USA: Crisis and Class Struggle in the 1930s and Today

For decades, the mantra “Capitalism = good” and “Socialism = bad” was driven into our heads. But even the most sophisticated apparatus for influencing public opinion – the mainstream media – cannot mold opinion as powerfully as experience itself. From the dizzying heights of the boom to the economic implosion of the last 10 months, dramatic events are shaking up and transforming the way Americans look at the world around them.

The disconnect between what workers have reasonably come to expect if they work hard and “play by the rules,” and what they are actually getting from capitalism, despite working harder now than ever, is forcing more and more Americans to take a long, hard look at many of their most basic assumptions about society. As the old saying goes, the proof of the pudding is in the eating, and capitalism isn't tasting very good these days.

It should therefore come as no surprise that a recent Rasmussen poll found that among Americans under 30 years of age, 37% prefer capitalism, 33% socialism, and 30% are undecided. In other words, more than half of the first generation since the Great Depression to face lower living standards than their parents is in favor of, or at least open to the idea that socialism may be a better alternative.

Americans who lived through the “Roaring Twenties” and the subsequent shock of the Great Depression drew increasingly radical conclusions on the basis of their own experience. While there are significant differences, there are also many important lessons we can learn from that period of history. Above all, we must understand that ultimately, social conditions determine social consciousness. In other words, similar experiences will lead to similar results. In the 1930s, mass layoffs and unemployment, factory closures, falling wages, foreclosures, homelessness, and rising misery for the majority led to massive explosions of the class struggle including sit-ins, city-wide general strikes and the rise of industrial unionism.

The Great Depression

By 1933, 25% of all workers and 37% of all non-farm workers in the USA were unemployed. The Great Depression was a worldwide economic downturn that was sparked by the “Black Tuesday” stock market crash on October 29, 1929. But this was not a linear, downward process. Between the initial crash and the low point of the Depression, there were momentary upturns when it seemed the worst was over – only to be followed by even steeper falls. From the cyclical high of 381.17 points on September 3, 1929, the Dow Jones Industrial Average fell to 198.60 on November 13 that same year. It then recovered substantially, and by April 17, 1930 was up to 294.07. But this secondary closing peak was not to last – it has thus been aptly named a “dead cat bounce” by some economists. In fact, the worst was yet to come. A year later, in April 1931, the Dow began spiraling downward in a near total collapse, falling 89% from its 1929 high to just 41.22 points by July 8, 1932. There are many economists who believe that the current market recovery is also a “dead cat bounce.”

But most importantly, we must understand that the crash on Wall Street was not the “cause” of the Great Depression, but merely a reflection of the unstable and unsustainable speculative house of cards that had been built up during the previous decade. In just six years, the Dow had quintupled in value. The stock market was a giant casino for the filthy rich, an episode of “Speculators Gone Wild,” with the livelihoods and futures of millions of people being bought and sold as if it were just a game of Monopoly. The economy seemed to defy the laws of gravity as a massive extension of credit allowed the market to expand far beyond its natural limits, only to come crashing down violently at a certain stage. Billions were speculated and billions vanished virtually overnight, hitting small investors the hardest.

The effects of the crisis were felt worldwide. International trade plunged by two-thirds as protectionism threw the process of globalization into reverse. By 1933, 11,000 of the 25,000 US banks had failed. Corporate profits dropped from $10 billion in 1929 to $1 billion in 1932. Prices began to fall precipitously, and although wages held up for the first few months, they eventually began to fall as well. This put deflationary pressures on the economy, driving it further downward. Why buy something today when it will likely be even cheaper in a few months? Although credit was still widely available in the first few months, people were reluctant to take on more debt. Consumer spending dried up, leading to more factory closures and layoffs. In 1929, the unemployment rate had averaged 3%. By 1933, 25% of all workers and 37% of all non-farm workers were unemployed. Homebuilding dropped by 80% between the years 1929 and 1932. Industrial production fell by nearly 45% between 1929 and 1932. 13 million people were unemployed. By 1932, 34 million Americans belonged to families with no regular full-time wage earner. Some two million homeless people were forced to wander the country in search of work. Sound familiar?

“Don't worry!” we were told, “It can't happen again – there are too many 'safeguards' in place – this time it's different!” Nonetheless, over the last few months, we have witnessed a steady and shocking worsening of the economy that isn't over yet. Non-farm employment has fallen for 18 months straight, the longest period of continuous of job destruction since World War Two. Since the beginning of the year, the economy has shed roughly half a million jobs or more each month, with another 467,000 disappearing in June alone. The “good news,” we are told, is that at least we aren't losing 741,000 jobs a month as we did in January!

