THE NEW DEAL AND THE SECOND RECONSTRUCTION
The “Peculiar” Context of Southern Economic Development
FDR’s southern strategies were fundamental, even radical—focused on infrastructure and an agricultural “revolution”. Both threatened the traditional Redeemer policy nexus, plantation-based policy systems and low-wage cotton export economy. The South was the nation’s poorest region by far. Its export-based commodity economy created a boom or, since World War I, bust cyclicality that crushed consumer consumption, entrepreneurship and diversification of its economic base—and reduced its low-wage subsistence workers to gross economic deprivation.
Rates of southern industrial progress were rapid by historical standards, but nested … in a large agricultural economy with high fertility rates, and isolated from national migration (immigration) flows, southern industries could not … raise the basic agricultural wage. The persistence of backward technologies in agriculture and manufacturing is primarily traceable to the low southern wage … [T]he low incomes of American blacks had … to do with their place in the low-wage southern economy. (Wright, 1986, p. 12)
The interplay between low productivity and racial discrimination solidified a low-wage labor dualism in which whites’ desperately low wages were noticeably higher than black workers’ low wages. Despite noticeable industrial growth in the pre-Depression South, the dual workforce stopped any convergence with national wage rates, delinking the southern economy from northern prosperity. Reforms were needed to break these patterns—like transferring surplus agricultural labor to higher-paying jobs through productivity improvements of agriculture (mechanization).
The Great Migration/Southern Diaspora drained off some surplus labor, but mechanization of agricultural production was a tough slog because investment capital generated from marginal agricultural production was inadequate. Boll weevils, floods and the Depression made it evident even to plantation owners that their “peculiar” economic system was pretty much broken. But investment in machines and expanded acreage required capital. The southern financial system, a virtual subsidiary of Wall Street, could not deliver it. FDR did!
Breaking Apart the Plantation Economy
FDR’s early New Deal southern initiatives focused chiefly on agriculture and rural areas. Farmers in the 1930 South were 21 percent of the total employed: over 6 million farms and over 30 million farmers. Only 13 percent had access to electricity. A primary New Deal focus installed a modern power infrastructure and transportation access in rural areas. The Rural Electrification and Agricultural Adjustment Acts (AAA), despite their short tenure, commenced the reshaping of southern agriculture: “In just three years, the adjustment program (AAA) revolutionized the Cotton Belt and all of southern agriculture” (Schulman, 1994, p. 17).
Desperate southern planters realized that limiting production was necessary to raise the price of cotton—the Acts ploughed up nearly 25 percent of 1933 cotton production in return for federal subsidy. The AAA’s principal effect drastically reduced the number of sharecroppers and increased the number of agricultural wage earners (day laborers), thereby throwing hordes of agricultural sharecroppers (both black and white) out of their homes. Gunnar Myrdal labeled the AAA as “America’s enclosure movement” (in Wright, 1986, p. 238). Unable to find work, dispossessed agricultural workers hit the roads and joined the Southern Diaspora or moved to southern cities looking for industrial jobs.
Between 1933 and 1939, three New Deal programs—the Federal Emergency Relief Administration, the Public Works Administration and the Works Progress Administration—sent nearly $2 billion dollars to the South, most of it to the region’s cities. Temporary jobs were created, but urban public infrastructure was vastly improved. Sewers, parks, playgrounds and all sorts of public buildings dotted southern cities of all sizes. For example, $361 million was poured into Birmingham. The city’s first street improvement program was funded with federal funds. Tampa built its municipal airport and improved its major thoroughfare (Bayshore Boulevard); Richmond got a bridge over the James River, as well as a library, high school and a hospital (Goldfield, 1982, pp. 181–3).
The National Industrial Recovery Act (NIRA) directly attacked the root southern problem by requiring increases in hourly wage rates. NIRA was emergency legislation without any regional strategy, but it didn’t take long to realize that increases in manufacturing pay rates directly assaulted the South’s low-wage economy. Southern manufacturers resisted; NIRA wages increases were developed incrementally, sector by sector, through semi-negotiated agreements. Unfortunately, one of the first sectors negotiated (July 1933) was cotton/textile manufacturing.
