Realizing a Green New Deal: Lessons from World War II

Many activists in the United States support a Green New Deal transformation of the economy in order to tackle the escalating global climate crisis and the country’s worsening economic and social problems.  At present, the Green New Deal remains a big tent idea, with advocates continuing to debate what it should include and even its ultimate aims.[1]  Although perhaps understandable given this lack of agreement, far too little attention has been paid to the process of transformation.  That is concerning, because it will be far from easy.

One productive way for us to sharpen our thinking about the transformation is to study the World War II-era mobilization process. Then, the U.S. government, facing remarkably similar challenges to the ones we are likely to confront, successfully converted the U.S. economy from civilian to military production in a period of only three years.

It is easy to provide examples of some of the challenges that await us.  All Green New Deal proposals call for a sharp decrease in fossil fuel production, which will dramatically raise fossil fuel prices.  The higher cost of fossil fuels will significantly raise the cost of business for many industries, especially air travel, tourism, and the aerospace and automobile industries, triggering significant declines in demand and reductions in their output and employment.   We will need to develop a mechanism that allows us to humanely and efficiently repurpose the newly created surplus facilities and provide alternative employment for released workers.

New industries, especially those involved in the production of renewable energy will have to be rapidly developed.  We will need to create agencies capable of deciding the speed of their expansion as well as who will own the new facilities, how they will be financed, and how best to ensure that the materials they require will be produced in sufficient quantities and made available at the appropriate time. We will also have to develop mechanisms for deciding where the new industries will be located and how to develop the necessary social infrastructure to house and care for the required workforce.  

We will also need to ensure the rapid and smooth expansion of facilities capable of producing mass transit vehicles and a revitalized national rail system.  We will need to organize the retrofitting of existing buildings, both office and residential, as well as the training of workers and the production of required equipment and materials.  The development of a new universal health care system will also require the planning and construction of new clinics and the development of new technologies and health practices.  In sum, a system-wide transformation involves a lot of moving parts that have to be managed and coordinated.

While it would be a mistake to imagine that the U.S. wartime experience can provide a readymade blueprint for the economic conversion we seek, there is much we can learn, both positive and negative, from it.  In what follows, I first highlight some of the key lessons and then conclude with a brief discussion of the relevance of the World War II experience to our current efforts to transform the U.S. economy.

1. A rapid, system-wide conversion of the U.S. economy is possible 

The primary driver of the wartime conversion was the enormous increase in military spending over the years 1940-1943.  Military spending grew by an incredible 269.3 percent in 1941, 259.7 percent in 1942, and 99.5 percent in 1943.  As a consequence, military spending as a share of GDP rose from 1.6 percent in 1940 to 32.2 percent in 1943.  That last year, federal spending hit a record high of 46.6 percent of GDP and remained at over 41 percent of GDP in each of the following two years.[2] 

The results were equally impressive: the combined output of the war-related manufacturing, mining, and construction industries doubled between 1939 and 1944.[3] In 1943 and 1944 alone, the United States was responsible for approximately 40 percent of all the munitions produced during World War II. 

This record has led many to call what was accomplished a “production miracle.”  However, a more complete assessment of the period tells a different story.  For example, there is little difference between the years 1921-24 and 1941-1944 in either the growth of industrial production or the growth in real gross nonfarm product.[4] 

Paul A. C. Koistinen casts further doubt on production miracle claims, pointing out that:

When placed in the proper context, the American production record does not appear exceptional, unless the characterization applies to all other belligerents. Gauged by the percentage distribution of the world’s manufacturing production for the period 1926-1929, the United Sates in the peak year 1944 was producing munitions at almost exactly the level it should have been.  Great Britain is modestly high, Canada low, Germany high, Japan very high, and the Soviet Union spectacularly high.[5]

The explanation for these two significantly different views of the period is that the transformation involved far more than the increase in military spending.  There was also the curtailment or outright suppression of the production of many industries, the rationing of limited supplies of many goods, and the development and production of entirely new goods and services.  For example, civilian automobile production was stopped, tires and food were rationed, and synthetic rubber was created and produced in significant amounts.  Between 1940 and 1944, the total production of non-war goods and services actually fell by some 9 percent, from $180 billion to $164 billion (in 1950 dollars).

In other words, the tremendous gains in U.S. military production were achieved, and in a relatively short period of time, not because of some impossible-to-repeat production miracle, but because a government directed-mobilization succeeded in fully employing the country’s resources while shifting their use from civilian to military purposes. 

2. State capacities and action matter

The economy’s successful transformation demonstrates the critical importance of state planning, public financing and ownership, and state direction of economic activity.  Mobilization officials faced two major tasks. The first was to quickly expand the economy’s capacity to produce the weapons and supplies required by the military.  The second was to manage the scarcities of critical materials and components caused by the rapid pace of the mobilization. 

The first task was made significantly more difficult by a lack of corporate support.  Most corporations were reluctant to undertake the massive expansion in plant and equipment required to achieve the desired boost in military production. In fact, private investment actually fell in value over the years 1941-43.  It was the federal government, using a variety of new policy initiatives, that provided the solution.

One of the most important initiatives was the creation of the Defense Production Corporation (DPC). In May 1940, Congress passed a series of amendments which allowed the still operating depression-era Reconstruction Finance Corporation (RFC) to create new subsidiaries “with such powers as it may deem necessary to aid the Government of the United States in its national defense program.”  The DPC was one of those new subsidiaries. 

Since the RFC had independent borrowing authority, the DPC was able to directly finance the expansion of facilities deemed critical to the military buildup without needing Congressional approval.  The DPC kept ownership of the new facilities it financed, but planned the construction with and then leased the new facilities for a minimal fee to predetermined contractors who would operate them. The DPC eventually financed and owned some one-third of all the plant and equipment built during the war.

By its termination at the end of June 1945, the DPC:

owned approximately 96 per cent of the capacity of the synthetic-rubber industry, 90 per cent of magnesium metal, 71 per cent of aircraft and aircraft engines, and 58 per cent of the aluminum metal industry. It also had sizeable investments in iron and steel, aviation gasoline, ordnance, machinery and machine tool, transportation, radio, and other more miscellaneous facilities.[6]

The DPC supported facilities expansion in other ways too.  Responding to concerns of shortages in machine tools and the industry’s reluctance to boost capacity to produce them, the DPC began a machine tools pool program.  The DPC gave machine tool producers a 30 percent advance to begin production.  If the producers found a private buyer, they returned the advance.  If they found no buyer, the DPC would pay them full price and put the machine tool in storage for later sale.  This program proved remarkably successful in boosting machine tool production and, with machine tools readily available, speeding up weapons production.[7]

The second task, the timely delivery of scarce materials to military and essential civilian producers, was accomplished thanks to the efforts of the War Production Board (WPB), the country’s primary wartime mobilization agency.  In late 1942, after considerable experimentation, it launched its Controlled Materials Plan (CMP).  The plan required key claimants, such as the Army, the Navy, and the Maritime Commission, to provide detailed descriptions of their projected programs and the quantities of essential controlled metals required to realize them, with a monthly production schedule for the upcoming year.  The WPB industry divisions responsible for these metals would then estimate their projected supply and decide the amount of each metal to be allocated to each claimant following WPB policy directives.  The claimants would then adjust their programs accordingly and assign their metal shares to their prime contractors who were then responsible for assigning supplies to their subcontractors. 

When, over time, a shortage of components replaced the shortage of metals as the most serious bottleneck to military production, the WPB introduced another program.  The newly established Production Executive Committee created a list of 34 critical components.  One of its subcommittees, working in concert with the CMP process, would then arrange for essential manufacturers to receive all their required scarce materials and components. 

3. Flexibility is important

Flexibility in both planning structures and mobilization policies was critical to the success of the conversion.  President Roosevelt began the mobilization process in May 1940, with an executive order reactivating the World War 1-era National Defense Advisory Commission (NDAC).  In December 1940, he replaced the NDAC with the Office of Production Management (OPM). Then, in August 1941, he created the Supply Priorities and Allocation Board (SPAB) and placed it over the OPM with the charge of developing a long-term mobilization strategy and overseeing OPM’s work.  And finally, again using an executive order, he established the War Production Board (WPB) in January 1942, replacing both the OPM and the SPAB.  

All three agencies, the NDAC, OPM, and WPB, relied heavily on divisions overseeing industrial sections to carry out their responsibilities.  The NDAC had 7 divisions: Industrial Production, Industrial Materials, Labor, Price Stabilization, Farm Products, Transportation, and Consumer Protection.  The first two were the most important.

The Industrial Production Division had 8 sections, the most important being aircraft; ammunition and lite ordnance; and tanks, trucks, and tractors. The Industrial Materials Division had three subdivisions, each with its own sections: the mining and minerals products subdivision had sections for iron and steel, copper, aluminum, and tin; the agricultural and forest products subdivision had sections for textiles, leather, paper, rubber, and the like; and the chemical and allied products division had sections for petroleum, nitrogen, etc. 

Each division, subdivision, and section had an appointed head, and each section head had an industry advisory committee to assist them. The divisions, subdivisions, and sections were responsible, as appropriate, for assessing the industrial capacities of their respective industries to meet present and projected military needs, facilitating military procurement activity, and assisting with plant expansion plans and the priority distribution and allocation of scarce goods.

When Roosevelt felt that an existing mobilization agency was not up to the task of furthering the war effort, he replaced it.  Accordingly, each new mobilization agency had a more centralized decision-making structure, broader responsibilities, and greater authority over private business decisions than its predecessor. 

Thus, the OPM, reflecting a different stage in the mobilization, was more narrowly focused on production and had only four divisions: Production Division, Purchases Division, Priorities Division, and Labor Division.  Later, in recognition of the spillover effects of military production on civilian production, the Civilian Supply Division was added and given responsibility for all industries producing 50 percent or less for the defense program. 

The WPB had six divisions: Production Division, Materials Division, Division of Industry Operations, Purchases Division, Civilian Supply Division, and Labor Division.  The newly created Division of Industry Operations included all nonmunitions-producing industries and had responsibility for promoting the conversion of industries to military production and for maximizing the flow of materials, equipment, and workers to essential producers.   

4.  Conversion means conflict

Powerful corporations and the military opposed policies that threatened their interests even when those policies benefitted the war effort.  Corporations producing goods of direct importance to the military often refused to undertake needed investments.  Corporations producing for the civilian market routinely ignored agency requests that they curtail or convert their production to economize on the nonmilitary use of scarce materials.

By late 1940, this corporate resistance had begun to cause shortages, especially of strategic materials.  Aluminum was one of those materials and Alcoa, the only major producer of the metal, aggressively resisted expanding its production capacity even though a lack of aluminum was causing delays in military aircraft production.  A similar situation existed with steel, with steel executives arguing that there was no need for capacity expansion while critical activities such as ship building and railroad car manufacturing ground to a halt because of a lack of supply.[8]

This growing shortage problem, and its threat to the military buildup, could have been minimized if large producers of consumer durables had been willing to either reduce their production or convert to military production. But almost all of them rebuffed NDAC entreaties. They were enjoying substantial profits for the first time in years and were unwilling to abandon their civilian markets. 

The industry that drew the most criticism because of its heavy resource use was the automobile industry. In 1939, the automobile industry “absorbed 18 percent of total national steel output, 80 percent of rubber, 34 percent of lead, nearly 10-14 percent of copper, tin, and aluminum, and 90 percent of gasoline. Throughout 1940 and 1941, automobile production went up, taking proportionately even more materials and products indispensable for defense preparation.”[9]

In some cases, this corporate opposition to policies that threatened their profits lasted deep into the war years, with some firms objecting not only to undertaking their own expansion but to any government financed expansion as well, out of fear of post-war overproduction and/or loss of market share.  This stance is captured in the following exchange between Senator E. H. Moore of Oklahoma and Interior Secretary and Petroleum Administrator for War Harold L. Ickes at a February 1943 Congressional hearing over the construction of a federally financed petroleum pipeline from Texas to the East Coast:

Secretary Ickes. I would like to say one thing, however. I think there are certain gentlemen in the oil industry who are thinking of the competitive position after the war.

The Chairman. That is what we are afraid of, Mr. Secretary.

Secretary Ickes. That’s all right. I am not doing that kind of thinking.

The Chairman. I know you are not.

Secretary Ickes. I am thinking of how best to win this war with the least possible amount of casualties and in the quickest time.

Senator Moore. Regardless, Mr. Secretary, of what the effect would be after the war? Are you not concerned with that?

Secretary Ickes. Absolutely.

Senator Moore. Are you not concerned with the economic situation with regard to existing conditions after the war?

Secretary Ickes. Terribly. But there won’t be any economic situation to worry about if we don’t win the war.

Senator Moore. We are going to win the war.

Secretary Ickes. We haven’t won it yet.

Senator Moore. Can’t we also, while we are winning the war, look beyond the war to see what the situation will be with reference to –

Secretary Ickes (interposing). That is what the automobile industry tried to do, Senator. It wouldn’t convert because it was more interested in what would happen after the war. That is what the steel industry did, Senator, when it said we didn’t need any more steel capacity, and we are paying the price now. If decisions are left with me, it is only fair to say that I will not take into account any post-war factor—but it can be taken out of my hands if those considerations are paid attention to.[10]

Military procurement agencies, determined to maintain their independence, also greatly hindered government efforts to ensure a timely flow of resources to essential producers by actively opposing any meaningful oversight or regulation of their activities. Most importantly, the procurement agencies refused to adjust their demand for goods and services to the productive capacity of the economy. Demanding more than the economy could produce meant that shortages, dislocations, and stockpiling were unavoidable. The Joint Chiefs of Staff actually ignored several WPB requests to form a joint planning committee. 

David Kennedy provides a good sense of what was at stake:

As money began to pour into the treasury, contracts began to flood out of the military purchasing bureaus—over $100 billion worth in the first six months of 1942, a stupefying sum that exceeded the value of the entire nation’s output in 1941 . . . Military orders became hunting licenses, unleashing a jostling frenzy of competition for materials and labor in the jungle of the marketplace.  Contractors ran riot in a cutthroat scramble for scarce resources.[11]

It took until late 1942 for the WPB to win what became known as the “feasibility dispute,” after which the military’s procurement agencies grudgingly took the economy’s ability to produce into account when making their procurement demands.

5. Class matters

Leading corporations and their executives took advantage of every opportunity to shape the wartime mobilization process and strengthen their post-war political and economic power.  Many of the appointed section heads responsible for implementing mobilization policies were so-called “dollar-a-year men” who remained employed by the very firms they were supposed to oversee.  And most of these section heads relied on trade association officials as well as industry advisory committees to help them with their work.  In some cases, trade association officials themselves served as section heads of the industries they were hired to represent.  These appointments gave leading corporations an important voice in decisions involving the speed and location of new investments, the timing and process of industry conversions, procurement contract terms and procedures, the use of small businesses as subcontractors, the designation of goods as scare and thus subject to regulation, the role of unions in shopfloor production decisions, and labor allocation policies.

