MAY 22, 1995
The End of Reform: New Deal Liberalism in Recession and War
By Alan Brinkley
(Knopf, 371pp., $27.50)
American liberalism, like America in general, is different. Created by the New Deal but drawing on features of the earlier Progressive movement, liberalism here, unlike the liberalism found in many European nations, never took seriously the idea of nationalizing major industries, only occasionally and then without much conviction proposed any major redistribution of income, and merely flirted with centralized economic planning. A welfare state was created, but compared to the welfare state in many other industrialized nations, the American version offered less generous benefits to the unemployed, provided no children’s allowances and restricted tax-supported medical care to veterans, the elderly and the very poor.
Government in Washington grew to be large, expensive and intrusive, but the defenders of its growth rarely felt that it produced “real” liberalism. Much of its cost reflected the large sums raised to finance Social Security and national defense, and most of its intrusiveness took the form of judicial and administrative regulation of the private sector. Neither the cost nor the regulation, in the eyes of many liberals, furthered the central cause of liberalism, namely, greater economic equality. To be sure, the regulatory state did redistribute power in ways that often helped economically weak minorities or unorganized majorities assert claims against corporations and other institutions, but these claims—for individual opportunity, group privilege, consumer protection, environmental defense, commercial compensation or legal advantage—were defended more in terms of rights rather than in terms of equality.
As we approach the end of a century-long experimentation with the use of governmental power to produce social change, we are discovering that American liberalism has become a stool standing on three legs: the protection of rights, the maintenance of a safety net and the stimulation of economic growth through government spending. Since these three strategies need not (and usually do not) lead to greater economic equality, many liberals are dissatisfied with what has been done in their name. We can harass one another with lawsuits and regulations without becoming any more equal; we can take comfort in the existence of a safety net and still find vast disparities in income and wealth among the great majority who live above that floor; we can welcome government stimulation of consumer demand but worry that this stimulation has perverse distributional effects.
And because each of these strategies can (and often does) produce burdens and inefficiencies, each is highly vulnerable to conservative attack. The protection of rights through law suits and regulatory proceedings imposes immense costs on ordinary transactions and elevates rights over responsibilities and individuals over communities. The existence of a safety net produces personal dependency and erodes savings, initiative and accountability; any means-tested program provides a strong incentive for people living near the cutoff point either to substitute welfare for work or to detest those who do. Government management of aggregate demand is slow, clumsy and often ineffective; moreover the political bias in favor of tax cuts and against spending cuts means that the political economy of liberalism will be biased in favor of inflation.
At the end of liberalism’s century, then, many liberals are not happy with what they have produced and many conservatives are eager to dismantle it. How did this happen? What historical, political and cultural factors shaped the distinctive features of American liberalism? Alan Brinkley offers an answer.
One would think that a catastrophe as vast as the Great Depression would have given the administration of Franklin D. Roosevelt ample opportunity to create a liberal state far more powerful than what in fact emerged. In beginning his explanation of why that did not happen, Brinkley draws on The New Deal and the Problem of Monopoly, the splendid book by Ellis Hawley that sets forth the debates among early New Dealers over what direction to take. Hawley described three alternative proposals for rescuing the nation from the apparent failures of big business: vigorously enforcing the anti-trust laws; suspending those laws and encouraging instead business-government cooperation; and creating devices for centralized economic planning. The trust-busters found their champion in Thurman Arnold and their support in the legacy of Louis Brandeis; the associationalists had their brief and ill-starred moment of fame with the National Recovery Administration and its Blue Eagle symbol; the planners were led by Rexford Guy Tugwell, Adolph Berle and Gardiner Means and had important allies in Henry Wallace’s Department of Agriculture.
Roosevelt, naturally, almost never gave a clear signal to any of these factions. The early New Deal emphasized direct relief and hasty improvisation, all quickly endorsed by Congress. The NRA failed to be replaced by the view—defended, though without either skill or success by Treasury Secretary Henry Morgenthau—that restoring business confidence was essential to any lasting recovery. If associations and codes supported by business, labor and government could not do this formally, then the president ought to do it by rhetoric (replace anti-business with pro-business speeches) and deregulation. Antitrust prosecutions were led (implausibly) by Arnold, despite his having published The Folklore of Capitalism, a book critical of antitrust law. Though he reinvigorated what had often been a moribund part of the Justice Department, by the end of the 1930s it seemed clear that breaking up monopolies was not enhancing economic growth; indeed, to the associationalists, it was just another blow to business confidence.
