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My purpose today is to examine efforts to establish national planning in the early days of Franklin Roosevelt's New Deal administration in order to illustrate a critical choice made about the role of the federal government in planning that split the pro-planning forces, influenced the course of US national planning, and has relevance today. The substance of the story is the debate over and the implementation of the Agriculture Adjustment Act and the National Industrial Recovery Act. The planning institutions that emerged from this legislation have generally been discredited. Appropriately so. But the arguments leading up to the legislation and in the subsequent administration of the laws among the liberal proponents of national planning and the alternative conceptions of a public role in such planning have been forgotten. I want to revisit that disagreement to ask what we can learn from it today as we try to resuscitate the argument for national planning.
Planning the AAA and NRA
The Agriculture Adjustment Act and the National Industrial Recovery Act, and their bureaucratic institutions - the AAA and NRA, were key components of the Roosevelt strategy to end the depression of the 1930's and were rushed into existence in the early days of his administration. Overproduction, low prices, falling profits and unemployment were the key agriculture problems; low production, high prices and unemployment were the key industrial problems. Both acts, together, were the primary early New Deal strategy to end the depression. Both acts called for unprecedented government involvement in private sector decisions, and both featured deliberative planning as a mechanism for government influence in private action.
Most reviews of national planning in the 1930's pay scant attention to the AAA and NRA. The standard American planning history discusses national resources planning in its several incarnations but barely mentions the NRA except to praise the PWA as the best part of early New Deal planning (Scott, 301). Hancock similarly bypasses the NRA: "Title I, which established the National Recovery Administration to supervise industrial self-planning, was ruled an unconstitutional violation of anti-trust laws in 1935, but the activities under Title II survived and were of great importance to American planning" (Shaffer). Graham recognizes that AAA and NRA were important planning efforts, but dismisses them as victims of business control (Graham, 31). In more recent scholarship, Reagan focuses, as did earlier analysts, on the various forms of the National Planning Board (Reagan). In a recent thorough review of the NRA, Perna takes the position that the NRA was only intended to be a regulatory device primarily serving business interests (Reagan). The AAA is seen as an administrative device for supporting farmers that had questionable long term effects. The NRA is seen as a failed experiment that was not well thought out. Both of these evaluations are reasonable. What they don't consider is the internal debate on the competing conceptions of planning that were part of this history. The choices made sent us on one path, foreclosed another and perhaps doomed these programs to failure.
The contending parties I focus on to represent the competing ideas in the pro-planning debate are Rexford Tugwell, who was then Assistant Secretary of Agriculture and an adviser to Franklin Roosevelt continuing his role as a member of the Brains trust in the campaign, and Bernard Baruch, Felix Frankfurter and Louis Brandeis, who were not part of the administration but had ready access to Roosevelt and others in the administration. The key difference between them was Tugwell's proposal for a cooperative planning with government taking an active role in decision processes restruturing private economic institutions while representing the public interest, and the others insistence on a more limited government role following the 'trust busting' era precedent of regulating private actions while supplying research and information to influence private sector decisions. I will tell the stories in three parts: a narrative providing the details for those interested and support for my interpretation; a summary of the argument; and analysis of the story.
Agriculture Adjustment Administration (AAA)
Narrative:
The basic framework of the New Deal agriculture policy had been worked out during the campaign. Tugwell had been influential in turning Roosevelt away from reliance on exporting farm surplus and toward reducing domestic production while subsidizing the farmers for growing less. While accepting this concept, Roosevelt made clear that he would not adopt any policy that was not agreeable to all the agriculture groups lobbying him. They were divided, with some proposing inflation or 'cheap money' as a way to raise farm prices and reduce farmer's indebtedness, others proposing an export subsidy, and most opposing any forced reduction in crops. Wallace and Tugwell were charged with finding a workable plan that all would accept.
During early 1933 Tugwell was getting acquainted with Wallace. He explained the ideas for economic restructuring that were in his book The Industrial Discipline and the Governmental Arts. Wallace agreed with them. The two men found they were very compatible, or so Tugwell felt as he recorded in his diary, "We are exploring each others minds with a sort of delighted expectancy" (B30). The point he wanted to make with Wallace about agricultural policy was, "that the whole conception into which it fits is that of a balanced and regulated economy. This depression is being prolonged by disparities. Groups cannot exchange for each other's goods because some prices are high and some are low. In this emergency some prices ought to be sharply lowered and some raised. Farm prices needed raising" (B30, Diary Notes J-F 33). This analysis that balance and fair exchange among all sectors of the economy was the real problem ruled out the prospects for solving the farm problem by a general inflation. Existing debts could be retired easier, but imbalance between agriculture and industry would soon bring back the current situation. Tugwell did not think foreign markets were permanently lost to American farmers. Their productivity and efficiency would make them competitive again. But crop reduction would be necessary until foreign markets grew as other nations recovered from their own economic depressions. (T,RR,52). This left only one viable policy - domestic allotment.