NDAC officials initially welcomed the participation of dollar-a-year men on the grounds that business executives knew best how to organize and maximize production. However, they soon often found these executives speaking out against agency policies in defense of corporate interests.  In response, the OPM created a Legal Division and empowered it to write and implement regulations designed to limit their number and power, but to little avail.  As the agency’s responsibilities grew, so did the number of dollar-a-year men working for it. 

Little changed under the WPB.  In fact, between January and December 1942, their number grew from 310 to a wartime high of 805, driven in large part by the explosion in the number of industry advisory committees.[12] The WPB’s continued dependence on these nominally paid business executives was a constant source of concern in Congress.

Corporate leaders also never lost sight of what was to them the bigger picture, the post-war balance of class power.  Thus, from the very beginning of the wartime mobilization, they actively worked to win popular identification of democracy with corporate freedom of action and totalitarianism with government planning and direction of economic activity.

As J.W. Mason illustrates:

Already by 1941, government enterprise was, according to a Chamber of Com­merce publication, “the ghost that stalks at every business conference.” J. Howard Pew of Sun Oil declared that if the United States abandoned private ownership and “supinely reli[es] on government control and operation, then Hitlerism wins even though Hitler himself be defeated.” Even the largest recipients of military contracts regarded the wartime state with hostility. GM chairman Alfred Sloan—referring to the danger of government enterprises operating after war—wondered if it is “not as essential to win the peace, in an eco­nomic sense, as it is to win the war, in a military sense,” while GE’s Philip Reed vowed to “oppose any project or program that will weaken” free enterprise.[13]

Throughout the war, business leaders and associations “flooded the public sphere with descriptions of the mobilization effort in which for-profit companies figured as the heroic engineers of a production ‘miracle’.”  For example, Boeing spent nearly a million dollars a year on print advertising in 1943-45, almost as much as it set aside for research and development.

The National Association of Manufactures (NAM) was one of the most active promoters of the idea that it was business, not government, that was winning the war against state totalitarianism.  It did so by funding a steady stream of films, books, tours, and speeches.  Mark R. Wilson describes one of its initiatives:

One of the NAM’s major public-relations projects for 1942, which built upon its efforts in radio and print media, was its “Production for Victory” tour, designed to show that “industry is making the utmost contributions toward victory.” Starting the first week in May, the NAM paid for twenty newspaper reporters to take a twenty-four-day, fifteen-state trip during which they visited sixty-four major defense plants run by fifty-eight private companies. For most of May, newspapers across the country ran daily articles related to the tour, written by the papers’ own reporters or by one of the wire services. The articles’ headlines included “Army Gets Rubber Thanks to Akron,” “General Motors Plants Turning Out Huge Volume of War Goods,” “Baldwin Ups Tank Output,” and “American Industry Overcomes a Start of 7 Years by Axis.”[14]

The companies and reporters rarely mentioned that almost all of these new plants were actually financed, built, and owned by the government, or that it was thanks to government planning efforts that these companies received needed materials on a timely basis and had well-trained and highly motivated workers.  Perhaps not surprisingly, government and union efforts to challenge the corporate story were never as well funded, sustained, or shaped by as clear a class perspective.[15]  As a consequence, they were far less effective.

6. Final thoughts

 Although the World War II-era economic transformation cannot and should not serve as a model for a Green New Deal transformation of the U.S. economy, it does provide lessons that deserve to be taken seriously.  Among the most important is that a rapid system-wide transformation, such as required for a Green New Deal, is possible to achieve, and in a timely manner.  It will take the development of new state capacities and flexible policies.  And we should be prepared, from the beginning, that our own efforts to create a more socially just and environmentally sustainable economy will be met by sophisticated opposition from powerful corporations and their allies. 

The conversion history also points to some of our biggest challenges. Germany’s military victories in Europe as well as Japan’s direct attack on the United States encouraged popular support for state action to convert the economy from civilian to military production. In sharp contrast, widespread support for state action to combat climate change or restrict corporate freedom of action does not yet exist. Even now, there are many who deny the reality of climate change.  There is also widespread doubt about the ability of government to solve problems. This means we have big work ahead to create the political conditions supportive of decisive action to transform our economy.

Perhaps equally daunting, we have no simple equivalent to the military during World War II to drive a Green New Deal transformation.  The war-time mobilization was designed to meet the needs of the military.  Thus, the mobilization agencies generally treated military procurement demands as marching orders.  In contrast, a Green New Deal transformation will involve changes to many parts of our economy, and our interest in a grassroots democratic restructuring process means there needs to be popular involvement in shaping the transformation of each part, as well as the connections between them. Thus, we face the difficult task of creating the organizational relationships and networks required to bring together leading community representatives, and produce, through conversation and negotiation, a broad roadmap of the process of transformation we collectively seek.

And finally, we must confront a corporate sector that is far more powerful and popular now than it was during the period of the war.  And thanks to the current freedom corporations enjoy to shift production and finance globally, they have a variety of ways to blunt or undermine state efforts to direct their activities.

In sum, achieving a Green New Deal transformation will be far from easy. It will require developing a broad-based effort to educate people about how capitalism is driving our interrelated ecological and economic crises, building a political movement for system-wide change anchored by a new ecological understanding and vision, and creating the state and community-based representative institutions needed to initiate and direct the desired Green New Deal transformation. 

It is that last task that makes a careful consideration of the World War II-era conversion so valuable.  By studying how that rapid economy-wide transformation was organized and managed, we are able to gain important insights into, and the ability to prepare for, some of the challenges and choices that await us on the road to the new economy we so badly need.

Notes

[1] These include debates over the speed of change, the role of public ownership, and the use of nuclear power for energy generation.  There are also environmentalists who oppose the notion of sustained but sustainable growth explicitly embraced by many Green New Deal supporters and argue instead for a policy of degrowth, or a “Green New Deal without growth.”

[2] Christopher J. Tassava, “The American Economy during World War II,” EH.Net Encyclopedia, edited by Robert Whaples, February 10, 2008.

[3] Harold G. Vatter, The U.S. Economy in World War II (New York: Columbia University Press, 1985), 23.

[4] Vatter, The U.S. Economy in World War II, 22.

[5] Paul A.C Koistinen, Arsenal of World War II, The Political Economy of American Warfare 1940-1945. (Lawrence, Kansas: University of Kansas Press, 2004), 498.

[6] Gerald T. White, “Financing Industrial Expansion for War: The Origin of the Defense Plant Corporation Leases,” The Journal of Economic History, Vol. 9, No. 2 (November, 1949), 158.

[7] Andrew Bossie and J.W. Mason, “The Public Role in Economic Transformation: Lessons from World War II,” The Roosevelt Institute, March 2020, 9-10.

[8] Maury Klein, A Call to Arms, Mobilizing America for World War II (New York: Bloomsbury Press, 2013), 165.

[9] Koistinen, Arsenal of World War II, 130.

[10] As quoted in Vatter, The U.S. Economy in World War II, 24-25.

[11] As quoted in Klein, A Call to Arms, 376.

[12] Koistinen, Arsenal of World War II, 199.

[13] J.W. Mason, “The Economy During Wartime,” Dissent Magazine, Fall 2017.

[14] Mark R. Wilson, Destructive Creation, American Business and the Winning of World War II (Philadelphia: University of Pennsylvania Press, 2016), 102.

[15] Union suggestions for improving the overall efficiency of the mobilization effort as well as their offers to join with management in company production circles were routinely rejected. See Martin Hart-Landsberg, The Green New Deal and the State, Lessons from World War II,” Against the Current, No. 207 (July/August 2020); Paul A. C. Koistinen, “Mobilizing the World War II Economy: Labor and the Industrial-Military Alliance,” Pacific Historical Review, Vol. 42, No. 4 (November 1973); and Nelson Lichtenstein, Labor’s War at Home, The CIO in World War II (New York: Cambridge University Press, 1982).

The planning and politics of conversion: World War II lessons for a Green New Deal—Part 1

This is the first in a series of posts that aim to describe and evaluate the World War II mobilization experience in the United States in order to illuminate some of the economic and political challenges we can expect to face as we work for a Green New Deal.  

This post highlights the successful government directed wartime reorientation of the U.S. economy from civilian to military production, an achievement that both demonstrates the feasibility of a rapid Green New Deal transformation of the U.S. economy and points to the kinds of organizational capacities we will need to develop. The post also highlights some of the strategies employed by big business to successfully stamp the wartime transformation as a victory for “market freedom,” an outcome that strengthened capital’s ability to dominate the postwar U.S. political economy and suggests the kind of political struggles we can expect and will need to overcome as we work to achieve a just Green New Deal transformation.

The climate challenge and the Green New Deal

We are hurtling towards a climate catastrophe.  The Intergovernmental Panel on Climate Change, in its Special Report on Global Warming of 1.5°C, warns that we must limit the increase in the global mean temperature to 1.5 degrees Celsius above pre-industrial levels by 2100 if we hope to avoid a future with ever worsening climate disasters and “global scale degradation and loss of ecosystems and biodiversity.”  And, it concludes, to achieve that goal global net carbon dioxide emissions must fall by 45 per cent by 2030 and reach net zero emissions by 2050.

Tragically, none of the major carbon dioxide emitting nations has been willing to pursue the system-wide changes necessary to halt the rise in the global mean temperature.  Rather than falling, carbon dioxide emissions rose over the decade ending in 2019.  Only a major crisis, in the current case a pandemic, appears able to reverse the rise in emissions.   

Early estimates are that the COVID-19 pandemic will cause a fall in global emissions of somewhere between 4 and 7 percent in 2020.  But the decline will likely be temporary.  For example, the International Monetary Fund is forecasting an emission rise of 5.8 percent in 2021. This bounce back is in line with what happened after the 2008-09 Great Recession.  After falling by 1.4 percent in 2009, global emissions grew by 5.1 percent in 2010.

Motivated by signs of the emerging climate crisis—extreme weather conditions, droughts, floods, warming oceans, rising sea levels, fires, ocean acidification, and soil deterioration—activists in the United States have worked to build a movement that joins climate and social justice activists around a call for a Green New Deal to tackle both global warming and the country’s worsening economic and social problems. The Green Party has promoted its ecosocialist Green New Deal since 2006, but it was the 2018 mass actions by new climate action groups such as Extreme Rebellion and the Sunrise Movement and then the 2019 introduction of a Green New Deal congressional resolution by Representative Alexandria Ocasio-Cortez and Senator Edward Markey that helped popularize the idea.

The Ocasio-Cortez—Markey resolution, echoing the Intergovernmental Panel on Climate Change, calls for a ten-year national program of mobilization designed to cut CO2 emissions by 40-60 percent from 2010 levels by 2030 and achieve net-zero emissions by 2050.  Its program includes policies that aim at replacing fossil fuels with clean, renewable sources of energy, and existing forms of transportation, agriculture, and urban development with new affordable and sustainable ones; encouraging investment and the growth of clean manufacturing; and promoting good, high paying union jobs and universal access to clean air and water, health care, and healthy food.

While there are similarities, there are also important differences, between the Green Party’s Green New Deal and Ocasio-Cortez—Markey’s Green New Deal, including over the speed of change, the role of public ownership, and the use of fracking and nuclear power for energy generation.  More generally, there are also differences among supporters of a Green New Deal style transformation over whether the needed government investments and proposed social policies should be financed by raising taxes, slashing the military budget, borrowing, or money creation.  There are also environmentalists who oppose the notion of sustained but sustainable growth explicitly embraced by many Green New Deal supporters and argue instead for a policy of degrowth, or a “Green New Deal without growth.”

These arguments are important, representing different political sensibilities and visions, and need to be taken seriously.  But what has largely escaped discussion is any detailed consideration of the actual process of economic transformation required by any serious Green New Deal program.  Here are some examples of the kind of issues we will need to confront:

Fossil fuel production has to be ratcheted down, which will dramatically raise fossil fuel prices.  The higher cost of fossil fuels will significantly raise the cost of business for many industries, especially air travel, tourism, and the aerospace and automobile industries, triggering significant declines in demand for their respective goods and services and reductions in their output and employment.  We will need to develop a mechanism that will allow us to humanely and efficiently repurpose newly created surplus facilities and provide alternative employment for released workers.

New industries, especially those involved in the production of renewable energy will have to be rapidly developed.  We will need to develop agencies capable of deciding the speed of their expansion as well as who will own the new facilities, how they will be financed, and how best to ensure that the materials required by these industries will be produced in sufficient quantities and made available at the appropriate time. We will also have to develop mechanisms for deciding where the new industries will be located and how to develop the necessary social infrastructure to house and care for the new workforce.  

The list goes on—we will need to ensure the rapid and smooth expansion of facilities capable of producing electric cars, mass transit vehicles, and a revitalized national rail system.  We will need to organize the retrofitting of existing buildings, both office and residential, as well as the training of workers and the production of required equipment and materials.  The development of a new universal health care system will also require the planning and construction of new clinics and the development of new technologies and health practices. 

The challenges sound overwhelming, especially given the required short time frame for change.  But, reassuringly, the U.S. government faced remarkable similar challenges during the war years when, in approximately three years, it successfully converted the U.S. economy from civilian to military production. This experience points to the importance of studying the World War II planning process for lessons and should give us confidence that we can successfully carry out our own Green New Deal conversion in a timely fashion.

World War II economic mobilization

The name Green New Deal calls to mind the New Deal of the 1930s, which is best understood as a collection of largely unrelated initiatives designed to promote employment and boost a depressed economy.  In contrast, the Green New Deal aims at an integrated transformation of a “functioning” economy, which is a task much closer to the World War II transformation of the U.S. economy. That transformation required the repression of civilian production, much like the Green New Deal will require repression of the fossil fuel industry and those industries dependent on it.  Simultaneously, it also required the rapid expansion of military production, including the creation of entirely new products like synthetic rubber and weapon systems, much like the Green New Deal will require expansion of new forms of renewable energy, transportation, and social programs.  And it also required the process of conversion to take place quickly, much like what is required under the Green New Deal. 

J.W. Mason and Andrew Bossie highlight the contemporary relevance of the wartime experience by pointing out:

Just as in today’s public-health and climate crises, the goal of wartime economic management was not to raise GDP in the abstract, but to drastically raise production of specific kinds of goods, many of which had hardly figured in the prewar economy. Then as now, this rapid reorganization of the economy required a massive expansion of public spending, on a scale that had hardly been contemplated before the emergency. And then as, potentially, now, this massive expansion of public spending, while aimed at the immediate non-economic goal, had a decisive impact on long-standing economic problems of stagnation and inequality. Of course, there are many important differences between the two periods. But the similarities are sufficient to make it worth looking to the 1940s for economic lessons for today.

