Sunday, November 1, 2015

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)
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;

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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.

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).

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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.

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:

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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 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

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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.

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.