Controlled Recovery

ON June 16 last, during the closing days of the special session of Congress, there was enacted the statute since known as the National Industrial Recovery Act. In a statement issued to the press at the time of signing the Act, the President did not hesitate to say that from certain points of view it represents the most far-reaching piece of legislation ever enacted by the American Congress. This appraisal assumes a heightened significance when we recollect that at the same session there were also enacted the Agricultural Relief Act, the Federal Securities Act, the Glass-Steagall Banking Act, the Railroad Coördinator Act, and the act overriding the gold-payment clause in contract obligations. All these measures effected major operations on some of the most delicate organs of our economic system. The fact that in the opinion of the President the Industrial Recovery Act transcends them all not merely indicates the central position which the new statute holds in the policy of the administration, but also suggests the scope and breadth of its applications and the fundamental and searching character of the remedies which it employs.

The unanimity and enthusiasm with which the policy and main provisions of the Act were accepted by the large number of representatives of widely different points of view who were invited to participate in its formulation and who were consulted during its passage through Congress were nothing short of amazing, and greatly lightened the burden of those who were charged with whipping the Act into form. It is substantially true that the differences which developed were practically all differences of detail. This is not to say that there have been no voices of dissent. There have been, chiefly in Congress and in certain sections of the press, but the grounds upon which such dissent has gone indicate, when analyzed, that for the most part it rests on misconception — on failure for one reason or another to grasp the meaning of the statute and the legal effect of its provisions. One group, for example, suggest that the statute subjects business to such burdensome governmental regulation as to destroy the initiative and enterprise which have made American industry great. At the same time other critics claim that the Act, by relaxing the Anti-Trust Laws, unleashes the aggressive and predatory element in business and puts the small and the weak at the mercy of the strong. Still another line of criticism claims that the whole effect of the Act is to place business at the mercy of organized union labor.

So far criticism upon these or other grounds has been sporadic and largely ineffectual. There is, however, every reason why such misconceptions as may exist regarding the provisions and purport of the Act should be cleared away as soon as possible. There has hardly ever been a statute put upon the books which relics more for its effectiveness upon the voluntary cooperation of the people. Such coöperation can only be the fruit of understanding. If the philosophy of the Act is understood, if its objectives are grasped by the mind of the country at large no less than by those who are more directly concerned, administrative difficulties will be minimized and potential conflicts reduced in number.

I

The National Industrial Recovery Act contains two titles, Title I headed ‘Industrial Recovery’ and Title II headed ‘Public Works and Construction Projects.’ With Title II we are not concerned. While the vast construction programme which it sets in motion is designed to reënforce some of the practical economic results anticipated from the operation of Title I by further promoting employment and thereby increasing the purchasing power of labor, the public-works provisions of the Act do not raise the interesting questions of industrial organization and governmental coöperation with industry which are raised by Title I.

Title I commences with a statement of the policy of Congress and of the premises of fact on which that policy is based. These factual premises are summed up as the existence of a national emergency which is declared to burden interstate commerce by producing a widespread disorganization of industry, and to affect the public welfare by bringing about unemployment which undermines the American standard of living. On this basis of fact it is declared to be the policy of Congress to remove obstructions to the free flow of interstate commerce which tend to diminish the amount of such commerce; to provide for the general welfare by promoting the organization of industry for the purpose of coöperative action among trade groups; to induce and maintain united action of labor and management under adequate governmental supervision; to eliminate unfair competitive practices; to promote the fullest possible utilization of the productive capacity of industry and to avoid undue restriction of production, except as may be temporarily required; to increase consumption of industrial and agricultural products by increasing purchasing power; to reduce unemployment; to improve labor standards; to rehabilitate industry otherwise, and to conserve natural resources. Section 2 limits the operation of the Act, as an emergency measure, to a period of two years from the date of its enactment.

