Washington, DC - The FTC’s status as an independent agency, secured in an early constitutional challenge to the FTC Act, was tested during the early years of the Cold War when the agency’s international work provoked a national security debate at the highest levels.
Students of constitutional history may recall that the Supreme Court in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), determined that the President doesn't have the authority to fire government officials outside the executive branch for political reasons. Yet few are likely to remember that the case involved FTC Commissioner William E. Humphrey, a Hoover appointee, who was fired by President Franklin Roosevelt for failing to support the President’s New Deal policies. After Humphrey’s death, his estate brought a case for back wages (the Commissioner continued to work after his dismissal), arguing that the FTC Act permitted removal by the President only for “inefficiency, neglect of duty, or malfeasance in office.” In a decision that established the political independence of independent agencies, the Supreme Court ruled that while the President has complete discretion to remove officials in the executive branch, the FTC was created by Congress to perform quasi-legislative and quasi-judicial functions, and only Congress could determine the grounds for dismissal of FTC Commissioners.
The FTC’s independence proved crucial as events unfolded in the years after World War II. Using its authority under Section 6(h) of the FTC Act, the Commission directed its economists to conduct long-range investigations of international cartel activity in various industries. From 1946 to 1949, the FTC published seven reports on foreign trade conditions and international agreements among firms dealing in phosphates, copper, sulfur, electric equipment, steel, fertilizers, and alkalis. Then it turned its attention to oil.
What happened next no doubt reflects the sensitivities of America at the beginning of the Cold War, and later events, such as the formation of OPEC, dramatically changed the competitive dynamic of world oil markets. But in November 1951, the initial draft of the FTC’s study of worldwide oil markets provoked immediate reaction about the implications for U.S. national security if the results were made public.
(According to a longtime member of the Bureau of Economics, the draft report was shrouded in intrigue from the outset. In addition to provoking a national security debate, a key investigator was found dead from unknown causes and there was a lingering dispute over who authored the report. See P.A. Pautler, A Brief History of the FTC’s Bureau of Economics: Reports, Mergers, and Information Regulation, n. 27.)
Despite disclaimers that it was “merely descriptive,” and “contain[ed] summaries of the facts presented but no recommendations,” the resulting staff report contained several provocative findings: “[S]even international companies operate through layers of jointly owned subsidiaries and affiliated companies. Through this corporate complex of companies, they control not only most of the oil but also most of the world’s foreign petroleum refining, cracking, transportation, and marketing facilities.” The report declared that a “high degree of concentration . . . facilitates the development and observance of international agreements regarding price and production policies.” (Report p. 33)
In a letter dated April 25, 1952, Secretary of State Dean Acheson wrote to FTC Chairman James M. Mead, “It is not appropriate for the Department of State to interfere in any way with the Federal Trade Commission in carrying out the duties and responsibilities imposed upon [it] by the laws of the United States. . . In the view of the Department of State, the publication of the report will not help the achievement of the foreign-policy aims of the United States in the Middle East and may seriously impair their attainment.” On May 6, 1952, the White House Intelligence Advisory Committee formally recommended that it should not be released, and President Truman wrote Chairman Mead by a letter dated June 5, 1952, that he was “requesting the Commission not to make the report public at this time.”
But in August of that year, the Commission proposed various deletions to President Truman, who responded that he would not object to declassification and release of the staff report as revised. On August 22, 1952, Senator John Sparkman, chairman of the Select Committee on Small Business, released the redacted version of the report as a committee print rather than an FTC publication.
As recounted by Burton Kaufman in The Oil Cartel Case: A Documentary Study of Antitrust Activity in the Cold War Era, once it became clear that the FTC report would become public, President Truman ordered the Justice Department to begin a grand jury investigation. In August 1952, subpoenas were issued to 21 oil companies. That inquiry also was later derailed by national security concerns; a few days before he left office, President Truman directed Attorney General James McGranery to pursue civil, not criminal, litigation. The civil case would gradually be scaled back before it came to an end in 1968, after several defendants settled but without a trial – one of the longest antitrust suits in DOJ history.
Looking back on this milestone in FTC history serves as a reminder that the stakes can be high when it comes to energy markets – for consumers, for businesses, and for our country. For that reason, the FTC has always devoted significant resources to studying energy markets and monitoring the conduct of energy firms. For more information about the agency’s current efforts in energy markets, check out our Oil & Gas pages.