Before studying the organization, practice, and evolution of the World War II era planning system, it is useful to have an overall picture of the extent, speed, and success of the economy’s transformation. The following two charts highlight the dominant role played by the government.  The first shows the dramatic growth and reorientation in government spending beginning in 1941.  As we can see federal government war expenditures soared, while non-war expenditures actually fell in value.  Military spending as a share of GNP rose from 2.2 percent in 1940, to 11 percent in 1941, and to 31.2 percent in 1942.

The second shows that the expansion in plant and equipment required to produce the goods and services needed to fight the war was largely financed by the government.  Private investment actually fell in value over the war years.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 92.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 115.

The next chart illustrates the speed and extent of the reorientation of industrial production over the period 1941-1944.  As we can see, while industrial production aimed at military needs soared, non-military industrial production significantly declined.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 104.

The next two charts illustrate the success of the conversion process.  The first shows the rapid increase in the production of a variety of military weapons and equipment.  The second demonstrates why the United States was called the “Arsenal of democracy”; it produced the majority of all the munitions produced during World War II.

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 319

Source: U.S. Bureau of the Budget, The United States at War, Development and Administration of the War Program by the Federal Government, Washington DC: The U.S. Government Printing Office, 1947, p. 507.

Significantly, while the rapid growth in military related production did boost the overall growth of the economy, because it was largely achieved at the expense of nonmilitary production, the economy’s overall growth over the years 1941-44/45, was far from extraordinary.  For example, the table below compares the growth in real gross nonfarm product over the early years of the 1920’s to that of the early years of the 1940’s.  As we can see, there is little difference between the two periods, and that holds true even if we exclude the last year of the war, when military spending plateaued and military production began to decline.  The same holds true when comparing just the growth in industrial production over the two periods.

Years                   Growth in real gross nonfarm product                                              

1921-2528.4%
1941-4524.6%
  
1921-2426.2%
1941-4425.8%
Source: Harold G. Vatter, The U.S. Economy in World War II, New York: Columbia University Press, 1985, p. 22.

This similarity between the two periods reinforces the point that the economic success of the war years, the rapid ramping up of military production, was primarily due to the ability of government mobilization agencies to direct an economic conversion that privileged the production of goods and services for the military at the expense of non-military goods and services.  This experience certainly lends credibility to those who seek a similar system-wide conversion to achieve a Green New Deal transformation of the U.S. economy.

Such a transformation is not without sacrifice.  For example, workers did pay a cost for the resulting suppression of civilian oriented production, but it was limited.  As Harold Vatter points out: “There were large and real absolute decreases in total consumer expenditures between 1941 and 1945 on some items considered important in ordinary times.  Prominent among these, in the durable goods category, were major home appliances, new cars, and net purchases of used cars, furniture, and radio and TV sets.”

At the same time there were real gains for workers.  Overall personal consumption which rose in both 1940 and 1941, declined absolutely in 1942, but then began a slow and steady increase, with total personal consumption higher in 1945 than in 1941.  However, this record understates the real gains.  The U.S. civilian population declined from 131.6 million in 1941 to 126.7 million in 1944.  Thus, the gain in personal consumption on a per capita basis was significant.  As Vatter notes, “real employee compensation per private employee in nonfarm establishments rose steadily ever year, and in 1945 was over one-fifth above the 1941 level. . . . More broadly, similar results show up for the index of real disposable personal income per capita, which increased well over one-fourth during the same war years.”  Of course, these gains were largely the result of more people working and for longer hours; it was definitely earned.  Also important is the fact that pretax family income rose faster for those at the bottom of the income distribution than for those at the top, helping to reduce overall income inequality. 

In sum, there are good reasons for those seeking to implement a Green New Deal style transformation of the U.S. economy to use the World War II planning experience as a template.  A careful study of that experience can alert us to the kinds of organizational and institutional capacities we will need to develop.  And, it is important to add, it can also alert us to the kinds of political challenges we can expect to face.

Planning and politics

The success of the U.S. economy’s World War II transformation was due, in large part, to the work of a series of changing and overlapping mobilization agencies that President Roosevelt established by executive order and then replaced or modified as new political and economic challenges emerged. Roosevelt took his first meaningful action to help prepare the United States economy for war in May 1940, when he reactivated the World War 1-era National Defense Advisory Commission (NDAC).  The NDAC was replaced by the Office of Production Management (OPM) in December 1940.  The Supply Priorities and Allocation Board (SPAB) was then created in August 1941 to develop a needed longer-term planning orientation to guide the work of the OPM.  And finally, both the OPM and the SPAB were replaced by the War Production Board (WPB) in January 1942.  With each change, decision-making became more centralized, planning responsibilities expanded, and authority to direct economic activity strengthened.

The work of these agencies was greatly enhanced by a number of other initiatives, one of the most important being the August 1940 establishment of the Defense Plant Corporation (DPC). The DPC was authorized to directly finance and own plant and equipment vital to the national defense. The DPC ended up financing and owning roughly one-third of the plant and equipment built during the war, most of which was leased to private companies to operate for a minimal amount, often $1 a year. The aircraft industry was the main beneficiary of DPC investment, but plants were also built to produce synthetic rubber, ships, machine tools, iron and steel, magnesium, and aluminum.

Despite its successful outcome, the process of economic conversion was far from smooth and the main reason was resistance by capitalists.  Still distrustful of New Deal reformers, most business leaders were critical of any serious attempt at prewar planning that involved strengthening government regulation and oversight of their respective activities.  Rather, they preferred to continue their existing practice of individually negotiating contracts with Army and Navy procurement agencies.  Many also opposed prewar government entreaties to expand their scale of operations to meet the military’s growing demand for munitions and equipment.  Their reasons were many: they were reluctant to expand capacity after a decade of depression; civilian markets were growing rapidly and highly profitable; and the course of the war, and the U.S. participation in it, remained uncertain.

Their attitude and power greatly influenced the operation and policies of the NDAC, which was built on industry divisions run by industry leaders, most of whom were so-called “dollar-a-year men” who continued to draw their full salaries from the corporations that employed them, and advised by industry associations.  This business-friendly structure, with various modifications, was then transferred to the OPM and later the WPB.

With business interests well represented in the prewar mobilization agencies, the government struggled to transform the economy in preparation for war.  The lack of new business investment in critical industries meant that by mid-1941 material shortages began forcing delays in defense orders; aluminum, magnesium, zinc, steel, and machine tools were all growing scare.  At the same time, a number of industries that were major consumers of these scare materials and machinery, such as the automobile industry, also resisted government efforts to get them to abandon their consumer markets and convert to the production of needed military goods.

In some cases, this resistance lasted deep into the war years, with some firms objecting not only to undertaking their own expansion but to any government financed expansion as well, out of fear of post-war overproduction and/or loss of market share.  The resulting political tension is captured by the following exchange at a February 1943 Congressional hearing between Senator E. H. Moore of Oklahoma and Interior Secretary and Petroleum Administrator for War Harold L. Ickes over the construction of a petroleum pipeline from Texas to the East Coast:

Secretary Ickes. I would like to say one thing, however. I think there are certain gentlemen in the oil industry who are thinking of the competitive position after the war.

The Chairman. That is what we are afraid of, Mr. Secretary.

Secretary Ickes. That’s all right. I am not doing that kind of thinking.

The Chairman. I know you are not.

Secretary Ickes. I am thinking of how best to win this war with the least possible amount of casualties and in the quickest time.

Senator Moore. Regardless, Mr. Secretary, of what the effect would be after the war? Are you not concerned with that?

Secretary Ickes. Absolutely.

Senator Moore. Are you not concerned with the economic situation with regard to existing conditions after the war?

Secretary Ickes. Terribly. But there won’t be any economic situation to worry about if we don’t win the war.

Senator Moore. We are going to win the war.

Secretary Ickes. We haven’t won it yet.

Senator Moore. Can’t we also, while we are winning the war, look beyond the war to see what the situation will be with reference to –

Secretary Ickes (interposing). That is what the automobile industry tried to do, Senator. It wouldn’t convert because it was more interested in what would happen after the war. That is what the steel industry did, Senator, when it said we didn’t need any more steel capacity, and we are paying the price now. If decisions are left with me, it is only fair to say that I will not take into account any post-war factor—but it can be taken out of my hands if those considerations are paid attention to.

Once the war began, many businesses were also able to build a strategic alliance with the military that allowed them to roll back past worker gains and isolate and weaken unions.  For example, by invoking the military’s overriding concern with achieving maximum production of the weapons of war, business leaders were able to defeat union attempts to legislate against the awarding of military contracts to firms in violation of labor law. They also succeeded in ignoring overtime pay requirements when lengthening the workweek and in imposing new workplace rules that strengthened management prerogatives. 

If unions struck to demand higher wages or resist unilateral workplace changes, business and military leaders would declare their actions a threat to the wartime effort, which cost them public support. Often the striking unions were threatened with government sanctions by mobilization authorities.  In some cases, especially when it came to the aircraft industry, the military actually seized control of plants, sending in troops with fixed bayonets, to break a strike.  Eventually, the CIO traded a no-strike pledge for a maintenance of membership agreement, but that often put national union officials in the position of suppressing rank-and-file job actions and disciplining local leaders and activists, an outcome which weakened worker support for the union.

Business didn’t always have its own way.  Its importance as essential producer was, during the war, matched by the military’s role as essential demander.  And, while the two usually saw eye-to-eye, there were times when military interests diverged from, and dominated, corporate interests.  Moreover, as the war continued, government planning agencies gained new powers that enabled them to effectively regulate the activities of both business and the military.  Finally, the work of congressional committees engaged in oversight of the planning process as well as pressure from unions and small business associations also helped, depending on the issue, to place limits on corporate prerogatives.

Still, when all was said and done, corporate leaders proved remarkably successful in dominating the mobilization process and strengthening their post-war authority over both the government and organized labor.  Perhaps the main reason for their success is that almost from the beginning of the mobilization process, a number of influential business leaders and associations aggressively organized themselves to fight their own two-front war—one that involved boosting production to help the United States defeat the Axis powers and one that involved winning popular identification of the fight for democracy with corporate freedom of action.

In terms of this second front, as J.W. Mason describes:

Already by 1941, government enterprise was, according to a Chamber of Com­merce publication, “the ghost that stalks at every business conference.” J. Howard Pew of Sun Oil declared that if the United States abandoned private ownership and “supinely reli[es] on government control and operation, then Hitlerism wins even though Hitler himself be defeated.” Even the largest recipients of military contracts regarded the wartime state with hostility. GM chairman Alfred Sloan—referring to the danger of government enterprises operating after war—wondered if it is “not as essential to win the peace, in an eco­nomic sense, as it is to win the war, in a military sense,” while GE’s Philip Reed vowed to “oppose any project or program that will weaken” free enterprise.

Throughout the war, business leaders and associations “flooded the public sphere with descriptions of the mobilization effort in which for-profit companies figured as the heroic engineers of a production ‘miracle’.”  For example, Boeing spent nearly a million dollars a year on print advertising in 1943-45, almost as much as it set aside for research and development.

The National Association of Manufactures (NAM) was one of the most active promoters of the idea that it was business, not government, that was winning the war against state totalitarianism.  It did so by funding a steady stream of films, books, tours, and speeches.  Mark R. Wilson describes one of its initiatives:

One of the NAM’s major public-relations projects for 1942, which built upon its efforts in radio and print media, was its “Production for Victory” tour, designed to show that “industry is making the utmost contributions toward victory.” Starting the first week in May, the NAM paid for twenty newspaper reporters to take a twenty-four-day, fifteen-state trip during which they visited sixty-four major defense plants run by fifty-eight private companies. For most of May, newspapers across the country ran daily articles related to the tour, written by the papers’ own reporters or by one of the wire services. The articles’ headlines included “Army Gets Rubber Thanks to Akron,” “General Motors Plants Turning Out Huge Volume of War Goods,” “Baldwin Ups Tank Output,” and “American Industry Overcomes a Start of 7 Years by Axis.”

It was rarely if ever mentioned by the companies or the reporters that almost all of these new plants were actually financed, built, and owned by the government, or that it was thanks to government planning efforts that these companies had well-trained workers and received needed materials on a timely basis.  Perhaps not surprisingly, government and union efforts to challenge the corporate story were never as well funded, sustained, or shaped by as clear a class perspective.  As a consequence, they were far less effective.

Paul A.C. Koistinen, in his major study of World War II planning, quotes Hebert Emmerich, past Secretary of the Office of Production Management (OPM), who looking back at the mobilization experience in 1956 commented that “When big business realized it had lost the elections of 1932 and 1936, it tried to come in through the back door, first through the NRA and then through the NDAC and OPM and WPB.”  Its success allowed it to emerge from the war politically stronger than when it began.

Capital is clearly much more organized and powerful today than it was in the 1940s.  And we can safely assume that business leaders will draw upon all their many strengths in an effort to shape any future conversion process in ways likely to limit its transformative potential.  Capital’s wartime strategy points to some of the difficult challenges we must prepare to face, including how to minimize corporate dominance over the work of mobilization agencies and ensure that the process of transformation strengthens, rather than weakens, worker organization and power.  Most importantly, the wartime experience makes clear that the fight for a Green New Deal is best understood as a new front in an ongoing class war, and that we need to strengthen our own capacity to wage a serious and well-prepared ideological struggle for the society we want to create.

The Green New Deal and the State: Lessons from World War II—Part II

There is growing interest in a Green New Deal, but far too little discussion among supporters about the challenging nature of the required economic transformation, the necessary role of public planning and ownership in shaping it, or the strategies necessary to institutionalize a strong worker-community voice in the process and final outcome. In this two-part series I draw on the experience of World War II, when the state was forced to direct a rapid transformation from civilian to military production, to help encourage and concretize that discussion.

In Part I, I first discussed the need for a rapid Green New Deal-inspired transformation and the value of studying the U.S. experience during World War II to help us achieve it. Then, I examined the evolution, challenges, and central role of state planning in the wartime conversion to alert us to the kind of state agencies and capacities we will need to develop. Finally, I highlighted two problematic aspects of the wartime conversion and postwar reconversion which we must guard against: the ability of corporations to strengthen their dominance and the marginalization of working people from any decision-making role in conversion planning.

Here in Part II, I discuss the efforts of labor activists to democratize the process of transformation during the war period in order to sharpen our thinking about how best to organize a labor-community movement for a Green New Deal.  During this period, many labor activists struggled against powerful political forces to open up space for new forms of economic planning with institutionalized worker-community involvement.  The organizing and movement building efforts of District 8 leaders of the United Electrical, Radio & Machine Workers of America (UE), as described by Rosemary Feuer in her book Radical Unionism in the Midwest, 1900-1950, stand out in this regard.  Although their success was limited, there is much that we can learn from their efforts.