NIRA increased average southern textile-mill wages over 70 percent. Almost twice as many southern mill employees were affected than northern workers (Schulman, 1994, p. 22). Southern textile manufacturers thought the North had restarted the textile war—and they reacted accordingly. Southern industrialists reasoned that NIRA “threatened a crusade against the region’s labor system, and southern industrialists determined to resist it”. The Southern States Industrial Council quickly formed, its “purpose to “protect the South against discrimination”:
Southern leaders saw low wages as their region’s ticket to prosperity. Low wages would attract industrial plants … [and] free the region from the shackles of a colonial extractive economy … [In the North NIRA provided] the opportunity … to reform the South and to lift it to a higher economical level, and incidentally destroy its competitive power. (Schulman, 1994, pp. 22–3)
Southern industrialists negotiated regional differentials to only 60 percent of national wage rates. The North was outraged. In 1936, however, the Supreme Court declared the AAA and NIRA unconstitutional. By that time the federal government, as the instigator, of change, had become the enemy. NIRA, unintentionally, crystallized what had been a pervasive but informal low-wage business attraction strategy into a formal economic development strategy—a regional business climate strategy. NIRA functioned as the starting block for an economic development regional war.
The Tennessee Valley Authority
While NIRA stumbled into a direct regional confrontation, another first-term New Deal initiative matured into an economic development victory. The Tennessee Valley Authority (TVA), legacy of Republican Nebraska Progressive George Norris (a key supporter of rural electrification), was approved in 1933. The TVA included most of Tennessee, large portions of Alabama, Mississippi and Kentucky, and small sections of Georgia, North Carolina and Virginia. These states were among the hardest-hit Depression geographies and the very poorest regions of the South. Similar to the Rural Electrification Act, the TVA provided an electrical infrastructure to poor, underserved rural southern geographies. The TVA was intended to be a regional ED agency from its outset—not just a provider of power and electrical infrastructure. Its roots lay deep in the regional planning movement and carried with it the Trojan horse “socialist” image. The early years of the TVA were a disappointment.
The TVA’s initial inability to live up to optimistic expectations was embedded in a distinctive—and ultimately effective—approach to regional economic development. Upon its creation a choice had to be made between a federal agency inducing Washington-determined change from above or involving jurisdictions in consensual local decision-making. To secure votes necessary for its passage, the latter was chosen. The TVA’s board of directors, composed mostly of state officials, defined/pursued economic development along lines congruent with local preferences and priorities—not what FDR had in mind. So in early TVA years, southern fears that manufacturing would displace agriculture limited TVA electricity to mostly agricultural-related firms. TVA initiatives instead concentrated on improving river navigation and producing low-cost fertilizer—helpful to enhancing the agricultural economy (Schulman, 1994, p. 35). Over the long haul, however, a trusted TVA became an accepted, promanufacturing component of southern economic development.
After the publication of FDR’s report (below) and the ascension by David Lilienthal to its chair, the TVA aggressively pressed for southern industrialization: “Under Lilienthal the TVA abandoned the so-called ‘phosphate philosophy’ of economic growth”. Taking advantage of defense war production by bringing in more manufacturing, the TVA joined in promotional initiatives, identified and prepared sites, and was not averse to using electricity as an incentive. Lilienthal and Harry Hopkins joined forces behind a “plan” to build wartime military production facilities within the TVA’s boundaries. Lilienthal advocated policies directly opposed to BAWI, and TVA during the war years became arguably the leading advocate in southern industrialization and relocation of manufacturing to the South (Schulman, 1994, pp. 91–4).
