Skip to: Content
Skip to: Site Navigation
Skip to: Search


America's business: better off in 1937?

By Thomas V. DiBacco / July 27, 1987



FIFTY years ago, in 1937, the nation experienced the worst economic downturn since the Great Depression occurred in late 1929. To be sure, the 1937 downturn was rightfully called a recession, but it marked the last time in this century that American business would be blamed for the nation's economic problems. Of course, President Franklin Roosevelt attempted to put the collar on businessmen. He called a special session of Congress on Nov. 15, mostly to suggest that pump-priming by the federal government would not occur unless businessmen failed to restore production and employment. Subsequently, FDR's followers and businessmen engaged in a spirited, often caustic, debate about the failure of each to do its economic part: Businessmen were faulted for their ``strike of capital,'' government for its bureaucratic inefficiency and loss of political direction.

Skip to next paragraph

Despite the fact that the administration would make a modest economic war on big business with a trust-busting campaign in 1938, the '37 recession saw President Roosevelt, not business, capitulate. Without new capital investment, increasing numbers of economists argued, and an increase in business confidence, the economy's lethargy would continue. The remedy was federal pump-priming and the easing of legislation that hit business in its pocketbooks: The high tax on undistributed profits needed to be scotched, and downward modifications were required on business taxes.

Roosevelt was so angered by Congress's move to make these concessions that he attempted to sidetrack Capitol Hill's initiative with some strong populist rhetoric. The proposed legislation, he argued, gave ``an infinitely greater tax concession to the man who makes a very great profit than to the man who makes a comparatively small profit.'' Knowing that he had lost the battle, FDR refused to sign the congressional bill, allowing it to become law without his signature.

Subsequent government-business relations would confirm that responsibility for the economy would fall on Washington. After business and government worked closely together in World War II, the Employment Act of 1946 put Washington officials on notice about the necessity of avoiding large-scale unemployment. The Council of Economic Advisers would come into existence, providing both the President and Congress with reports on the economic state of the nation.

Not surprisingly, President Harry Truman and businessmen were often at odds over the course of economic policy carried out after World War II and during the Korean war, but the buck stopped at the desk of the President, critics would concur, rather than on the lap of the chairman of General Motors.

Then with Dwight Eisenhower's administration came two recessions that were conspicuous for reductions in corporate taxation and for rhetorical, partisan warfare regarding responsibility for a lagging economy. Were the ``spenders'' in Congress to blame for the massive federal deficit of $12 billion in 1958, or was it the failure of the White House to propose appropriate pump-priming measures? Even Eisenhower's farewell address allusion to the growing ``military-industrial'' complex was more philosophical than practical, since it attributed no specific blame to corporations involved in defense work.

Perhaps the last valiant attempt of government to fasten business with responsibility for economic problems came with President John Kennedy in 1962. That was the recession year when JFK greeted a 3.5 percent increase in steel prices by reference to the ``tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility.'' The companies ultimately dropped their increases.

To be sure, in recent decades there has been no little debate about improving the United States economy with a reindustrialization policy; academicians have lamented the growing role of US multinationals in the world; other reformers have been successful in getting US companies to move out of South Africa; and Japanese and Western European companies have become the models for emulation by US companies.

And along that same line was President Ronald Reagan's State of the Union reference ``guaranteeing that government does everything possible to promote America's ability to compete.''

Yet, all this fanfare has not significantly changed the political environment in which business must operate. Government bears the burden of devising economic policy, and a good case can be made that the increasing freedom of business in the last half century has served us much better than we acknowledge - from the fact that business schools are thriving to the merger mania and deregulatory strides that will permit the theory of economies of scale to get its most exhaustive practical test.

For those like me, born in the old days, the transformation of US economic society since 1937 has been enormous (``Were you better off in 1937?'' is an appropriate barometer). And the contemporary concern that business has lost its competitiveness should be countered with perspective.

``Made in the U.S.A.'' is not dead, in large part because radical political oratory and action against business have been defused. That American-made compromise - shunning the government paternalism of Japan as well as socialism and laissez faire - should not be minimized as a national asset.

Thomas V. DiBacco, a historian at the American University, is the author of ``Made in the U.S.A.: The History of American Business,'' Harper & Row.