Organizing for a worker-community planned conversion process

District 8 covered Missouri, Iowa, Kansas, Arkansas, southern Indiana and southern and western Illinois, and UE contracts in that area were heavily weighted towards small and medium sized firms producing mechanical and electrical products.  As the government began its war time economic conversion in 1941, its policy of suppressing civilian goods and rewarding big corporations with defense contracts hit the firms that employed UE members hard.

The UE response was to build a labor and community-based effort to gain control over the conversion process. In Evansville, Indiana, the UE organized a community campaign titled “Prevent Evansville from Becoming a Ghost Town.”  As Feurer explains,

District 8’s tentative proposal called upon union and civic and business leaders to request the establishment of a federal program that would “be administered through joint and bona fide union-management-government cooperation” at the local level. It would ensure that before reductions in the production of consumer goods were instituted, government must give enough primary war contracts and subcontracts to “take up the slack” of unemployment caused in cities such as Evansville. It also proposed that laid-off workers would get “first claim on jobs with other companies in the community,” while excessive overtime would be eliminated until unemployment was reduced.

District 8 organizers pressed Evansville’s mayor to gather community, labor, and business representatives from all over the Midwest to discuss how to manage the conversion to save jobs.  They organized mass petition drives and won endorsements for their campaign from many community groups and small businesses.  Persuaded, Evansville’s mayor contacted some 500 mayors from cities with populations under 250,000 in eleven midwestern states, requesting that they send delegations of “city officials, labor leaders, managers of industry and other civic leaders” to a gathering in Chicago.  Some 1500 delegates attended the September meeting.

The conference endorsed the UE’s call for a significant role for labor in conversion planning, specifically “equal participation of management and labor in determining a proper and adequate retraining program and allocation of primary and sub-contracts. . . [And that] all possible steps be taken to avoid serious dislocations in non-defense industries.”  A committee of seven, with two labor representatives, was chosen to draw up a more concrete program of action.

One result was that Evansville and Newton, Iowa (another city with a strong UE presence) were named “Priority Unemployment Plan” areas, and allowed to conduct “an experiment for community-based solving of unemployment and dislocations caused by war priorities.”  The plan restricted new plant construction if existing production capacity was considered sufficient, encouraged industry-wide and geographical-based pooling of production facilities to boost efficiency and stabilize employment, required companies to provide training to help workers upgrade their skills, and supported industry-wide studies to determine how to best adapt existing facilities for military production.

William Sentner, the head of District 8, called for labor to take a leading role in organizing community gatherings in other regions and creating regional planning councils. Unfortunately, CIO leaders did little to support the idea. Moreover, once the war started, unemployment stopped being a serious problem and the federal government took direct control over the conversion process.

Organizing for a worker-community planned reconversion process

As the war began to wind down, District 8 leaders once again took up the issue of conversion, this time conversion back to a peacetime economy.  In 1943, they got the mayor of St. Louis to create a community planning committee, with strong labor participation, to discuss future economic possibilities for the city.  In 1944, they organized a series of union conferences with elected worker representatives from each factory department in plants under UE contract throughout the district, along with selected guests, to discuss reconversion and postwar employment issues.

At these conferences District 8 leaders emphasized the importance of continued government planning to guarantee full employment, but also stressed that the new jobs should be interesting and fulfilling and the workweek should be reduced to 30 hours to allow more time for study, recreation, and family life.  They also discussed the importance of other goals: an expansion of workers’ rights in production; labor-management collaboration to develop and produce new products responsive to new needs; support for women who wanted to continue working, in part by the provision of nurseries; and the need to end employment discrimination against African Americans.

While these conferences were taking place, the Missouri River flooded, covering many thousands of acres of farmland with dirt and sand, and leaving thousands of people homeless.  The US Army Corps of Engineers rushed to take advantage of the situation, proposing a major dredging operation to deepen the lower Missouri River channel, an effort strongly supported by big shipping interests.  It became known as the Pick Plan. Not long after, the Bureau of Reclamation proposed a competing plan that involved building a series of dams and reservoirs in the upper river valley, a plan strongly supported by big agricultural interests. It became known as the Sloan Plan.

While lower river and upper river business interests battled, a grassroots movement grew across the region opposing both plans, seeing them, each in their own way, as highly destructive.  For example, building the dams and reservoirs would destroy the environment and require the flooding of hundreds of thousands of acres, much of it owned by small farmers, and leave tens of thousands of families without homes.

Influenced by the growing public anger, newspapers in St. Louis began calling for the creation of a new public authority, a Missouri Valley Authority (MVA), to implement a unified plan for flood control and development that was responsive to popular needs.  Their interest in an MVA reflected the popularity of the Tennessee Valley Authority (TVA), an agency created in 1933 and tasked with providing cheap electricity to homes and businesses and addressing many of the region’s other development challenges, such as flooding, land erosion, and population out-migration.  In fact, during the 1930s, several bills were submitted to Congress to establish other river-based regional authorities.  Roosevelt endorsed seven of them, but they all died in committee as the Congress grew more conservative and war planning took center stage in Washington DC.

District 8, building on its desire to promote postwar regional public planning, eagerly took up the idea of an MVA.  It issued a pamphlet titled “One River, One Plan” that laid out its vision for the agency.  As a public agency, it was to be responsive to a broad community steering committee; have the authority to engage in economic and environmental planning for the region; and, like the TVA, directly employ unionized workers to carry out much of its work.  Its primary tasks would be the electrification of rural areas and flood control through soil and water conservation projects and reforestation.  The pamphlet estimated that five hundred thousand jobs could be created within five years as a result of these activities and the greater demand for goods and services flowing from electrification and the revitalization of small farms and their communities.

District 8 used its pamphlet to launch a community-based grassroots campaign for its MVA, which received strong support from many unions, environmentalists, and farm groups.  And, in August 1944, Senator James Murray from Montana submitted legislation to establish an MVA, written largely with the help of District 8 representatives.  A similar bill was submitted in the House.  Both versions called for a two-year planning period with the final plan to be voted on by Congress.

District 8 began planning for a bigger campaign to win Congressional approval.  However, their efforts were dealt a major blow when rival supporters of the Pick and Sloan plans settled their differences and coalesced around a compromise plan.  Congress quickly approved the Pick-Sloan Flood Control Act late December 1944 but, giving MVA supporters some hope that they could still prevail, Senator Murray succeeded in removing the act’s anti-MVA provisions.

District 8 leaders persuaded their national union to assign staff to help them establish a St. Louis committee, a nine-state committee, and a national committee to support the MVA. The St. Louis committee was formed in January 1945 with a diverse community-based steering committee.  Its strong outreach effort was remarkably successful, even winning support from the St. Louis Chamber of Commerce.  Feurer provides a good picture of the breadth and success of the effort:

By early 1945, other city-based committees were organizing in the nine-state region. A new national CIO committee for an MVA laid plans for “reaching every CIO member in the nine-state region on the importance of regionally administered MVA.  In addition, other state CIO federations pledged to organize for an MVA and to disseminate material on the MVA through local unions to individual members.  Further the seeds planted in 1944 among AFL unions were beginning to develop into a real coalition.  In Kansas City, the AFL was “circulating all the building trades unions in the nine states for support” to establish a nine-state buildings trades MVA committee. Both the AFL and CIO held valley wide conferences on the MVA to promote and organize for it.

Murray submitted a new bill in February 1945, which included new measures on soil conversation and the protection of wild game, water conservation, and forest renewal. It also gave the MVA responsibility for the “disposal of war and defense factories to encourage industrial and business expansion.”

But the political tide had turned.  The economy was in expansion, the Democratic Party was moving rightward, and powerful forces were promoting a growing fear of communism.  Murray’s new bill was shunted to a hostile committee and big business mounted an unrelenting and successful campaign to kill it, arguing that the MVA would establish an undemocratic “super-government,” was a step toward “state socialism,” and was now unnecessary given passage of the Pick-Sloan Flood Control Act.

Drawing lessons

A careful study of District 8’s efforts, especially its campaign for an MVA, can help us think more creatively and effectively about how to build a labor-community coalition in support of a Green New Deal.  In terms of policy, there are many reasons to consider following District 8 in advocating for regionally based public entities empowered to plan and direct economic activity as a way to begin the national process of transformation.  For example, many of the consequences of climate change are experienced differently depending on region, which makes it far more effective to plan regional responses.  And many of the energy and natural resources that need to be managed during a period of transformation are shared by neighboring states.  Moreover, state governments, unions, and community groups are more likely to have established relations with their regional counterparts, making conversation and coordination easier to achieve.  Also, regionally organized action would make it much harder for corporations to use inter-state competition to weaken initiatives.

Jonathan Kissam, UE’s Communication Director and editor of the UE News, advocates just such an approach:

UE District 8’s Missouri Valley Authority proposal could easily be revived and modernized, and combined with elements of the British proposal for a National Climate Service. A network of regional Just Transition Authorities, publicly owned and accountable to communities and workers, could be set up to address the specific carbon-reduction and employment needs of different regions of the country.

The political lessons are perhaps the most important.  District 8’s success in building significant labor-community alliances around innovative plans for war conversion and then peacetime reconversion highlights the pivotal role unions can, or perhaps must, play in a progressive transformation process.  Underpinning this success was District 8’s commitment to sustained internal organizing and engagement with community partners.  Union members embraced the campaigns because they could see how a planned transformation of regional economic activity was the only way to secure meaningful improvements in workplace conditions, and such a transformation could only be won in alliance with the broader community.  And community allies, and eventually even political leaders, were drawn to the campaigns because they recognized that joining with organized labor gave them the best chance to win structural changes that also benefited them.

We face enormous challenges in attempting to build a similar kind of working class-anchored movement for a Green New Deal-inspired economic transformation.  Among them: weakened unions; popular distrust of the effectiveness of public planning and production; and weak ties between labor, environmental, and other community groups.  Overcoming these challenges will require our own sustained conversations and organizing to strengthen the capacities of, and connections between, our organizations and to develop a shared and grounded vision of a Green New Deal, one that can unite and empower the broader movement for change we so desperately need.

What the New Deal can teach us about winning a Green New Deal: Part V—summing up the New Deal experience

Growing awareness of our ever-worsening climate crisis has boosted the popularity of movements calling for a Green New Deal.  At present, the Green New Deal is a big tent idea, grounded to some extent by its identification with the original New Deal and emphasis on the need for strong state action to initiate social-system change on a massive scale.  Challenges abound for Green New Deal activists.  Among the many, how to:

  • create supportive working relationships between the different movements currently pushing for a Green New Deal
  • develop a sharper, shared vision of the aims of a Green New Deal
  • increase popular support for those aims as well as participation in those movements
  • build sufficient political power to force a change in state policy along lines favorable to the Green New Deal
  • ensure that the resulting trajectory of change strengthens the broader struggle to achieve a socially just and ecologically sustainable political-economy

While there are great differences between the crises and political movements and possibilities of the 1930s and now, there are also important lessons that can be learned from the efforts of activists to build mass movements for social transformation during the Great Depression.  My aim in this series, including in this fifth and last post, is to illuminate the challenges faced and choices made by these activists in order to draw out some of the relevant lessons.

In previous posts I argued that the despite the severity of the Great Depression, it took sustained, left-led, mass organizing and actions to force the federal government to accept responsibility for improving economic conditions.  Unfortunately, First New Deal relief and job creation policies were inadequate, far from what the growing movement of unemployed demanded or was needed to meet majority needs.  However, continued mass activity by the unemployed, those on relief, and those employed eventually forced the Roosevelt administration to undertake a Second New Deal, which included its widely praised programs for public works (WPA), social security (Social Security Act), and union rights (National Labor Relations Act).

These Second New Deal programs were unprecedented and did improve conditions for working people.  But, as I argue in this final post, both the WPA and the Social Security Act again fell short of the transformative changes demanded by activists.  And while the NLRA did offer workers important legal protections that made it safer for them to unionize their workplaces, its effect was to encourage a top-down system of labor-management relations that suppressed rank and file activism and class consciousness. Thus, despite their pathbreaking nature, these programs were far from revolutionary.  Rather they were designed to ameliorate the suffering caused by capitalism’s crisis without threatening capitalist control over economic activity.

Tragically, changes in the political and economic environment, as well as strategic choices made by the left in response to those changes led to the weakening of popular movements, leaving them unable to push the Roosevelt administration into yet a Third New Deal.  As a result, the upsurge of the 1930s failed to advance the socialist-inspired transformation that motivated many of its participants. In the end, it proved only able to force the state to adopt policies that reformed the workings of the system, a not inconsiderable achievement, but one that still left working people vulnerable to the vicissitudes of capitalism.  Hopefully, a careful study of the New Deal experience will help Green New Deal activists build movements able to avoid the trap of limited reform while fighting for the massive, interconnected, and empowering social-system change we so desperately need.

The Second New Deal

It is easy to understand why supporters of a Green New Deal look to the New Deal as a touchstone.  Growing numbers of people have come to the conclusion that our problems are too big to be solved by individual or local efforts alone, and that once again innovative and transformative state-led actions will be needed to solve them.  Quite simply, the New Deal experience inspires people to believe in the possibility of a Green New Deal.

When people talk about the innovative and transformative policies of the New Deal they normally mean the core policies of the Second New Deal: the WPA, the Social Security Act, and the National Labor Relations Act.  As innovative as these policies were, they were, as discussed in Part IV, largely forced on the Roosevelt Administration by left-led mass movements.  And, as we see next, they were, by design, meant to blunt more radical demands for change.  In short, they were important reforms, but no more than reforms, and as such offered only partial solutions to the problems of the time.  Sadly, workers today continue to suffer from their limitations.

Works Progress Administration

One of the most important Second New Deal programs was the Works Progress Administration (WPA). Established in May 1935, it employed millions of unemployed to carry out public projects such as construction of public buildings and roads.  Federal Project Number One, a much smaller program that also operated under the WPA umbrella, employed musicians, artists, writers, actors and directors in large arts, drama, media, and literacy projects. These included the Federal Writers’ Project, the Federal Theatre Project, the Federal Music Project, and the Federal Art Project.

Roosevelt’s decision to replace the Federal Emergency Relief Administration (FERA) with the WPA was a clear sign that he recognized that his First New Deal employment and relief programs — FERA and the Civil Works Administration (CWA) — had done little to satisfy fast growing left-led unemployed movements that were demanding a federal jobs program under which unemployed workers would be directly put to work, at union wages, producing a wide range of needed goods and services.

FERA had provided loans and grants to states which then offered relief work to those that qualified for relief.  As discussed in Part III, the program required workers to submit to demeaning financial investigations, often paid those chosen for relief with coupons that could only be redeemed for select food items, made no attempt to match worker skills with jobs, and often employed those on relief in make-work tasks.  While FERA marked the first direct federal support for relief and enabled states to greatly expand their relief rolls, it also required states to provide matching funds to receive FERA money.  Limited state resources meant that relief covered only about one-third of those unemployed.