Tugwell had been steadily developing his version of domestic allotment building on the Advance Ratio Price Plan he had developed for Al Smith. By early 1933 he had incorporated W.J. Spillman's ideas for limiting production, M.L. Wilson's ideas on local decision making in allotment allocations, Henry I. Harriman's tax on the first processing of agriculture products to pay the farmers' subsidy, and Mordecai Ezekiel's ideas on parity price. The essentials of the final plan were that the Department of Agriculture would make an annual estimate of the probable demand for farm products. This estimate would be allocated to counties based on past production levels. In each county farmers would vote whether to participate and if so would allocate the county's allotment among themselves. The participants would be guaranteed a price that would establish parity with existing industrial prices based on the relationship between agricultural and industrial prices during the pre-World War I period of prosperity. Those farmers who didn't participate would take their chances and receive no subsidy if the market price for their products was below the parity price. Funds for the subsidy would come from a tax on the first processing of agricultural products.
There were many unresolved issues in the plan, especially whether it could be quickly and economically administered. There were aspects of the plan with which Tugwell was still dissatisfied. The processing tax would likely be passed on to consumers through price increases further reducing purchasing power. He would have preferred that the subsidy come from general revenues, but Roosevelt would not accept deficit financing. He was most satisfied with the partnership aspects, noting that the plan, "amounts to the suspension of the anti-trust acts for the food industries with broad regulatory powers lodged in the Department of Agriculture" (B30, Diary Notes, March-May 33). Tugwell hoped the agriculture program would be an opportunity to implement his idea of the government as senior partner with the private sector in cooperative planning.
The major difficulty was to meet Roosevelt's stipulation that all farm groups agree with whatever plan was presented. Tugwell and Wallace, during a walk, jointly developed a compromise plan. Essentially they agreed to propose a law that would include the allotment plan but also authorize the competing plans for export subsidy and marketing agreements. They would then proceed experimentally to implement their plan. This pragmatic maneuver succeeded. On March 10, 1933 farm leaders agreed to support the parity principle and the allotment plan. After some debate they agreed that the agricultural commodities to be covered would be wheat, cotton, corn, hogs, cattle, sheep, rice, tobacco, and milk and milk products. The Agriculture Adjustment Act was introduced in Congress on March 16 and after some modification was signed into law on May 12.
Now it was time to administer the Act. Tugwell was disappointed that George Peek, the Baruch supporter who had argued for producer marketing agreements without crop reduction or government supervision, was appointed to head the Agriculture Adjustment Administration. Tugwell's close associate, Jerome Frank, was placed as legal counsel of the AAA. This encouraged him because he considered Frank his 'second', a firm supporter of his policies. Together they conceived the Commodity Credit Corporation and they worked together on the design of the Federal Surplus Relief Corporation and other programs. But Peek did not accept Frank' s leadership, hired additional lawyers and proceeded to develop agreements among farmers as he saw fit. Within the first few months there was trouble and disappointment. AAA was not working. Farmers were qualifying for subsidy checks but agriculture prices continued to fall and other prices to rise. Consumer costs went up; parity between industry and agriculture was as far away as ever.
Tugwell placed part of the blame on George Peek and his administration of the AAA. He felt that Peek was approving marketing agreements among processors that gave them large profits, supporting the subsidy to farmers at the expense of consumers. This was a complete perversion of his hope for the results of lifting anti-trust regulations, and he felt, justification for his negative assessment of the Baruch pro-business strategy of relying on food processors to carry out the intent of the legislation. Instead of serving the public interest, Tugwell beilieved the AAA betrayed it. There was little consumer advocacy. Frederick Howe, the consumer counsel in Agriculture, argued against the agreements being made. Jerome Frank drafted alternatives. Tugwell argued that the food processors' books should be open to public inspection. It was all to no avail. Peek continued to make agreements that benefited processors at the expense of consumers, and Henry Wallace approved them.
The situation came to a head in December 1933 when Tugwell, acting in Secretary Wallace's absence, rejected several proposed agreements "as a matter of principle" in the public interest. Since Tugwell had prepared the ground for a showdown by giving stories to Ernest Lindley of the Herald Tribune and to other reporters about his unhappiness with the actions of the AAA, Peek had to challenge Tugwell. He went to Roosevelt who then called Tugwell in to discuss the issue. After reiterating his side of the story, Tugwell told Roosevelt he would have to choose between Peek and Tugwell and possibly Wallace as well.(T,RR,198-9). Tugwell won. Peek was removed from AAA and given a position in the State Department where he would work on increasing agricultural exports. Several days later, back in Washington, Wallace appointed Peek's like minded assistant Chester Davis to succeed him. The responsibility for making agreements with the food industry, except for first processors of agriculture products, was transferred to the National Recovery Administration. Davis continued the same general policies and successfully excluded Tugwell from involvement in AAA affairs. Tugwell had won a battle, but was well on his way to losing this particular war.
