Global Labor’s Forgotten Plan to Fight the Great Depression

In the early 1930s, as global unemployment tripled in two years and the world plunged into the Great Depression, the world’s labor movements developed a program for fighting the global crisis through international public works.  It’s a little-known historical might-have-been that could have helped halt the Great Depression, the rise of Adolph Hitler, and the Second World War.  And, as the efforts of world leaders to address today’s “Great Recession” threaten to break down in nationalist rivalry and petty political bickering, it bears lessons – and perhaps an alternative vision – for today.

Workers and organized labor have historically advocated government public works as a solution to unemployment.  Not only would they provide jobs and income for those directly employed, but they would raise overall purchasing power, thereby creating demand for the products of other workers and creating a virtuous circle of economic growth.  In the context of swelling unemployment in the early Depression, discussion of national public works programs developed in many countries.

The proposal for international public works originated with General German Trade Union Alliance (ADGB), which included most of Germany’s trade unions and represented the great majority of its workers.  The plan won the support first of the German union alliance, then of unions around the world, and finally of the League of Nations’ International Labor Organization.  

The plan was worked out by the head of the Alliance’s statistical department, W.S. Woytinsky.  Woytinsky was a Russian émigré who had been president of the St. Petersburg Council of the Unemployed during the 1905 revolution and had organized mass action to force the city to provide public works employment.  Observing Germany’s combination of spiraling deflation and spiraling unemployment in the early 1930s, he came up with the idea of using credit expansion to finance massive public works.

Taking a cue from recent League of Nations policy proposals, Woytinsky proposed an international agreement that would allow lowering the gold reserve requirements for national currencies.  That would let central banks create new money that could finance international public works and thereby create the purchasing power needed to reflate the economy. 

In a June, 1931, article, Woytinsky proposed an “Action Program for Reviving the Economy.”  It called for the labor movement to “assume the role of conveyor of the idea of an activist world economic policy.”  It was up to the labor movement to “force the state and all public institutions to implement measures to revive the economy.”

Labor’s policy “must be a global economic policy.  All nations are suffering because the world economy is sick, and therefore they must all concentrate their forces upon joint action to overcome the worldwide crisis.”  The international agreement would provide an alternative to the rise of economic nationalism, supporting “tariff reductions and European economic unification” as well as “internationalization of wage policy and social policy.”  The program would also support workers’ fight for higher wages, shorter hours, social rights, and regulation of business.

The funds freed up by international money-creation policies would be applied to job creation through “public works on a grand scale” for a “grand plan for European reconstruction” with “the employment of one million unemployed.”  The creation of jobs would “spark a revival of the consumer goods industry, thereby sucking a further, considerable number of unemployed back into employment.”

A primary objection to such a plan was that it would lead to runaway inflation like that which had been so devastating to Germany in 1922-23.  But Woytinsky argued that the conditions were entirely different.  “We have a huge amount of unutilized capacity in our productive apparatus.  Consequently, increases in production can, without difficulty, follow along in the wake of planned increases in purchasing power.”

Why international public works? 

As the International Labour Organization’s International Labor Review explained in its introduction to Woytinsky’s January, 1932 article “International Measures to Create Employment: A Remedy for the Depression,” there were two problems with big public works programs to fight unemployment.  First, it was hard to find enough money.  Second, “in a worldwide depression like the present one, if one country goes very much ahead of other countries in its public works program” there is “danger of price inflation.”  Both, the Review noted, “can be overcome by international cooperation.”

Woytinsky elaborated the danger.  The creation of credit on a large scale “represents a daring experiment for any one country, and failure would shake and weaken the economic system of the country, and more especially its finances.”  An international agreement is “the only method of avoiding this danger and clearing the way for individual countries to undertake schemes of this kind.”

How would such a plan work in practice?  An international office would “collect the newly-created capital from every country” to create a fund for creating new purchasing power and new employment on an internationally agreed plan.  “From the fund thus constituted, different countries would be granted loans in proportion to their needs for the creation of employment.”  Two or two-and-a-half billion dollars would employ four to five million workers and provide the economic stimulus the world required.