CWA was a far more popular program, most importantly because it involved direct federal employment, had no relief requirement, paid relatively well, and sought to match workers’ skills with jobs.  However, it was, by design, a short-term program that lasted only 6 months, with most employment creation ending after 4 months.

The WPA was a federal program that operated its own projects in cooperation with state and local governments, which were required to cover some 10 to 30 percent of their costs.  In some cases, the WPA took over ongoing FERA state and local relief programs.  But, despite its impressive accomplishments, it also fell short of movement demands.

Although the WPA combined elements of both FERA and the CWA, it was far more like the former than the latter. For example, in contrast to the CWA, participation in WPA projects required a state means test.  Thus, unemployment alone was not enough to qualify a person for the program.  Moreover, as under FERA, participants were subject to demeaning monitoring of their spending habits and living conditions.

Again. unlike the CWA, little effort was made to match workers’ skills with jobs.  Workers were divided into two broad categories of skilled and unskilled.  The unskilled were assigned construction jobs even if they had no construction experience.  The skilled were assigned a variety of writing or teaching jobs regardless of whether they had experience in those areas.  The program did pay market wages.  However, limits were put on maximum allowable hours of weekly employment in addition to an overall limit on total earnings.

WPA employment opportunities were also limited.  Its average monthly employment was approximately 3 million workers.  The CWA, at its peak, employed over 4 million a month.  The WPA, like FERA, employed only about one-third of the unemployed.  Moreover, because of unstable program financing, even those employed by the WPA would sometimes suffer layoffs.

The unemployed movement wanted a permanent federal employment program that would guarantee full employment.  And they wanted that program to employ people to produce needed goods and services as a direct counter to private production.  This was far from the vision of the Roosevelt administration.  As Harry Hopkins, chief administrator of the WPA, explained:

Policy from the first was not to compete with private business. Hence we could neither work on private property, set up a rival merchandising system, nor form a work outlet through manufacturing, even though manufacturing had contributed to relief rolls hundreds of thousands of workers accustomed to operating machines and to doing nothing else for a living.

Operating under these limits, the WPA had little choice but to focus its efforts on the construction of public buildings and roads.  Post offices accounted for close to half of the more than 3000 public buildings constructed.

Moreover, despite its limitations, the unemployed had to fight to sustain the program.  Congress decided to provide funds for the program one year at a time.  Sometimes allocations fell short of planned spending, resulting in layoffs.   Other times, militant demonstrations by an alliance of unemployed groups forced Congress into making supplemental appropriations.

The number of public works projects and WPA participants began a steady decline in 1939.  The next year the Roosevelt administration decided to reorient program activity to projects of direct use to the military, including construction of base housing and military airfields as well as expansion of naval yards. The WPA was quietly terminated in 1943, with unemployment problems seemingly solved thanks to the demands of wartime production.  Sadly, the unemployed never developed the political weight or broader social movement needed to push the government into embracing a more expansive and ongoing program of national planning and public production.

The Social Security Act

The Social Security Act is widely considered to be the New Deal’s crown jewel.  According to his Secretary of Labor, “[President Roosevelt] always regarded the Social Security Act as the cornerstone of his administration . . . and . . . took greater satisfaction from it than from anything else he achieved on the domestic front.”

Roosevelt appointed a Committee on Economic Security in July 1934 with the charge to develop a social security bill that he could present to Congress in January 1935 that would include provisions for both unemployment insurance and old-age security.  An administration approved bill was in fact introduced in January and Roosevelt called for quick Congressional action.  The bill was revised in April by a House committee and given a new name, “The Social Security Act.”  After additional revisions the Social Security Act was approved by overwhelming majorities in both Houses of Congress, and the legislation was signed by the President on August 14, 1935.

The Social Security Act was a complex piece of legislation.  It included what we now call Social Security, a federal old-age benefit program; a program of unemployment benefits administered by the states, and a program of federal grants to states to fund benefits for the needy elderly and aid to dependent children.  It was a cautious beginning, as explained by Edwin E. Witte, the Executive Director and Secretary of the President’s Committee on Economic Security:

Because we were in the midst of a deep depression, the Administration and Congress were very anxious to avoid placing too great burdens on business and also to avoid adding to Government deficits. It was these considerations that resulted in the low beginning social security tax rates and the step-plan of the introduction of both old-age and unemployment insurance and also in the establishment of completely self-financed social insurance programs, without Government contributions–to this day a distinctive feature of social insurance in this country.

Before examining the way Roosevelt’s concerns for the well-being of business placed limits on the timeliness, coverage, and support provided by these programs, it is important to recognize that, as with the WPA, Roosevelt’s commitment to social security was a response to the efforts of the Communist Party (CP), which authored a far more progressive bill, one that would have significantly shifted the balance of class power towards workers.

The CP began pushing its Workers Unemployment Insurance Bill in the summer of 1930, and it, as well as the Unemployment Councils, worked hard to promote it over the following years.  On March 4, 1933, the day of Roosevelt’s inauguration, they organized demonstrations stressing the need for action on unemployment insurance.

Undeterred by Roosevelt’s lack of action, the CP authored a bill–the Workers Unemployment and Social Insurance Bill–that was introduced in Congress in February 1934 by Representative Ernest Lundeen of the Farmer-Labor Party.  In broad brush, as Chris Wright summarizes, the bill:

provided for unemployment insurance for workers and farmers (regardless of age, sex, or race) that was to be equal to average local wages but no less than $10 per week plus $3 for each dependent; people compelled to work part-time (because of inability to find full-time jobs) were to receive the difference between their earnings and the average local full-time wages; commissions directly elected by members of workers’ and farmers’ organizations were to administer the system; social insurance would be given to the sick and elderly, and maternity benefits would be paid eight weeks before and eight weeks after birth; and the system would be financed by unappropriated funds in the Treasury and by taxes on inheritances, gifts, and individual and corporate incomes above $5,000 a year. Later iterations of the bill went into greater detail on how the system would be financed and managed.

Not surprisingly, the bill enjoyed strong support among workers, employed and unemployed.  Thanks to the efforts of unemployed and union activists it was soon endorsed by 5 international unions, 35 central labor bodies, and more than 3000 local unions.  Rank and file worker committees also formed across the country to pressure members of Congress to pass it.

When Congress refused to act on the bill, Lundeen reintroduced it in January 1935. Because of public pressure, the bill became the first unemployment insurance plan in US history to be recommended by a congressional committee, in this case the House Labor Committee.  It was voted down in the full House of Representatives, 204 to 52.

Roosevelt strongly opposed the Lundeen bill and it was to provide a counter that he established his Committee on Economic Security in July 1934 and pressed Congress to approve the resulting Social Security Act as quickly as possible.  Roosevelt’s Social Security Act fell far short of what the Workers Unemployment and Social Insurance Bill offered, and it was strongly opposed by movement activists and organizations of the unemployed.

The part of the bill that established what we now call Social Security suffered from five main weaknesses.  First, it was to be self-financing because of administration fears of deficit spending, a decision which placed downward pressure on benefit levels.  Second, it was to be financed by contributions from both workers and employers.  Thus, workers had to shoulder half the costs of the program.

Third, the system was not universal.  The act covered only workers in commerce and industry, about half the jobs in the economy.  Among those left out were farm and domestic workers.

Fourth, the act provided for monthly retirement benefits payable only to the primary worker in a family when they retired at age 65 or older. Moreover, the amount received depended on the value of wages earned in covered employment starting in 1937.

Finally, the act mandated that monthly benefit payments would not begin until 1942.  A 1939 amendment did allow benefit payments to begin in 1940 and added child, spouse, and survivor benefits to the authorized retirement benefits.

In sum, this was a program that offered too little, too late, and to too few people.  And while improvements were made over the years, the current system pales in comparison to the kind of security and humane retirement workers would have enjoyed if the workers’ movement had been powerful enough to secure passage of its preferred bill.

The unemployment system established as part of the Social Security Act was also structured in ways unfavorable to workers compared with the proposed benefits of the Workers Unemployment and Social Insurance Bill.  Rather than set up a comprehensive national system of unemployment compensation, as workers desired, the act established a federal-state cooperative system that gave states wide latitude in determining standards.

More specifically, the act levied a uniform national pay-roll tax of 1 percent in 1936, 2 percent in 1937, and 3 percent in 1938, on covered employers, defined as those employers with eight or more employees for at least twenty weeks, not including government employers and employers in agriculture.  Only workers employed by a covered employer could receive benefits.

Covered employers were given a federal credit on up to 90 percent of the tax if they paid their credit amount into a certified state unemployment compensation fund.  The act left it to the states to decide whether to enact their own plans, and if so, to determine eligibility conditions, the waiting period to receive benefits, benefit amounts, minimum and maximum benefit levels, duration of benefits, disqualifications, and other administrative matters. It was not until 1937 that programs were established in every state as well as the then-territories of Alaska and Hawaii.  And it was not until 1938 that most began paying benefits.

In the early years, most states required eligible workers to wait 2 to 4 weeks before drawing benefits, which were commonly set at half recent earnings (subject to weekly maximums) for a period ranging from 12 to 16 weeks. Ten state laws called for employee contributions as well as employer contributions.

Just like with social security, over the following years the program was expanded in a number of positive ways, including by expanding coverage and benefits.  However, the unemployment program established by the Social Security Act fell far short of the universal, progressively funded social safety net that workers were demanding.

The National Labor Relations Act

In the spring of 1934, Senator Robert Wagner introduced a bill to establish a new labor relations board that, unlike the one established by the First New Deal’s National Industrial Recovery Act (NIRA), would have enforcement authority.  Few in Congress supported the bill; President Roosevelt also opposed it.

Wagner reintroduced a revised version of his bill a year later and to a dramatically different outcome.  In May 1935 it received unanimous support in the Senate Labor Committee, followed by strong support in both the Senate and House.  As reported by the editors of Who Built America?, President Roosevelt remained opposed to the bill up until the very end:

“It ought to be on the record,” his labor secretary noted, that the bill was “not a part of the President’s program.  It did not particularly appeal to him when it was described to him.”  But when the US Supreme Court struck down the NIRA in May and Wagner’s National Labor Relations bill was passed by one house of Congress, FDR finally endorsed the bill.

In broad brush, the National Labor Relations Act established a set of laws and regulations designed to guarantee the right of private sector workers to peacefully organize into trade unions of their choosing and engage in collective bargaining and actions such as strikes.  The act also created the National Labor Relations Board to organize and oversee the process by which workers decide on whether to join a union as well as determine whether collective bargaining agreements are being fairly bargained and enforced.

The turnaround in support for the NLRA owes much to the growing militancy of workers, and the threat that this militancy posed to the established order.  Section 7a of the NIRA had promised workers that they would “have the right to organize and bargain collectively through representatives of their own choosing . . . free from the interference, restraint, or coercion of employers.”  Unfortunately, with no mechanism to ensure that workers would be able to exercise this right, after a short period of successful union organizing, companies began violently repressing genuine union activity. By 1935, growing numbers of workers were calling the National Recovery Administration (NRA), which had been established to oversee the NIRA, the National Run Around.

However, it was not the corporate campaign of violence directed against workers that was the catalyst for the change in government policy.  Rather it was the explosion of powerful left-led worker victories in three major labor struggles in early 1934.  The first was in Toledo, Ohio, where American Workers’ Party sponsored unemployed organizations joined with striking auto workers seeking to unionize a major auto parts manufacturer.  The workers battled special deputies and National Guard troops for weeks, maintaining an effective strike.  Fearful of the possibility of an even larger strike, the Roosevelt administration finally sent federal mediators to Toledo, forcing the company to recognize the union and agree to significant wage increases.

At almost the same time, an even bigger struggle began in Minneapolis. A Trotskyist-led Teamster local, fighting to unionize a number of trucking and warehouse companies, effectively shut down commercial transport in the city.  Days of violence followed as police and special deputies tried to break the strike.  Faced with a growing threat of a general strike, federal mediators again were forced to intervene, and again forced the employers to recognize the union.

A general strike did take place in San Francisco.  Led by Communist and other radical rank and file activists, San Francisco longshoremen rejected a secretly negotiated deal between the national leadership of the International Longshoremen’s Association and the waterfront employers.  Their strike was quickly joined by dockworkers in every other West Coast port as well as many sailors and waterfront truckers.

Police attempts to break the San Francisco strike led to a full-scale battle and the death of two strikers by police on what became known as Bloody Thursday.  In response, the labor movement declared a general strike.  Some 150,000 workers went out, essentially bringing San Francisco, Oakland, Berkeley and other nearby municipalities, to a halt.  Again, federal intervention was required to bring the strike to a halt, with a victory for the workers.

These struggles, all with important left leadership, showed a dramatic growth in worker militancy, solidarity, and radicalism that sent shock waves throughout the corporate community as well as the government.  And it was to head off the further radicalization of the labor movement that the Congress and Roosevelt agreed to support the NLRA and its mechanisms to regularize the unionization process.  In the words of Steve Fraser:

The Wagner Act helped institutionalize a form of industrial democracy that steered clear of any frontal assault on the underlying political economy. It legitimated collective bargaining, imposed responsibilities on both management and trade union officialdom, and worked to establish peace on the shop floor.

Union leaders were to police their members, instilling a disciplined commitment to the terms of the contract. Control of life on the shop-floor remained with management. Militants who thought otherwise were soon enough reigned in. The much-maligned (not without cause) trade union bureaucracy was, after all, the fruit of a mass movement, an institution, created where there had been nothing, the slowly solidified residue of fiery desires.

For a few years, it appeared that worker militancy, a willingness to directly challenge corporate rights with no concern for issues of legality, would continue despite the NLRB’s existence.  For example, in early 1936 rubber workers in Akron, Ohio disregarded both union leadership and a court injunction to surround the eleven-mile perimeter of a Goodyear plant with pickets.  They shut down the plant in protest over recent wage cuts and layoffs of activists and rejected federal attempts at mediation.  When word came that the sheriff might come with armed deputies to open the plat, the strikers armed themselves.  Finally, after four weeks, Goodyear settled, agreeing to reinstate the fired workers, reduce the workweek, and recognize the authority of union shop committees.

Not long after, inspired by the rubber workers, auto workers began staging walk-outs and strikes at several different Chrysler and GM plants over firings and unionization.  The biggest action came at the end of 1936 with the Flint sit-down strike.  The workers held the plant for 44 days, during which time they fought off attempts by armed police to evict them and ignored injunctions issued by the courts demanding that they leave.  In the end GM agreed to recognize the UAW as the exclusive bargaining representative for all GM workers.

The number of strikes grew dramatically from 2,014 in 1935 to 4,740 in 1937, with workers increasingly winning unionization not through the machinery of the NLRA, but through direct action.  For example, the number of sit-down strikes lasting more than a day grew from 48 in 1936 to some 500 in 1937.