A second major fault Tugwell found was that the benefits of the AAA went mainly to large farmers. In his view, small farmers were not helped and tenant farmers and farm laborers were often hurt by AAA actions. Tugwell was not coming to the defense of small farms. He disagreed with Wallace and Roosevelt about the future of small farms. Roosevelt believed small farms were an essential American institution that should be preserved and, to Tugwell's dismay, regularly suggested programs to establish subsistence farms for unemployed workers and their families. Wallace believed that small farm operators would benefit from the prosperity of large farmers through a trickle-down effect and supported small farms as a way of life (T,RR,259). Tugwell argued that the small farm was increasingly anachronistic. As in industry, new technology and new machinery would increase the minimum size for an efficient operation and reduce the labor required. Consistent with his belief that the future well being of the American economy depended on taking advantage of technological development to increase the scale of operations when productivity and efficiency gains could be realized, he thought the small farm would be increasingly inappropriate for many kinds of agriculture.
In addition, Tugwell thought that widespread ownership of small land parcels led to misuse of the land. As he noted in his diary, "I personally have long been convinced that ownership of farms ought greatly to be restricted. My observation has been that when a farm is on a long term lease it belongs to the user of the land much more than if he actually owns it because if he owns it their is a constant temptation to build up mortgage responsibilities and quite a likelihood that in the first depression in farm prices that come along he will lose his land."
So it wasn't to support small farms that he argued against the agreements being made by the AAA. Some crop reductions were being accomplished by large farmers dismissing farm laborers and evicting tenant farmers, and there was some suggestion that farm owners were practicing racial discrimination in this process. In addition, Tugwell noted that small farmers were relatively more affected by reductions in their plantings than large farmers. As a result the unemployment problem was worsened, and their was unfairness in the distribution of subsidy payments. A running argument on this issue developed between Wallace and Tugwell, but Tugwell was powerless to intervene since Davis brought the agreements directly to Wallace for approval. While Tugwell was out of Washington, Jerome Frank made a legal interpretation of the AAA law that farmers were required to retain not only the same number of tenant farmers, but the same tenants. This angered the farmers and Davis who summarily fired Jerome Frank on February 5,1935. Most of Frank's legal staff resigned in protest. Alger Hiss, the lawyer who made the actual legal analysis of the issue stayed on. Tugwell saw the firing as a purge of all the liberals in AAA and complete capitulation to business and large farm interests (Box 32, Diary Notes, 1935). He argued with Wallace and Roosevelt and threatened to resign, but could not reverse the decision. A new job was found for Frank outside Agriculture. This battle and more of the war were lost.
Tugwell tried several strategies to correct what he saw going wrong with the farm program. He proposed to Wallace that AAA be reorganized on a regional basis "to obviate the growing probability that the commodity sections will feel that they have a vested interest in the adjustment of the particular commodity on which they are working" (Box 32, Diary Notes, 1/29/35). What he was observing, correctly, was a major problem in his whole planning scheme. National centralization of sub-sectors of the economy for planning and production control, in this case commodity producers such as wheat farmers, resulted in a close working relationship and alliances between Washington bureaucrats and the producers. The bureaucrats would soon adopt the producers' interests as their own and, in Tugwell's view, betray the public interest they were meant to serve. This would be no better than the situation Tugwell found in the Department when he arrived in Washington. Then he thought the Department was too closely tied to the food processors and represented their interests at the expense of food producers and the general public. His reorganization proposal was rejected.
Mostly he argued with Wallace and, when he could, with Roosevelt for more attention to the needs of farm labor and tenants and for more protection of consumer purchasing power by monitoring food processor profits. He was not successful. The AAA was able to make farm owners and food processors reasonably content. As Tugwell learned, there was no effective voice for consumers or the general public among the lobbyists, interest groups and politicians constantly petitioning the President and the Department.