The Nation’s Economic Problem Number One
FDR’s 1936 victory carried a few southern Progressives on his coattails, opening the opportunity for a second-term southern ED strategy. Working with these stalwart but isolated southern New Deal democrats, FDR launched his “second Reconstruction”—an expression embraced by New Deal southern Democrats such as Florida’s Claude Pepper (Schulman, 1994, pp. 46–8). That the first Reconstruction did not elicit fond memories for most southerners, FDR had cast the die and crossed his Rubicon. What he had in mind was a direct assault on the southern regional low-wage economy and, in particular, the use of a low-wage business climate to attract industry. He wanted the South to industrialize, but not with low-wage manufacturing. FDR, using contemporary jargon, wanted the South to focus on higher-wage, advanced manufacturing. He launched his attack with vigor, saying:
In Gainesville, Georgia Roosevelt asserted that the South remained a feudal economy … there is little difference between the feudal system and the Fascist system. Georgia and the lower South may just as well face facts—simple facts presented in the lower South by the President of the United States. The purchasing power of millions of Americans in this whole area is far too low. On the present scale of wages and therefore the present scale of buying power, the South cannot and will not succeed in establishing successful new industries. (Schulman, 1994, p. 48)
Compared to Roosevelt’s more lukewarm urban agenda, the southern economic development strategy constituted genuine Roosevelt commitment. FDR was perfectly clear this second Reconstruction would be carried out by the federal government, through federal legislation: “Nationwide thinking, nationwide planning, and nationwide action are the three great essentials to prevent nationwide crises for future generations to struggle through” (Schulman, 1994, p. 48). As with Our Cities, Roosevelt formed a committee, composed of southerners, to produce a report outlining the South’s conditions. In a personal appeal, FDR asserted his “feeling that the South presents right now, the nation’s No. 1 economic problem—the nation’s problem, not merely the South’s. Southern underdevelopment had created an economic ‘unbalance’ in the nation, an unbalance that can and must be righted for the sake of the South and of the Nation” (Schulman, 1994, p. 50).
The final report, the Report on Economic Conditions of the South, set forth the New Deal southern “progressive” ED strategy. That strategy encouraged the industrialization of the South by improving the condition of its human resources, and above all by abandoning its reliance on low-wage jobs and improving education and the quality of public services—all of which involved active federal government involvement (Schulman, 1994, pp. 50–51).
Southern liberal Democrats, however, were too few in number to pass this bold legislation. So FDR turned to northern Democrats for support. Northern votes, however, were not motivated by an altruistic hope to improve the lives and prosperity of southerners through economic development. Two groups leaped on board FDR’s southern ED initiative: unions and New England/New York Democrats. The former wanted to build up their non-existent southern membership, and the latter saw a helpful weapon in the textile war against the Carolinas and Georgia. The strategy chosen by the coalition was a national manufacturing minimum wage. There were other solutions— most poverty victims were unemployed, and would not benefit from a minimum wage increase. The choice of a minimum wage reflected the diverse motivations of FDR’s legislative coalition.
FDR’s Second Reconstruction: National Minimum Wage and Unions
The legislation on which FDR’s strategy rested was the Fair Labor Standards Act (FLSA), which, among other things, established a national minimum wage in manufacturing. In 1937, to many Southerners the Act seemed little more than “a device to restructure southern industry … that Walter Lippmann would tag the final version ‘a sectional [regional] bill thinly disguised as a humanitarian reform’” (Schulman, 1994, p. 54). Schulman concluded that:
It is tempting to view the FLSA as a kind of regional tariff, a ploy by northern businesses to eliminate low wage competition and by northern politicians to stop runaway plants … The FSLA, after all, covered only manufacturing workers engaged in interstate commerce, that is, those competing with northern firms. (Schulman, 1994, pp. 59–60)
As an added delight, the FLSA also empowered union efforts to achieve collective bargaining in the South. FDR won a hotly contested legislative battle; the Act was passed in late 1938. Thus began a 15-year regional struggle against the FSLA minimum wage. Surprisingly, the FSLA did not apply to the iron, steel and cement industries (mostly northern-owned); but the 25 cents per hour minimum wage, no child labor, 44-hour work week did apply to low-wage manufacturing associated with food processing, sawmills, lumber, apparel and, of course, textiles. Nearly 15 percent of textile workers received below the 1938 minimum. Employment at southern plants dropped nearly 6 percent by 1940 and southern payrolls rose by ten times the rate of northern. In these low-wage sectors, noticeable mechanization (productivity) followed quickly (Schulman, 1994, pp. 66–8).