Unfortunately, this upward trajectory of militant, class conscious activity would not be sustained.  The reasons are complex.  One part of the explanation concerns the evolving political orientation of the CP.  Responding to the new strategic orientation of the Communist International, which stressed the importance of building coalitions with all progressive and liberal forces to check the rise of fascism, the CP began pursuing an anti-fascist popular front policy that included support for Roosevelt’s 1936 re-election and the New Deal more generally.

This new orientation also translated into an increasingly conservative line regarding labor activism.  Party activists were encouraged not only to support the new CIO union leadership but also to oppose militant organizing tactics.  As Frances Fox Piven and Richard A. Cloward describe:

The Communists, by now well into their Popular Front phase and some of them into the union bureaucracy as well, endorsed the call for union discipline. Wyndham Mortimer issued a statement early in 1937 saying: “Sit-down strikes should be resorted to only when absolutely necessary.” And the Flint Auto Worker, edited by Communist Henry Kraus, editorialized that “the problem is not to foster strikes and labor trouble. The union can only grow on the basis of established procedure and collective bargaining.”

At the same time, corporate leaders were taking direct aim at the new labor reforms.  One of their first big victories was a 1938 Supreme Court ruling that said companies had the right to hire permanent replacement workers when workers went on strike.  The following year it ruled sit-down strikes illegal, even if undertaken in response to an illegal corporate action.

States also joined in.  In 1939, as Piven and Cloward report:

state legislatures began to pass laws prohibiting some kinds of strikes and secondary boycotts, limiting picketing, outlawing the closed shop, requiring the registration of unions, limiting the amount of dues unions could charge, and providing stiff jail terms for violations of the new offenses. By 1947 almost all of the states had passed legislation imposing at least some of these limitations.

Finally, corporate leaders also launched an anti-Communist attack against union activists, especially those in leadership positions in the newly created unions of the CIO.  Their efforts were amplified by House Un-American Activities Committee hearings which began in 1938.  The 1947 Taft–Hartley Act codified all these developments, outlawing wildcat strikes, solidarity or political strikes, secondary boycotts, secondary and mass picketing, and closed shops, as well as requiring union officers to sign non-communist affidavits as a condition for their union to secure NLRA rights.

In sum, as left and union leadership began to rely ever more heavily on the NLRA to win gains for workers, corporate and political elites began aggressively narrowing the acceptable boundaries of legal action.  As a consequence, although there would still be periods of worker militancy, the frequency of rank and file-led actions, open rebellion against the law, and moments of cross-union and class solidarity became increasingly rare.  Thus, the NLRB succeeded, as its supporters hoped, in creating a more stable system of labor relations that was consistent with and supportive of the needs of capitalist production.

The Movement’s Decline

The workers movement of the 1930s was a mass movement that, thanks to left leadership, encouraged class solidarity and support for a program of radical social change.  The movement was, as described in this and past posts, powerful enough to force the Roosevelt administration into adopting successively more progressive programs that, although flawed, did improve working and living conditions for many.

However, even as its different political tendencies began to unify, creating a national organization of the unemployed, the movement began to suffer a loss of militancy and vision that left it unable to further influence political developments.  As a consequence, the reforms of the Second New Deal came to define the limits of change.

In 1934 the Communist Party organized Unemployed Councils tightened their organizational form, finally adopting a written constitution.  In early 1935, Socialist Party organized unemployed organizations and a number of Musteite organized Unemployed Leagues joined together to create a national organization of the unemployed, the Workers Alliance.  The following year, the Workers Alliance reached agreement with the Unemployed Councils and several other small unemployed organizations to form a new, larger national organization of the unemployed, the Workers Alliance of America (WAA). This unity was possible in large part because of the CP’s newly adopted popular front policy which led it to seek alliances with other political tendencies and groups that were seen as anti-fascist.  This included the Socialist Party and Muste’s Conference for Progressive Labor Action and their associated movements of unemployed.

The Workers Alliance of America, critical of the WPA, continued to fight for the unemployed and those on relief.  For example, when the Roosevelt administration announced planned cuts in WPA employment for 1937, the organization organized a number of sit-ins and demonstrations at city relief offices throughout the country.  The President, under pressure from big city mayors, rescinded the cuts.

However, defending an existing program is not the same as winning a new, improved one.  And this the movement could not do for several reasons.  One is that the rank and file base of the unemployed movement was shrinking because of the growth in the economy and the expansion in relief opportunities.  Another is that many of the movement’s most experienced activists were now employed as organizers in the growing trade union movement.

A third reason is that changes in the relief system undermined the movement’s ability to mobilize the unemployed and win gains through collective action.  The system had become professionalized, with relief officials in city after city establishing rules about the size of delegations that would be allowed in offices and the number of times each week that delegations could seek meetings with officials. Moreover, relief office workers were instructed not to meet clients if they were accompanied by a delegation or grant relief if a delegation was present in the office.

This left local unemployed organizers in the position of either accepting the new ground rules to ensure that their members received relief or continuing their mass activity hoping that their old strategy would be more effective in winning gains.   Increasingly, members advocated for the former, leaving organizers with no choice.  In fact, as a sign of the growing sophistication of the New Deal relief effort, a number of relief offices actually offered jobs to local activists with the unemployed movement with the promise that they could help make the system work more efficiently and effectively for those seeking relief.  In many cases, those offers were accepted.

Perhaps the most important reason for the movement’s growing political weakness was the Communist Party’s decision to pursue an alliance with the Roosevelt administration as part of its anti-fascist popular front policy.  This led the party to organize support for Roosevelt’s 1936 election and his New Deal policies, and to deemphasize oppositional and militant mass actions in support of social transformation in favor of more established political activity such as petition drives and lobbying for improvements in existing programs. In fact, hoping to win Roosevelt’s good will, the CP often organized rallies designed to show worker support for the WPA and other New Deal programs.  Roosevelt was actually invited to give the main speech at the WAA’s second annual convention.  When he turned down the invitation the honor was given to the WPA’s Director of Labor Relations. In 1938, WAA locals even campaigned for pro-New Deal candidates.

Increasingly the WAA became integrated into the New Deal.  As Piven and Cloward point out:

The [WAA became] recognized as the official bargaining agent for WPA workers, and alliance leaders now corresponded frequently with WPA administrators, communicating a host of complaints, and discussing innumerable procedural questions regarding WPA administrative regulations. Some of the complaints were major, having to do with pay cuts and arbitrary layoffs. Much of the correspondence, however, had to do with minute questions of procedure, and especially with the question of whether WPA workers were being allowed to make up the time lost while attending alliance meetings. Alliance leaders also wrote regularly to the president, reviewing the economic situation for him, deploring cuts in WPA, and calling for an expansion of the program.

The WAA continued to make demands on the administration, drafting their own bills calling for greater public spending and employment at union wages, advocating for their own far more sweeping social insurance program, and calling for the establishment of a national planning agency to oversee a permanent public works program.  But the movement no longer threatened Roosevelt, and its demands were largely ignored.  The WAA dissolved itself in 1941.

The labor movement, riding the growth in the economy, soon replaced the unemployed movement as the most powerful social force for change.  However, for reasons noted above, it also underwent its own moderation despite the efforts of rank and file activists.  For example, CIO leaders established Labor’s Non-Partisan League in 1936 to support President Roosevelt’s reelection and his New Deal program. World War II; the post-war vicious anti-communist attacks on all critics of capitalism, especially in the labor movement; and the strength of the post-war economic expansion finally buried the promise of a radical transformation.  There would be no transformative Third New Deal.

Lessons

The New Deal experience holds a number of important lessons for those advocating a Green New Deal.  First, the existence or even recognition of a crisis cannot be counted on to motivate a change in government policy if that change threatens the status quo.  It took years of mass organizing to force the federal government to acknowledge its responsibility to respond to the devastating social consequences of the Great Depression.  The challenge will be even greater today since, as opposed to the 1930s, the capitalist class continues to enjoy lucrative opportunities for profit-making.

Second, a broad-base mass movement that threatens the stability of the system can force a significant change in government policy.  The driving force for change in the 1930s was the movement of unemployed, and its early power came from the Communist Party’s ability to establish a network of local Unemployed Councils that provided unemployed workers with the opportunity to better understand the cause of their hard times, build class solidarity through collective actions in defense of local needs, and become part of broader campaigns for public policies on the national level that were directly responsive to their local concerns.

It is likely that activists for a Green New Deal will have to engage in a similar process of movement building if they hope to force a meaningful government response to our current crises.  Despite the fact that we face a number of interrelated social, economic, and ecological crises, activists must still find ways to weave together different local organizations engaged in collective actions in defense of their local needs into a nation-wide political force able to project a vision of responsive system change as well as define and fight for associated policies.

Third, government responses to political pressure can be expected to fall far short of movement demands for transformative change.  The Roosevelt administration’s First New Deal programs fell far short of what working people demanded and needed.  It took sustained organizing to win a Second New Deal, which while better, was still inadequate.  It the movement for a Green New Deal succeeds in forcing government action, it is safe to assume that, much as in the 1930s, the policies implemented will be partial and inadequate.  Thus, movement activists have to prepare participants for a long, and ongoing campaign of mobilization, organizational development, and pressure.

Fourth, because of the importance of government policy and the natural attraction of wanting to exert personal influence on it, movement activists must remain vigilant against becoming too tied to the government bureaucracy, thereby losing their political independence and weakening the movement’s capacity to continue pushing for further changes in state policy.  WAA leaders understandably wanted to influence New Deal policy, but their growing embrace of the Roosevelt administration, pursued for broader political objectives as well, ended up weakening the movement’s organizational strengthen and effectiveness and perhaps even more importantly, vision of a more egalitarian and democratic society. Green New Deal activists can be expected to face the same kind of pressures if a progressive government comes to power and begins to initiate its own reform program and movements must be alert to the danger.

Fifth, and finally, movements have to be careful not to become too policy oriented. The New Deal included a number of different programs each designed to address different problems.  This created a natural tendency for the different organizations that comprised the broader social movement to narrow their own focus and concentrate on finding ways to respond to the policy shortcomings that most affected their members.  Thus, while the unemployed, those on relief, and those fighting for unionization initially shared a sense of common struggle, over time, in large measure because of their success in winning reforms, they became separate movements, each with their own separate concerns. As a consequence, the overall power, unity, and commitment of the broader social movement for massive societal change was weakened.

This is a challenge that the movement for a Green New Deal can expect to face if it is successful enough to force meaningful government reforms, especially given the multiplicity of the challenges the country faces. The only way to minimize this challenge is to ensure that movement organizing, from the very beginning, encourages participants to see the need for the broader transformative change inspired by the notion of a Green New Deal, and to draw from their struggle an ever more concrete understanding of how that change can be advanced and how real improvement in their lives depends on its achievement.

We Need To Strengthen The Public In The US Public Sector

Many people have given up on the idea of government as an instrument of progressive social change, especially the federal government.  They think that the federal government is dominating and distorting economic activity and, more often than not, believe that the cause is a bloated, highly paid, and selfish federal workforce.

In fact, federal programs are increasingly being delivered by private contractors.  As a result, private employees doing work for the federal government now outnumber the federal workforce.  Moreover, in most cases, they are paid far more than the public employees they replace.  And, as more federal work is carried out under the direction of profit-seeking firms, there is good reason to believe that programs are reshaped to ensure that it is the private rather than public interest that is best served.

The declining share of federal workers

As a Public Goods Post explains:

the federal government workforce has not increased in absolute numbers in half a century. Not only is it the same size now as it was in the 1960s, since the 1980s it has shrunk. There are actually fewer government employees now than there were under Reagan even though the population has grown by over 30%.

As a consequence, as we see below, the size of the federal workforce as a share of the total civilian non-farm workforce has steadily fallen.  It is now less than 2 percent of the total.

The growth in private contractors

While the size of federal workforce has remained relatively unchanged for decades, the same is not true for real federal government spending on consumption and investment, as seen in the figure below.

So, how has the federal government been able to boost its activity with a relatively unchanged workforce?  The answer is an explosion in the use of private contractors.

According to the Public Goods Post,

the federal contractor workforce dwarfs the federal employee workforce nearly four-fold.

This massive third-party workforce has been mostly hidden from public view, kept intentionally out of sight by corporations and their lobbyists who have the most to gain, as well as by elected officials who want to claim that they are not growing government. Moreover, federal corporate contractors operate behind a shield of secrecy, enabled by their de facto exemption from the Freedom of Information Act (FOIA), and ensuring that they can operate without public scrutiny.

Fattening the corporate sector at public expense

This outsourcing of federal activities to private firms is likely an important reason for people’s dissatisfaction with government: they are far more expensive and their goal is profit not service.

A Project on Government Oversight study examined compensation paid to federal and private sector employees, as well as annual billing rates for contractor employees across 35 occupational classifications covering over 550 service activities.

It found, among other things, that:

Federal government employees were less expensive than contractors in 33 of the 35 occupational classifications reviewed.

Private sector compensation was lower than contractor billing rates in all 35 occupational classifications we reviewed.

The federal government approves service contract billing rates—deemed fair and reasonable—that pay contractors 1.83 times more than the government pays federal employees in total compensation, and more than 2 times the total compensation paid in the private sector for comparable services.

Here are some examples of the compensation bias favoring private contractors:

As bad as it is, this compensation bias is far from the whole story.  The fact is that public regulators incur significant costs trying to develop contracts that are supposed to ensure acceptable private contractor outcomes as well as actually monitoring performance.  And shortfalls in performance, an all too frequent outcome, require either additional federal expenditures beyond those initially stipulated in the contract or a lowering of public standards.

Moreover, a recent review of “the extensive global empirical evidence on the relative efficiency of the private versus public sectors” found no evidence:

that there is any systematic difference in efficiency between public and private sector companies, either in services which are subject to outsourcing, such as waste management, or in sectors privatized by sale, such as telecoms. . . .

This picture is further confirmed by examination of nine sectors which are most often subject to privatization, outsourcing and PPPs – buses, electricity, healthcare, ports, prisons, rail, telecoms, waste management and water – and the same results hold true in each sector: the evidence does not show any superior efficiency by private companies.

The challenge ahead

A report summarizing the discussions and outcomes of an October 2017 conference titled “Restoring Public Control of Public Goods” began as follows:

Over the past thirty-five years, government in the United States has been vilified and vitiated through a movement designed to de-legitimize government in the eyes of the public, to reduce government’s capacity to operate, and to replace that capacity with private contractors and other forms of privatization. . . .

We now are left with:

  • An increasingly hollowed-out, de-moralized, de-professionalized, and devalued government;
  • A hidden and growing “shadow government” of corporate contractors;
  • An array of expensive false economies–since, in fact, contracting out regularly costs taxpayers more than direct government provision of services;
  • Public goods that are so invisible as to be under-valued, and are therefore underfunded or struck from the budget;
  • Counter-productive systems of performance measurement that create further harmful (if sometimes unintended) consequences;
  • A citizenry that under-appreciates, or are unaware, of the public goods they receive.