Sections 3 and 4 set forth the mechanism of industrial coöperation upon which reliance is placed to effectuate the Congressional policy. Section 3 provides that trade associations or groups may submit, to the President for approval codes of fair competition. A hearing must be held and the President is authorized to approve such codes provided he finds that the proponent group or groups are truly representative and impose no inequitable restriction on membership, and that the codes tend to effectuate the policy of the Act and do not, either in design or in result, promote monopolies or discriminate against small enterprises. The Act expressly provides that no code shall permit monopolies or monopolistic practices. Wherever a code affects persons engaged in other steps of the economic process, such persons must be given an opportunity to be heard. In approving a code, the President may impose conditions designed to protect competitors, employees, consumers, and other persons affected, and to further the public interest. After a code has been approved, its provisions become the standard of fair competition for the trade and may be enforced in three ways against recalcitrants: first, by a proceeding before the Federal Trade Commission for a commission order to cease and desist from the prohibited practice; second, by a proceeding for an injunction brought in a Federal District Court by the United States District Attorney; third, by a criminal proceeding leading to the imposition of a fine of not more than $500 for each offense, counting as a separate offense each day that such a violation continues.

Where an industry or subdivision has not presented a code, or has failed to submit one which receives approval, the President, on his own motion or on complaint, may consider whether abuses contrary to the policy of the Act exist in the industry and may hold a public hearing. If as a result of such hearing he reaches the conclusion that a code is necessary, he may prescribe one which shall thereupon have the same effect as a code submitted and approved.

Section 4 authorizes the President to approve agreements between industrial concerns or trade groups which tend to effectuate the policy of the Act, but which for one reason or another cannot be classed as codes of fair competition. The same section contains a licensing provision which authorizes the President, after notice and hearing, to place under license the business units of an industry in which ‘destructive wageor price-cutting or other activities contrary to the policy of the Act’ are found to exist. Such a license may contain provisions designed to effectuate the policy of the Act, and any person who carries on business without a license, or in violation of a term of the license, is subject to fine. By Section 5, codes, agreements, and licenses under the Act, and all conduct in compliance therewith, are exempted from the operation of the Anti-Trust Laws.

The labor provisions of the Act are contained in Section 7, which provides that every code of fair competition, agreement, or license shall recognize the right of employees to bargain collectively through representatives of their own choosing and shall contain a provision outlawing the so-called ‘yellow dog’ contract. It is then provided that in an industry where such conditions of free collective bargaining prevail the employers and employees may, by mutual agreement, establish maximum hours, minimum rates of pay, and other labor standards, and that such an agreement, when approved by the President, shall have the same effect as a code of fair competition. Where no such mutual agreement has been reached or approved, the President may hold hearings and prescribe ‘a limited code of fair competition, fixing such maximum hours, minimum rates of pay, and other conditions of employment as he finds to be necessary to effectuate the policy ’ of the Act.

II

With the Act before us, it is easy to see what it is not. Thus it is emphatically not an effort by government to ‘spoon-feed’ and ‘coddle’ business, to pamper it back to health by artificial governmental stimulation. At every point the Act throws the initiative on industry itself or on industry and labor. It relies, up to the limit, for the accomplishment of its objectives on voluntary private effort and coöperation. It is so drafted as to avoid in every way possible the assumption by government of tasks which should be performed by industry. Governmental action is relegated to the position of a reserve, to be brought into play only after industrial initiative and voluntary coöperation have failed to materialize. Obviously, such a reserve power in the hands of government is essential if the Act is to be more than hortatory. It is equally obvious that, with the full opportunities for industrial initiative and coöperation which the Act holds out, an industry which does not avail itself of those opportunities is in an exceptional condition of disorder and disorganization, where governmental action is fully justified.

Much has been made of the licensing provision of the Act. It is only another form of the provision of Section 3 empowering the President to impose codes where the industry cannot agree or insists on a code which disregards the public interest or the rights of others. These provisions simply say to industry that, if it does not set its house in order, governmental power to do so remains. Such power can be branded as unwarranted interference with private affairs only by extreme advocates of abstract laissez faire.

A second misconception is as to the effect of the Act on the Anti-Trust Laws. There is apparently a belief in some quarters that the Act abrogates the Anti-Trust Laws, breaks down the barrier which they have opposed to monopoly, and throws the door open to any and every type of conduct which the Anti-Trust Laws have hitherto prohibited. A reading of the Act will show that this is not so. The Act does not abrogate the Anti-Trust Laws. It simply provides that codes of fair practice which have been scrutinized and approved by the President after giving all interested parties an opportunity to be heard shall not be held unlawful. All agreements which have not been so scrutinized and approved, all conduct which has not met the test of government scrutiny, remain as much subject to the Anti-Trust Laws as before. The President, in passing on codes and agreements submitted to him, will give full protection, and the Act expressly requires him to give protection, to the very interests which the Anti-Trust Laws were designed to safeguard. The Act provides that no code or agreement of a monopolistic tendency, that no code or agreement which operates unfairly against small concerns, shall be approved.