Tugwell also experienced considerable disappointment with Henry Wallace. He felt Wallace had changed. Like others in the Roosevelt administration, he developed loftier ambitions, perhaps hoping even to succeed Roosevelt. Wallace's constituency was the large farmer and the food processor. He served them well, and he believed that through their improved situation he served the entire farm economy. Increasingly, he removed himself from the daily battles within the Department. Tugwell, however, who had by now been promoted to Undersecretary of Agriculture was increasingly drawn into departmental politics, but excluded from AAA activity by Chester Davis. He was increasingly disillusioned. In the end he felt that although the AAA worked well enough in getting money flowing to farmers the original ideas behind the AAA were not realized. He was discouraged that no progress had been made toward restoring balance between agricultural and other prices. His proposal to use agriculture adjustment as one piece of a general program to restructure the economy never became part of the President's program. But then probably only Tugwell and a few others thought that was what they should be doing.
Summary:
The AAA act and administration had three critical flaws from Tugwell's perspective. First, The plan adopted was a compromise between an allotment scheme in which government would estimate agriculture demand an set production allotments, and farmers would choose to accept the allotment in exchange for a guaranteed parity price; and a marketing agreement scheme in which food processors and farmers would enter into production and price agreements supporting agriculture production in exchange for anti-trust immunity. Tugwell argued that the active government role in the allotment scheme provided protection and advocacy for consumers and focused on stimulating demand. Bernard Baruch and his proteges argued for the marketing agreement approach with government involvement focused on encouraging agreements between food processors and farmers. George Peek, Bernard Baruch's protege in promoting a market agreement scheme was made administrator of the AAA. Tugwell found that Peek's and later Chester Davis' administration of the AAA subsidized farmers and increased profits of food processors through these agreements at the expense of the public.
Second, most of the marketing agreements were between large scale processors and farmers. Tugwell, no advocate of small farms, argued that this had negative consequences of increased unemployment, displacement of tenant farmers, and racial discrimination. Third, the AAA administration was organized nationally and sectorally. For example, wheat was handled as an independent commodity in Washington for the nation. Tugwell argued that this resulted in the capture of the AAA bureaucrats by the large processors and producers. He argued that the program should be administered regionally not sectorally.
Analysis:
The key difference in economic thinking between the two competing views on agriculture policy was between a supply and demand strategy. Baruch and his supporters focused on increasing profitability of production to encourage food processor investment. Their key planning ideas were reliance on private sector planning and influencing the private sector through the government's traditional tools of regulation and information. In this case the main government action was suspension of anti-trust regulation subject to some private sector performance requirements. Tugwell and like minded persons believed that the key to economic recovery in the current economy was increased consumption. They argued for joint public/private planning of production with a focus on lowering prices and increasing productivity. Tugwell, too, argued for removal of anti-trust restraints, but did so because he felt they prevented the sharing of new technologies and managerial skills to increase production and marketing efficiency.
The key planning difference, then, is between a reliance on information and regulation as the government role, and goverment planning participation in production and pricing decisions. The government/private participatory planning in the AAA legislation was ignored in administration of the act under George Peek and Chester Davis. Agriculture commodities were regulated independently of each other and of the larger issues of balance in the overall economy and fairness in exchange championed by Tugwell.
National Recovery Administration (NRA)
Narrative:
On May 17, 1933 an industrial recovery bill was proposed to Congress and was passed after some modification and signed into law as the National Industrial Recovery Act on June 16. This law Tugwell conceived as the companion to the AAA in the effort to restore balance in the economy. He had argued the need for this program at his first meeting with Roosevelt a year earlier and continued promoting it throughout the campaign. His book The Industrial Discipline and the Governmental Arts which laid out Tugwell's industrial recovery plan had been published in May. The essential elements of his plan were the restoration of purchasing power through higher wages to industrial workers, adjustment of industrial prices with some raised and others lowered to promote exchange and restore balance between sectors of the economy, controlled production targeted to the likely demand for products, investment in those sectors that had been undercapitalized since World War I, sharing of technology and research among firms, increased scale of firms to achieve the most efficient operations possible, and a federal government role as senior partner monitoring agreements among firms and directing the setting of production targets.
Tugwell's analysis of the depression was the basis for these proposals and included these arguments. Many firms had experienced marked increases in productivity during and after World War I partly as a result of new technology but importantly from improved labor practices resulting from the applications of scientific management to industrial operations. The firms had not shared the proceeds of increased productivity fairly with workers in higher wages or with consumers in lower prices. Instead they paid dividends to stockholders and retained large profits for reinvestment in expansion. One result was that by the end of the 1920's those firms that had been able to expand were capable of producing more than they could sell. At the same time other firms, in other industries, which had not benefited from technology or management innovations found it difficult to raise capital for modernization. These two themes of fair exchange and balance or harmony in the economy are central to his argument. Fairness in exchange between owners and workers, capital and labor, and a balance between economic sectors in prices and investment were essential.
The third theme -- cooperation among firms and industries instead of competition -- was, he argued, the necessary next step in the development of capitalism. Tugwell believed that firms would see that cooperation was in their best interest and voluntarily participate in sharing information and planning production if the anti-trust regulations were lifted.
