Skip to content

The Politics of Tollbooth Capitalism

No historical analogies are perfect. But in many ways the election of 2020, along with that of 2016, echoes the election of 1896.

In 1896, the geographic and social bases of the two national parties were the opposite of what they are today. McKinley in 1896 and Biden in 2020 did best in the same regions: New England, the upper Midwest, and the Yankee-settled West Coast. William Jennings Bryan in 1896 and Donald Trump in 2020 found their strongest support in the South, the plains, and the mountain West.

In 1896 the agrarian populist wing of the Democratic Party had defeated the hard money, pro-business wing, and united behind a charismatic tribune of the people—Bryan—and a program that broke radically with existing classical liberal economic orthodoxy, the equivalent of today’s neoliberal economic consensus. The division between Bryan Democrats and Cleveland Democrats in 1896 was as deep as that between Trump Republicans and Bush-McCain-Romney Republicans today. Many conservative, affluent Cleveland Democrats repudiated their own party in horror and voted for the Republicans, like Never Trumpers in 2016 and 2020.

Like McKinley in 1896, Biden assembled an omnibus coalition of constituencies who shared little in common except repudiating the populist insurgency. In mid-century Democratic liberal historiography, written when the Democrats were still the party of white workers and small farmers, McKinley was caricatured as the servant of plutocracy. In fact, McKinley, like Biden, was a centrist by the standards of the time, who was able to win significant support from farmers and industrial workers as well as business owners, capitalists, and professionals. Samuel Gompers, the founding president of the American Federation of Labor (AFL), insisted that the AFL remain neutral. Gompers later became a leading member of the National Civic Federation (NCF), founded in 1900, with Ohio senator Mark Hanna, the Republican kingmaker behind McKinley, as its first presi­dent.

Last but not least, like today’s politics, the 1896 election had “culture war” elements. Many European American immigrants in the big industrial cities found agrarian populism, with its strong evangelical Protestant overtones, alien and threatening. The Bryanite insurgency was a regional revolt of the South and West against the wealthy Northeast. Similarly, the Trump phenomenon has represented a rebellion of working-class peripheries, small towns, and rural areas against the hub cities where the rich, powerful, and prestigious cluster in the twenty-first century.

Vachel Lindsay’s 1919 poem “Bryan, Bryan, Bryan, Bryan” captures the conflict brilliantly from a populist perspective:

And these children and their sons
At last rode through the cactus,
A cliff of mighty cowboys
On the lope,
With gun and rope.
And all the way to frightened Maine the old East heard them call,
And saw our Bryan by a mile lead the wall
Of men and whirling flowers and beasts,
The bard and prophet of them all.
Prairie avenger, mountain lion,
Bryan, Bryan, Bryan, Bryan,
Gigantic troubadour, speaking like a siege gun,
Smashing Plymouth Rock with his boulders from the West,
And just a hundred miles behind, tornadoes piled across the sky,
Blotting out sun and moon,
A sign on high. . . .

Election night at midnight:
Boy Bryan’s defeat.
Defeat of western silver.
Defeat of the wheat.
Victory of letterfiles
And plutocrats in miles
With dollar signs upon their coats,
Diamond watchchains on their vests and spats on their feet.
Victory of custodians, Plymouth Rock,
And all that inbred landlord stock.

The victory of McKinley in 1896 led to an era of Republican presidential hegemony that lasted until the election of Franklin D. Roosevelt in 1932. That hegemony was interrupted only by the elec­tion of Woodrow Wilson in 1912, when Theodore Roosevelt’s Pro­gressive Party candidacy split the Republican vote, and Wilson’s re­election in 1916 as the candidate who had kept the United States out of World War I. The 1896 election is often treated as the triumph of big business writ large. But it is more accurate to view it as the hinge between two political-economic eras: the age of the railroads and the subsequent age of large industrial corporations.

Two Waves of Industrialization

The closest parallel in American history to the contemporary domina­tion of both politics and the economy by a handful of tech corporations—including Amazon, Facebook, Microsoft, Twitter, and Ap­ple—is the age of railroad domination between the Civil War and the rise of large U.S. manufacturing corporations in the 1890s. Forget the mid-twentieth-century liberal version of history that you might have learned in school. According to that narrative, the period from the 1860s to the 1930s was characterized by unchecked, rapacious indus­trial capitalism. Rallying behind Franklin Roosevelt and the New Deal Democrats, the capital-P People reined in big business in all industries.

This classic account gets the sequence of industrialization in the United States wrong. Before the great merger wave between 1894 and 1905 that produced a number of giant firms like DuPont, U.S. Steel, and General Electric (whose names are still familiar today), manufacturing firms were dwarfed by railroad companies. The railroad indus­try was the first—and for a time the only—giant modern industry in a mostly agrarian United States. Many of the bloodiest labor battles in the late nineteenth century involved railroad worker strikes. And the agrarian populist rebellion and the antitrust movement that culminated in the Sherman Antitrust Act of 1890 were motivated in part by railroad pricing policies.