Why, then, was it necessary to provide that, as to codes and agreements approved under the Act, the AntiTrust Laws should be abrogated? The answer is because of the extreme vagueness of the language of the Sherman Act, and especially of the term ‘restraint of trade,’leaving it possible for many kinds of conduct to be challenged which the Anti-Trust Laws never were intended to reach. This vagueness of language has in recent years exposed to the possible operation of the AntiTrust Laws practically every coöperative undertaking by business men, even coöperation for no more insidious purpose than the collection of statistics. Many of the activities so challenged have been clearly not inconsistent with the policy of the Anti-Trust Laws, and some of them have even been calculated to promote the same objectives as the Anti-Trust Laws through the elimination of destructive types of competition which make for monopoly. Nevertheless, even if an agreement or plan of coöperation was not contrary to the Anti-Trust Laws, since it could still be challenged and brought into court as an alleged ‘restraint of trade,’ imposing an almost unbelievable burden of expense on the participants in order to clear themselves and prove the legality of their conduct, the natural effect has been that cautious business men have been unwilling to take such a risk, and the fear of the Anti-Trust Laws has accordingly prevented cooperative action of practically every kind. The aim of the Industrial Recovery Act is to make it clear that certain types of coöperative action among competitors are lawful, and to provide that they may be approved and authorized under the Act.

What has just been said is illustrated by the controversy over the so-called Borah Amendment when the Recovery Bill was before the Senate. The Borah Amendment in its original form would have permitted every code which had been approved and authorized to be subsequently declared illegal, as in ‘restraint of trade.’ Senator Wagner pointed out that this would open the door to a challenge of every code merely because it was a code — that is, merely because it involved coöperative action among competitors. Replying to Senator Borah, the New York Senator said:

‘Our effort is to give the smaller business men who have been discriminated against under the operation of our present Anti-Trust Laws an opportunity to coöperate. The dissenting opinion of Mr. Justice Brandeis in the American Column case shows how the law has worked against the smaller man and in favor of his larger opponent. . . . While the objective of the AntiTrust Laws, the perpetuation of genuine competition, is worthy, the law failed to reach that objective, and at the same time sanctioned the largest combinations of business that we have ever had in the history of the country, yet the same law prevented smaller busness men from coöperating and has resulted in a destructive, cutthroat competition. . . . Under the Anti-Trust Laws as they stand to-day, no group of smaller or larger industries can coöperate for the purpose of putting wages and hours of labor upon a proper basis. It is the impossibility of doing these very things which has dragged our whole economic structure down, and the main purpose of this legislation is to rationalize competition.’

In short, the difficulty has been that the term ‘restraint of trade’ is so broad as to cast legal doubt upon every form of industrial coöperation. This difficulty would have been perpetuated, and the whole effect of the Act nullified, by the original form of the Borah Amendment. The sound objective of that Amendment has been preserved by retaining in the Act as finally enacted the portion of it which provides that no code shall permit monopolies or monopolistic practices.

III

The Industrial Recovery Act rests on a broad social philosophy which underlies the entire programme of the administration. The essence of that philosophy is that our national life is an integrated process, no part of which can be dealt with successfully without at the same time dealing with other parts. This accounts for the wide number of fronts upon which the administration has been moving forward since the fourth of March—agriculture, banks, money, credit, securities, labor, industry, public works. We cannot deal separately with any of these without having our efforts go largely for naught and having the ground we gain in one quarter slip away in another. We have reached the point where we must deal with the system as a system.

Too frequently in the past we have failed to take this organic view. We have permitted ourselves to wear blinders, and to look at each particular interest and deal with each particular interest separately, trusting, if we thought about the larger problem at all, that some blind automatism of forces would effect the necessary adjustments and maintain a proper balance. One thing which the last four years have taught us is that we cannot rely on such automatic forces to supply the lack of conscious social purpose. We cannot trust to secure adjustments by letting each separate interest push as far and as hard as it can toward selfishly conceived goals. What we need to further is not the interest of the debtor, and not the interest of the creditor, but the social interest in the entire process of which the debtor forms one part and the creditor another.