The National Industrial Recovery Act as originally drafted contained at least the form of much that Tugwell had promoted. The bill was a compromise. As usual Roosevelt set several groups to work on it. Tugwell, with Jerome Frank and John Dickinson, Assistant Secretary of Commerce, were drafting one version. Hugh Johnson, Bernard Baruch's supporter who had been added to the Brains Trust during the campaign, did another. Tugwell initiated meetings between the two and they reached general agreement. (T,RR,81). Labor, represented by Senator Robert Wagner of New York and Frances Perkins, Secretary of Labor, also had a major interest in the bill. A final compromise was reached when, "Wagner, Dickinson, Frances Perkins, Johnson and I fought over the thing in Lew Douglas' office for some time" (T, B30 Diary Notes May 30,33). The bill as drafted and passed did authorize making codes of agreement by firms in the major industrial sectors covering working conditions, prices, production, employment and other arrangements among firms, subject to government approval. Participation was voluntary. It also provided funds for public works. The changes from his conception that Tugwell thought most important were that penalties for non-compliance were removed from the bill in Congress and Title 7A was added to the act to legitimize collective bargaining and abolish child labor. Tugwell supported the provisions of 7A but thought they should not be mixed with the industrial planning measures. The legislation was enacted very quickly. It had been prepared with the expectation that it would not be submitted until the next regular session of Congress in January 1934. The widespread support for the bill gave the proponents hopes for quick positive results.
Roosevelt immediately divided the program administratively. He established the Public Works Administration in the Department of Interior under Secretary Harold Ickes to carry out the public works portion of the bill. He appointed Hugh Johnson administrator of the newly created National Recovery Administration (NRA) to establish the industrial codes and promote employment. Tugwell was to have an opportunity to monitor and influence both operations as Henry Wallace's representative on the Special Board for Public Works and on the Special Industrial Recovery Board.
The first code agreement made with the cotton textile industry on July 9 signaled what was to happen in the NRA. The industry agreed to the abolition of child labor to much applause, and the code allowed firms in the industry to set prices and production schedules as they saw fit. The early codes did not result in the lowering of prices and expansion of production that Tugwell thought possible and necessary for economic recovery. He complained to Roosevelt, representing the Progressives in Congress, and Roosevelt agreed that the codes were not as good as he would like, but that revisions would be made after all the industries were signed up.
Tugwell placed blame for the weak codes and their catering to the private interests of industry on Hugh Johnson, and he fought against him with all the resources he could muster, as he had against Peek in the AAA. He asked Wallace to attend the Board meetings in special situations, as when the lumber industry code was being approved and the Agriculture Department believed that the code would result in an unreasonable increase in prices. They never succeeded in changing the proposed codes. Finally in December Tugwell forced the issue of the Board's influence and the Board decided to ask Roosevelt for instruction on its authority over Johnson and the administration of the NRA. Johnson argued that the Board was interfering with the NRA's work and on December, 19 the Special Industrial Review Board was essentially disbanded by merging it into the National Emergency Council. Johnson was then free to deal directly with Roosevelt on industrial code agreements. Once again Tugwell had lost a major battle and, by now, quite a bit of the war.
In retrospect it was clear to Tugwell that Roosevelt was principally concerned that the NRA stimulate employment. Roosevelt may have supported the other goals that Tugwell argued for as his private conversations with Tugwell suggest, but these were lower priorities that could be put off for a year. To Tugwell, Hugh Johnson represented Bernard Baruch's philosophy that restoration of business confidence was the key to industrial recovery. Following that philosophy Johnson sought to minimize the government's intervention and control in business. His first priority was the same as Roosevelt's - to increase employment. When the first codes failed to have significant employment impacts, Johnson developed the reemployment agreement popularly known as the Blue Eagle. Under this scheme all firms would agree to rehire all those laid off during the depression on the assumption that simultaneous reemployment would solve the problem of lack of demand for goods produced. The Blue Eagle campaign was popular. Most firms joined up and displayed the blue eagle insignia of participation. But by December it was clear that significant re-employment was not occurring. The goal had been to add five million to the employee rolls; only two million were added (T, RR, 187). So Johnson had to return to getting all industries under code agreements in the hope that this would stimulate confidence and generate employment.
Tugwell's continued opposition to the codes industry would accept was particularly annoying to Johnson. Other possible allies were more concerned with the labor provisions of the codes. As codes were adopted, collective bargaining and some restrictions on work conditions took effect. The more codes were adopted, the more opportunity there was for labor to bring its own case for fair wages and working conditions -- for Tugwell's fair exchange. Tugwell was almost alone in arguing for going slower, crafting codes more carefully and preventing industry from limiting production and securing excessive profits from price fixing. His main support came from Wallace, John Dickinson and Harold Stephens, the Assistant Attorney General. (T, RR, 233).
