015

The conservative economics of the Reagan era deeply affected the lives of millions. What George H.W. Bush once called "voodoo economics" -- before he forgot and signed on as vice president -- became the biggest redistribution of wealth since the New Deal. As Bernie Sanders has pointed out, the gap between the rich and poor widened dramatically during those years, big corporations got bigger, and politicians backed away from social welfare programs.

The central article of faith at the time was that money rerouted to the rich would produce a burst of productivity and industrial growth. Give to corporations and the already wealthy, advised "supply side" economists, and "job creators" will invest the money in new factories, research, technology and jobs. The country will be restored to greatness.

We've been hearing this gospel for years. And we're hearing it again today from Reagan impersonator Donald Trump. But did it work the first time?

Even before Saint Ronald took office, he let corporate interests know they could have virtually whatever they wanted. Once in the White House, he immediately began to undermine or suspend government regulations of business, adamant in the belief that when business was given freedom and cash it would invest in new productive capability.

It didn't work out that way. The nation's biggest businesses did not put their money into jobs, research or equipment. Instead, they went on the largest merger binge in history, buying up smaller companies in a trend that meant less competition, less productivity, and more control of the economy by fewer people.

Multi-million dollar war chests were assembled to finance takeovers of large oil and coal companies, communication giants, and financial institutions. In just the first half of 1981, mergers involving $35.7 billion were arranged, a 60 percent rise over the previous year. Yet this was just a prelude to the largest merger in US history. On July 6, 1981, DuPont, the country's top-ranked chemical company, offered $6.8 billion to acquire Conoco, a major oil company that owned the second-largest US coal company, Consolidated.

DuPont was playing what merger watchers called the "white knight," so named because its offer was invited by Conoco's board to stave off yet another bid by Seagram, a Canadian corporation and the world's largest whiskey business. Within two weeks Mobil, then the second-ranked US oil company, weighed in with an "unfriendly" attempt to outbid both DuPont and Seagram. It hoped to gain Conoco's large oil and coal reserves, but was also testing Reagan's more lenient anti-trust policies by trying to buy a company in the same business.

The price reached $7.7 billion before DuPont won the bidding. By this time more than $16 billion in credit had been extended to the three competitors. Most of the money was still available afterward, plus another $20 billion in credit to other corporations either planning takeovers or trying to prevent them. Five major oil companies alone had $24 billion in credit lines; Texaco, Gulf, Marathon and Mobil were actively seeking mergers with "second tier" companies.

It wasn't a Left-wing think tank that labeled this phenomenon "merger madness." The name was coined by The Wall Street Journal. At first corporate leaders tried to sell it as simply a competitive necessity. But the truth is that the merger wars of the 1980s actually undermined the "economic recovery" so often touted by Republicans. In agreeing to let corporations run free, Reagan's administration brought on the rapid, public failure of supply-side economics.

There were warnings, of course. The Independent Bankers Association, for example, predicted that financial industry mergers would limit the availability of credit to agriculture, small business and individuals in thousands of small communities. The effect will be like a "giant vacuum cleaner" sucking up money, their spokesman predicted. 

Merger mania also slowed economic growth. Investments in production of new capital equipment, research and exploration took a back seat to acquisitions that strengthened a corporation's competitive position. The trend even fouled up the Federal Reserve's "tight money" policy. Both raiders and white knights were able to get credit through infusions from the European market. Even if the Reagan administration had wanted to halt the spree, little could have been done quickly, except maybe to impose limits on credit allocation. But far from fearing the madness, most Reaganites considered mergers perfectly acceptable.

"The Government of Business"

Two days after DuPont announced its historic merger, Reagan's assistant attorney general for anti-trust previewed the new administration philosophy -- by dropping two antitrust lawsuits. One of these charged that Mack Truck and its distributor had conspired to fix pricing discounts of Mack Truck parts. The Carter administration's antitrust division considered such vertical deals anti-competitive. The other case involved a government attempt to block the acquisition of the Northeast's leading outdoor brick seller by a British company. The issue here was market concentration: the merged business would command about 20 percent of brick sales in 13 states.

On this and other matters, the Reagan team did little to make its stand on mergers clear. It did, however, also decide to drop a long-standing anti-trust suit against American Telephone and Telegraph. Filed in 1974, the lawsuit claimed that AT&T had tried to obstruct potential competitors by refusing to let them hook into the Bell system. The proposed remedy was to break up the company. But the Reagan administration suggested that new FCC regulations would be an appropriate substitute. Top officials claimed they were more concerned about international competition from the Germans and Japanese than domestic monopoly practices.

Overseeing the merger boom, the administration was quiet and often encouraging. As Treasury Secretary Donald Regan put it, "Our economy is growing, our nation is growing, and the world is growing. So why shouldn't companies grow?"

