Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, AND GLOBAL COMMUNICATIONS

FROM NEW DEAL TO GREEN NEW DEAL, Part 2: The Failure of the National Industrial Recovery Act of 1933

Posted on | February 6, 2020 | No Comments

This is the second of an ongoing series about how the New Deal restructured the American political economy and what lessons it has for transiting to a Green New Deal. The first one dealt with the New Deal emerging from the wake of the Great Depression and the immediate policy responses by the Roosevelt administration to deal with the banking and financial crisis. This post looks at a failure, the National Industrial Recovery Agency’s (NIRA) attempts to administer a wide range of codes and practices for business and industry. What are the lessons of the NIRA for the Green New Deal?

The green energy revolution strives for zero emissions of harmful carbon by-products and near-zero marginal costs after installation. Hydrocarbons from coal or oil are incredible sources of energy but emit deadly carbon monoxide and climate threatening carbon dioxide. They are also used up in consumption and require constant replenishment. Good for petro-states like Russia and Saudi Arabia but a constant currency drain for the rest of the world. Renewables produce a constant supply of energy. They don’t last forever and eventually require replacement, but their economics are extraordinary and will make possible exciting new opportunities like desalination and purification of saltwater, for example.

The Green New Deal will reach deep into the commerce and industrialization of the global economy. While the movement is gaining momentum, a few sold Teslas, and some homes with solar panels do not a revolution make. Although I recently had my first ride in a Tesla and it was awesome.

The Green New Deal will need to continue to technologically build the Smart Grid while regulatory changing the utilities to allow smaller microgrids that can utilize local resources, including buying energy from residences and small businesses. Broadband networks and the Internet of Things (IoT) will be crucial to the convergence and providing the “smart” aspects of the grid. Other industries that will be affected include agriculture, architecture, automobiles, construction, supply chain logistics, military, etc. [1]

How will they all work together? Not only between different industries but different companies within the same sector. How will winners emerge? What will happen to losers? Solyndra, for example, became a major political issue when it filed for bankruptcy in 2011. It was a manufacturer of innovative thin- film solar cells based in Fremont, California. Solyndra received significant subsidies in guaranteed loans from the Department of Energy as part of the economic stimulus plan. But it still couldn’t compete with more traditional solar cell technology companies, especially from China. What are we to make of situations like this?

The Green New Deal faces many significant and complicated issues. What are the electrical standards, for example, the building codes? The sewage interconnections? Establishing networks of automobile recharging (or hydrogen refueling) stations? Can prices within an industry be regularized without penalizing consumers? Does labor organization need to be revived from its decimation during the Reagan years?

A step back for the New Deal…

In his larger attempt at industrial structuring, President Roosevelt sent a plan to Congress that became the National Industrial Recovery Act of 1933. Congress passed it into law on June 16 of that year. The Act created the National Industrial Recovery Agency (NIRA) to administer codes of practice for business and industry. The Act was “a clear victory for the many prominent businessmen who were backing cartelization as a solution to the nation’s industrial problems.” [1]

The Act allowed industries to create “codes of fair practice.” By suspending antitrust laws, these codes allowed corporations in particular sectors to set prices, restrict output, and increase profits. These were agreements that enabled the NIRA to administer, with the dominant trade associations, what were in effect national cartels. Although it was later declared unconstitutional by the Supreme Court, the codes became part of later legislation and became part of the national restructuring of the US economy.

While Hoover had limited his activism to the establishment of the Reconstruction Finance Corporation that served as a lender of last resort to banks and the railroads, he opposed cartelization and thus alienated himself from many business leaders. The NIRA placated most of the big business concerns. However, for political reasons, Roosevelt’s plan was designed to serve many other constituencies. He had made concessions to liberal conservatives to reassure them that socialism was not anywhere near the path he was taking, nor was he forwarding “monopoly.” But opposition did mount from small business people and farmers who saw the codes being dominated by big business.

Finally, the Act started to antagonize large corporations because of Section 7a, which encouraged labor organization. and had led to a series of violent strikes.

A poultry company from Brooklyn, NY, sued the NIRA and the case went all the way to the Supreme Court. In Schechter Poultry Corp. v. The United States, the U.S. Supreme Court, rejected the compulsory-code system. SCOTUS argued that the NIRA improperly delegated legislative powers to the executive and that regulating poultry codes did not meet the standards of interstate commerce, a constitutional requirement for Federal regulation. By May of 1935, the Supreme Court declared the Act unconstitutional.

The New Deal shows us how massive and complicated a major economic reorganization can be. The Green New Deal should seriously study the issues that FDR confronted to revive the economy and chart a new course for the US that avoided revolution. The case of the NIRA gives us some idea of the scale of the transition and the challenges of government intervention in the economy.

Notes

[1] Rifkin, J. (2020) Green New Deal. Retrieved from

McQuail, K. (1982) Big Business and Presidential Power. NY: William Morrow and Company. p. 27.

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AnthonybwAnthony J. Pennings, Ph.D. is Professor of the Department of Technology and Society, State University of New York, Korea. From 2002-2012 was on the faculty of New York University. Previously, he taught at Hannam University in South Korea, Marist College in New York, Victoria University in New Zealand. He keeps his American home in Austin, Texas and has taught there in the Digital Media MBA program at St. Edwards University He joyfully spent 9 years at the East-West Center in Honolulu, Hawaii.

Category: democratic political economies, smart new deal

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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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