The planners tried to build a program around the National Resources Planning Board (NRPB) and its predecessors. (The NRPB was not created until 1939, but it grew out of the National Planning Board formed in 1933 by Interior Secretary Harold Ickes.) “Planning” meant different things to different people, but to its intellectual leaders it meant, among other things, “rationalizing” the market so as to remove its “uncertainty.” Just how this was to be accomplished was not entirely clear. By the early years of World War II, in any event, the leading NRPB documents were urging policies that fell far short of any direct planning of investment or production. In Security, Work, and Relief Policies, published in 1943, the NRPB called for something very much like what we now know as American liberalism: an expanded program of social insurance, more generous public assistance, a Keynesian fiscal policy and an extensive federal jobs program. The goal was a full-employment economy and a safety net.
As Brinkley describes it, liberalism was transformed by the New Deal from a Progressive preoccupation with economic reform to a postwar interest in rights, from an early discussion of planning production to a later commitment to encouraging consumption, from an attack on “economic royalists” to the recruitment of business executives. Some obvious historical factors help to account for this change. The depression of 1937, coming right on the heels of the great Democratic victories in the 1936 elections, disoriented the New Dealers. The Roosevelt Recession, as it came to be called, was of a magnitude that rivaled the Depression of 1929-1932: in just a few months, industrial production fell by 40 percent and corporate profits by 78 percent; unemployment increased by 4 million; stock prices dropped by 48 percent. The lesson was clear: the New Deal had not ended the Depression. Many business leaders felt it had perpetuated it.
Roosevelt had no idea what to do next. One of the few things he had tried to do, his effort to pack the Supreme Court, had backfired badly. The Court had declared many New Deal measures to be unconstitutional. One can sympathize, perhaps, with Roosevelt’s frustration; one might even support his effort to get Congress to enlarge the Court; but nobody could forgive what Brinkley calls, accurately, his “deliberately deceptive” defense of the plan. Roosevelt said that he wanted only to improve the “efficiency” of the Court. This was not only nonsense, it was politically disastrous nonsense, for it led even critics of the Court to attack the president’s disingenuous assault on a constitutional body that existed to safeguard rights.
By 1942, of course, all these issues were swept aside by the war and its extraordinary success in ending unemployment and stagnation. It accomplished these miracles despite inept government efforts to plan wartime production, efforts that became the object of growing criticism as one mobilization czar succeeded another in a futile effort to manage production. Brinkley does not attempt to explain the reason why the war effort ended a depression that the New Deal not only could not cure, but by 1937 had duplicated. The answer, I suspect, is the restoration of business confidence. Capital had remained idle or was sent abroad so long as President Roosevelt was bent on attacking “economic royalists”; Marriner Eccles, the chairman of the Federal Reserve, was endorsing deficit spending; and the Temporary National Economic Committee was investigating the ownership structure of American industry. The war brought a commitment to production and an endorsement of industry as the arsenal of democracy. Confidence was restored, business boomed.
Moreover, the war brought Americans face to face with European totalitarianism, leading even some dedicated liberals to reconsider their commitment to statism. And if anyone missed the possible connection between statist strategies and the destruction of personal freedom, James Burnham made it explicit in his widely read book, The Managerial Revolution, which appeared in 1941. The warnings of Burnham, a former socialist and Trotskyite, could not be dismissed by liberals as easily as were those of another best-selling author, Friedrich Hayek, whose The Road to Serfdom appeared in 1944. Liberals attacked Hayek but his book sold even more copies than Burnham’s and became a manifesto for economic conservatism in the postwar world.
But these explanations, important as they are, cannot be the whole story. Liberals in other democratic nations struggled with depressions and the war without abandoning—in fact, while strengthening—their commitment to central planning and income equalization. Great Britain entered the postwar era under the control of a Labor Party that nationalized much of British industry, including the health care system. When Germany began its postwar reconstruction, it did so by linking free-market economics with labor participation in industrial management and a vastly more elaborate and expensive welfare state than anything contemplated here. Sweden, though not a combatant, paid no attention to Burnham or Hayek; it combined private ownership of property with very high taxes and substantial income redistribution. Almost everywhere in Europe and Japan one finds economic planning, government-business partnerships and cradle-to-grave public assistance. But not here.
Brinkley’s explanation of this aspect of American exceptionalism rests precisely on those aspects of political culture that have always been central to our public life. Americans retained throughout the 1930s their deep suspicion of institutional power. “For all the efforts of New Dealers to celebrate and legitimize the new functions they were creating for the state,” he writes, “a broad suspicion of centralized bureaucratic power—rooted in traditions of republicanism and populism stretching back to the earliest years of the American polity—remained a staple of popular discourse and constant impediment to liberal aims.” Even when people were praising Roosevelt for sending them federal money and government jobs, they were attacking him for trying to pack the Court and for regulating their lives. The farmers cashed their agricultural assistance checks, but began increasingly to vote Republican.
