The Great Depression and the Welfare State

The Great Depression

• manufacturing output declined 50%

• production of durable goods fell 80%

• farm prices fell 65%

• manufacturing unemployment was 40%

Hoover and the Great Depression

• associational strategy - develop industry standards

• resistance of corporations to sacrifice profit

• protectionism vs. need for international markets

Roosevelt and the Great Depression

• New Deal coalition - 1932 election -

  • control of business or cooperation?

  • coalition of interests brought into policy process

The New Deal - new institutions, policies and political-economy relations - structural reforms - progressive era foundation

• National Labor Relations Act

• Social Security Act

Impact of New Deal policies

• limited role of market in distribution of wealth and power

• changed relationship of labor and capital

• government role in promoting economic stability

• reduced competition, provided guaranteed returns

• integration of economic associations into policy making

• government supervised self-regulation

National Industrial Recovery Act - NRA (1933-1935)

• delegated authority to self-regulating code authorities

• industry groups established codes of fair conduct to promote high prices

• plagued by corporate self-interest

• failed attempt to establish corporatist ethic

Agriculture policy - production controls via cartels to reduce oversupply of commodities

• government payments to reach parity (commodity sales equal to purchasing power 1909-1914)

• Agriculture Adjustment Act invalidated by Supreme Court - processor tax illegal

• 1938 Second Agriculture Adjustment Act - without processor tax

  • Commodity Credit Corporation - loans tied to production levels

  • USDA to establish production quotas at the request of commodity producers

    • close ties between commodity producers and House and Senate subcommittees

• majority of benefits go to large farmers

  • top 20% receive 63% of benefits - 1970's

Financial Regulation

• Securities Act of 1933 - register and prospectus over $100,000 - FTC

• Securities Exchange Act of 1934 - quarterly reports, dealer registration, margins limits

• emerging industry self-regulation - SEC

Airlines

• subsidized to carry mail

• Civil Aeronautics Act of 1933 - CAA

  • approve routes, mergers, limit destructive competition, duplication

Labor - reduced conflicts through collective bargaining - promoted stability

• National Industrial Recovery Act - Section 7(a)

  • promoted collective bargaining, union membership

• National Labor Relations Act - 1935

  • NLRB - enforcement powers of NLRA

  • right of workers to elect exclusive representatives

  • prohibited unfair labor practices - interference, discrimination

  • neutral

The National Welfare State

Short term relief - Roosevelt opposed to dependence on government relief

• Federal Emergency Relief Act - 1933 - direct relief funds

• Civil Works Administration - emergency public works program for unemployed

• Civilian Conservation Corps

• Emergency Relief Appropriation Act - 1935

  • Work Progress Administration - replaced FERA

Long term relief

• Social Security Act of 1935 - social insurance

  • "insurance" instead of relief

  • basis for welfare legislation in US - except food stamps

  • old age-pensions

    • mandatory contributions

    • regressive payroll tax

    • excluded workers

    • state autonomy

  • unemployment compensation

  • federal relief for aged, blind and dependent children - contribution with state

    • aged and blind $1 to $1

    • dependent children $ to $2

    • restrictions kept minorities off ADC

Growing Costs of Welfare State

• elderly is 12% of population - receive 27% of budget (45% of domestic spending)

• demographic trends

• indexing benefits

• higher medical costs

International Comparisons

• US spends less than most industrialized countries

• no national health insurance

• other countries had better performing economies during 1970's - wage restraint