B005HFI0X2 EBOK (30 page)

Hoover overshadowed the secretaries of labor in the administrations in which he served. As secretary of commerce, Hoover was a convert to the “new economics” of wage-driven growth. In his memoirs, he wrote that “not so many years ago—the employer considered it was in his interest to use the opportunities of unemployment and immigration to lower wages irrespective of other considerations. . . . But we are a long way on the road to new conceptions. The very essence of great production is high wages and low prices, because it depends upon a widening . . . consumption, only to be obtained from the purchasing-power of high real wages and increased standards of living.”
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Animated by a vision of a harmonious, high-wage capitalism, Hoover sought to persuade the railroad and coal companies to cooperate with labor and recommended private programs of unemployment insurance.
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Hoover pressured Harding into meeting with American steel company presidents and urging them to drop the twelve-hour day for the eight-hour day.
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In the Hamiltonian tradition, Hoover championed American infrastructure and infant industries. He successfully campaigned for the Air Commerce Act to promote the infant American aviation industry, devised the system of regulation that would govern radio, and worked to stabilize the oil and coal industries. The Roosevelt administration later built on his efforts to promote an ambitious inland-waterway plan and the construction of hydroelectric dams. One was Boulder Dam or Boulder Canyon Dam, which Secretary of the Interior Ray Lyman Wilbur named Hoover Dam in 1930. Following Hoover’s departure from office, Franklin Roosevelt’s secretary of the interior, Harold Ickes, changed the name to Boulder Dam again. In 1947, the Republican Congress changed the name back to Hoover Dam.

Hoover’s approach to public dams illustrates his idiosyncratic sense of the line between the public and the private. He supported public construction of dams and yet denounced the idea of sales of electrical power from publicly owned companies to the public as “fascism.” True American individualism, according to Hoover, required that the power be sold to private middlemen, who would then resell the power to the public, after taking their cut.

ASSOCIATIONALISM

The term “associationalism” has been used by historians to describe what Hoover himself called “progressive democracy,” the “Cooperative Committee and Conference System” and “the American System” (not to be confused with Henry Clay’s nineteenth-century American System of import substitution, infrastructure investment, and national banking, or the nineteenth-century American system of manufacturing based on interchangeable parts).
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Associationalist ideas predated World War I. In his 1912 book
The New Competition
, Arthur Jerome Eddy inspired the open-price association movement, which encouraged firms in a particular business to publicize their prices and costs. This was regarded with suspicion by many as a way to circumvent laws against price-fixing.

As secretary of commerce, Hoover was sympathetic to the movement, but the Justice Department viewed open-price associations as attempts to fix prices in defiance of antitrust laws. When Attorney General Harry Daugherty was forced to resign in 1924 because of the Teapot Dome scandal, Hoover’s relaxed approach to antitrust law prevailed.

Although they would become rivals for the presidency and bitter enemies, in the 1920s Hoover and Franklin Roosevelt were amicable veterans of the wartime Wilson administration. The two organized the American Construction Council, with Roosevelt as its president. Funded by 250 trade associations, the council under FDR favored standardization, planning by the industry, and moratoriums on building during speculative booms to smooth out boom-bust cycles. The council held annual conferences and published reports, including “Elimination of Construction Peaks and Depressions.”

The Webb-Pomerene Act of 1918 allowed US companies to take part in cartels without fear of antitrust prosecution, as long as they did so only abroad. In the 1930s, nearly 19 percent of American exports originated with export associations organized under the Webb-Pomerene Act.
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Four-fifths of Webb-Pomerene cartels fixed prices or allocated foreign markets among their members.
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Corporations had numerous motives for joining global cartels, in addition to stabilizing industries by fixing prices. One motive was sharing the overhead costs of marketing. Three out of five Webb-Pomerene cartels created a common sales agency to handle shipping, billing, and the taking of orders.
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Joint marketing organizations were of particular benefit to small and medium-size businesses. In industries like canned milk, dried fruit, metal laths, milled rice, and paperboard, cartels helped American exports by allowing many American exporters to pool their efforts and reduce the costs of marketing by as much as 50 percent.
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In high-tech industries like electricity and petrochemicals, cartels permitted competitors to share technological patents without mergers or duplication of expensive research.