Johnson, like Peek, eventually lost out and Tugwell thought there might be another chance for the NRA to fulfill its original mission. Johnson became increasingly erratic in his administration of the NRA and a proposal was made to replace his leadership with a National Recovery Board that Ickes and Tugwell suggested be headed by Robert M. Hutchins of the University of Chicago. Hutchins expressed willingness to serve and Tugwell thought Roosevelt was committed to the plan. Roosevelt backed out, however, and Donald Richberg, who had been in the NRA administration, took over leadership. There were no significant changes in the operation of the NRA. Long before the Supreme Court declared the NRA unconstitutional Tugwell had given up hope that the NRA would ever live up to its promise. Still he was discouraged that Roosevelt simply accepted the Court's ruling and did not change the act to meet the Court's limited objection.
Tugwell was alone in pursuit of the NRA as an instrument of industrial restructuring, and he had powerful opponents. The leader of the opposition was Justice Brandeis of the Supreme Court. Through the agency of Felix Frankfurter, he had changed Roosevelt's campaign speech on August 20, 1932 in Columbus, Ohio, deleting references to planning and inserting an attack on big business. The NRA provisions for cooperation and lifting of anti-trust restrictions was unacceptable to traditional Progressives distrustful of big business and opposed to concentration. Tugwell met with Brandeis and argued, unsuccessfully, the merits of the NRA. In Tugwell's view, Brandeis' disapproval was too much for Roosevelt. And Brandeis' supporters were influential. As Tugwell noted, "the vestal virgins, Frankfurter, Corcoran and Cohen were busily at work. .. It was they who prevented the NRA from becoming a mechanism or from being revived after the blow of Court disapproval. Brandeis had done his part; now the others did theirs" (Box 30, Diary Notes, 16).
Tugwell thought the NRA failed largely because it was not correctly focused. His approach was to concentrate on large firms and major industries, and on the adjustment of prices and wages and the expansion of production. As he recorded in his diary, "I have always felt that a sharp distinction should be made between those businesses which are necessarily big and those which lend themselves easily to decentralization. And they ought to be treated in different ways. What seems to me likely to happen in the long run is that the New Deal will be wrecked by the grocers, the real estate dealers, etc. -- the little Business men. For the moment at least, they ought to be treated very gingerly, and won over to the control and planning of the big businesses" (Box 31, Diary 3-12-34, p33). And, "The fact was that I never stopped trying to convince the President that our attack ought to be selective. As a last effort, when I saw him embracing inflation but still unwilling to undertake regulation of those industries that ought to be decreased, I tried to get him to have a study made" (Box 30, mss, note 7.)
On the issues of production and purchasing power, Tugwell said later, "Another reason for failure was that the NRA was quite unsuited for the labor reforms it was required to affect... . What was called for was concentration of all Roosevelt's prestige and Johnson's administrative efforts on the crucial issue of government-industry relationships within a concept of partnership. Instead, in return for concessions in what were really extraneous, if desirable gains to labor, the government's senior partnership was bartered away." (T, RR, 146).
Further, there were no public members or consumer representatives on the Special Industrial Recovery Board. Johnson refused to accept them. Tugwell's dream of a fair, cooperative, open partnership between government and industry in the public interest was never attempted. The hardest part of the dream to give up was that voluntary cooperation would be chosen by business leaders in their own as well as the public interest as an alternative to the competitive practices that had partly caused and deepened the depression. Many years later he would still argue that the ideas behind the NRA were consistent with and appropriate to America's democratic heritage. "It seemed to us that, in NRA especially, we were doing what Hamilton had counseled for the nation in its formative years - trying to bring the nation's industrial leaders to the support of the national interest" (T, RR, 146). Some of the specifics of the NRA were later revived. For example, the labor provisions were largely incorporated in the National Labor Relations Act of 1935. But Tugwell's dream had died.
Summary:
The National Industrial Recovery Act, establishing the National Recovery Administration, was a compromise of several policy perspectives. Tugwell saw it as a companion to the AAA designed to promote balance and fair exchange in the economy through public/private planning of production, sharing of technical and managerial knowledge, tying wages to productivity and lowering prices to encourage consumption. Hugh Johnson, Bernard Baruch's protégé, saw it as a way to encourage business to increase employment. Robert Wagner and Frances Perkins were mainly concerned with collective bargaining and abolition of child labor. The final bill included some of all these aims and funding for public works.