The private sector has been quietly and efficiently winning its war to control and profit from public sector activities.  One can only hope that the recent interest in socialism will encourage a renewed popular commitment to work with public sector workers to resist this war on the public and build a new, more accountable, not to mentioned well-financed, public sector.

A Seat At The Table Of Power

A growing number of analysts are taking seriously the possibility that the U.S. economy is heading back into recession.   No wonder President Roosevelt’s 1933 first inaugural address is getting heavy internet circulation.  Here is a snippet:  

Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources. . . .

Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.

These are the lines of attack.

Sadly our government appears to have no interest in directly “recruiting” people and putting them to work meeting the needs of our country.  In fact, most Republican and Democratic party leaders refuse to support a substantial fiscal stimulus even if it would be used to encourage private production.

Right now, the only governmental body committed to expansionary policy is the Federal Reserve, the body that determines our country’s monetary policy.   However, it appears that the banking sector opposes even that effort and it remains to be seen how successful they will be in getting their way. 

Our Federal Reserve System is an odd creation.  It was created in 1913 and consists of a seven member Board of Governors and twelve regional federal reserve banks located in different cities throughout the United States. 

As the Federal Reserve itself explains:

The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms.

Sounds pretty straight forward.  The odd part is the system of regional federal reserve banks. 

Each regional bank has a president who serves a five year term and may be reappointed.  The president is chosen by the bank’s board of directors–and here is where the issue of who gets to sit at the table of power becomes important. 

Each regional bank’s board of directors consists of nine members selected from three “classes,” A, B, and C. The three Class A directors are chosen by the private banks operating in the region to represent the interests of the member banks.  The three Class B board members are also chosen by the private banks; they are supposed to represent “the public.”  The three Class C board members are chosen by the Board of Governors and are also supposed to represent the public.

In short, private bankers are structurally placed to dominate the selection of the presidents of the twelve regional federal reserve banks, and through them, influence the direction of the country’s monetary policy. 

Monetary policy is made by the Federal Reserve Open Market Committee (FOMC).  The voting members of the FOMC include the seven members of the Board of Governors and five of the twelve federal reserve presidents (on a rotating basis).  Thus, representatives of the banking sector are legally empowered to sit at the table where decisions about monetary policy and our economic future are made. 

If you are wondering if this is wise, you are not alone.  Barney Frank, Congressman from Massachusetts, has long worried about this.  As he said this September:

The Federal Reserve (Fed) regional presidents, 5 of whom vote at all times on the Federal Open Market Committee, are neither elected nor appointed by officials who are themselves elected.  Instead, they are part of a self-perpetuating group of private citizens who select each other and who are treated as equals in setting federal monetary policy with officials appointed by the President and confirmed by the Senate.

For some time this has troubled me from a theoretical democratic standpoint.  But several years ago it became clear that their voting presence on the FOMC was not simply an imperfection in our model of government based on public accountability, but was almost certainly a factor, influencing in a systematic way the decisions of the Federal Reserve.  In particular, it seems highly likely to me that their voting presence on the Committee has the effect of skewing policy to one side of the Fed’s dual mandate — specifically that they were a factor moving the Fed to pay more attention to combating inflation than to the equally important, and required by law, policy of promoting employment.

In 2009, I asked staff of the Financial Services Committee to prepare an analysis of FOMC voting patterns.  It confirmed two points.  First, the great majority of dissents, 90 percent — from FOMC policy before 2010 — came from the regional presidents.  Second, the overwhelming majority of those dissents were in the direction of higher interest rates.  In fact, vote data confirmed that 97 percent of hawkish dissents came from the regional bank presidents and 80 percent of all dissenting votes in the FOMC over the past decade were from a hawkish stance.

One day before Frank issued his statement, the FOMC voted to modestly lower long term interest rates in an attempt to boost investment. The decision was supported by a 7-3 vote.  At present there are only five voting members of the Board of Governors; two seats remain open.  As Dean Baker explains:

What was striking about this vote was that all 5 governors voted for this measure obviously feeling that the potential benefits in the form of stronger growth and lower unemployment outweighed any risks of higher inflation.  However, 3 of the 5 voting bank presidents opposed the measure, apparently viewing the threat of inflation as being a greater concern than any possible growth and employment dividend.

This raises an obvious question about the interests being represented by the bank presidents.  Inflation is especially bad news for banks because it reduces the value of their assets.  On the other hand bankers may not be very concerned about unemployment. They have jobs, as is probably the case for most of their friends as well.

It is hard not to wonder whether the bank presidents voting against further steps to spur growth and reduce unemployment were acting in the best interest of the country as a whole or whether they were representing the banks in their districts.  If the latter is the case, then it is reasonable to ask why we are giving the banks a direct role in setting the country’s monetary policy.  There is no obvious reason that they should have any more voice in determining monetary policy than anyone else.

In April, Barney Frank introduced H.R. 1512, which would eliminate the voting power of the regional bank presidents.  This seems like a good step.  We might want to go further and restructure the way in which bank presidents are elected; we shouldn’t be relying on bankers to decide who represents the public interest.  

Market Outcomes And Political Power

The media likes to talk about markets as if they were just a force of nature.  In fact, markets and their outcomes are largely shaped by political power.  In a capitalist system like ours, that power is largely used to advance the interests of those who own and run our dominant corporations. 

Thanks to Bloomberg News we have yet another example of this reality.  In brief, as a result of Congressional and media pressure the Federal Reserve was recently forced to reveal its lending activity for the period August 2007 through April 2010.   Bloomberg News examined these Federal Reserve records and found that the Fed secretly provided selected banks, brokerage houses, and even non-financial firms (such as General Electric and Ford) with at least $1.2 trillion in loans, often with minimal collateral required and at below market interest rates.

This money was given through more than a dozen lending programs.  Many firms tapped multiple programs through multiple subsidiaries. Bloomberg arrived at its total by focusing on the seven largest programs, which included the Fed’s discount window and six temporary lending facilities (the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; the Commercial Paper Funding Facility; the Primary Dealer Credit Facility; the Term Auction Facility; the Term Securities Lending Facility; and so-called single- tranche open market operations.

If you like visuals, here is a 5 minute video that provides a good summary of what Bloomberg gleaned from its examination.



Bloomberg also has an interactive site that allows you to chart who got what and over what period.    

Some of the highlights are as follows:

The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion . . .

Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG, which got $77.2 billion. . . .

The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The Federal Reserve fiercely resisted making its records public, arguing that doing so would stigmatize those institutions that received loans.  A group of the largest commercial banks actually petitioned the Supreme Court in an unsuccessful effort to keep the loan information secret.  

Perhaps one reason that the Federal Reserve and the banks were reluctant to have these records made public is that they raise significant questions of conflict of interest.  According to a statement by Vermont Senator Bernie Sanders,

the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed.  Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

Another reason may be that the Federal Reserve didn’t want it known that it was deviating from its past practice of requiring borrowers to provide secure collateral, which was normally either Treasuries or corporate bonds with the highest credit rating, and never stocks.  For example:

Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.

Moreover, as Bloomberg News also reported, many Fed loans were made at below market interest.

On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.  

The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.

These loans were absolutely critical to the survival of our leading companies.  A case in point:

Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.

These loans are also a key reason that our post-Great Recession economy remains largely unchanged in structure.  In other words, it was the exercise of political power, rather than so-called market dynamics or efficiencies, that explains the financial industry’s continuing profitability and economic dominance.

Now imagine if we had a state that engaged in transparent planning and was committed to using our significant public resources to reshape our economy in the public interest.  As we have seen, state planning and intervention in economic activity already goes on.  Unfortunately, it happens behind closed doors and for the benefit of a small minority. It doesn’t have to be that way.

Learning From The UK

The U.S. economy isn’t the only one struggling.  That means there are things to learn from other countries.  Take the United Kingdom, for example. 

The United Kingdom faces many of the same problems we do.  And the British government has decided to respond to these problems with many of the same policies promoted by our own conservative political leaders: slash public spending and cut public sector jobs and wages.  In fact,  the British plan calls for six consecutive years of spending cuts.  As Paul Krugman explains:

Britain, like America, is suffering from the aftermath of a housing and debt bubble. Its problems are compounded by London’s role as an international financial center: Britain came to rely too much on profits from wheeling and dealing to drive its economy — and on financial-industry tax payments to pay for government programs.

Over-reliance on the financial industry largely explains why Britain, which came into the crisis with relatively low public debt, has seen its budget deficit soar to 11 percent of G.D.P. — slightly worse than the U.S. deficit. And there’s no question that Britain will eventually need to balance its books with spending cuts and tax increases.

The operative word here should, however, be “eventually.” Fiscal austerity will depress the economy further unless it can be offset by a fall in interest rates. Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation’s fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax.

But trendy fashion, almost by definition, isn’t sensible — and the British government seems determined to ignore the lessons of history.

Both the new British budget announced on Wednesday [October 20, 2010] and the rhetoric that accompanied the announcement might have come straight from the desk of Andrew Mellon, the Treasury secretary who told President Herbert Hoover to fight the Depression by liquidating the farmers, liquidating the workers, and driving down wages. Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis.

The British government’s plan is bold, say the pundits — and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers — the equivalent of almost three million layoffs in the United States — at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.

Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative. . . .

What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.

Well, not surprisingly, the outcome of this austerity plan has been further economic decline.   As the chart below shows, the UK economy actually fell back into recession the last three months of 2010, suffering a 0.5% contraction. 

_50934970_gdp_growth_jan_464.gif

Despite that outcome, the government, according to the BBC, remains committed to its austerity policy: 

The Chancellor, George Osborne, said the numbers were disappointing.

But he added the government would not be “blown off course” from its austerity program.

The figures are set to raise concerns over prospects for the economy, with large public spending cuts expected to come in this year.

The BBC’s economics editor Stephanie Flanders said people were right to worry about where the UK’s growth would come from in 2011, especially as higher-than-expected inflation had dealt a further blow to household budgets.

Michael Roberts provides the following update and summary of economic trends:

The UK economy is struggling to recover from the Great Recession of 2008-9.  While profitability has recovered, British big business is still refusing to invest.  In Q1’11, UK gross fixed investment slumped by 4.4% compared with Q4’10, while household consumption fell 0.6%.  Most significant, business investment excluding property fell 7.1%  (manufacturing investment fell 1.1%).  It prefers to heap up the cash, invest abroad or speculate in stock markets rather than invest in expanding production or employment in the UK.   And while that continues British households on average will continue to suffer significant losses in living standards.

Household spending  is set to experience the slowest pick-up of any post-recession period since 1830, according to a survey of economists.  British consumers will spending barely more by 2015 than they were before the financial crisis in 2008.  In the UK’s 18 major recessions since records began in 1830, Bank of England data show consumer spending on average recovered to 12% above its previous peak within seven years.  But forecasts by the UK’s Office for Budget Responsibility put spending in 2015 at just 5.4% above the 2008 peak, making it the slowest recovery of any comparable post-recession period.  After recessions in the early 1980s and 1990s, spending was 20% and 15% higher respectively.

That household spending will be so laboured is not surprising as the average British household faces the biggest drop in income for 30 years.   Average income could fall 3% this year, the steepest drop since 1981 and taking households back to 2004-5 levels.  The Institute for Fiscal Studies said average take-home incomes actually rose during recent recession due to low inflation and higher social benefits.  But IFS analysis suggests the long-term effects of the recession and higher inflation will soon squeeze incomes.  Lower wage increases and the corrosive effect of rising inflation mean that it is “entirely possible” that income this year will return to levels of six years ago.   Even the Bank of England warned that UK households faced a significant cut in their spending power as inflation heads towards a 5% annual rate.

So, one thing we can learn from studying the UK is not to adopt conservative budget policies.  Another is that there are alternatives to the other established policy option, which is to just keep spending and hoping for a magical revival of economic fortunes. 

For example, UK climate activists and several national trade unions are promoting a straightforward, effective campaign to create one million green climate jobs.  As the alliance says:

To find solutions to the climate crisis and the recession, we need more public spending, the opposite of current government policy. We have people who need jobs and work that needs to be done. A million climate jobs in the UK will not solve all the economy’s problems. But it will take a million human beings off the dole and put them to work saving the future.

Their plan is careful to distinguish between climate jobs (which reduce greenhouse gases) and green jobs (which can mean almost anything).  More specifically it calls for the creation of a million, new public sector jobs and a National Climate Service to employ them, highlights the kind of work that should be done, and presents a plan for financing it that does not rely on increasing the federal deficit.

In the words of the alliance:

We mean a million new jobs, not ones people are already doing. We don’t want to add up existing and new jobs and say that now we have a million climate jobs. We don’t mean jobs with a climate label, or a climate aspect. We don’t want old jobs with new names, or ones with ‘sustainable’ inserted into the job title. And we don’t mean ‘carbon finance’ jobs.

We mean new jobs now. We want the government to start employing 83,300 workers a month in climate jobs. Then, within twelve months, we will have created a million jobs.

We mean government jobs. This is a new idea. Up to now government policy under both Labour and Conservatives has been to use subsidies and tax breaks to encourage private industry to invest in renewable energy. The traditional approach is to encourage the market. That’s much too slow and inefficient. We want something more like the way the government used to run the National Health Service. In effect, the government sets up a National Climate Service (NCS) and employs staff to do the work that needs to be done. Government policy has also been to give people grants and loans to insulate and refit their houses. Instead, we want to send teams of construction workers to renovate everyone’s home, street by street. And we want the government to construct wind farms, build railways, and put buses on the streets.

Direct government employment means secure, flexible, permanent jobs. Workers with new climate jobs won’t always keep doing the same thing, but they will be retrained as new kinds of work are needed.

I strongly recommend reading their plan.
 

The Challenges Ahead

On May 6, 2011, I spoke at the First Unitarian Church in Portland along with Chuck Collins (from the Institute for Policy Studies) as part of a program sponsored by the church’s Real Wealth of Portland group.  We both addressed the following theme: “Economic Insecurity Continues…and Communities Respond.”   

Chuck talked about a very important initiative: Common Security Clubs.  The First Unitarian Church has sponsored similar clubs for approximately one year.  

What follows is the talk I gave:

The Challenges Ahead

I want to begin by summarizing my three main points—

First, our economic problems are serious and structural, and a long time in the making.  They did not start with the 2007 collapse of the housing bubble, which means that we should not assume that so called “normal market forces” will eventually return us to an acceptable economic state.  In other words, without major structural changes in the way our economy works we face a future of stagnation with ever worsening conditions for growing numbers of people.  

Second, business and political leaders are not committed to making any serious changes in our economic structure.  That is not because they are stupid.  Rather it reflects a real class interest in maintaining the status quo.  It is not that they are unaware of or unconcerned with our current social problems but rather that they view the cost of making necessary changes to our economy as too high.

Third, meaningful solutions will require building a movement that challenges our current reliance on profit driven market outcomes.  This movement has to be built by organizing strong social and community institutions, ones that give people the chance to develop in common a correct understanding of the causes of our problems and the organizational weight and confidence to promote the needed transformation of our economy.