Income redistribution has never caught the fancy of Americans. Sidney Verba and his colleagues showed, in their important book, Elites and the Idea of Equality, that even the most liberal Americans are tolerant of income differences that would appall a conservative Swede. When American feminists, intellectuals and Democratic Party leaders are asked to define a fair ratio between the earnings of a top executive and a skilled worker in an auto company, on average they endorse a ratio of roughly six to one. Similar respondents in Sweden support a ratio closer to two to one. And when the comparison is between executives and elevator operators, the preferred ratio for American liberals is about ten to one, while for their Swedish counterparts it is about three to one. Democratic Party leaders in this country support as fair an income ratio that is more than twice as great as the income ratio thought fair by Swedish conservatives and business leaders.
Linked to this American support for individualism in economic matters was the indifference or hostility of American labor leaders to an activist government. It is now well-known, of course, that the AFL opposed, among other New Deal ideas, a plan to regulate wages and hours, and it was at best lukewarm about the Social Security Act. As the war approached, Walter Reuther of the United Auto Workers and Philip Murray of the CIO proposed the creation of “industrial councils,” composed of labor, business and government leaders, that would supervise industrial mobilization and production. But when war broke out and Americans eagerly rushed off to build tanks and airplanes, the industrial-council idea, never popular with business, was dropped. Instead, labor made a no-strike pledge in exchange for a government promise to have union shopsin all the factories. Union membership soared, but unions played no role in managing industry.
Brinkley’s assessment, as opposed to his description, of the emergence of postwar American liberalism—the emphasis on rights and employment, the de-emphasis on equality and planning—is only hinted at in this book, but the hints are revealing. In his view, American liberals “began a broad retreat from many of the commitments that had once defined their politics: concerns about the problem of production and about the limitations of the market.” After the end of the great postwar economic expansion, he asserts, the nation fell victim to “an erratic and stagnant economy, increasing inequality and growing social instability,” developments that proved that “it was not as easy as liberals once expected to create a just and prosperous society without worrying about the problems of production and the structure of the economy.”
What can he mean by all this? Historians are often inclined to combine their skills at archival research and narrative development with a tendency to state their conclusions as passing profundities and end the story there. Since we all like to read a well-told tale, we are often inclined to forgive the silliness with which it sometimes ends. Imagine an economist asserting that the last forty or so years were characterized by economic stagnation and growing inequality. He or she would be ripped to shreds by professional colleagues who would ask for some modicum of evidence, some reconciliation of the facts (the great booms of the 1960s and the mid-1980s) with the theory. Incomes are distributed unequally here as in every society; but economic growth between the end of the Second World War and the mid-1970s greatly reduced that inequality as more and more people joined the ranks of the middle class. The increased inequality that has occurred since the 1970s has been modest by comparison, and the reason for it is not well understood.
To be sure, the economy has changed character; and every time it does, somebody says that the change is a problem that government must address. Once it was automation, then it was the rise of service jobs, now it is the advent of the Information Age. Each time somebody says that the change constitutes a worrisome “problem of production” and urges a new program to solve it (ban machinery, retrain workers, fund federal jobs, give every child a laptop computer and on and on). Each time it turns out that there is not a “problem of production,” there is a promise of technology and opportunity.
If Brinkley or others wish to perform a mental experiment, let them ask not how our present situation reflects past failures, but what our present situation would be if we had adopted policies to change the structure of the economy. There were two alternatives available in the 1930s: to plan production and investment (hinted at by the early enthusiasts for the NRPB) and to create joint labor-management committees to run industry (suggested by Murray and Reuther and earlier by Herbert Hoover and the architects of the NRA). The planners felt that free competition was disappearing, owing to the rise of big business and the separation of ownership from control; prices were being “administered” by industrial technocrats, not set by impersonal market forces. (The idea has survived in the writings of John Kenneth Galbraith.) Let us substitute publicly accountable (because politically selected) bureaucrats for the corporate ones. What might have resulted, if all had worked out for the best, would be Japan today.
Charles Wolf Jr. has shown where planning by the best and the brightest in Japan, in miti and the Ministry of Finance, has brought that country. Its gross domestic product is in its fifth year of stagnation (the GDP of the United States is growing); industrial production at the end of 1994 was 5 percent lower than it had been in 1990 (in the United States it was 15 percent higher); productivity during the least eight years has not grown at all in Japan (in the United States it has grown about 1 percent a year). In most areas of critical technology, the United States, not long ago described by a presidential candidate as a country reduced to flipping hamburgers, leads Japan.