Implementation of the bill separated public works which was placed in the Department of Interior under Harold Ickes, and industrial recovery, established in the NRA under Hugh Johnson. Johnson focused the NRA on employment stimulation and neglected the potential public/private planning potential in the Act. Tugwell and others argued for redirection of the NRA but failed to win Roosevelt's support.
Analysis:
Two very different conceptions of the industrial problem and of the appropriate government response are evident in the NRA story. Justice Louis Brandeis and his protege Felix Frankfurter saw the main issue as protecting the public against the possible excesses of business. Thus they fought government participation with business in production decisions and opposed joint business planning. Arguing from the >trust busting' era philosophy they imagined an economy of small scale producers and a government role of business regulation in the anti-trust tradition. Hugh Johnson, Bernard Baruch's protégé, shared their view on limiting government involvement in business decisions, but primarily from the perspective that the key to recovery was restoration of business confidence. His view supported government assistance, including research and information, for business. Tugwell thought the industrial problem resulted from a fundamental change in the economy based on from new technology, knowledge, and managerial expertise. He thought that growth in firm size and firm conglomeration were inevitable and desirable providing that the results from increased productivity were widely and fairly shared. He argued that a direct participatory role of government in business decisions was needed to facilitate a change in business practice, promoting cooperation in place of competition, and to achieve fairness in the result.
Business antipathy toward government involvement in business decisions combined with a grudging acceptance of the government's regulatory role made for an easy victory by the traditional inform and regulate planning philosophy.
Considering Tugwell's Alternative
The critical difference between Tugwell and the other liberal supporters of agriculture and industrial policy and planning was about the appropriate interaction between government and the private sector. The standard liberal position was based in the history of the progressive movement in early 20th century politics which focused on government breakup of trusts and cartels, the regulation of collusive business practices such as price fixing, and protection of workers, especially on health and safety issues. These activities became the liberal practical definition of the public interest in actions of the private economy. One of the >lessons' of this experience was, in Brandeis' phrase, "Bignesss is badness." From this perspective the focus of government intervention should be the regulation of private economic actions that have negative consequences for the public interest. The public interest was not well defined, but was most easily agreed on in instances which violated individuals' constitutional rights. A subsidiary acceptable form of government intervention promoted by those with a planning proclivity was the provision to business of information, such as forecasts of future trends and research on technology, which would encourage business to act in ways that increased their profitability and met regulatory goals. Simply put the government should set and enforce the rules of fair competition and provide information in support of economic activity.
Tugwell spoke for a larger government role. If you simplify this policy arena, it has three parts - information, action, and regulation. Tugwell was in full agreement on the importance of government information provision and regulation. Actually, he would have put more stress on information as part of a planning strategy, hoping to reduce the need for regulation. The difference was Tugwell's advocacy of a government role in private economic action, in business decisions. His argument was based in an analysis of the changing US and world economies that foresaw the conglomeration of industry into larger units and a similar aggregation in agriculture as inevitable and essential for economic growth. In addition he argued that competition was ruinous in that it prevented the development and most effective use of new production and managerial technology. Tugwell's analysis of the causes of the depression of the 1930's emphasized the failure to share the benefits of productivity that came from the new technology of the early 20th century. Specifically, he argued that firms with increased productivity failed to reward workers with increased wages and the public with lower prices. A practice of keeping prices high and wages low produced high profits for some but decreased employment and consumer demand. Similarly only some, usually the largest firms had access to new technologies. The privatization of this knowledge meant that other firms operated far below potential productivity and were increasingly cut out from investment opportunities. As a result the economy experienced something like the >stagflation' of the 1970's and spiraled into depression. What was needed, Tugwell argued, was a removal of the anti-trust restraints on economic collaboration. In exchange government would have a place at the table to represent the public interest, especially consumer and worker interests, in business decisions resulting from collaboration. Simply put the government's role was to support cooperation in the economy.
I have been using Tugwell as the spokesperson for these ideas, and he was their most vocal advocate in the Roosevelt administration, but they were not his alone. They were shared by some of the progressive wing of the Democratic Party. Tugwell, himself, was an active member of the remnants of the Progressive Party. They were also supported by those academic economists known as institutionalists and by others in the emerging managerial sciences. Tugwell's own ideas were strongly influenced by two people he worked closely with. Simon Nelson Patten, the institutional economist who founded the Wharton School at the University of Pennsylvania, was the primary source of his economic ideas. Patten lost his job at Penn when the trustees learned that he advocated that shopgirls spend all their earnings rather than save them. Consumption, not production, was the lifeblood of the new economy he argued. This became a key piece of Tugwell's economic philosophy. Tugwell worked with John Dewey at Columbia University and developed from his experiential learning a hands-on, experimental approach to public policy. Tugwell was also strongly influenced by the managerial sciences that were developing from the time-and-motion studies movement.