Nowhere is the necessity for considering together the interests of seemingly opposed groups greater than in connection with the relations between labor and capital. It used to be said that to insist on the harmony of interest between labor and capital was a pious fiction, since, while labor was dependent on capital, capital was not dependent on labor. In a measure this criticism was just in a less closely integrated society, where there were large markets for the products of industry outside of the limits of the domestic laboring class, where the major portion of the products of industry could be sold to the wealthy class at home or could find a market in foreign countries, and where the domestic laboring population did not furnish the major part of the consumer’s demand for the products of industry. This situation no longer exists. To-day practically the entire population in one sense or another has been drawn into the national industrial system, and industry must look to those to buy its products who serve it either as employees or as suppliers of raw materials. Under these circumstances capital has become in a very real sense dependent on labor. If labor is unemployed, capital can find no purchasers for the goods which it owns. If purchasing power is to be revived, it must be revived through the employment of labor.

The immediate purpose of the Industrial Recovery Act, the immediate objective which it is intended to accomplish, is to put people back to work at once in order that they may be included once more in the army of purchasers, in the group who possess the effective means for absorbing the products of industry. The way in which the Act hopes to accomplish this result is by limiting the hours of work so that more people may be employed and the reduction in man power which technological improvements have brought about may be balanced and redressed by a corresponding reduction in the number of hours of work for each individual worker. In order, however, that this reduction in hours may not be met by a reduction in wages which would leave the total purchasing power of the wage group as a whole where it now is, the Act contains provision for a minimum wage which when applied to the increased number of workers is expected to increase materially the wage income of the labor of the country as a whole. Properly enough, the Act does not undertake to fix the weekly hours or the minimum wage at any particular figure. It is flexible, permitting adaptation to the special needs of each industry, and it throws the initiative for determining the needs of each industry on the industry itself, with provision for consultation between the employer and labor.

IV

The provisions in the Industrial Recovery Act for reduction in the number of hours of labor and for the establishment of minimum wages are intended to benefit industry as a whole, the investor and the management no less than the laboring class, by making possible an increase in the purchasing power of the nation. However, it is obvious that in order to accomplish this end the direct and immediate burdens which are placed on employers are severe, and that if industry is to be maintained in a healthy state, as the needs of labor no less than those of the employer require, every effort should be made to enable industry to eliminate the practices which weaken it and impose upon it a burden of waste that in the long run labor and the consumer are called upon to share. Much of the insecurity which has attended the industrial process in recent years, and many of the burdens which have lessened its ability to withstand the strain of the depression, have been connected with senseless and destructive methods of competition. The Industrial Recovery Act holds out to industry not merely the promise of increased consumer’s demand, but the possibility of compensation for the burdens of the Act, in the form of the right to take coöperative action to eliminate destructive and unwholesome competition.

Discussions of competition have in the past been largely vitiated by presenting the issue as a choice between extreme positions. It seems clear that competition is in some sense an integral element of any social process, and that not merely would it not be desirable, it would not even be possible, to eliminate it from the economic system even under the most strictly regimented and socialistic order. The form might be changed, but the thing itself would remain. Taking this view, it is not merely unnecessary, it is academic and unrealistic, to believe that competition in the sense of struggle and rivalry must be absolutely unrestricted.

Competition, like all good things, has its proper limits. Carry it too far and, like any abstract principle, it meets other opposing principles — the principle of order, the principle of efficiency, the principle of justice, the principle of humanity, before which it must give way. Competition, for example, is the basic principle of all games and sports, and yet there is no game in which competition is not limited by rules. Hitting below the belt is outlawed. Is there any reason why competition in business should be free from the necessity for limitation which is recognized in all its other forms? The worship of economic competition in and for itself is a blind fetish or superstition, which is belied by the elementary rules of law against the cruder forms of competitive malpractice.