Or perhaps we could have invested more heavily in income maintenance programs and worker-management councils designed to make employment more permanent and unemployment less burdensome. No doubt some workers would have benefited, but the benefits would have to be set against the costs. The magnitude of those costs is apparent in Germany, where per-unit labor expenses are now so high that German products (like Swedish ones) cannot compete on the world market. It can be argued that Germany and Sweden are more just societies than the United States, but it cannot be argued that they are more prosperous. Measured in purchasing power parity, the per capita GDP has been higher in the United States than in Sweden or West Germany, at least since 1970, and this despite the United States having a much more heterogeneous population. The tradeoff between justice and prosperity, an issue stated with singular clarity by Adam Smith (and resolved by him in favor of prosperity), is not an easy one to manage. Perhaps there can be no permanent resolution. But under current historical realities, one thing is certain: rhetorical support for a liberalism that embraces “a just and prosperous society,” without any indication of how that is to be done, is mere arm-waving.
In a recent essay in The American Prospect, Brinkley sets out to defend more systematically what he has in mind. After reviewing the argument of his book, he turns to the present. He notes, correctly, that the American people remain as suspicious as ever of federal power (even as they enjoy federal largesse) and are in addition increasingly worried about an emphasis on rights, especially group rights, that seems to threaten the possibility of community. To this list of problems Brinkley adds the growth of income inequality and the lowering of living standards and laments the loss of popular support for the minimum wage law as a way of reducing this inequality. (Never mind that the law probably has never had such an effect in the past.)
To meet these problems, Brinkley would like us to recall some of the forgotten initiatives of the New Deal. The first of these is executive reorganization, for the purpose of strengthening the president and equipping him with a “powerful planning mechanism”; but that power must be used in a way that is consistent with the spirit of Vice President Al Gore’s “reinventing government” project. But has Brinkley read the Gore Report? Throughout, it calls in effect for reducing the power of the president over the bureaucracy in favor of employee empowerment and citizen service. There is no mention of a powerful planning mechanism.
We should also recall, according to Brinkley, the community-building initiatives of the New Deal, such as the Tennessee Valley Authority and the Farm Security Administration. These projects experimented with “ways of promoting cooperation, community spirit, and mutual responsibility.” They did nothing of the kind. The TVA, as Philip Selznick demonstrates in his magisterial account, gave short shrift to community development in favor of generating low-cost electric power. One can disagree with Selznick’s explanation as to why this occurred, but that it occurred is not seriously in doubt. The Farm Security Administration may have managed to produce some truly cooperative farms, but the best account of how one actually worked, Edward C. Banfield’s Government Project, is a story of the failure of cooperation and the near-absence of community. It bears no relation to the idealized version portrayed in The Grapes of Wrath.
Brinkley is aware, I think, that the New Deal did not do much about community. He is surely right to urge liberals to move away from steadfastly defending the state as the sole alternative to the market. But this is easier urged than obeyed. And Brinkley himself immediately acknowledges that neighborhoods, schools and churches can sometimes be “sources of bigotry and oppression.” That, of course, is precisely the dilemma of contemporary American liberalism. Unlike liberalism in other advanced nations, the American version is the clearest and least altered descendant of the Enlightenment. The thinkers of that era emphasized the emancipation of the individual and the expansion of the range of personal liberties. Adam Smith cautioned against what later became known as associationalism and industrial councils; such arrangements, he felt, would always become self-serving conspiracies against the public good. He and others urged a proper watchfulness about government officials; and to this tradition John Stuart Mill added an attack on the right of government or opinion to constrain individual freedom beyond what was necessary for physical protection.
Elsewhere, the Enlightenment was modified—in France, by the tradition of a powerful central regime, in other countries, by the belief that government ought to preside over economic development and minimize the distinction between the public and private spheres. In the United States, however, the Enlightenment mentality came to us intact, protected by a tradition of limited government and a culture of legally defended rights. All historical and philosophical legacies have their costs; the costs of our system include a certain tendency toward self-indulgence, an exaggerated faith in legal rules and an adversarial spirit in legislation and administration. But the more corporatist European version has its costs, too: top-heavy regimes, cartelized economies, ideological parties and high tax rates.
The real economic lesson of the New Deal may be found in its failure to understand production, exemplified by the contempt with which so many of its leaders viewed the problem of business confidence, the indifference that almost all of them displayed toward monetary policy and the push that they gave to the cartelization of agriculture. Such successes as the New Deal had were the beginning of a safety net and the curbing of some anti-competitive business practices—precisely the defining features of American liberalism. To look back at the New Deal for guidance about “the problem of production” is a grievous mistake.
Alan Brinkley has produced an informed and insightful account of how in the 1930s the American version of liberalism survived its greatest challenge. If he now wishes to evaluate its subsequent career, he ought first to study how other versions of liberalism responded to their crises.
James Q. Wilson is the Collins Professor of Management and the Public policy at UCLA and the author most recently of The Moral Sense (The Free Press).