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Week 11: State Capacity and Economic Intervention in the Early New Deal

Megha Majumder / Section 103 / 11.02.2015

Citation: Skocpol, Theda, and Kenneth Finegold. "State Capacity and

Economic Intervention in the Early New Deal." Political Science Quarterly
97.2 (1982): 255. JSTOR [JSTOR]. Web.

Why are we reading this? This analysis of the initial New Deal programs uses
social-determinist theories and state-centered theories to explain the
success of the Agricultural Adjustment Administration and the failure of the
National Recovery Administration. These theories delve into the character of
the state apparatus, and shed light on class conflicts in the United States.
This article also provides background on the transition from the second era
of capitalism to the third era: the end of the economy being ruled by a free-
market ideology, and a halt to the intrinsic belief that competition between
firms is best for all. This third era, following the stock market crash of 1929
and beginning with the introduction of President Roosevelts New Deal
programs, free-market ideology and its core principles were abandoned by
heads of state, CEOs, and leaders in banking and finance. A new era of state
intervention in the economy was born, which characterized the third era of
capitalism.

The New Deal: An Introduction

A set of programs that ran their implementation course from 1933-1940;

These programs were Franklin D. Roosevelts set of measures
implemented by his liberal democratic government to pull the country
out of the Great Depression.

New Deal + World Wars = major turning point in economic history,

because they signaled the end of a free-market ideology+minimal
governmental interference and introduced the establishment of an
economically interventionist national state.

New Deal was initially comprised of two programs:

1. National Industrial Recovery Act (NIRA)> National Recovery
Administration (NRA)

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i. Goal: The assurance of reasonable profit to industry and living
wages for labor with the elimination of the piratical methods and
practices which have not only harassed honest business but also
contributed to the ills of labor - FDR

ii. Title I - industrial recovery via: 1. united action of labor and

management under governmental sanctions; 2. codes of fair
competition to regulate proaction practices; 3. minimum wage and
maximum hours for all workers; 4. Section 7a - a guarantee of the
right of employees to organize and bargain collectively through
representatives of their own choosing.

iii. Became conflict-ridden over time, not goal-oriented.

a) The programs ideal of overall business coordination was

shattered > uneven pattern of government regulation across
industries. Out of that, bitter conflicts between corporate
management and industrial labor grew, due to formation of labor
unions (which were independent of direct management control).

2. Agricultural Adjustment Act (AAA) > Agricultural Adjustment

Administration (AAA)

i. Goal: change economic relationship between commercial agriculture

and industry in America.

ii. 1. Raise prices for basic agricultural commodities (in relation to how
much the farmers paid for the products of industry); 2.
administrative controls over production and marketing; 3. rental or
benefit payments from government to farmers who cooperated with
public programs (farmers would cooperate because after great
depression, they needed gent aid).

iii. Commercial farmers gained political benefits due to AAA activities -

farmers used the well-institutionalized farm programs to beat the
challenges they faced from the underclasses to gain an enduring
governmental niche within the post-New Deal political economy.

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Clearly, Both acts did not succeed (if they did, USA likely would have
become a centralized system of politically managed corporatist
capitalism). AAA was successful, NIRA was not. **WHY?**

- Lets try explaining this in SOCIALLY DETERMINIST ways:

1. Pluralist theory? - The best organized interest groups in society, and
those with access to the greatest political skills and resources, would
be the ones to achieve their political goals in "the governmental
process (compromise might need to happen in order to satisfy
powerful interests involved in the process).

2. Marxism? - Capitalists as a class should benefit most from politics in

capitalist society (possibly due to direct control over state/political
resources).

3. Neo-Marxism? - State can be expected to intervene "relatively

autonomously" for the objective interests of the capitalist system (and
class).
HmmAll say that capitalists are the ones who should benefit most
from all political outcomes. But thats problematic, because even
though NIRA was organized by industrial capitalists (1932) and
tailored to their preferences, it still ended up failing. Social-
determinist theories (of pluralism and Marxism) do not explain the
success of AAA and the fall of NRA.

- So lets consider STATE CAPACITY as an explanation.

- The U.S. national state in the early 1930s had greater capacity to
intervene autonomously in the economic affairs of agriculture than in
industry.

THE WEAKNESS OF THE AMERICAN STATE AND THE FAILURE OF THE

NATIONAL RECOVERY ADMINISTRATION

- Historical Background of National Government Involvement in the

American Economy:

19th Century USA was essentially state-less. It was comprised of parties

that were fostered by an expanding, decentralized capitalist economy.

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After 1896 (electoral realignment), there was finally an autonomous
national administrative system. However, Congress wanted a
decentralized economy, so they resisted executive branch for control of
newly created federal agencies.

