USA > Connecticut > History of Connecticut, Volume II > Part 22
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THE BUSINESS MAN'S COMMUNITY
John H. Trumbull, a strong Roraback man, epitomized business in government. The purpose of government under his aegis was to create, through a favorable tax structure and other benefits, a climate in which business would flourish. He believed that his most important function as Governor was to serve "as a presiding director of a large and complex organization." He applied business principles in the operation of state affairs and enunciated again and again the desirability of estab- lishing a surplus in the treasury and adhering to a "pay as you go" pol- icy in state expenditure. This harmonized with Connecticut tradition and with the spirit of the twenties. John H. Trumbull was Connecti- cut's guardian of the "era of prosperity."6
The chief executives enunciated programs which were generally in accord with conservative ideas. Economy was the watch-word and a pay-as-you-go attitude was adopted toward state expenditures. The deficits resulting from the war years were paid off by 1923, and, for the remainder of the decade, surpluses mounted in the treasury. The pro- grams were kept well within the state's ability to pay. The recommenda- tions of the Governors for expenditures for charitable institutions could not have had the ring of urgency and resulted in appropriations which bore little relation to the pressing needs. Vocational training programs for the feeble minded had to be defended upon economic grounds. The long-range benefits of low taxes to the state and to business interests were repeatedly emphasized. The Governors consistently called for the adoption of business procedures in government, including the reorgani- zation of departments and improvement of auditing procedures.7
Finally, amidst uncertainties as to the wisdom of such a centralized agency, Governor Trumbull pushed through the Assembly legislation authorizing the creation of a Department of Finance and Control, to take over and to expand the duties of the former Board of Finance and Board of Control. Only when economic practices threatened the wel- fare of Connecticut citizens, as in the case of the coal shortages of 1923, would a Governor consider intruding upon the practice of private en- terprise. Connecticut, as Governor Templeton remarked, certainly showed "no traces of socialistic desires." He recommended that the state "ought not to engage in any form of merchandising where the service can be satisfactorily performed by private enterprise," but he was
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quick to point out that the needs of society were becoming more com- plex and Connecticut would not allow its citizens to freeze "either as a result of unfortunate mining conditions or rapacity."8
To insure steady habits in public affairs there were the formal or- ganizations of business men and manufacturers. There was no question as to the objectives of any of these organizations. The Manufacturers' Association stated frankly in 1926 that "the function of government, whether local, state, or national, consists, first of all, in the promotion of the legitimate business enterprises carried on within its borders." In 1923, the President of the State Chamber of Commerce stated to its members that the most important of its services was its "work in con- nection with the State Legislature and the administration of the State's affairs. . . . "9 That both groups were extraordinarily successful in their effort is shown by their reports to their members. In 1923, for example, the Assembly acted favorably on 19 of the 23 bills supported by the Chamber of Commerce,10 and in 1925 the Manufacturers' Asso- ciation reported that no legislation inimical to its interest had been enacted.11 There is no question but that they and other organizations, such as that of the retail merchants, were sincere in their belief that they were operating not only for their own benefit but also in the in- terest of the citizens of the state. These were not the only interest groups in the state, but they were far more effective than any of the others. Although there were complaints against too much government, and as- sertions that the government had done little, the policies followed by the state government were of distinct advantage to Connecticut busi- ness. 12
Of great importance was a favorable tax structure. Historically, taxes in the state had been levied on the basis of property. Corporations under such an arrangement paid taxes on the value of their stock. The tax structure was changed significantly in 1915 as a result of a com- mission appointed in 1911. Thereafter, taxes on corporations were to be based upon a company's net income.13 The immediate effect was that corporations produced three and one quarter millions in taxes and were the greatest revenue producer in the state. This was still true in 1921; although the gross receipts from this tax amounted to only about three million dollars, this still represented 20 percent of the total taxes