The law was implemented through tri-partite Industry Committees (management, labor and public). Through these committees unions were able to exert influence in non-union sectors and firms. The first three Industry Committees (textiles, tobacco and hosiery) struck at the heart of the alleged southern low-wage business climate advantage—confirming to many southern manufacturers the not-so-hidden agenda behind the legislation. Whatever doubt was removed when the FSLA administrator commented that “one of the declared objectives of the act was to bring to an end this migration of plants solely to obtain a source of cheap labor” (Schulman, 1994, p. 70). Roosevelt himself in 1939, commenting on a particular southern textile mill with cheap labor and obsolete equipment, said: “that type of factor ought not to be in existence” (Schulman, 1994, p. 72). The Industry Committees turned into battlefields as southern industries resisted.
War production made obsolete the FSLA. Inflation and 30 percent growth in southern manufacturing raised wages by 40 percent between 1939 and 1942. Worker shortages were not uncommon as soldiers headed off to war. The Industry Committees shifted gear to manage war production quotas. The National War Labor Board (NWLB) established by executive order to settle disputes between labor and industry acquired responsibility for the implementation of the FLSA. The NWSB established southern regional Wage Stabilization Boards which prosecuted a great number of cases to reverse southern company wage practices and standards. The NWLB continued the Second Reconstruction goals in the new environment. Southern unionization fought tooth and nail and gathered some momentum.
By war’s end union membership had doubled from 1939 levels. But anti-union feeling was pervasive (Schulman, 1994, pp. 76–81). Wages in the controversial textile and garment industries were raised to 65 cents per hour (Schulman, 1994, p. 86)—and became the lightning rod of southern industry minimum wage opposition, particularly in the textile, furniture, fertilizer and lumber industries: “The FLSA arrived to perpetuate the punitive program of the carpetbaggers under the guise of equalizing conditions” (Schulman, 1994, p. 68). During the war five southern states enacted anti-labor laws. Florida and Arkansas approved state constitutional provisions inhibiting labor union activities—but the NWLB countermanded these actions using wartime powers.
The Republican victory in the 1946 congressional elections, however, stripped momentum from further minimum wage increases. Republican conservatives became committee chairs and southern democrats joined with them to put the brakes on the Truman administration’s minimum wage policy, defeating any changes to it over the next two years. However, minimum wage and collective bargaining actions of the NWLB kept the issue alive, fueling the post-1947 flood of state “right to work” legislation.
Times did change, however. During the fifties many southern manufacturers adjusted to the national minimum wage—even the textile industry endorsed it by 1955. Newer manufacturing plants introduced by war years industry relocations neither required cheap labor nor particularly wanted it, because production was based on machinery operated by skilled workers (Schulman, 1994, pp. 86–7). By the end of the forties, the struggle between the regions over the minimum wage was tapering off, in large measure because the war years injected high-wage industrialization in many parts of the South. Wage disparity between North and South diminished considerably during the war years.
FDR’s southern economic development strategy was perceived and received with downright opposition by most southerners. In the minds of many, FDR’s reforms were imposed from above, by federal rule, regulated by a federal bureaucracy and approved by northern, midwestern and southern progressive-carpetbagger votes. FDR’s Second Reconstruction generated deep resentment and in the Second Reconstruction, however successful its goals, one sees the seeds of distinctive southern identity in economic development. If one wishes to see the power of non-rational factors such as culture, participative decision-making and identity in economic development the Second Reconstruction is an excellent example.
Ron W. Coan 