Tugwell's position was at odds with the standard liberal policy position on two key issues. The assumed virtue of the small economic unit is deeply ingrained in American mythology. Roosevelt was a strong partisan of the small family farm. Tugwell had his most difficult struggles with Roosevelt over the family farm. But that is mostly another story - the Resettlement Administration. The virtue of competition is equally ingrained in American mythology. Roosevelt supported Tugwell on the benefits of business cooperation based on his experience as staff for a business association in New York prior to his political career. Tugwell found that Roosevelt was often of two minds on an issue. In retrospect it seems that Roosevelt embodied the problems Tugwell's ideas faced. Roosevelt the thinker embraced Tugwell's arguments, but Roosevelt the politician would not violate liberal mythology.
Today, support for private/public partnerships is almost a mantra of economic policy and pervades the planning field. There is widespread recognition that the economy has changed to what we now call a global economy. In retrospect, it looks like Tugwell was right in his analysis of the changing economy and planning context. If he were on the scene today , would his proposals meet with more success? Similar ideas have ben used successfully in the federal government, but very rarely. The most important example is the Chrysler loan guarantee.
The Chrysler Loan Guarantee Board
In the waning days of the Carter administration in 1980, the federal government engaged in a cooperative planning process with industry and labor to effectuate a substantial loan to the Chrysler Corporation which was facing bankruptcy and possible dissolution. The Board established to implement the authorizing Congressional act consisted of representatives of labor, management, the federal government, and the Federal Reserve. The principal government participants were the Departments of Treasury, Labor, and Commerce. Task forces were established in key areas such as labor and jointly developed an implementation strategy. The Chrysler Corporation was significantly restructured as a result of these deliberations. For example, the Treasury Department, based on its analysis of the firm and the auto industry, insisted on Chrysler reducing the number of car platforms and moving toward a single platform. Changes in labor practices to meet the Act's requirements of reduced labor costs were developed jointly by management, labor, and the government representatives. In sum, a Congressional Act offered public support to a private corporation in exchange for specific changes in the firm's actions that were designed to improve the competitiveness and profitability of the firm. A joint public/private planning process was used both to develop the specific private actions to meet the goals of the Act and to protect the public interest in the aid given and in the specifics of industrial restructuring. The loan program was a success. This was perhaps the finest piece of national industrial policy and planning in our recent history. The close parallels between Tugwell's proposals, especially the specifics of the NIRA and NRA, are obvious.
Conclusion
The Chrysler process was never repeated. It was followed by a new President, a large tax cut, large increases in federal spending, and a ballooning national debt. The Chrysler program is not unique. There are other examples of a federally negotiated development plan. One that has come to light with the current electric industry deregulation crisis in California concerns public power. In the process of agreeing to provide power from Yosemite to private power companies in California, Harold Ickes, Secretary of the Interior in the Roosevelt administration and a colleague and sometimes supporter of Tugwell, established an agreement that the private companies would accede to and support the development of a public power distributor in northern California. After the dam was in place and the power flowing, the establishment of a public power alternative was fought and was never implemented. One wonders how the current electricity crisis would have played out if this earlier planning had been implemented.
With the demise of the NRA, Roosevelt limited his support for planning to the information and policy debate initiation functions of the national planning board in it's various forms. He supported direct government action on economic development, such as the Resettlement Administration which Tugwell headed. And eventually he turned to monetary policy, which he had earlier scorned, to stimulate the economy.
There are interesting parallels between recent history and the period leading up to the 1930s : rapid change in the national economy; weakening of labor's relative position; prevailing belief that government should stay out of the private economy. It is a difficult time to promote national planning except for continuation of the information and regulation activities which have been the bulk of what we have called national planning in the second half of the 20th century. Indeed, these now traditional activities appear to be coming under attack, and perhaps planning's main effort should be to defend the limited ground it now holds. However, the lesson of the early New Deal, Tugwell's lesson, is that in these times effective national planning requires a re-examination of the government's role in economic decisions. Cooperation between government and business and within business in place of competition offers the best hope for continued national well-being in the face of the rise of the global firm.
References:
(BRAINS) Tugwell, The Brains Trust
(FDR, Box) File Boxes, Franklin Delano Roosevelt Library
(Graham) Graham, Toward a Planned Society
(LESSER) Tugwell, To the Lesser Heights of Morningside
(LIGHT) Tugwell, In Light of Other Days
(Reagan) Reagan, Voluntarism, Planning and the State
(RR) Tugwell, Roosevelt's Revolution
(Schaffer) Shaffer, Two Centuries of American Planning
(Scott) Scott, American City Planning
(TNYRB) The New York Review of Books
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