Structural Crisis

The National Bureau of Economic Research, the official designator of recessions and expansions, declared that our economy went into recession in December 2007 and that this recession ended and an expansion began in June 2009.  In other words we have been in an expansion for almost two years.  Normally, the deeper the recession, the stronger the recovery.  However, as I am sure you are aware, the recession was very deep and to this point the recovery has been extremely weak.

The federal government has poured trillions of dollars into the economy to end the recession and boost the recovery.  The government’s great accomplishment has been a strong recovery of profits.  In fact, total domestic corporate profits are now about as high as they were in 2006 before the start of the crisis, and financial profits as a share of total profits are pushing 35%, which is close to the pre-crisis high of 40%.

But beyond this restoration of corporate profitability, and the recovery of finance as our leading economic sector, little has happened to generate sustained and beneficial growth for the great majority of us.  For example, total bank excess reserves averaged around $10 billion a year in the decades prior to the crisis.  Now they are pushing $1.4 trillion.  The banks are just holding this money.  One reason is that since October 2008 the Federal Reserve Board is paying them interest on those reserves.  Similarly non-financial corporations now have the highest ratio of cash to assets in post-war history; they are not using that money to invest in new plant and equipment.

What this means is that our leading financial and non-financial corporations have plenty of money, but see no privately profitable productive investment opportunities.  At the same time, they are in no hurry to pursue policy changes because despite the slow recovery they are doing quite well.  Thus, as things stand, there is little reason to believe that this government supported expansion will be long lasting or beneficial for working people. 

I cannot emphasize enough the fact that we are in an expansion; these are the good times—the period of recovery, when our income is supposed to go up, when unemployment is supposed to significantly decline, when we have money to rebuild our infrastructure, fund our health care and other social programs, and build a solid collective nest egg to cover the hard times which will of course come.  The fact that this is not happening—that we continue to struggle during this period of economic expansion—is indicative of the fact that our economic system as presently structured is not one we can count on; in other words it is a flawed system. 

With this perspective, you can see why the small increases in employment and production that are cheered by policy makers mean little—of course we are going to see some increases.  But for how long and with what effect?  Given the lack of corporate interest in investment or lending I think that there is little reason to be optimistic.  And now, there is even an increasingly strong movement to slash government spending.  Those who support that policy claim that we just have to put the collapse of the bubble economy behind us, tighten our fiscal belts, and let market forces return our economy to normal—but what is normal?

Let us consider the previous economic expansion.  That expansion lasted from 2001 to 2007.  If we compare it to the nine other post-war expansions, it ranks dead last in terms of the growth in GDP, investment, employment, wage and salary income, and compensation.  It ranks highly in only one category—and that was the growth in profits.  In fact, median household income actually fell over this period of economic expansion.  And it is important to recall that this expansion was long lasting only because it was supported by a debt-driven housing bubble.  We no longer have that bubble to support growth.  Therefore, the new normal appears to be ever weaker growth and deteriorating living and working conditions for the great majority of us.  I don’t find that to be acceptable. 

Class Struggle

Significantly, more and more people are arguing that our current problems are caused by government deficits that are too big, taxes that are too high, and unions that are too strong,.  They are therefore pushing for a major reduction and privatization of government social programs, tax cuts for the wealthy and corporations, and a weakening of unions, especially those in the public sector. 

This would be a recipe for disaster.  Where these policies have been implemented, in places like Ireland, Greece, and the UK, the result has been only more problems: lower growth, greater deficits, and of course worsening social conditions.  That is not a surprising outcome.  If you have an economy where there is weak domestic demand because banks will not lend and corporations will not invest, workers are deep in debt, unemployment is high, and exports are limited, and then you cut government spending—it should not surprise anyone that things go from bad to worse.

And, it is not like we haven’t tried similar policies here in the United States.  We have been cutting taxes, government programs, and union strength for more than two decades, and we can see the effects—ever weaker growth, greater inequality, and worsening living and working conditions for the great majority.

The fact is that government spending is one of the main reasons that we still have an economic expansion.  Debt fears are being hyped to scare us. 

So, why are there powerful social forces arguing for these policies?  I think there are two main reasons.  The first is to ensure that our anger is not directed at the corporate sector.  When this crisis broke in 2008 people were angry, and they were angry at our corporations.  There were demands for nationalization of the banks and auto industry and calls for greater government intervention in the economy to save homes, employ people, in short, chart a new economic course for the country. 

What happened was quite different.  The president immediately made clear that he was not going to interfere with market processes—in finance, in auto production, in the housing market, in health care, or in job creation.  Rather he did all he could to bail out those corporations that were in trouble because of their own reckless pursuit of profit.  And his efforts succeeded.  Profits are back up and finance continues to dominate.  Unfortunately for us, those efforts did little to address our needs. 

I think that the corporate sector is getting nervous.  They are fearful that their large profits in the face of our deteriorating social conditions might lead to a renewal of demands for social change.  And lets be clear—any significant social change is going to require a significant change in government policy.  For example, strengthening our economy will require an end to free trade agreements; rebuilding our infrastructure; a new green industrial policy directed at retrofitting our buildings, developing solar and wind power and mass transit; and a shrinking and redirection of finance.  Rebuilding our communities will require new labor laws to support unionization and higher minimum wages; support for education, health care, and transportation rather than military activity; and an increase in taxes on corporations and the wealthy to help pay for many of the needed initiatives. 

This is not what the corporate sector wants.  Therefore, they are trying to steer us in a different direction—to encourage us to believe that the reason our economy is not doing better is that our government deficits are too great and workers have too much power.  It is ironic.  We have government deficits not because of runaway social programs but because the government had to bail out the private sector.  It was this spending that kept us out of depression and enriched our corporations.  And now the leading lights of the private sector are trying to convince us that the main cause of our slow growth is this very same deficit spending.  So, the first reason for this anti-government offensive is to keep us from focusing on corporate behavior and the contradictions of market processes by encouraging us to blame the government and unions for our problems. 

The second reason is that the push for marginalizing government programs will likely open up new private profit making opportunities for our large corporations.  For example, the privatization of our military, our education system, our health care system, our retirement and social insurance systems all mean public dollars flowing into private coffers.  And as a bonus corporations would likely get new tax breaks.

To state the obvious: corporations are defending policies that help them make profits at majority expense.  I think the best way to grasp this reality is to focus on General Electric.  GE is not only one of our nation’s largest corporation, its head, Jeffrey Immelt, was picked by President Obama to head his President’s Council on Jobs and Competitiveness.  President Obama said he picked him because “He understands what it takes for America to compete in the global economy.”

That may be true, but what is GE’s competitiveness strategy? 

First, it is to avoid taxes. GE reported worldwide profits of $14.2 billion in 2010, including $5.1 billion from its operations in the United States.  Yet, it paid no US taxes; in fact it claimed a tax benefit of $3.2 billion.

It accomplished this through a very aggressive working of our tax policy. Here is what the New York Times said:

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

Second, it is to shift operations from production to finance.  According to the New York Times:

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. . . . Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

Third, it is to move its operations and profits outside the US.  Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment.  Over that same period G.E.’s accumulated offshore profits have risen from $15 billion to $92 billion.

GE is far from unique in employing this strategy.  For example, the Wall Street Journal reports that U.S. MNCs cut their work forces in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.

So, we are in a battle over the nature and direction of our economy.  Successive governments, in response to corporate demands, have worked to promote more mobility for corporations, lower taxes for corporations, and the growing power of finance—all at our expense.  And despite our current economic problems, our government continues to push for more of the same.  In sum, while we might be experiencing a crisis caused by capitalism it is not a crisis for capitalism.

Movement Building 

So, what shall we do?  In fact, we are not short of ideas.  We have all sorts of progressive policy suggestions.  The problem is that those with power are not interested in our suggestions.  This means that we need to organize if we are to succeed in making a real change.  Here are a few of my suggestions about next steps.

First, we need to make sure that people understand the structural nature of the problems we face.  We have to make sure that unions, neighborhood associations, and places of worship become venues where people can talk, learn, develop their understandings and most importantly connections. 

Second, we need to build alliances around critical demands—changes in government priorities, for example, such as cutting military spending in favor of social programs, raising taxes on the wealthy and corporations, and defending Medicare and Social Security.  These alliances shouldn’t be hard to build.

Third, we need to be creative in who and how we organize.  We need organizations where people can produce themselves more fully as actors.  In the 1930s, for example, we had councils of the unemployed.  They fought for greater government spending, unemployment insurance, and in support of unionization for workers with jobs.  Now, we have large numbers of homeless and hungry.  We need to do more that take food to food banks—we need to help the hungry and homeless organize themselves into powerful social movements. 

We also need to help students, for example, see that their likely future of job insecurity, low wages, and lack of health care can be changed if they join with others, including unions, and health care advocates, and perhaps their parents, to demand a change in the direction of the economy.  And we need our unions to recognize that many of our young workers will be moving from job to job, and company to company, in temporary positions, which means that unions will have to develop new forms of organization.   

Fourth, we need to focus our attention on the public sector.  I think that one of our key challenges is to develop new coalitions between public sector unions and those who use public services.  While I believe that we need to fight against spending cuts for important programs I also know that our existing programs are far from perfect.  Moreover, just maintaining the same level of spending is not the same as transforming our economy.  We need more accountable and responsive public programs and I think the key to that, to the democratizing of the state, is a community-public sector worker alliance.

For example, imagine if those that cared about the environment; worker rights; an end to militarization; and gay, lesbian, transgender rights could engage public school teachers who were responsive to these views and collectively develop curriculum that advanced those views, thereby producing young people able and eager to contribute to making a better society.  And also imagine that in return, those in the community committed to working to ensure good funding for schools and political protection and decent salaries for our teachers.  We would not only help to improve the school system but also develop a new and positive understanding of the benefits of public services.  The same process can be encouraged around transportation by finding ways to bring bus riders and bus drivers together.  The same for social workers and their clients.  You get the idea.  Public sector workers could become our defenders—blowing the whistle if our money is not being property spent and helping us find ways to play a meaningful role in determining the actual nature and delivery of the services we want and pay for. 

We really have little choice but to help build resistance to current political tendencies and shape more positive visions.  There are very few of us that can avoid the consequences of failure.

The IMF and Hungary

Understandably, our media has focused its economic reporting on the US and secondarily other advanced capitalist countries, like Germany and France.  Developments in the rest of the world have largely been ignored.  As a consequence we are missing a lot.

Studying the third world means confronting the International Monetary Fund (IMF).  The IMF has long been criticized for its heavy handed attempts to promote neoliberal restructuring.  Starting in the early 2000s, third world countries, flush with foreign exchange from rising commodity prices, began paying off their debts to the IMF.  Faced with a loss of leverage and also interest income, the IMF had little choice but to start cutting its own staff.

The global economic crisis changed everything.  Many third world countries are again desperate for funds, and the IMF is happy to supply them—although as always with conditions.

The IMF claims to have learned its lessons.  Its own internal review of past practices highlighted a number of past loan conditions that the IMF now agrees were counterproductive.  Thus, it claims that it is now willing to support capital controls, at least for a limited period.  It also claims that it now supports counter-cyclical policies—which means that it will no longer force governments to implement austerity policies during a period of deepening economic crisis.

Unfortunately, despite its claims, the IMF appears back to its old tricks.  Most importantly, at the same time that it supports counter-cyclical policies in the developed world—for example, encouraging the US and EU to fight the Great Recession with deficit spending and low interest rates—it continues to oppose them in the third world.   A Center for Economic and Policy Research study of 41 countries that had agreements with the IMF in 2009 found that “31 of these agreements involved tightening either fiscal or monetary policy, or both, during a downturn.”

For example, according to Mark Weisbrot, one of the authors of the study:

The Fund is currently squeezing Ukraine . . . to reduce its spending, and suspended its disbursement of funds to the government in order to force budget tightening. This despite the fact that Ukraine’s economy shrank by about 15 percent last year [2009], and its public debt was only 10.6 percent of GDP. A country in this situation should be able to borrow as needed to stimulate the economy, and reduce its deficit after it has accomplished a robust recovery. In nearby Latvia, the IMF and European Commission are lending with conditions that have already resulted in the worst cyclical downturn on record, and it is not clear when or how fast the economy will eventually recover.

The case of Hungry is perhaps the clearest example of the class-bias underlying IMF policies, a bias shared by European elites.  As Jayati Ghosh reported:

In November 2008, Hungary signed a Stand-By Arrangement with the IMF for SDR 10.5 billion, as part of a joint rescue package worked out with the European Union. Various IMF reviews found that Hungary complied with all the very severely procyclical conditions imposed, including a massive reduction of the fiscal deficit from more than 9 per cent of GDP in the last quarter of 2008 to around 3.8 per cent thereafter. At least partly as a result of this, real GDP declined by 6.2 per cent in 2009.

The collapse of the Hungarian economy produced incredible social pain—and not surprisingly, the social democratic party that implemented the IMF mandated policies was defeated in June elections by a center-right party that had campaigned on a promise of less austerity.  However, once in power, the new government found that the economic collapse had made the budget deficit worse and that more severe fiscal measures were required to meet IMF budget deficit targets.

The government proposed new cuts in public sector wages and pensions as well as tax cuts for the wealthy, and asked the IMF for more support.  One might think that this would be enough for the IMF.  But it wasn’t.  The IMF asked for additional privatization of state owned enterprises and further reductions in state spending.  Perhaps most surprising, the IMF also demanded that the Hungarian government cancel an action that would have actually help to cut the deficit—a proposed tax on the banking sector expected to raise nearly $1 billion.  The IMF determined that this tax was too “high” and likely to “adversely affect lending and growth.”

Faced with a popular revolt, the Hungarian government rejected IMF demands for further cuts in spending and also refused to cancel its planned tax increase on the banks.  The IMF responded by breaking off talks.

The government is now seeking to reverse course and promote expansion.  Among other things, it is trying to force the (largely independent) central bank to lower interest rates; the bank (in tune with the IMF) had kept rates high despite the economic collapse.   As a first step, the government has cut the salary of the head of the central bank by 75 percent.

What does all of this mean?  Mark Weisbrot explains as follows:

As the New York Times reported on [August 2], the fight in Hungary “reflects a larger struggle that is expected to play out over the next year or so as most European politicians . . . seek to impose fiscal discipline on their increasingly unruly citizens.”

We can only hope that they get more unruly. The governments of Spain and Greece, for example, have a lot more bargaining power and a lot more alternatives than they have been willing to use. It is ironic that a center-right government in Hungary has taken the lead here; but if the socialist governments of Spain and Greece were to stand up to the European authorities and the IMF, they could also rally popular support. And then we would see a new playing field in Europe that would allow for a more rapid recovery, and possibly end the current assault on the living standards of the majority.