Why Privatizing the TVA Would Be a Dam Shame

April 19 (Bloomberg) -- Imagine the uproar if the Washington Monument or the Jefferson Memorial were up for sale.

These national treasures are safe, of course, but another public monument -- the Tennessee Valley Authority -- is not. President Barack Obama’s 2014 budget plan proposes a strategic review of TVA, the biggest publicly owned U.S. power company, which could lead to its sale.

This isn’t the first time the TVA’s status has found its way to the forefront of political debate. When Franklin D. Roosevelt created the TVA in 1933, at the depths of the Great Depression, he fulfilled the dreams of progressive Republicans such as Nebraska Senator George Norris, an advocate for federal leadership in bringing electrical power to rural Americans at a fair price. The TVA accomplished just that; the cost curve of the power produced by its network of hydroelectric dams moved downward for more than 30 years. More importantly, the TVA helped lift the standard of living of millions of poor residents of Tennessee, Kentucky, Georgia and Mississippi.

As FDR put it: “Power is really a secondary matter. What we are doing there is taking a watershed with about three and a half million people in it, almost all of them rural, and we are trying to make a different type of citizen out of them from what they would be under their present conditions.”

Illegitimate Intrusion

The TVA also served as a kind of yardstick that allowed consumers to assess the pricing, efficiency and fairness of private power companies. Those companies, however, saw the TVA as an illegitimate intrusion into the marketplace by the federal government.

Wendell Willkie, the legal counsel of Commonwealth & Southern Corp., the largest utility holding company, parlayed his defense of free enterprise into the Republican presidential nomination in 1940. He said the New Deal’s “huge indiscriminate government expenditures,” coupled with high taxes and excessive regulation, had “scared private investment into hiding.” The New Deal, he said, was “brutal, cruel, unfair and un-American.”

In the 1930s and ’40s, that view of the relationship between capitalism and government failed to win support at the ballot box. FDR and the New Deal’s vision of the TVA -- and, more broadly, of the legitimate role of the government in the economy -- was dominant. Engineers, public officials and businessmen from around the world came to tour the TVA. Its popularity didn’t mean, however, that the controversy was over.

When President Dwight Eisenhower took office in 1953, he declared that the TVA was an example of “creeping socialism.” In a Cabinet meeting, he said, “I’d like to see us sell the whole thing, but I suppose we can’t go that far.” He described the use of federal taxes to subsidize an agency in just one region as evidence of “socialistic theory” in action. Residents of the Tennessee Valley took issue with those remarks.

L.J. Wilhoite, the chairman of the Chattanooga Electric Power Board and a TVA supporter, said, “I can remember when Mr. Eisenhower was in command of the Allied armies in Europe and was appealing for planes, among other items of military equipment. Except for the TVA power dams pouring power into the American aluminum company furnaces in the Tennessee Valley, those planes would not have been available to him.”

Others pointed out that the TVA and the federal government’s presence in the region’s economy had substantially increased private business activity and rates of homeownership. The TVA’s funding from Congress declined during Eisenhower’s presidency, though the agency survived. Historians have interpreted Eisenhower’s grudging tolerance of the TVA, along with his support for Social Security and huge public-works spending in the Federal Aid Highway Act of 1956, as a ratification of the most important features of the New Deal.

Higher Rates

That may be why many Republicans aren’t sure the recent proposal to sell the TVA is a good idea. Senator Lamar Alexander of Tennessee said, “There is no assurance that selling TVA to a profit-making entity would reduce electric bills in the Tennessee Valley, and it could lead to higher electricity rates.” His fellow Republican, Alabama Senator Richard Shelby, said he would “carefully study any proposals to restructure TVA” to ensure the electricity it produces remains affordable.

Clearly, there is a gap between the free-market rhetoric so often espoused by today’s Republican Party and its views of the government’s legitimate role in the economy.

And Obama? During the 2012 presidential campaign, he proclaimed: “There are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon.”

That’s also how we built the TVA.

The distance between the campaign rhetoric and the president’s proposed budget might be viewed as an example of the difference between campaigning and governing. It recalls the words of the economist Joseph Schumpeter, who said the budget “is the skeleton of the state, stripped of misleading ideologies.”

In this light, Obama’s proposed sale of the TVA could be seen as a fundamental insight into his beliefs about the relationship between government and the economy. It might also be a reminder of one of the oldest lessons of politics: What people say matters less than what they do.

(Jason Scott Smith, an associate professor of history at the University of New Mexico, is the author of “A Concise History of the New Deal,” forthcoming from Cambridge University Press. The opinions expressed are his own.)

To contact the writer of this article: Jason Scott Smith at

To contact the editor responsible for this article: Max Berley at