It is only in the early 1900s that huge manufacturing firms and oil companies joined the railroads at the apex of the U.S. economy. Even before the New Deal, although they tended to resist collective bar­gaining with independent trade unions, many of these big new firms sought to minimize labor strife through methods like welfare capital­ism or arbitration. They favored relaxed interpretations of antitrust law that allowed firms to collaborate in setting standards—at the expense of small bus­inesses, their critics complained. Far from being anti-statist libertarians, many of the man­agers and owners of the new industrial firms of the early twentieth century subscribed to various forms of “associationalism,” an American version of continental European cor­poratism.

During and after the New Deal, former president Herbert Hoover denounced his successor Franklin Roosevelt as a dangerous statist. In fact, both Hoover and FDR belong to the tradition of association­alism. The vision of the “corporate commonwealth” in association­alism acknow­ledged the legitimacy of regulation (preferably self-reg­ulation by industry under government supervision), with organized labor as a partner in some versions. The associationalist vision, shared by Re­publican presidents Coolidge and Hoover, as well as by Eisenhower and Nixon later, peaked in Roosevelt’s First New Deal, in the form of the National Industrial Recovery Act. The NIRA sought to create sectoral, industry-wide associations which would set minimum wages and benefits along with various standards. After the Supreme Court struck down the NIRA in 1935, for the technical reason that the statute was an unconstitutional delegation of congressional power to the executive branch, Congress enacted rigid, one-size-fits-all wages and hours standards in its place.

Robber Barons from the Railroads to Big Tech

Today’s tech companies look much more like the railroad and telegraph companies of the 1870s and 1880s than like U.S. Steel or Ford Motor Company, or Lockheed decades later. For one thing, most of today’s tech giants, like the railroads and Western Union, can be described as infrastructure companies. They provide the necessary infrastructure used by businesses and ordinary members of the public alike. This has allowed them to eclipse manufacturing companies, including very big ones.

In the fourth quarter of 2020, in terms of market value, the leading platform companies were Apple, Microsoft, Amazon, Alphabet, and Facebook. Apple’s business involves manufacturing, but in many ways it resembles a retailer—not least in the dependence of many less­er businesses on access to its app store. Microsoft provides the com­puter software on which most businesses and individuals depend. Amazon dominates online retail. Alphabet is a conglomerate whose flagship, Google, has nearly cornered the market for online search, an essential commercial infrastructure function in our time. Google also owns YouTube, the dominant video channel. Facebook is now a bottleneck which, in practice, controls access to readers and viewers of many news publications, while raking in ad revenue that used to go to the publications that its users click through to read.

The term “robber baron” is used nowadays simply as another term for “rich person.” But its original meaning referred to German aristo­crats with castles along the Rhine who used the threat of violence to extort tolls from passing ships. In that sense, Microsoft’s Bill Gates, Amazon’s Jeff Bezos, the founders and CEOs of Google/Alphabet, and Facebook’s Mark Zuckerberg are indeed “robber barons.” Their business model consists of controlling essential choke points in the economy.

Asked once what his ideal company was, the billionaire Warren Buffett, one of the world’s richest individuals, replied: “High pricing power, a monopoly.” Economist Michael Hudson, among others, has referred to the multiplication of such arrangements as the “tollbooth economy.” In their reliance on this tollbooth economy, the lords of today’s digital-era infrastructure—“green” and “progressive” though they may be—have more in common with railroad tycoons than with the CEOs of mid-century manufacturing companies.

There are other parallels between the United States in the late nineteenth century and the present. One is the subservience of both national parties to a single infrastructure industry or set of infrastructure industries. For decades following the Civil War, Democratic and Republican politicians alike could be found to do the bidding of the railroad companies. Today servility toward Silicon Valley as well as Wall Street characterizes both national parties, apart from the occa­sional leftist politician or right-wing populist.

Mark Hanna, the Republican fundraiser and strategist behind William McKinley’s presidency, was himself a product of the railroad era, not the age of national manufacturing corporations that succeeded it. Starting out in retail, Hanna by the 1880s had made a fortune in railroad-era infrastructure industries—railroads and steamships and the iron and coal that they devoured. Hanna had more in common with today’s digital commercial infrastructure tycoons like Jeff Bezos and Michael Bloomberg than with manufacturing magnates like Hen­ry Ford or oil barons like the Rockefellers associated with the mid-twentieth-century automobile-oil-electricity complex.

Today’s tech tycoons and their companies are as hostile to organized labor as the railroad-era robber barons were, even if they don’t hire Pinkerton detectives to beat up union activists. In 2010, the Justice Department brought a lawsuit against Apple, Google, Intel, Intuit, Pixar, Adobe, eBay, and Lucasfilm, which illegally promised not to hire each other’s employees in order to suppress the bargaining power and wages of their workers. Apple has outsourced most of its manufacturing to unfree labor in China, while Uber and Lyft have reclassified people who are clearly employees as contractors without full labor rights or benefits. This may be changing, with the recently formed Alphabet Workers Union made up of employees and contrac­tors at Google’s parent company. But for now, private sector union­ization in the United States is lower than it was under Herbert Hoo­ver, and its absence from the increasingly powerful tech sector is striking.

