New Deal Critic -- The TVA

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New Deal Critic	Commonwealth & Southern TVA Sale of the C & S In the National Spotlight

Willkie’s arrival in New York City came at an inauspicious time: just four weeks before the October 1929 stock market crash that launched the Great Depression. The aftershocks of the Great Crash severely reduced the gross earnings of the newly formed C & S Corporation and when Willkie became its president in early 1934, he assumed control of a financially weakened company. Almost immediately, Willkie instituted a series of successful revenue-boosting plans and this success, combined with his superior speaking skills, lead Willkie to assume the role of chief spokesman for the electric utility industry. That leadership role positioned Willkie to become the most visible critic of FDR’s New Deal legislation, which in turn, more than any other factor, enabled Willkie to capture the 1940 GOP nomination.

The Commonwealth & Southern Corporation

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The merger of three large holding companies into the C & S Corporation in May 1929 created the nation’s largest utility holding company. Holding companies such as the C & S were umbrella organizations linking together smaller electric companies into large and powerful organizations. By the time Willkie joined C & S, government regulators were already alarmed by the ability of large holding companies to use their tremendous (often monopolistic) power to set high electricity rates. This abuse, coupled with some notorious cases of corruption caused many government and business leaders to become alarmed by what the merger created: a single corporation controlling 165 utility companies in 10 states ranging from Michigan to Florida.

Credit: The New Deal Network

Willkie’s role as legal counsel for C & S actually took him far afield from the corporate headquarters in New York. His task was to oversee the legal affairs of the subsidiary power companies. Willkie was well-suited in this role because he loved to travel and meet people, especially in his native Midwest where many of the C & S companies were located (including the Southern Indiana Gas and Electric Company). Willkie’s hard work on behalf of the new company was noticed by C & S chairman Bernard Cobb who made it clear that he was grooming Willkie to become his successor. In January 1933, an aging Cobb named Willkie president of C & S and a year and a half later when Cobb retired because of health problems, Willkie became CEO as well. One of Willkie’s first acts was to rid the C & S Board of Directors of bankers and other financial types and replace them with representative from the subsidiary power companies.

But Willkie’s boldest move was to hire more than 500 salesmen to sell electrical appliances such as refrigerators and washers to C & S customers. It was part of Willkie’s plan to boost revenues by increasing power consumption. In tandem with this plan, Willkie also introduced what he called the “objective rate,” which also spurred consumption. Simply put, C & S customers using at least $3.50 worth of electricity per month would receive an extra third of that amount for free. The plan was an unqualified success. Within six years, C & S had doubled the amount of electricity it sold. Even with the overall reduction in rates, the increased volume meant big profits for the corporation and better dividends to its stockholders, who had suffered through some lean years.

The Tennessee Valley Authority

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At the 1932 Democratic National Convention in Chicago, the Democrats nominated Franklin Roosevelt as their presidential candidate. Willkie was there, and (as he had done in 1924) worked for the nomination of Newton Baker. But being a loyal Democrat, Willkie supported Roosevelt in the general election and even contributed $150 to his campaign. Willkie became a vocal critic of FDR soon after the election, however, when Roosevelt proposed legislation creating the Tennessee Valley Authority as part of his dramatic first hundred days in office. The promise of the TVA was to finally tame the wild Tennessee River and wipe out the incessant poverty caused by its frequent flooding.

Credit: The New Deal Network

For numerous reasons, the TVA was a public relations success for FDR. First, along with flood control, TVA projects would bring soil conservation, improved standards of living and cheap electrical power to a chronically poverty-stricken section of the United States. Second, the TVA was seen as a welcome alternative to the abuses heaped upon the public by corrupt utility holding companies, namely high rates, shoddy service and the resulting disaster when a precariously created holding company collapsed in a confusion of bankrupt subsidiaries. But Willkie, as early as 1930, had been stating publicly that it would be unconstitutional for the federal government to enter the utility business.

What was a hypothetical concern in 1930 was quickly becoming a political reality by April 1933 when Willkie went before a House of Representatives committee to testify against FDR’s TVA legislation. Willkie’s testimony was compelling, and the version of the bill passed out of the House committee restricted the TVA’s authority to build transmission lines that would compete with private utilities (such as C & S). But FDR successfully got the Senate to remove the restrictions, and the bill he signed into law gave the TVA the broad powers he wanted. Willkie thus lost his first battle with FDR, and the president demonstrated that he had a strong mandate from the public to reform the utility industry.

A.E. Morgan (c.), David Lilienthal (r.)
Credit: The New Deal Network

Fresh from his legislative victory, FDR picked a young lawyer named David Lilienthal to negotiate the federal purchase of C & S properties in the Tennessee Valley. From previous battles with power companies, Lilienthal had developed a passionate dislike for the industry, and he immediately took an adversarial stance with Willkie. For his part, Willkie was just as confrontational, and he even tried to bully Lilienthal into selling to the C & S the rights to develop power in the Tennessee Valley. But after three months of negotiations, the two announced a short-term agreement to sell C & S properties in eastern Tennessee, Mississippi and northern Alabama to the TVA. The agreement did not include a selling price.