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received by the state. It was true, also, that under the law corporations were able to avoid reflecting increased real earnings and were able, in fact, even to reduce the amounts paid under this tax. In the twenties, although these were years of unparalleled expansion, the gross receipts from the corporation tax had shrunk to about two and one-half million, or 10 percent of the total taxes received in 1927. By the end of the dec- ade, corporation taxes represented less than eight percent of total taxes.14 The methods by which corporations took advantage of the tax law were revealed in a report of the Tax Commission in 1934. The com- panies did not have to declare as net income funds used for salaries and there was a material increase in the amounts of returns distributed in this guise. Declarations of assets as net income was further avoided, bas- ing expansion on the issuance of bonds rather than of stocks. So long as a company paid no appreciable dividends to stockholders, it was not legally bound to pay taxes to the state. Under such arrangements, some of the largest corporations in the state were paying the minimum tax of $10.00.15 The increased cost of government during the twenties was borne by increases in gasoline and motor vehicle license fees. By 1930, these contributed more than 30 percent of the total receipts of over 38 million. There was little wonder that business did not object to the tax structure.16
A New Era of Industrial Expansion
In this favorable climate, Connecticut moved into a new era of in- dustrial expansion. The state's industries bounced back from the post- war depression and the Industrial Investigator reported enthusiastically that the industrial production for the first half of 1923 surpassed all records. Even the bootlegging industry was credited with being more reliable and asking more reasonable prices than those of other states.17 The most important contributor to the state's economic well-being was the motor car industry. Although Connecticut had ceased to be the center of motor car production, thousands of industries, such as the iron, steel, light metals, hardware, electricity, and textiles depended upon it directly and indirectly for their business.18 While the old line businesses, such as hardware, made adjustments to meet the demands of the consumer's market, new possibilities for future industrial growth
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were provided by the introduction of the radio and the location of air- craft industries at Naugatuck, and Hartford. It was asserted, and it proved correct, that Pratt and Whitney would make Connecticut's name known throughout the world.19 The gross value of manufactured products in the last eight years of the nineteen twenties averaged $1,300,000,000. The high of $1,471,000,000 in 1929 represented nearly a 300 percent increase over the prewar years.20
The crest of the optimism of the twenties, if measured by physical expansion, was reached in 1924 when facilities valued at more than 16 million dollars were added to industrial plants. Connecticut Light and Power led the way by completing a structure in Milford valued at four million dollars. Industrial leaders remained cautious and conservative, however. Amidst the uncertainties of the last years of the decade, new construction fell off perceptibly. The total for any two of the last six years hardly exceeded four million dollars and more than half of this was provided by three companies, Pratt and Whitney and Chance Vought of Hartford and New Departure of Bristol. The expansion of facilities, however, was only one method by which industry developed to meet the demands of the twenties.21
Connecticut met the demands for production in part through various technical advances. The greater use of machine tools, the ex- tension of mass production methods, and the increased motive power speeded up all types of production. A measure of the technological change in Connecticut industry is revealed in the changeover from steam to electric power. As late as 1919, 42 percent of the power utilized in the state was furnished by steam, and 48 percent by electricity. By 1929, however, electricity furnished 70 percent of the power; and steam, 28. Water, which furnished only nine percent of the power in 1919, had all but vanished as a source of power by the end of the dec- ade. It was estimated in 1928 that in a factory with modern machinery ten, or even five, persons were doing the work done by one hundred employees five years previously. Mass production, technological changes, and the need for increased capital were reflected in the structure and management of business.22
Corporate control and consolidation came to characterize Con- necticut business. Neither the number of corporations nor the per-
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centage of gross product produced by them increased significantly above the 93.8 percent of 1919, but the number of partnerships and indi- vidually owned establishments decreased from 3,008 in 1919 to 1,283 in 1929. Furthermore, the United States Census had to extend its classifi- cation of "big manufacturers" from those which produced over one million to those which produced over two and one-half millions and five millions worth of goods. Big industries in Connecticut in 1929 pro- duced 75 percent of the total product of $1,471,875,604. Those with a gross of over five million produced more than half of this, or almost 40 percent of the total.23
In addition to the obvious tendency for big industries to grow bigger, the public utilities of the state went through a series of mergers and consolidations. The jitney and gas companies followed the leader- ship of J. Henry Roraback and his Connecticut Light and Power Com- pany and brought a number of companies under single management. It was held that such organizations brought better service to the state's citizens and were better able to withstand economic fluctuations.24 There were disadvantages to such consolidations, however. Individual corpora- tions may have been able to effect savings through consolidations, espe- cially during periods of retrenchment, but may have thus contributed to unsettled labor conditions. Although there was little danger in the twenties that action would be taken, management, by its continued ex- pansion, made itself liable to prosecution under the anti-trust law. More important, consolidation invited absentee ownership and the loss of local control.
