National Industrial Recovery Act (NIRA)

views updated

NATIONAL INDUSTRIAL RECOVERY ACT (NIRA)

In early 1933 the United States was mired in the Depression. One-fourth of the nation's workers were unemployed, and industry was operating at only a fraction of its capacity. Yet during the month following his inauguration on March 4, 1933, President Franklin D. Roosevelt gave little attention to a program for industry in his efforts to stimulate recovery. His advisors had yet to coalesce around one or even two plans that would enable him to choose a course of action, and Roosevelt hoped the banking, relief, agricultural, and monetary policies he was developing might be sufficient to get the economy back on track. To his thinking, an industrial policy, while desirable, was not necessary to spur general recovery, and he did not want to be rushed into a program in the face of the often conflicting ideas for industrial recovery that were being presented.

Trust-busting progressives, such as Professor Felix Frankfurter of the Harvard Law School, believed that monopolistic rigidity in the economy had brought on the Depression through excessive profits, over saving, and reduced consumer spending. In their view an emphasis upon the restoration of competition with vigorous enforcement of the antitrust laws, limits on the size of businesses, progressive taxation, and controls over financial and business practices would achieve recovery by unleashing free markets. Senators Robert Wagner of New York and Robert LaFollette Jr. of Wisconsin and Secretary of Labor Frances Perkins favored large-scale public works spending to pump purchasing power into the economy and put men back to work. Spokesmen for organized labor called for legislation limiting working hours and prescribing minimum wages in the belief it would spread jobs, stabilize labor standards, and give workers more money to spend. Others advocated plans to "restart industry," either by means of government loans to businesses for reemployment purposes or government guarantees against losses for firms increasing their work forces. Still others, most notably Assistant Secretary of Agriculture Rexford Tugwell, had talked about industrial planning by which a national industrial council made up of government officials or organized non-business groups would exhort business to more responsible behavior. Finally, business elements proposed industrial self-government based on trade association control of markets. Persuaded that overproduction and destructive competition had brought on the Depression, they argued that businessmen, coordinated and assisted by the federal government, could stabilize the price system and spur recovery through agreements limiting competition and raising labor standards.

Industrial self-government had first been utilized on a large scale during World War I by the War Industries Board (WIB) to mobilize industry for war. In the 1920s businessmen had used voluntary agreements, or codes, of fair practices in an attempt to minimize cutthroat competition in some industries. But in the absence of any legal sanctions these agreements often collapsed. With the Depression, businessmen from the cotton textile, petroleum, and other industries that faced chaotic conditions from excessive production called for the suspension of the antitrust laws to permit trade associations to draft effective agreements on production, pricing, and marketing. They were supported by labor leaders in "sick" industries, such as bituminous coal and the needle trades, who believed that if operators could fix minimum prices and set production quotas they could afford to pay higher wages.

Roosevelt was finally stirred to action on industrial recovery in April 1933. Economic indices were slipping, and Congress was ready to move on industrial recovery despite the lack of a presidential initiative. In the Congress, debate focused on a bill introduced by Senator Hugo Black of Alabama that would mandate a maximum thirty-hour-work week. Based on the notion that available work should be shared and that a shorter workweek would create a labor shortage and push up wages, the Black bill had strong support among the Democratic Party majorities in both houses of Congress. It was approved by the Senate on March 30 and seemed likely to be approved by the House of Representatives. However, Roosevelt was skeptical about the Black bill. In his view, it was probably unconstitutional and overly rigid and would not necessarily lead to wage increases. But he was reluctant to embarrass his Democratic supporters in the Congress by opposing it. As a result, he used his political clout to tie up the bill in the House, where it eventually died, and he instructed Assistant Secretary of State Raymond Moley, a principal advisor, to analyze the various proposals for industrial recovery and come up with an alternative to the Black measure.

Moley ultimately concentrated on two plans. One, put together by a group led by Wagner and Assistant Secretary of Commerce John Dickinson and drawing upon ideas from an assortment of business, labor, and government figures, centered on public works spending, government loans to industry, and industrial self-government. It also guaranteed labor's right to collective bargaining. The other plan was largely crafted by Hugh Johnson, a businessman who had represented the army on the WIB, and Donald Richberg, a Chicago lawyer with close ties to the railroad brotherhoods. It likewise called for public works spending and industrial self-government. But in contrast to the Wagner-Dickinson plan, which saw industrial self-government as a partnership between government and business, with business as the senior partner, the Johnson-Richberg plan envisioned a stronger role for government, including presidential authority to license businesses.

At a meeting on May 10, Roosevelt listened to arguments for the two plans from the major drafters and then ordered Johnson, Richberg, Dickinson, Wagner, Perkins, Tugwell, and Budget Director Lewis Douglas "to shut themselves up in a room" and not come out until they had settled on a common plan for industrial recovery. The conferees completed their work on the plan on May 14. The provision for government loans to industry was dropped. Otherwise, it was an amalgamation of the two proposals, with provisions for public works, industrial self-government, and government sanction of unions.

Roosevelt endorsed the plan on May 15 and sent a bill to implement it to Congress on May 17. Strongly supported by business and labor groups, the bill was approved by the House on May 26 by a vote of 325 to 76. In the Senate rural progressives and antitrusters led by Senator William E. Borah of Idaho mounted a fierce attack against the bill, arguing it would create a giant system of cartels that would stifle any competition and ignore the interests of labor and consumers. Roosevelt, however, had enough votes in the Senate to approve the bill, and on June 13 the Senate passed the measure by a vote of 46 to 37. Three days later Roosevelt signed it into law.

Officially known as the National Industrial Recovery Act (NIRA), the law contained three titles. Title II authorized a $3.3 billion public works program, and Title III provided for a new system of capital stock and excess profits taxes to finance it. Title I, the most publicized feature of NIRA, implemented the program of industrial self-government. Limited to two years, it permitted industries to draft agreements, or codes, governing business and labor practices that were exempt from the antitrust laws and had the force of law once they received the president's signature. Although not stated explicitly, trade associations were anticipated to have the major role in drafting and administering the codes. Little was said about the specific provisions in codes except for Section 7, which stated that codes were to include provisions for maximum hours, minimum wages, and the right of workers to organize and bargain collectively. Section 4 gave the president the power to license industries for a period of one year, and Section 9 gave him the power to remake any code when he thought it was necessary or to impose one on an industry.

In signing NIRA, Roosevelt pronounced it the "most important and far-reaching legislation ever enacted by the American Congress." Brought about by the blight of the Depression, it marked a major step away from the competition of free enterprise capitalism and offered a vision of economic cooperation and social harmony. Business looked forward to the use of price and production controls to restore profits, and workers saw the prospect of higher wages, shorter workdays, full employment, and the growth of unions. Though it was promising, NIRA failed to meet the hopes of its supporters. The public works program, implemented by the Public Works Administration, was run by Administrator Harold Ickes in a tight-fisted fashion that dribbled money into the economy and did not significantly jump start reemployment. Title I, little more than an enabling measure, was too vague to be a coherent guide to meet the disparate goals of business, labor, and consumers. As implemented by the National Recovery Administration under the leadership of Hugh Johnson, industrial self-government was generally dominated by larger firms, which put in place practices that often hindered recovery and thwarted the aspirations of labor. By the fall of 1933 industrial self-government was enmeshed in controversy that did not end until May 1935 when the U.S. Supreme Court, in the case of Schechter Poultry Corporation v. United States, declared Title I unconstitutional on the grounds that it was an invalid delegation of legislative power to the president and exceeded the authority of the federal government to regulate intrastate commerce.