Soon after the announcement, however, some C & S stockholders filed suit to block the sale. Willkie publicly denied that he had had anything to do with the lawsuit, but there is some evidence to the contrary. In any case, the litigation angered FDR, and in his 1935 State of the Union address, FDR announced that he would ask Congress for legislation to abolish holding companies altogether. Willkie fought against the so-called “death-sentence” legislation in the press, before congressional committees and in private meetings with FDR in the White House. But FDR would not back down, and he eventually got legislation to break up all major holding companies within three years.

Sale of the C & S Corp.

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Although Willkie lost the fight to keep C & S operating side by side with the TVA power lines, his public battle with FDR won him many admirers among the public. He was characteristically articulate and dynamic in all his public appearances, and many people were sympathetic to his message that if the federal government could take over parts of his operations, then no business was safe. Willkie also argued that the government had many unfair advantages when it competed with private industries, most notably the ability to borrow unlimited sums of money at low interest rates.

C & S sold for $78.6 million
Click on photo to view QuickTime clip
Credit: The History Channel

The public also understood that Willkie and the C & S were able to use the advantages of the holding company structure to provide good service. While under Willkie’s control, the C & S had actually reduced utility rates and had built additional power lines to serve more people. There was great public sympathy for Willkie’s suggestion in 1935 that the public would be better served by a plan to reform or disband the corrupt holding companies while allowing the good ones to survive. (Willkie suggested that the Securities and Exchange Commission be given authority to regulate holding companies, a proposal that the New York Times called “sensible and realistic.”)

The TVA was the most ambitious of all the New Deal programs, and so the TVA purchase of the C & S corporation generated great public interest. Negotiations between Willkie and Lilienthal lasted five years, and was punctuated by real and perceived breaches of faith and miscommunication. In early 1939, the Supreme Court finally ruled on a case brought by some C & S shareholders that challenged the TVA’s constitutionality. The high court ruled in favor of the TVA and Willkie graciously admitted defeat, vowing to intensify his efforts to negotiate a fair sale price for the C & S properties in the Tennessee River Valley.

In the year before the Supreme Court decision, Willkie and Lilienthal were about $40 million apart in their assessment of the net worth of the C & S. Willkie wanted $94 million for the C & S properties and Lilienthal would not go above $55 million. Finally, the two agreed on a $78.6 million sale price, and the deal was consummated at a high-profile ceremony in the ornate boardroom of the First National City Bank of New York. Under the glare of newsreel camera floodlights, Willkie and Lilienthal exchanged the sale documents (see photo, above) and Willkie reportedly said to Lilienthal: “Dave, this is sure a lot of money for a couple of Indiana farmers to be kicking around.”

In the National Spotlight

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During the negotiations with the TVA, Willkie took his case to the public in articles that he wrote for magazines such as Forbes, Life and the Saturday Evening Post. The New York Times also published many of Willkie’s articles and he was the darling of the business press, getting flattering coverage in magazines such as Fortune. In these articles, Willkie also began to deal with topics beyond his immediate battle with the TVA. And he was discussing the major topics of the day with intelligence and insight, no doubt due to the breadth and depth of his knowledge that he gained through his voracious appetite for reading.

On the cover of Fortune, 1940
Credit: Prof. Schoenherr, Univ. of San Diego

Today, it’s hard to believe that writing magazine and newspaper articles was once an effective way to raise one’s public profile. But 60 years ago, national magazines such as the Saturday Evening Post were extremely influential and had the power to shape the national political debate. Politicians and other public figures of the day fought to be mentioned on the pages of these magazines much like today’s politicians vie to get their faces and sound bites on television news shows.

Willkie used the electronic medium of his day, the radio, to get his message across, too. In January 1938, Willkie appeared on the popular weekly radio program “America’s Town Meeting of the Air” to debate Robert H. Jackson, a prominent New Dealer. Before FDR announced his intention to seek a third term, Jackson was a front runner for the 1940 Democratic nomination. The two debated the merits of numerous New Deal programs and by the end of the show, Willkie had the studio audience applauding his every point. The national press, too, judged Willkie to be the winner, and his popularity rose once again. (Jackson’s political career nose-dived after the show, a transcript of which is printed in This is Wendell Willkie.)

It was shortly after this radio debate that speculations first appeared in the press that Willkie was interested in running for president. However, the question remained: For which party? It was well-known that Willkie was a registered Democrat, even though he did not dwell on the fact in his many articles. But because his national prominence was due to his role as a New Deal critic, the press speculated that he was considering a run at the GOP nomination. Finally, in November 1939, Willkie quietly switched his party affiliation and became a registered Republican. The event was not made public until January 1940, however, when the New York Sun newspaper broke the news. At that point, although Willkie had yet to make an official announcement, it was clear that he wanted the chance to run against FDR.

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