Yet this wave of consolidation was only one in a series of attempts by major corporations and financial institutions to reshape the US economy. They started more than a century ago, but the initial public response was weak and half-hearted. Before some limitations were placed on the emerging monopolies, the Standard Oil Trust already included 40 companies representing 90 percent of the oil refineries and pipelines in the country. Trusts -- groups of corporations entrusting their stocks to small boards of directors -- also controlled the sugar, beef, whiskey and several other industries. 

A big slogan of that era was pure laissez-faire: "The government of business is not part of the business of government."

Nevertheless, a populist campaign to halt monopolization and protect the public interest gained steam in the 1880s. It grew out of resentment by small business over strong-arm corporate tactics, consumer complaints about price-fixing, and attacks by muckraking writers and alternative political parties. By 1888, both major parties were attacking the trusts, at least rhetorically.

When the Sherman Antitrust Act passed in 1890, only one dissenting vote was cast in Congress. The law declared illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." It authorized prosecutions and lawsuits for damages. But enforcement was far from aggressive at first and the number of trusts grew from 18 to 157 over the next decade. 

As president Theodore Roosevelt did attempt to put some teeth into the law; his Department of Justice pressed lawsuits calling for dissolution of the Standard Oil and American Tobacco Company trusts. Roosevelt also urged more indictments for anti-competitive practices. Merger activity boomed anyway. Two subsequent booms occurred in the 1920s and 1950s.

Antitrust enforcement was highly selective from the start. Take sugar refining, which the US Supreme Court defined as a "manufacturing monopoly" in 1895 and therefore exempt from regulation. A year earlier the same Court ruled that the Sherman Act could be used against striking workers because they were in restraint of trade. Eventually the Court decided that the law barred only "unreasonable" combinations.

Even when a firm was convicted for monopoly practices, an effective remedy was hard to devise. Roosevelt successfully prosecuted DuPont for monopolizing the explosives business, but the Court was at a loss to design a solution. The eventual decision was to set up two new powder companies. But DuPont shaped the plan and picked the executives for both new firms.

During the Carter years, the spotlight shifted to what were then called "shared monopolies," industries in which a few large companies shared control of the market. After identifying 50 such industries, the plan was to file a lawsuit against IBM on the basis of its "overtly predatory" practices. But that didn't go far, since Reagan's team saw federal regulations as the real problem and looked away as competitors gobbled one another at an accelerating pace.

Laffer's Folly

According to conservative legend, the basic outline for the "Reagan revolution" was originally sketched freehand on a napkin. The draftsman, UCLA economist Arthur Laffer, portrayed with a simple curve his idea that the health of the economy depends on the level of taxation. Laffer also argued that the US was taxing too high on the curve to keep business strong.

Armed with this specious doctrine, conservative "supply-siders" promised that tax reduction, combined with reduction of the "regulatory burden," would increase profit rates. And with this windfall corporate America would make new investments to decrease unemployment and increase productivity. More jobs and income would mean increased revenues for the government, even with lower tax rates. Increased productivity would mean more goods and, some day, lower prices. That was the gospel.

Meanwhile, antitrust "restrictions" were targeted as too "burdensome." Trust-busting kept companies from growing enough to compete against foreign rivals, the supply-siders warned. In fact, some consolidation should be encouraged. "Mergers are an important part of a healthy economic system," advised US Attorney General William French Smith, while economic theorist Robert Heilbroner declared antitriust laws "old-fashioned."

The bottom line: US corporations needed more money, supposedly to invest in new technology and development in order to stay competitive. But the theory was flawed; as it turns out, there is only the most tenuous connection between today's profits and tomorrow's investments. 

Looking back at the $100 billion that was passed around in ownership shuffles between 1975 and 1980, Harold Williams, former chairman of the Securities and Exchange Commission, noted that the same money "could have been devoted to new production and employment opportunities." But when used for mergers, it didn't "flow back as new capacity, improvements in productivity, innovation, new products or jobs."

Oil companies scouting for merger targets in the 1980s certainly didn't show much sensitivity to calls for expansion and investment in new technology. Others on the merger bandwagon were bidding up the prices of old facilities rather than investing in new ones. Even when bribed to make capital improvements with tax breaks, many corporations chose mergers as the shortest, easiest road to profit. 

During the Reagan era, income, wealth and control over economic life shifted dramatically into fewer hands. The trend toward economic consolidation seriously undermined the spirit of independent entrepreneurship that had once been the heart of the American economic system. Interest rates remained high as funds were drained for acquisitions. By 1983 the unemployment rate was over 10 percent, one more obvious sign that the supply-side gospel was a fraud.

Greg Guma is the author of The People's Republic: Vermont and the Sanders Revolution and other books, and former Executive Director of the Pacific Radio network.