In the years after World War I, Gerard Swope organized International General Electric (IGE) on behalf of General Electric to coordinate the company’s foreign operations. In 1924, IGE and other companies formed the Phoebus cartel in the electric-lamp market. Each company that belonged to the cartel was assigned quotas in its home market and quotas for exports; members of the cartel that exceeded their quotas were fined. A Swiss corporation named Phoebus, after Apollo, the Greek god of light, monitored compliance.
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Because General Electric and the Phoebus cartel began to substitute brighter and more energy-efficient but less long-lived bulbs for older ones, the cartel became the subject of an enduring conspiracy theory that it suppressed an “eternal light bulb.”

THE GREAT MIGRATION

In 1921, supported by organized labor and an ethnic coalition of Anglo-Americans and the “old immigrants,” German and Irish Americans, Congress enacted a national origins quota system. The system, made permanent in 1924, used the 1890 census, the last before the flood of “new immigrants” from Southern and Eastern Europe, in order to inflate the numbers of German and Irish as well as British immigrants who would be allowed in the United States. The United States would admit immigrants up to 2 percent of the number of people from a country who lived in the United States in 1890. Also in 1924, the shutdown of Asian immigration to the United States was completed. Under the national quota system that lasted, with modifications, until the Kennedy and Johnson administrations, immigrants from Northern and Western Europe received 82 percent of the annual quotas; immigrants from Southern and Eastern Europe, 14 percent; and immigrants from the rest of the world outside the Western Hemisphere received 4 percent.
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Wages rose in the tighter labor markets that immigration restriction produced. In 1938, looking back at the earlier era of mass immigration, economists Harry Millis and Royal Montgomery concluded that the leaders of organized labor had been correct to argue that “as labor markets were flooded, the labor supply was made more redundant, and wages were undermined.”
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In 1964, Stanley Lebergott concurred: “It [is] most unlikely that the rate of productivity advance or the nature of productivity advance changed so [much in the 1920s] as to explain [the spurt in real wage growth]. Instead we find that halting the flow of millions of migrants . . . offers a much more reasonable explanation.”
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Black Americans benefited the most from the end of mass immigration, which opened up jobs that previously had gone to European immigrants. In the Great Migration, 1.6 million black Americans moved out of the South between 1910 and 1930 and another 5 million left in the period of low immigration between the 1940s and the 1970s. When the mass immigration of unskilled immigrants resumed in the 1970s, low-income black Americans in particular suffered from lowered wages and job competition.

FORDISM

The tight labor markets created by the restriction of mass immigration forced many employers to treat their workers better. Before World War I, corporate management relied on the brutal “drive” system, which assumed that workers had to be coerced. Foremen were charged with carrying out the system. The result had been frequent violence and high rates of turnover.

In the 1920s, progressive companies replaced the drive system with policies to boost morale among the workforce. Personnel managers were hired, to deal with grievances. Companies like General Electric experimented with “welfare capitalist” programs like employer-provided benefits to employees.

The smaller companies that made up the majority of American businesses, however, remained hostile to organized labor. Their representative, the National Association of Manufacturers, sponsored the American Plan, which successfully marginalized labor unions during the 1920s.

More than any other company, Ford was identified with a new era of high-wage capitalism. At a time when common laborers earned around $2.50 a day, Ford announced that he would share the profits of his company by paying the majority of his workers $5 a day. Although Ford’s primary motive had been to reduce turnover in the workforce, what came to be known as “Fordism” was hailed around the world as a method of ensuring that mass demand kept up with mass production.

Despite his image as an enlightened employer, Ford viewed welfare capitalism as a way to avoid unionization. He provided company hospitals, newspapers, and even part-time farms for employees—and combined them with his notorious Service Department, headed by a former navy boxer named Harry Bennett, which spied on workers and harassed union members and organizers.

