October 24, 2014

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Corporate or Government Failure? Creating the American Dream Through Free Market Inefficiencies

How Roosevelt’s New Deal created the American Dream by promoting labor rights.

James_hoopes

By James Hoopes

Part Two of a series based on the book Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recession (Rutgers University Press, 2011.) 

Proponents of business are fond of calling government ineffective. But from the point of view of the ordinary citizen the business corporation has often been ineffective. During the 19th and early 20th centuries, recessions in the corporate economy periodically put large numbers of Americans out of work. But as long as the suffering was restricted to a small part of the population there was little pressure on government to create far-reaching changes in the corporate economy.

Government’s refusal to alter the corporate power structure changed with the coming of the Great Depression. But the change was not systematic. Beneath the corporate economy’s failure lay a failure of intellect. 

Free Market Inefficiencies

Many Americans did not see that the economic dominance of the large corporation proved that in some circumstances a free market is inefficient. For example, in the late 19th century, thanks to the railroad and the telegraph, department store managers in Chicago could order manufactured goods in the East and move them quickly to the windy city, a process that half a century earlier would Corporate Dreamshave involved many market transactions. Corporate managers replaced the market because new technology made the managers more efficient.

On the whole, corporations vastly improved the American standard of living, but not always. Americans escaped the vicissitudes of rain and drought by leaving the farm for the factory. But they faced a new existential risk – unemployment from corporate slumps such as the Great Depression.

Roosevelt’s First New Deal Failed

During the Depression a few business people understood that it was the corporate economy, not the government, that had failed. They joined the mass of ordinary Americans who elected Franklin Roosevelt president in 1932. Many people understand that in the First New Deal (1933-1935), Roosevelt failed to end the Depression. But many do not understand that he failed because he followed the advice of his business supporters to give corporations more power, not less. 

Roosevelt’s business supporters believed that cutthroat competition among corporations led to low wages making it impossible for Americans to consume the industrial product. Their solution was corporate cooperation to raise wages. Such cooperation would require suspension of the anti-trust laws.

So Roosevelt secured the passage of the National Industrial Recovery Act (1933) authorizing corporations to cooperate in “industrial codes” aimed at raising wages. But many corporations cheated on the codes or else raised prices faster than wages, thereby reducing rather than increasing Americans’ purchasing power.

Fortunately for Roosevelt, the Supreme Court declared the National Industrial Recovery Act unconstitutional in 1935. Fortunately for business corporations, the untimely end of Roosevelt’s Know your rightsexperiment in the suspension of the antitrust laws meant that the corporations’ moral failure went unrecognized by the American people.

As a result, anti-corporatists would be dealt a weak ideological hand for the rest of the 20h century and into the 21st.

Roosevelt’s Second New Deal: Getting It Right

So began the Second New Deal (1935-1937), the key legislation of which was the National Labor Relations Act or Wagner Act (1935). It created the National Labor Relations Board to conduct union elections. If a majority of a corporation’s workers voted for a union it became the bargaining agent of all the workers.

The new United Auto Workers demonstrated the strength of industrial unions by defeating General Motors in the famous “sit down strike” of 1936 in which the workers occupied a plant so that GM could not illegally replace them with other workers.

More than any other single piece of legislation, the Wagner Act created the post-World-War-Two American Dream.

In the new industrial unions ordinary Americans had the countervailing power to insure wider sharing of corporate bounty. But because of Roosevelt’s failure to articulate a clear rationale for the Wagner Act, many citizens only knew that the Second New Deal had limited corporate power by strengthening the unions. Too few understood that corporations had it coming. That left open the way for corporations to fight their way back not only to economic but also to moral predominance.

Previously:

The Corporate American Dream At Its Height: The History of Capitalism

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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