Of more immediate concern were the inroads challenging the state's industrial position. Partially with the aid of English capital, the South began to attract certain of the state's cotton firms in the twenties. For a number of years, the larger mills had operated on a small margin of profit. The number of mills in the state dropped from 47 in 1919 to 33 in 1929, and the value of their gross products dropped from 101 to 40 million. While hope lingered that the skilled workmen of Connecti- cut would offset the advantages of cheap labor in the South and that "the real New England" would reassert itself to offset the natural ad- vantages inherent in southern locations, the realist knew that the in- dustry in the state had for too long clung to obsolete methods of
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production.25 Although the greatest exodus was that of the cotton firms, other industries were moving also. There was genuine fear expressed by the President of the Connecticut Chamber of Commerce in 1924, who stated, somewhat prophetically, that in the next 20 years Connecti- cut would be faced with a fight to maintain her industrial supremacy. Understandably, with the industrialization of other regions, the state would produce a smaller share of the gross value of the nation's manu- factured products. At the end of the century, Connecticut was produc- ing 2.42 precent of the total; in 1919, 2.19 percent; and in 1929, only 2.09 percent. While her relative position within the nation thus de- teriorated, her position in relation to the other New England states im- proved. Connecticut was the only one of the New England states whose gross manufactured product was of greater value in 1929 than in 1919.26
The industrial profile of the state reveals the basis for this position. Connecticut was rapidly becoming a center of the light metals industry. The gross of 234 million represented almost 16 percent of the total value of all manufactured products. Machine shop products were a distant second, with a total value of 106 million; and electrical ma- chinery third, with 87 million. Hardware led the established industries with a total of 71 million, followed by silk and rayon at 54 million and hat and cap industries at 50 million. The great diversity of the state's industries is revealed in the more than 115 different types of endeavor. Eighteen different companies showed a gross value of product in excess of 10 million dollars.27
A Basis for a Highway System
The potential of industrial growth was somewhat limited by an inadequate highway system. The trunk line system begun in 1913 was still far from complete at the conclusion of the war. The greatest change, in fact, was the change in designation from state aid roads. The 666 miles of federal roads were entirely inadequate. Practically all of the 12 to 14 hundred miles of trunk lines were low grade black top, over half were classified as "old roads," and over half of these were in need of being reconstructed. The old roads had been widened and strengthened to increase their serviceability during the war, but construction and maintenance had suffered enormously for lack of sufficient funds. From
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1913, when the state began to assume active responsibility for road con- struction and maintenance, until 1920, Connecticut spent an average of less than one and one-half million dollars each year for road construc- tion and approximately another million for maintenance. The roads and highways of the state did not meet the needs of the increased motor traffic of the twenties.28
As the number of motor vehicles increased, highway traffic reached a hitherto unbelievable figure. The total number of motor vehicles registered in the state almost tripled from 1915 to 1920, increasing from 41,121 in 1915 to 119,134 in 1920. One in every 11 persons owned a motor vehicle in 1920 as compared to the one in 30 percentage which prevailed in 1915. No statistics are available for traffic in the first years of highway development, but it was estimated that approximately 690,000,000 vehicle miles rolled over Connecticut roads. It was esti- mated further that by 1922-23 approximately 60 percent of this was on the state highway system. Because of its location, Connecticut had to provide for a large amount of traffic from adjacent areas. The nineteen twenties saw the advent of the motor car, and the problems of providing an adequate highway system were accentuated not only by the numbers of vehicles which were quickly in use, but also by the numerous types of vehicles.29
More than anything else, it was the rise of the motor transport in- dustry which made previous methods of highway construction and financing obsolete. Intercity trucking necessitated by the rail congestion of the war years was the real beginning of the industry. The number of trucks in Connecticut had increased from 7,247 to 24,011, or almost three and one-half times from 1915 to 1920. More than 600 of these were over four tons in weight. To these was added the interstate bus which became of importance about 1925. It was estimated that the cost of highway construction was almost doubled by the necessity to provide roadways for these heavier vehicles. There was a tendency for trucks to carry loads heavier than their rated capacity. Over 30 percent of all trucks were found to be overloaded, with the larger trucks overloaded about six percent. Some of the problems resulted from the truck manu- facturers underrating the capacity of the trucks. Although no effective method has been found to prevent those willing to risk apprehension in
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the chance of securing profits from continuing the practice, a more effective control was established in 1927 when the penalty for overload- ing included revocation of the license to operate instead of merely being assessed against the driver as previously.30
A basis was laid, but a modern highway system was not realized in the twenties. On the recommendation of the Highway Commissioner, a survey was begun in September, 1922, jointly with the Federal Bureau of Public Roads to secure the information necessary to the formulation of a highway program for Connecticut. Although the report was not immediately translated into action, the appropriation for highway construction in 1927 was twice that of the previous year, and these expenditures reached 12 million in 1928.31 Planning was begun, too, for what became Merritt Parkway to relieve traffic along the shore- line.32 The Assembly preferred to finance highway construction by motor vehicle fees rather than by bond issues and established a policy of "pay as you go," a policy held sacrosanct for four decades. The As- sembly did not follow the Highway Commissioner's hope that gasoline taxes be earmarked for highway construction and gave the fiscal authori- ties latitude in borrowing from the general fund for the use of the De- partment.33 A new era of highway development awaited the reorganiza- tion of the highway department in 1931.34 Meanwhile, adjustments of Connecticut society to the motor age in connection with the perennial safety problem, financial responsibility for accidents, the relation of the courts to enforcement efforts and other problems incident to the motor age, were experimental.35