Such programs should be selected for their social usefulness, not to their profitability for one or another company.  Such works “must produce something of lasting value, but they do not need to be productive in the sense in which private enterprise employs the term and show a direct profit to meet the interest and redemption charges on the capital employed.”  Each part doesn’t need to show a profit on capital.  What is necessary is that “the plan as a whole” will reduce the resources wasted by the Depression and “improve the conditions of life throughout the world.”

In Europe, the funds would be used for “the construction of an international network of motor roads, of canals to link up the most important waterways of the Continent, and the international supply of electric power.” In individual countries they would be used for such purposes as land improvement, roads, and housing.

In 1933, sixty nations sent high-level representatives to the London Monetary and Economic Conference to forge a solution to the Great Depression.  The ILO had voted to present its plan “to set on foot immediately large-scale public works” and “to coordinate these measures on an international basis” there.  But instead of developing an international strategy to solve the Depression, the Conference broke down in nationalist bickering.  The worldwide spread of mass unemployment, Hitler’s rise to power, and World War II followed apace.

Lessons for today’s “Great Recession”?   

After the meeting of finance ministers from the world’s major economic powers in mid-March, 2009 the participants issued a statement saying, “We have taken decisive coordinated and comprehensive action to boost demand and jobs” and “we are prepared to take whatever action is necessary until growth is restored.”  It sounds as though the lessons of the Great Depression have been learned and a plan like that advocated by the unions in the early 1930s for job creation and economic stimulus has been adopted.  But, as one news account put it, the ministers “stopped short of announcing any details.”  In fact, world leaders are facing the same paralysis in the face of the “Great Recession” that they did in the face of the Great Depression eighty years ago.

What would it mean for the world’s labor movement, and the broader community of allies often known as the “Global Justice Movement,” to develop an “activist world economic policy” to confront today’s “Great Recession”?  Conditions are of course different, but in many ways the core of such a program can be the same. 

That core can be public works to create jobs to meet public needs.  In today’s world, threatened as it is by global warming, the number one public need is to rebuild the world’s economy in a way that protects the Earth’s climate. So a global jobs program today means primarily a program for global green jobs.    

Such a program needs to be global for the same reasons that it did in the 1930s.  First, the problems are global, and therefore require a global solution.  Second, if any country expands credit too much by itself, it is likely to face rebound effects from the international economy.  (Think about the way the Chinese, who hold much of the U.S. debt, recently forced Barack Obama to give assurances that the U.S. would not inflate its currency.)  Such measures by one country alone also lead to loss of trade.

There are ways to provide international credit expansion today that didn’t exist in the 1930s.  The primary one is a kind of international money, known as “Special Drawing Rights” (SDRs) or “paper gold” that allows countries to create new currency reserves through the International Monetary Fund.  Countries can hold SDRs in their treasuries and release other currencies they are holding there – creating new money in very much the same way as Woytinsky’s proposals for lowering gold reserve requirements. 

The U.S, Britain, and many other countries are currently calling for an expansion of SDRs to help poorer countries get through the current economic crisis.  George Soros has called for the issuing of trillions of dollars of SDRs to counteract the downturn.  And Joseph Stiglitz has proposed that SDRs be used to create an international fund for supporting projects for “public purposes” in poorer countries.  Expansion of SDRs, or some other form of internationally agreed global credit expansion, can be the basis for a new era of global green public works, what has recently been dubbed a Global Green New Deal.

World leaders didn’t face up to their responsibility for countering the Great Depression, and it looks like the same is true of today’s leaders in the face of the Great Recession.  The idea of international public works financed through global agreement to credit expansion could provide a global program around which labor and popular organizations around the world could unify to “force the state and all public institutions to implement measures to revive the economy.”

Related Links

HNN Hot Topics: Financial Meltdown 2008