The Limitations of Antitrust

At this point, many readers no doubt expect me to call for antitrust to break up the tech titans. But today’s proponents of antitrust as a cure-all remedy for the problems I have described make two fundamental mistakes.

The first mistake is to lump together oligopolistic manufacturing firms—think the automakers or jet makers—with infrastructure grids and networks—think railroads and dominant online marketing plat­forms. It is an error to equate giant firms which make profits by manufacturing goods that can be sold in the United States and the world with “tollbooth” industries which control advertising or collect cash from businesses and individuals almost every time they make an online or financial transaction.

The second mistake is to call for breaking up tollbooth infrastructure firms into smaller companies. A case can be made for forcing inefficient conglomerates to spin off unrelated businesses. But what purpose would be served by having five or six unregulated search engines, instead of a single search engine, publicly or privately owned, which is subject to public oversight and regulation?

In this respect, history is again suggestive. The railroad industry was the first national industry to be regulated, and the price-and-entry regulatory model was applied to all sorts of transportation in­dustries in the mid-twentieth century. In the same New Deal/postwar era, finance was heavily regulated and treated it as a public utility.

The Progressives and New Dealers may have applied the public utility model too mechanically. It is not clear, for example, that it made sense to regulate trucking or airlines using methods similar to those used for railroads. But the pendulum swung too far in the other direction after neoliberal Democrats and libertarian Republicans com­peted with each other in the late twentieth century to deregulate one industry after another along with finance.

Indeed, it is precisely because twentieth-century public utility regulation turned infrastructure industries like electricity, water, and gas into dull, low-profit private or public firms, which could not exact predatory tolls, that there were no equivalents to the railroad robber barons of old or the tech robber barons of today. Absent such utility regulation, American history from the 1930s to the 1990s might in­clude the names of celebrity tycoons like the Natural Gas Tsar or the Northeastern Electricity Baron or the Emperor of the Telephones—the equivalents of Gates, Jobs, Zuckerberg, and Dorsey today.

Industrial Capitalists versus Tollbooth Capitalists

One can go further and argue that, far from being equally villainous, industrial capitalists and infrastructure capitalists are natural enemies. The tolls exacted by the infrastructure capitalists, after all, increase costs for productive companies and their consumers alike. And as social media companies and Amazon have shown by banning dis­favored firms, films, and books, unregulated utilities like the major tech platforms introduce an element of arbitrariness and political bias into commerce. An alliance of industrial capitalists, workers, and con­sumers against predatory, unregulated infrastructure monopolies makes perfect sense, even if it does not fit into conventional left-right categories.

Conversely, infrastructure capitalists tend to flourish in pre­industrial or postindustrial economies. Consider the case of Mexico’s Carlos Slim, ranked by Forbes as the richest person in the world from 2010 to 2013 and, at one point, the largest shareholder of the New York Times Company. Slim made his fortune by investing in mono­polies—including Telmex, which controlled 90 percent of Mexico’s landline telephones—and conglomerates in diverse industries. For all the fawning press that Warren Buffett receives, he is far more like Carlos Slim than he is like Thomas Edison or Henry Ford—individ­uals who, for all their flaws, actually contributed to technological innovation, instead of just buying up tollbooths.

In my books The Next American Nation and Land of Promise, I have argued that the United States has gone through a series of politi­cal and economic regimes or “republics,” corresponding to succeeding waves of industrialization. The agrarian early republic, the First Republic of the United States, was dominated by the Southern planter class until their domination of the federal government was broken by the Civil War. The Second Republic between Lincoln and Hoover was shaped for decades by the railroads. The Third Republic of Franklin D. Roosevelt and his successors saw the maturation both of manufacturing industries and labor-management relations.

Is the turmoil of the present part of a transition from the dying Third Republic assembled in the New Deal era to a Fourth Republic of the United States? If so, the signs are not encouraging. Each suc­cessive American republic has been dominated politically as well as economically by a new set of powerful industries. In FDR’s Third Republic, the railroad industry that dominated the Second Republic was in decline, compared to ascendant manufacturing and oil and gas. Today, American manufacturing has been sacrificed to the interests of Silicon Valley and Wall Street, whose major firms are consolidating their control over everything from the retail and lending to the media and nonprofit sectors.

Will the next American regime be dominated by digital infrastructure robber barons who control essential choke points, rather than by innovative industrial capitalists whose firms invent and make new products? If so, then the Fourth Republic of the United States will be an oligarchy ruled by tollbooth tycoons and their dynastic heirs.

This article originally appeared in American Affairs Volume V, Number 1 (Spring 2021): 82–89.

Sorry, PDF downloads are available
to subscribers only.


Already subscribed?
Sign In With Your AAJ Account | Sign In with Blink