The particular forms of limitation to which competitive rivalry in the economic field must be subjected vary with time and place and circumstance, and with the special facts of the business process within which the rivalry goes on. Under the conditions of modern large-scale industry, with heavy overhead charges and plants having a very large production capacity, competition is a very different thing from what it is in a more simple economy where the individual investment of each producer is small and where it is comparatively inexpensive to set up a new business or abandon an old one.

The Industrial Recovery Act does not outlaw any designated competitive practices, nor does it prescribe what practices may or may not be outlawed by industrial codes. It contents itself with laying down in a certain degree of detail the objectives of Congress, and leaves the rest to administration. The Act is preeminently an administrative statute — a statute drafted in broad terms, which defines major lines of policy, indicates major objectives, and imposes on the administrative agency charged with its execution the working out of the details, the filling in of the pattern on the loom, the devising and application of all special adjustments.

Because of the central position which administrative judgment thus occupies in the scheme of the Act, the issues as to what competitive practices are sound and what unsound will have to be thrashed out, and the principles in this new field of industrial statesmanship formulated, from industry to industry, under the supervision of the Industrial Recovery Administration. The field is one which has long been ripe for statesmanlike cultivation. The task calls for the widest industrial and statistical knowledge, and for the most incisive and best-balanced economic analysis and judgment. How far shall a competitor be allowed to expand plant facilities recklessly at the expense of the investing public, and to the ruin of established rivals? How far, on the other hand, shall competitors be permitted to agree upon a restriction of production? Should production control, if permitted, be aimed toward the ultimate elimination of the less efficient plants? Or should it follow a quota system? Shall competition be permitted to go on through the offer of lax and ill-considered credit terms? Shall competitors be permitted to sell below their costs? Shall so-called ‘freight absorption ’ be allowed ?

These represent questions the answer to which lies in the lap of the future and will issue from future administrative judgments. They are questions of the utmost complexity and difficulty, and meanwhile the immediate objective of the Act, to get people back to work in large numbers as soon as possible, brooks no delay. Accordingly, it seems imperative that the working out of systems of regulated competition for industry must for the moment occupy a secondary place, in contrast with the prompt establishment of shorter hours and minimum wages, which will return unemployed workers to the mills and factories and restore their purchasing power. Only so can the Recovery Act operate effectively as an emergency measure. Therefore, it is hardly practicable for the present that code provisions designed to regulate competition should go much beyond the most elementary measures, such as the requirement of price publicity and the prohibition of discriminations and rebates already forbidden by Section 2 of the Clayton Act.

V

Because of the dominantly administrative character of the Industrial Recovery Act, any discussion of its operation and effectiveness must commence with a description of administrative agencies and procedures. The Act vests full and complete administrative power in the President, with an unrestricted power of delegation to such persons or agencies as he may designate or establish. Under this power the President has created the office of Industrial Recovery Administrator, and has set up a National Industrial Recovery Board, consisting of the Secretary of Commerce, the Attorney-General, the Secretary of the Interior, the Secretary of Agriculture, the Secretary of Labor, the Chairman of the Federal Trade Commission, and the Director of the Budget, with the Secretary of Commerce as Chairman. The office of Administrator has been ably filled by the appointment of Brigadier-General Hugh S. Johnson, soldier, lawyer, and business executive, whose tireless energy and constructive mind have been largely responsible from the beginning for giving shape to the industrial recovery idea. Another constructive mind of breadth and vision has been drawn into the Recovery Administration in the case of Donald Richberg, the Chief Counsel, whose tact and talent for negotiation and compromise were invaluable during the formative stages of the statute.

With the advice and approval of the Industrial Recovery Board, the Administrator has worked out a procedure and form of organization designed to express and give effect to the coördination of different interests in a single industrial process, which is the central idea of the Act. For this purpose he has associated with himself three advisory committees, one representing industry, one representing labor, and the third the consuming public. The Industrial Committee was named by the Secretary of Commerce, the Labor Committee by the Secretary of Labor, and the Consumers Committee by the Administrator from lists submitted by the Secretaries of Commerce and of Labor. Each of these committees consists of outstanding leaders, selected primarily for their public point of view and secondarily for the purpose of representing on the committee a variety of interests. Thus the Industrial Committee includes not merely the heads of large-scale enterprises in the persons of Messrs. Teagle, Swope, Sloan, and Hurley, but also representatives of the smaller business men and ‘independents’ like William J. Vereen of Georgia, David R. Coker of South Carolina, Austin Finch of North Carolina, and John B. Elliott of California. Similarly in the case of the Labor Committee, while there is full representation of the American Federation of Labor, the independent unions are represented by Sidney Hillman, of the Amalgamated Clothing Workers, unorganized labor by Professor Leo Wolman of Columbia University, the Chairman of the Committee, and the social welfare point of view by Father Haas. The Consumers Committee is equally representative of different outlooks.

