Interrogating the Great Depression

David Brody Rethinks the Depression’s Relevance

EVER SINCE September’s financial meltdown, the Great Depression has been on everybody’s mind. Suddenly, we’re all historians. Scholars have long pondered why the Great Depression was so prolonged. The right has an answer: It was the New Deal! A choice example is a recent N.Y. Times column by the economist Tyler Cowen. The only things FDR really got right, Cowen suggests, were his monetary and banking policies, although Cowen allows also for social security. Everything else was a mistake (and never mind why FDR did what he did) that made things worse. So the lesson for President-elect Obama is that “we should restrict extraordinary measures to the financial sector and resist the temptation to ‘do something’ for its own sake.”

One of those things is making it easier for workers to unionize. More than anything else, the Employee Free Choice Act has put a buzz in right-wing bonnets. Writing in the Times, of course, conservative commentators tend to be circumspect, not like the screaming articles in the Wall Street Journal editorial pages, the National Review, and such. Cowen himself is quite ingenious about it. He lumps New Deal labor policy with two of FDR’s undoubted failures, industry cartelization and agricultural subsidies, and suggests, in a kind of guilt by association, an equivalent economic failure. While there’s not much more to it than that, Cowen is not shy about concluding that if President-elect Obama accedes to “pressures to make unionization easier,” he is “likely to worsen the recession for many Americans.”

So let’s talk a little history. The charge is that by strengthening unions, the New Deal fostered wage rigidity and thereby retarded recovery. The indicator of wage rigidity in a declining cycle is a rise in real hourly earnings; and by that measure, the Great Depression did indeed see astounding wage rigidity—a rise in real hourly earnings of 30 percent over the decade. The question is: How much of this is ascribable to New Deal-induced collective bargaining?

The biggest jump in real hourly earnings, nearly 15 percent, came between 1929 and 1931, at a time of union impotence and, of course, long before the New Deal. Three interlocking factors explain what happened: first, the emergence of internal labor markets at large firms; second, in an age of welfare capitalism, a paternalistic reluctance to cut wages; third, and most important, the widely held view that economic downturns could be resisted by corporate stabilization. Indeed, right after the Great Crash, President Hoover called in the nation’s leading magnates and secured from them a pledge to hold the line on wages. Voluntary stabilization lasted until mid-1931 (during which time wage rates scarcely budged) and then it collapsed—only to be resurrected with a vengeance by the New Deal, which cast aside the antitrust laws and invoked cartelization under the National Recovery Administration as a means of stabilizing the economy. Only in a few industries, most notably the needle trades and coal mining, did labor unions have any say about the wage standards set by the NRA codes of fair competition. This first New Deal attempt at industrial recovery did spark a wave of strikes that probably helped spur the upward surge of real hourly earnings in 1934, but this was industry’s doing, for purposes of warding off the unions and not because there was substantial collective bargaining.

Collective bargaining became a New Deal policy only in 1935 with the National Labor Relations Act, and it took another two years, while the Supreme Court weighed its constitutionality, for the law to go into effect. By then the industrial unions were already making headway, and 1937 saw the first round of collective bargaining of the Great Depression. And that was it. The severe recession of 1937-38 arrived—for reasons, economists agree, having nothing to do with labor—and collective bargaining froze. When it resumed in 1939, the economy was coming out of the depression and only thereafter, in an environment of wartime full-employment and post-war prosperity, did union power really kick in.

If you’re looking for the economic effects of collective bargaining, here’s where you’ll find those effects—in the Great Compression of the 1940s when modern America came as blissfully close as it’s ever gotten (or likely to get) to income equality, and in the succeeding high-performing economy of the 1950s and 1960s when blue-collar America first became middle class.

But if the Great Depression is our model, drawing the lesson that Employee Free Choice Act would retard recovery is simply an abuse of history. There is another way, however, in which the Great Depression does speak to us. In a related argument, the employer side says that a crisis like ours is no time to be fooling with a destabilizing scheme like EFCA. It’s a big question—the relationship between crisis and reform–but here I confine myself to how that relationship played out in the labor law.

New Deal labor policy really did break with the past, repudiating a long-held tenet that the courts alone made trade-union law. It’s a remarkable fact that—save for the railroads—there was literally no labor legislation on the books in 1929. In defiance of that tradition, the Norris-La Guardia Act cast aside the worst excesses of judge-made law—the labor injunction and enforceable yellow-dog contracts—and beyond that, laid the doctrinal basis for New Deal labor law. This was in 1932, by a Republican Congress, in the depths of the depression. The next year, amid FDR’s chaotic “Hundred Days,” the industrial recovery legislation that the New Deal crafted mandated that every NRA code of fair competition include Section 7a, asserting the right of workers to organize and engage in collective bargaining. Section 7a itself proved ineffectual, but the wave of violent strikes it provoked drove the legislative battle that led to the National Labor Relations Act of 1935. At every step of the way, New Deal labor policy was the product of crisis.