The commodities manufactured by Connecticut firms were, for the most part, of small bulk and high value, which made them ideally suited for truck transportation. Especially for relatively short hauls, the industries tended to rely on the transportation companies in preference to operating their own trucks or to using the railroads. The opinion prevailed, however, that a permanent improvement of the railroad serv- ice would deflect a considerable portion of the long-haul motor truck traffic.36
The Railroads
In the first years of the nineteen twenties, Connecticut railroads were in a poor position to provide the transportation necessary for an
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expanding industry. It was agreed that the service had "not been as satisfactory" as the public was "reasonably entitled to expect."37 The worn-out equipment, the severe winter of 1922-23, and the strike of the shop employees contributed to the poor service of the road. A state legis- lative committee viewed these as circumstances beyond management's control and exonerated the management of any grave responsibility.38 The instances of mismanagement were too glaring to escape the atten- tion of the investigating committee appointed by the Governors of the New England states. This group reported that the financial condition of the road was unsatisfactory and "must be set in order and its credit re-established before it can be expected to properly care for the people and the industries depending upon it."39
The New Haven was near financial collapse largely in consequence of the expansionist policy followed from 1902 to 1913 by its President, Charles S. Mellen. This alleged puppet of J. P. Morgan, in an obvious effort to monopolize the transportation facilities of New England, gained control of three other railroads and partial control of another two, as well as control of nearly all of the street and interurban railways in Rhode Island and Connecticut, extensive mileage in Massachusetts, and lines into New York. Three steamship companies were, also, con- trolled.40 Practically all of these properties, which had a book value of $393,000,000, had been acquired by increasing the funded debt of the company. Public confidence in the company deteriorated in 1912 and 1913 as accidents increased and dividends decreased. In 1908, the com- pany had artfully circumvented the cease and desist orders issued by the Massachusetts Supreme Court against monopolistic practices; in 1915, however, an investigation by the Interstate Commerce Commission brought the practices into focus. The program of expansion proved an abysmal failure. By 1922, the company had already written off its books losses amounting to $55,000,000, and the remaining "outside invest- ments" were of uncertain value. In few of the companies were earnings sufficient to pay fixed charges, much less to provide dividends. Mani- festly, the New Haven had been kept afloat only by the almost ninety million dollars loaned by the federal government. In 1922, the road was operating at an annual deficit of over five million with little hope that its condition would improve in the immediate future.41
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The New Haven system was judged inefficient in its technical op- eration and particularly unwise in its cargo control practices. In almost every critical measure of efficiency, the New Haven was operating, not only below accepted standards, but in most instances was rated lowest of any road in New England. For example, the average car miles per freight car day for the New Haven was lowest in 13.6 miles in compari- son to the high of the Boston and Albany of 27.8. It was the unwise use of the "embargo," however, which the New England Governors' com- mittee criticized most severely. These embargos were regularly used by railroad managers to avoid overloading. Connecting lines would be in- formed that they must cease permitting shippers to load cars for the home railroad. These embargos were almost always limited to permit the continued movement of essential goods. At times, however, the failure of the New Haven to impose limitations on shipments, and at other times the indiscriminate granting of shipping permits, allowed an ex- cessive number of cars on the road and resulted in congestion. The strike of repair personnel, the resultant condition of motive power, and even the weather could have been largely countered by judicious cargo control, it was thought. In addition, when issued, the New Haven is- sued a general embargo, making every business transaction involving rail shipment subject to review by the road. Such a system denied the industries the opportunity of systematic ordering, of taking advantage of price breaks at their own discretion, and placed them completely at the mercy of the New Haven. It could not be expected that industry would choose rail transportation under these circumstances whenever other alternatives would serve.42
To avoid receivership, the program suggested by the New England Governors' Committee of 1931 for the New Haven was, not consolida- tion as recommended by the Esch-Cummings Act, but "rehabilitation by cooperation." With assurances from management that many of the malpractices would be eliminated and in the expectation that there would be no substantial increase in the costs of such critical items as coal and wages, the New England Governors' Committee anticipated increased traffic on the main line and increased revenues from the sub- sidiaries. To assist in the financial reconstruction of the road, a read-
(Courtesy Conn. Devel. Comm.)
HARTFORD
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justment of the road's capitalization was recommended, the New Eng- land states were asked to rebate at least a portion of the New Haven's taxes, and the federal government was requested to reduce the interest rates on its loans. The employees, it was said, "were New England men who would gladly lend a hand." The executives were appraised as men of "devotion and courage," whose fight to continue the road had been "a lonely struggle against heavy odds." The cause in the main, it was concluded, had been "the cause of New England," and it was time that "the people of New England appeared on the scene to lend it their aid."43
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