An Example of Crony Capitalism

Henry Tuttle was, for much of his life, president of the Hush-A-Phone Corporation, manufacturer of a telephone silencer. Apart from Tuttle, Hush-A-Phone Inc. employed his secretary. The two of them worked alone out of a small office near Union Square in New York City. Hush-A-Phones signature product was shaped like a scoop, and it fit around the speaking end of receiver, that no one could hear what the user was saying on the telephone.

The company motto emblazoned on its letterhead stated the promise succinctly: “Makes your phone private as a booth.”

One day late in the 1940s, Henry Tuttle received alarming news, AT&T had launched a crackdown on the Hush-A-Phone and similar products, like the Jordaphone,a creaky precursor of the modern speakerphone, whose manufacturer had likewise been put on notice. Bell repairmen began warning customers that Hush-A-Phone use was a violation of a federal [my emphasis] tariff and that, failing to cease and desist, they risked termination of their telephone service.

The company was referring to a special rule that was part of their covenant with the federal government. It stated: No equipment, apparatus, circuit or device not furnished by the telephone company shall be attached to or connected with the facilities furnished by the telephone company, whether physically by induction, or otherwise. 

Tuttle hired an attorney, who petitioned the FCC for a  modification of the rule and an injunction against AT&T’s threats. In 1950 the FCC decided to hold a trial (officially a “public hearing”) in Washington, D.C., to consider whether AT&T could punish its customers for placing a plastic cup over their telephone mouthpiece.

Source: The Master Switch. The Rise and Fall of Information Empires (2010) by Tim Wu.

Now, the author of the book is making AT&T into a bully. Possibly, you could see them that way. But here’s the thing. They wouldn’t have any standing if it weren’t for the tariff that was put in by the federal gov’t. So, you could say, it was AT&T and the federal gov’t who were the bullies. AT&T probably lobbied to have that provision put in but Congress could have voted it down or completely ignored the lobbying efforts. They had that choice. AT&T was just looking out for itself like most companies do. That’s not bad thing necessarily. But so was Congress looking out for themselves. And that is a bad thing. My guess is AT&T promised campaign donations if they had that provision put it. The provisions only helps AT&T—no one else. It certainly doesn’t help AT&T’s customers.

Crony Capitalism (or crapitalism as John Stossel calls it) is a sinister partnership between Big Gov and corporations. It takes two to tango.

Just so you know, according to Wikipedia, Tuttle did win his injunction.

Talking about crapitalism, here’s an article by FEE.org about Big Business and Big Gov: CLICHES OF PROGRESSIVISM # 19: “Big Government Is a Check on Big Business”

And an article by The Daily Signal.com (Aug. 22): This Program Epitomizes Government Cronyism. It’s about the Big Gov protecting and subsidizing catfish farmers.