Around the world, Fordism became a symbol of the mass society, embraced by some, feared by others, and parodied by Aldous Huxley in his novel
Brave New World
, in which people in the future have replaced AD with AF (after Ford). Ford inspired Charlie Chaplin’s movie
Modern Times
and Adolf Hitler’s People’s Car, or Volkswagen. Lenin and Stalin admired Ford’s methods and sought to adopt them to a communist economy. For his part Ford, who hated bankers, was an anti-Semite who arranged the publication of anti-Semitic conspiracy theories in the company newspaper, the
Dearborn Independent
. His acceptance of a medal from the Nazi regime became an embarrassment and during World War II, Ford, a bitter opponent of the New Deal, helped the federal government mobilize American industry to defeat the Axis powers.

THE LIMITS OF FORDISM

Even with consumer credit innovations, the new consumer durables were unaffordable for as many as half of the households in the United States.
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Like workers, consumers failed to share in the gains of rapid productivity growth. Despite productivity gains, American business as a whole did not practice Fordism in the 1920s. The reality was not mass consumption, but “class consumption.” The market for the new consumer durables of the second industrial revolution was the most affluent Americans.

The electrification of American industry produced remarkable gains in productivity. In the early twentieth century, American industries quickly replaced steam engines with electric motors. Between 1914 and 1929, the use of electricity in industry rose from 30 to 70 percent.
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In 1899, only 4 percent of machinery derived its power from electricity; in 1929, the figure had risen to 75 percent.
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In the 1920s, horsepower per industrial worker grew by 50 percent.
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But while productivity increased 32 percent between 1923 and 1929, wages increased only 8 percent.
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During the 1920s, productivity permitted a major expansion of manufacturing output without an increase in manufacturing employment. Manufacturing employed the same number of workers in 1929 as it had a decade earlier, in 1919.
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Between 1923 and 1929, labor’s share of income in manufacturing, mining, transportation, and utilities declined from 77.9 percent to 72.9 percent, while the share going to capital rose from 19.6 percent to 25.5 percent.
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In the same period, the share of income received by the top 1 percent grew by 35 percent, from 13 percent of the total in 1923 to 19 percent in 1929. Overall, between 1923 and 1929, profits increased by 62 percent but wages increased only 11 percent.
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The wages of unskilled workers underwent absolute decline.
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Meanwhile, during most of the 1920s, the lower 95 percent of the nonfarm population experienced a slight decline in per capita income.
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Only 8 percent of the population owned stocks and most stocks financed the expansion of holding companies rather than new capital formation.
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GLOBAL IMBALANCES

The maldistribution of income in the United States was accompanied by global imbalances that resulted in large part from the contradiction between America’s post–World War I role as the world’s major creditor and its inherited system of protectionism, which was retained long after it had succeeded in nurturing successful infant industries.

As early as the 1870s, the United States overtook Britain as the world’s largest economy. In 1913, the United States had 35.8 percent of global manufacturing capacity: by 1926–1929, that had risen to 42.2 percent, outstripping Germany (11.6 percent), Britain (9.4 percent), France (6.6 percent), the Soviet Union (4.3 percent), and Japan (2.5 percent).
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By the 1900s, the high-tariff infant-industry policy adopted by the United States during its period of catch-up industrialization had served its purpose. As a mature industrial nation, the United States should have moved toward reciprocal trade liberalization through negotiations with other industrial countries. On September 5, 1901, the day before he was assassinated, President William McKinley in a speech at the Pan-American Exposition in Buffalo, New York, called for a shift in American economic strategy toward greater trade liberalization. Warning that “we must not repose in fancied security that we can forever sell everything and buy nothing,” McKinley said, “We should take from our customers such of their products as we can use without harm to our industries and labor.” His successor, Theodore Roosevelt, also favored a new policy of “reciprocity without injury.”
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However, the political power of protected industries ensured that between the 1880s and 1910, US import duties averaged 20 to 30 percent of the value of all imports and 40 to 50 percent of the value of all dutiable imports.