The function of these committees is not merely to advise the Administrator on broad questions of policy and, by consultation with one another, to work out adjustments of conflicting views, but also to follow in detail the hearings on proposed codes and give the Administrator the benefit of their advice and suggestions on the issues which such hearings develop. The code hearings constitute the central feature of the administrative procedure so far developed. This procedure has been worked out in practice in connection with the hearings on the Cotton Textile Code which was approved by the President on July 9. The Administrator is represented in connection with the examination and consideration of the code of any given industry by a deputy administrator for that industry, chosen for his acquaintance with the industry and his independence of any factional connections. In the absence of the Administrator, the deputy administrator is in charge of the hearing.

Because of the importance of the cotton textile hearings, as marking the debut of the Act, General Johnson presided in person. The hearings lasted five days, and more than thirty witnesses testified. These represented Northern mills and Southern mills engaged in different branches of the industry, trade associations, various labor unions, distributors and consumers of the product, the Consumers’ League, the National Negro Industrial League, and the National Women’s Party, among others. To borrow the picturesque phrase of the Administrator, the whole procedure went on in a ‘goldfish bowl’ of publicity. As a result of the hearings and of the researches of Dr. Alexander Sachs, the able head of the Research Division of the Recovery Administration, there was developed a picture of the industry unrivaled for its completeness, which led to the modification in several particulars of the code as originally submitted. Some of these modifications illustrate in vivid and concrete form the nature of the problems raised by the Industrial Recovery Act and the methods which are being employed for dealing with them.

The code as originally submitted called for a maximum working week of 40 hours. Representatives of labor argued that this should be reduced to 35. The provision, however, was allowed to stand unchanged, since the statistics indicated that the 40-hour week at the present level of production would not only call back to work all workers who had lost their employment since 1020, but would require 13 per cent more employees than the average in the peak year of 1927. The proposed minimum wage rates of $11 a week for the North and $10 a week for the South contained in the code as originally submitted were, however, raised to $13 and $12 respectively. While the evidence indicated that wages of $5 and $6 a week are at present common throughout the industry, it nevertheless appeared that to restore real wages for unskilled labor to the level which prevailed in 1929 a rate of $13 in the North and $12 in the South is essential. These figures are the requisite averages to produce on a 40-hour week the purchasing power which unskilled labor had on a 48-hour week in 1929. It was estimated that a minimum wage of this amount could be absorbed with only a small increase in price to the consumer.

Another important amendment to be adopted during the hearing was that abolishing child labor, —that is, the employment of minors under sixteen years of age, — which was dramatically and significantly proposed by the industry itself. Questions of competitive business practices were reserved, and their consideration at a future date provided for, by an amendment to the code which establishes a planning agency for the industry charged with the duty of developing an open trade association through which prices and terms can be publicly reported and unfair and destructive competitive practices eliminated. The recommendations of this agency will, when proposed, be subject to governmental approval, like the code itself.

The Cotton Textile Code in its present form is thus in substance limited to labor provisions. Even so, it has taken more than a month to formulate it and pass it through the necessary stages leading to final approval. Other industries have subsequently come forward with proposed codes, notably the garment industry, the coal industry, the oil industry, and the contractors’ industry. Some of these proposed codes may contain provisions relating to business practices which will be of such a character as possibly to lead to controversy. The major objective of the Industrial Recovery Act is to get people back to work in time to provide an increased purchasing power which will keep pace with the already accelerated rate of production. If this objective is to be accomplished, causes of delay must be avoided. Meanwhile, if the Act is to have its full effect, it must move forward along a broad front at once. Measures must be devised by business and labor in cooperation with government to apply the basic policies of the Act in all the important industries simultaneously, leaving matters of detail and less urgent issues to be worked out afterward.