The events of the past month have brought the question of state intervention in markets into sharp focus. Since the rise of neoliberalism 30 years ago, belief in the rule of the free market has become absolute among our rulers.
Of course the reality has always been quite different. States have constantly intervened in the market, from negotiations over trade to the imposition of tariffs to protect their own markets.
But the dominance of the market was shattered on 8 September when the US government was forced to take the giant mortgage companies Fannie Mae and Freddie Mac into public ownership. US economist Nouriel Roubini described this as “the greatest nationalisation in the history of humanity”.
Since then we have seen a massive state-organised bailout of the global banking system. This level of intervention in the economy has led some commentators to draw comparisons with the US government’s New Deal programmes of the 1930s.
Instituted by Democratic President Franklin Roosevelt from 1933, the New Deal was a response to the popular demand for action in the wake of the Wall Street Crash of 1929 and the subsequent Great Depression.
The economic historian JK Galbraith described the mood prior to the collapse in his book The Great Crash, 1929 as “the conviction that God intended the American middle classes to be rich”.
But all was not well in the economy. The six months preceding the crisis saw a significant downturn in industrial output in the US and Europe. Production of new cars had fallen by around a third, closely followed by machinery, coal and steel.
When companies tried to rein in their non-productive expenditure (such as advertising), they made the depression worse. Three years after the crash, around a third of the workforce was unemployed and world trade had collapsed by two thirds.
In 1932, Roosevelt was elected in a landslide with 57 percent of the vote, winning all bar six states. In office, the New Deal became a programme designed to kickstart the economy.
The banks that had survived the crisis had their funds guaranteed by the Federal Reserve in an attempt to stabilise them. As part of the National Recovery Act (NRA), cartels were formed in order to control prices.
Work camps that housed almost two and a half million unemployed people were created as part of a civil construction corps who were put to work improving infrastructure such as sewerage plants and bridges, as well as building hospitals and schools.
The New Deal also became the name for the coalition of liberals, trade unions and black organisations that became the bedrock of Democratic support for more than 30 years. In order to maintain this coalition, Roosevelt was forced to make some concessions to the labour movement.
“Yellow Dog” contracts that prevented workers from joining a union were banned and the NRA instituted minimum wages and maximum hours.
It gave workers the freedom to organise in unions and choose their own representatives. Between 1933 and 1935 over $2 billion was spent on dole and work relief.
These measures attracted condemnation from some sections of the ruling class. The Conservative Coalition was a grouping of right wing Republicans and racist Southern Democrats who opposed the New Deal. Its leader, Robert Taft, condemned the programme as “socialism”.
Roosevelt was far from being a socialist. He described himself as “the best friend the profit system ever had”. He certainly directed attacks at the “economic royalists [who] complain that we seek to overthrow the institutions of America,” adding “what they really complain of is that we seek to take away their power”.
But Roosevelt’s populism was a means to harness the support of labour for his attempt to save US capitalism, not as the basis for a challenge to it.
The Democrats and their big business supporters knew that improving schools, hospitals and infrastructure could improve productivity and boost profits. During the Great Depression, the massive army of unemployed workers could be marshalled into providing these improvements at low cost.
Roosevelt oversaw significant cuts in government spending such as reducing veterans’ payments, slashing funding for the post office and sacking staff to save $100 million in salaries.
As his biographer Frank Friedel concludes, this was “not a minor aberration of the spring of 1933, or a hypocritical concession to delighted conservatives. Rather it was an integral part of Roosevelt’s overall New Deal.”
Nevertheless, working class America grew in confidence during the New Deal years, making good use of pro-union laws to further their own struggles and strikes.
A strike wave in 1933 fed into massive eruptions of class struggle in cities such as Minneapolis. Prominent members of the Communist League of America, a Trotskyist organisation, led the Teamster Rebellion of striking truck drivers. Workers controlled essential supplies and formed a militia to defend themselves from police attacks.
The strike gave impetus to other struggles in cities such as Toledo and San Francisco and paved the way for the birth of the Congress of Industrial Organisations (CIO) – which recruited across industries as opposed to the narrow, craft union approach of the more conservative American Federation of Labour.
Roosevelt opposed the strike wave but knew he needed the support of the unions to win the election in 1936. Terrified of the new militancy among workers, some sections of big business broke from supporting the president.
In response, the Democrats were forced to run on a pro-labour platform.
Roosevelt’s landslide victory dwarfed even his last result, winning nearly 61 percent of the vote and every state except Maine and Vermont. But he had no intention of implementing pro-labour policies, refusing to act against strike breaking and violence against workers by the police and National Guard.
Fearing that strikes would quickly pass out of their control and into the hands of radicals, the trade union bureaucracy acted to dampen down workers’ struggles.
Militant tactics were abandoned and the great upsurge of class struggle ended with the bosses resurgent, locking out workers in the steel industry.
The political organisations of the left were disorientated. Communists, who had been decisive in agitating and organising strikes in 1933-4, switched to uncritical support for the Democrats as part of the “Popular Front” strategy of allying with the “progressive bourgeoisie” against the threat of fascism.
By 1937 US production had finally recovered to its pre-1929 levels, but it had done so through the increased productivity of the existing workforce – 14 percent of the workforce remained unemployed. Later that year, the entire economy fell back into a slump. Roosevelt had failed to deliver the US economy from the Great Depression.
As the writer Art Preis puts it, “The New Deal proved to be a brief, ephemeral period of mild reforms granted under pressure of militant mass action by organised workers.”
Instead, it was to be the bloodbath of the Second World War that dragged the US out of crisis. By the end of the war, its massive expenditure on armaments had made the US the world’s foremost economic superpower.
Galbraith argued that the US economy “in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, impostors, and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny.”
Many commentators today suggest that the crisis was the result of a kind of “rogue capitalism”.
But the truth is that the system has crisis built into it – and, when they erupt, the government and the bosses are always determined to make workers pay the cost.
While the New Deal itself may have failed to deliver US workers from poverty, it was nevertheless part of a process in which workers’ willingness to fight back was revived. The activity of socialists was vital in developing these struggles.
Today, some people believe that Barack Obama can usher in his own New Deal. Writing in The Times newspaper last week, right wing journalist William Rees Mogg wondered “if he is elected, [can he] restore confidence in 2008 in the way Franklin Roosevelt did after his victory in 1932?”
Socialists find little consolation in these optimistic imaginings. The crisis of capitalism threatens misery for millions of working people across the globe. Hope for the future lies in the myriad of struggles that will emerge in response to the crisis, and the winning of a new generation to the politics of resistance.