And so, in its fashion, is the Employee Free Choice Act. The essential purpose of the labor law (which EFCA amends) was to end the endemic strife that poisoned our labor relations—strife caused by the refusal of employers to deal with unions. The bitterest strikes in our history—in 1934 and for decades earlier—were strikes for recognition. So the New Deal law put into place a process, with majority rule as the test, that imposed the duty to bargain on employers—one that, in effect, replaced equations of power with the rule of law. Now we are reverting to pre-1935 industrial warfare because the labor law is failing.

Recent M.I.T. research (by John-Paul Ferguson and Thomas Kochan) reveals this failure all too starkly. To start the process leading to National Labor Relations Board (NLRB) certification as a bargaining agent, a union has to show support, via signed cards, from 30 percent of the workers. A union never petitions for an election without a far greater show of support. Yet with 60-75 percent going in, a union has only a 20 percent chance of ever getting a first contract. If the employer commits an unfair labor practice along the way, the union’s chances fall to 9 percent.

I’m skipping over the coercive and delaying tactics that employers use to bring this result about, and likewise the nonsense they spew out about their devotion to the secret ballot. Let’s just say that employers are doing what they’ve always done, which is their damnedest to avoid collective bargaining. The result is the collapse of the NLRB system. The number of representation elections has dropped by half in the past decade. The NLRB reported that elections in 2007 produced collective-bargaining rights for 58,000 workers. Of these—if we apply the M.I.T. findings—about 30,000 actually got first contracts, trivial in an economy of America’s size.

The great majority of newly unionized workers do not, in fact, get collective bargaining through NLRB elections. The law also allows for voluntary recognition, in which an employer enters collective bargaining directly on being provided with proof (via signed cards) of a union’s majority. “Voluntary” is not quite the right word, because rare is the employer who takes this route except under duress. And that’s where the corporate campaign, so-called, comes in. The master practitioner, SEIU’s Andy Stern, likes to speak of “the power of persuasion and the persuasion of power.” Using a bit of both, SEIU has expanded to nearly 2 million members. If the Employee Free Choice Act succeeds, SEIU will dispense with corporate campaigns: the NLRB representation process will have been reopened. If it fails, organized labor will have no other path than Andy Stern’s, and we can anticipate the revival of a bastardized version of the economic warfare that once engulfed this country. In these worst of times, the Employee Free Choice Act will then indeed be a source of instability—only in answer to a question no one seems to have asked: Not the question “What happens if the bill passes?” but “What happens if it doesn’t?”

At the moment, the incoming administration is not showing its cards. As Senator, Barack Obama co-sponsored the Employee Free Choice Act, he spoke for it during the campaign, and he owes a lot to the unions. But where the labor law stands on his agenda is unclear. So here’s one last historical nugget from the Great Depression. The National Labor Relations Act wasn’t high on the New Deal’s agenda either. FDR was, in fact, cool to it because he was busy currying business support for his cartelist NRA program. The labor law’s champion was not FDR but, from first to last, one of the great unsung heroes of American liberalism, Senator Robert F. Wagner. By the time Wagner’s bill came up in 1935, after being sidetracked the previous session, the New Deal had gone from its corporatist to its Keynesian phase, and collective bargaining became a priority on FDR’s agenda.

This time around, we can hope for a similar dynamic in quick time. Conservative commentators have been congratulating themselves on Obama’s centrist economic team, who know, says Bush’s first economic adviser Lawrence B. Lindsey, that unionization “will make the economy less competitive and delay recovery.” Not so fast. Lindsey’s counterpart on the Obama team, Larry Summers, regards the galloping income gap of recent vintage to be “the defining issue of our times.” To return to where we were in the late 1970s, says Summers, every household in the upper 1 percent would have to hand back $800,000 and every household in the bottom 80 percent receive a $10,000 check from the proceeds. That sounds outlandish, but it wouldn’t be so outlandish—and a lot healthier for all concerned—if we got the Employee Free Choice Act and gave working Americans the power to wrest back that $10,000 at the bargaining table.

David Brody is professor emeritus of history at the University of California, Davis. Photo of New York’s American Union Bank (Social Security Administration / Wikimedia Commons / Public Domain).