Following the emergence of a national capitalist economy where capitalist

corporations took the lead in the making of the bureaucracy, the country
began to get involved in WWI. Businesscrats controlled emergency
agencies (War Industries Board, WIB) that were made to coordinate the
economy for wartime.

After war, Congress dismantled WIB and emergency agencies, so the

country was again administratively weak and decentralized. With this lack
of national administration, corporations could again pursue profitable
growth as much as possible (without violating antitrust laws).

Herbert Hoover decided on a strategy of state-building, which was great

for American capitalists because the Commerce Department did many
useful things for them and gave them both autonomy to do as they
pleased while granting them the resources they needed from the
government. However, with the crash of 1929, followed by the
depression, Hoover's ideal of the associative state was abandoned.

- NRAs Historical Background:

The Commerce Department was weakened after Hoover, and it was
administratively insufficient, not unified, and decentralized. Thus,
when Roosevelt became President and implemented the NRA, he
avoided putting it into hands of the Commerce Dept. Therefore, the
program was alone, not associated with any larger department, hectic,
and not well-regulated by the national government.

- NRAs Big problems:

Business leaders formulated the NRAs codes and created many

loopholes in pro-labor provisions, production cutbacks, and
noncompetitive, higher prices for most industries.

Labor representatives appeared on less than 10% of the initially

established code authorities, and representatives of consumers made
it onto a mere 2%.

NRA "businesscrats" were sympathetic to the industrial capitalists, and

the capitalists were even entrusted to implement the codes
themselves (because they were the only ones with the organizational

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means to do so - the federal government did not have a system in
place for implementing the codes).

Even though the industrialists had so much control over the NRA
codes, the industries and subgroups within industries tried to use the
NRA codes to their own advantages. Thus, the entire NRA apparatus
was unable to resolve disputes in an authoritative fashion because
every industry wanted what was best for themselves. The NRA became
an arena of bitterly politicized and inconclusive conflicts.

THE FEDERAL AGRICULTURAL COMPLEX AND THE ROOTS OF THE

AGRICULTURAL ADJUSTMENT ADMINISTRATION

- Historical Background on the AAA

At its nascency, AAA was even more structurally handicapped than the
NRA, because contradictory emphases had been built into its initial
leadership/organizational structure. Policy clashes and several appeals
to higher authorities occurred during the first nine months of the AAA.
However, its overall trajectory of development from 1933 to 1935 was
not like the NRA's path toward greater divisiveness.

During 1934, the AAA's programs became consistently oriented to

raising farm prices by making payments to farmers to curtail their
production. Then, the AAA began to think ahead: by 1935 it was
proposing ways to coordinate new and existing agricultural programs
and making plans for land use and soil conservation.

USDA Background: the Department of Agriculture was founded during

the Civil War, when the Southern states were out of the union and it was
possible for large federal initiatives to be taken. Thus, the Dept. of
Agriculture enjoyed an unusually large degree of administrative unity
and flexibility since its birth.

- Sohow exactly can we explain the difference between the fates of the
AAA and NRA?

1. SHELTER: The AAA was sheltered within an existing federal department -

the U.S. Department of Agriculture (USDA) as opposed to the NRA, which
was not under any departmental umbrella.

2. COOPERATION: A sense of accommodation and cooperation existed

between AAA and USDA. One of the most important connections was
between the AAA and the Bureau of Agricultural Economics (BAE), which
performed a large amount of statistical and analytical work for the AAA.

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3. HISTORY and UNIFIED EDUCATION: Another important development
flowing from the USDA's ties to educational institutions was the symbiotic
linking of academic life with the expanding domains of government
research and policymaking.

- As farmers faced new problems and new policies were needed to help
agriculture, teachers and researchers in USDA-affiliated land-grant
colleges did research and helped solve problems. Thus, the agricultural
experts were willing to make policy for the farmers and AAA, rather than
looking to profit from them (as the industrial experts/capitalists longed to
do with NRA).

- The land-grant colleges were established through the Morrill Act - which
authorized federal land grants to support the establishment in each state
of a college oriented to agricultural research and education.

- In regard to the AAA-USDA history: farmers and agricultural experts were

state-broken" before the New Deal because USDA has been a cohesive
structure within the national government since the Civil War.

CONCLUSION

- The AAAs Success Summarized:

- Agricultural experts, their ideas, and the administrative means they could use to
implement the ideas were products of a long process of institution building whose
roots go back to the Civil War, when the U.S. Department of Agriculture was
chartered and the Morrill Act was passed.

- The NRAs Failure Summarized:

- The U.S. state lacked the administrative resources of information, analysis, and
expertise for new policy lessons and appropriate conclusions on the complex
issues presented by the challenge of industrial planning. Thus, the NRA failed in
its mission of coordinating industrial production under the guidance of public
supervision.