I should write something about President Obama’s recent talk to the Chamber of Commerce about how to get jobs started again. I find it funny that it’s only been a few days and already Cato people like Dan Ikenson are writing non-ironic headlines like “Obama Hasn’t Given Enough Ground Yet To Business To Spark Growth.” We do understand that businesses don’t want growth, right? They want to consolidate, handicap their rivals, rent-seek and guarantee profit streams. Remember that right now fewer businesses are opening, and they are more likely to fail when they do. This is a great deal for incumbent businesses.
The Swope Plan
But let’s look at this from a different angle. What would the Chamber want ideally? Let’s set the stage. The United States is struggling. High unemployment, financial sector panics, decreased consumer spending. There are calls for balancing the budget and for the Federal Reserve to tighten money. The President and elites are uncertain about what can be done, both in theory and in practice, to get the economy running again.
In a moment born of this desperation, our elites look to the leader of General Electric as well as the Chamber of Commerce, and ask them what does the government need to do for them to start creating jobs and get growth going? What grounds need to be given, what rules do they need implemented or cut, in order for the economy to work again? And sure enough, the leader of General Electric and the Chamber of Commerce have a plan ready to go.
Sounds like today, right? It’s actually 1931. The President of General Electric at the time was a man named Gerard Swope. During those desperate times in 1931 he stepped forward with his Swope Plan that would finally restore business confidence by removing burdensome regulation and replacing them with new business friendly regulations. The Chamber of Commerce shortly afterwards released a very similar plan.
What did this look like? Because the internet is awesome, I can link to this Sep. 28, 1931 Time Magazine description (my bold):
In times of economic stress—particularly if they verge on a national election— the fancy of thoughtful tycoons and ambitious politicians alike gravely turns to philosophizing about the relationship of Government to Big Business…President Gerard Swope of General Electric Co. has evidently done a great deal of this sort of thinking. Last week…he outlined an ambitious industrial plan for the U. S. [The Swope Plan] proposed a national organization of modified cartels in which competition would be limited, overproduction governed, workers and investors vigorously protected….”Legislation will be required to make such a plan possible, including the probable modification of some existing laws,” notably the Sherman anti-trust law.
1) “All industrial and commercial companies (including subsidiaries) with 50 or more employes, and doing an interstate business, may form a trade association. . . . These trade associations may outline trade practices, business ethics, methods of standard accounting and cost practice, standard forms of balance sheet and earnings statement, etc., and may collect and distribute information … on simplification and standardization of products, stabilization of prices….
“For the protection of employes the following plans shall be adopted by all of these companies: a) A workmen’s compensation act . . . modeled after the best features of the laws which have been enacted by the several States, b) All employes . . . may, after two years of service . . . and before the expiration of five years of service, be covered by life and disability insurance.” Cost of the policy would be shared equally by the employe and the company or companies for which he worked, even if he changed industries. The employer would not share the premium of a policy over $5,000. c) Old age pensions, to be effective when the worker reaches 70, would be worked out along the same lines, with the companies putting by a fund dollar-for-dollar with the employe as long as the company’s share would not exceed $50 a year, d) A similar provision would be provided for unemployment insurance….
Comment on the plan was guarded and not plentiful. Many a businessman and educator was for it: President Silas Hardy Strawn of the U. S. Chamber of Commerce, who said the Chamber would have a similar scheme to announce this week; President William Wallace Atterbury of Pennsylvania R. R.; President Robert Isham Randolph of the Chicago Association of Commerce; President Nicholas Murray Butler of Columbia University; President Karl Taylor Compton of M. I. T. (of which President Swope is a graduate and trustee). An exception was Samuel Matthew Vauclain, board chairman of Baldwin Locomotive Works. “I don’t care to comment on it,” said he, “because I don’t believe in it.” In official circles the Swope Plan was viewed “with caution.”
His Swope Plan is considered one of the main documents for the idea of an associationalist economy, or what we would now call a corporatist economy. Let businesses collude and form price-fixing organizations, and in response they’ll hire more workers and even provide a social safety net for those workers. The government will need to suspend all anti-trust laws first, obviously, before all the sweet growth and jobs show up. Many socialists at the time realized that this was asking for trouble for obvious reasons of rent-seeking and businesses not following through and fighting any type of regulatory oversight. Elements of this approach eventually found its way to the National Recovery Act, a poorly chosen endeavor that many New Dealers thought was a failure by the time the Supreme Court struck it down.
Aside: perhaps anticipating the Enron worker who had his life savings in Enron stock, liberalism thought better about the idea of attaching the welfare state and social safety net to individual corporate benefactors and instead relied on the national government they created. The one area where they didn’t, health care, has been the bane of the welfare state ever since.
Demand is not a wall ornament.
Luckily there was another approach being developed, one focused on demand and not supply. Though it was still being developed in journals, papers and books at the time the core of it had popular appeal. Here’s a 1930 cartoon I found that I want to share:
(Source.) I could not agree more: Demand is not a wall ornament! It’s a shame we are forgetting what it took so long time to find out in the first place.