The official unemployment rate is now officially at 9.5 percent, the highest level in 26 years, and is set to go higher. Add to that the nine million part-time workers who are looking for full-time jobs, and the millions who have stopped looking for a job altogether, and the unemployment rate is estimated at well over 15%. Among minorities, young people, and in the inner cities, it is as much as twice that rate. A record 29% of the unemployed have been jobless for more than six months.

Incredibly, the economy has now lost the equivalent of every single job created in the past nine years. 6.5 million jobs have been lost since December 2007. According to the Economic Policy Institute, this is the first time since the Great Depression that every single job created during the previous boom has been wiped out. Government hiring, which somewhat counter-acted the constant decline in construction, manufacturing and services over the last few months, is now in trouble as well. 52,000 government jobs were cut in June, the most since July 2007.

The housing market, which helped spark the current downturn, continues to fall, with private home building dropping 33.9 percent from a year ago, the steepest fall since 1980. State and federal construction projects have fallen as well. The office vacancy rate reached 15.9 percent in the second quarter of 2009, the highest level in four years, and rent prices fell by the greatest amount in more than seven, as small businesses suffocate and chains close thousands of outlets. The infamous “Hoovervilles” - tent and cardboard box colonies of the homeless and unemployed which dotted the nation in the 1930s - have re-appeared across the country, and literally thousands of people are to be found camping out overnight in the hopes of landing one of a handful of available jobs when companies do hire. There are now 5 unemployed people searching for each job that opens up. You do the math!

The rate of capacity utilization for industry declined further in May to 68.3 percent, which is 12.6 percent below the average for 1972-2008. On top of this, average hourly earnings are stagnating, and average hours worked has dropped to the lowest level since records began in 1964. The average workweek has shrunk 8.2% since the start of the recession, making it harder than ever for those who do have a job to make ends meet. This means employers will be slow to hire or invest in new machinery and technology as there is ample room to increase the work hours of existing workers or expand the use of unused capacity. According to Ian Shepherdson, chief U.S. economist at High Frequency Economics, “Wages will soon be falling outright, a classic deflation signal.” Even when the economy inevitably stabilizes, it will likely be a protracted, “jobless recovery.”

Because no matter how bad things get, the capitalist system will eventually recover from this crisis – on the backs of the workers. Until it is consciously overthrown and replaced with a more rational system in which the economy is democratically planned in the interests of all – socialism -- it will continue to exploit the people and the planet in the pursuit of maximum short-term profits. It's nothing personal -- that's just the nature of the beast. This is why we are in favor of ending the system once and for all, instead of rescuing it every few decades, only to have it come back even hungrier and more destructive than before.

The US working class is not yet in a position to bring about the end of capitalism. For that, more time and accumulated experience will be necessary. However, this is perspective is not as far off as some might think. It is impossible to say precisely when and where, but we can predict with confidence that the conditions capitalism is forcing on society will lead to tremendous social upheavals. In the coming period, we will see open clashes of the class struggle, growing tension and turmoil in the unions, and dramatic shifts in the political landscape. Last December's Republic Windows and Doors factory occupation and the vote by hundreds of Hartmarx garment workers to follow suit if their jobs were foreclosed by Wells Fargo are just the tip of the iceberg of what's to come.

The Rise of the CIO

Once again, we can learn from the past experience of our class. In the 1930s, the crisis eventually led to a series of important mass struggles of the workers against the bosses and the government. After a period of retreat and declining membership as unionized industries bore the brunt of the job cuts, the tide turned. The class struggle tactics implemented by many of these unions, starting from the basic premise that the interests of the bosses are in direct contradiction to the interests of the workers, and that therefore the idea of business-labor partnership is a sure recipe for defeat, led to dramatic successes.

Meeting of the Congress of Industrial Organizations (CIO) The American Federation of Labor, under whose umbrella most unionized workers were organized until that time, was almost exclusively a craft-based union. That is to say, it organized small groups of skilled workers within a specific field of specialization. The idea of organizing massive numbers of workers doing diverse jobs within a single workplace, such as those in the auto industry, seemed impossible to the leadership of the AFL. But in 1934, a series of militant strikes in Minneapolis, San Francisco and Toledo, all headed by non-traditional leaderships (the Trotskyists, the CPUSA, and the American Workers' Party, respectively) marked a decisive change in the situation, eventually leading to the rise of the Congress of Industrial Organizations, the CIO.

The United Electrical, Radio and Machine Workers of America (UE) and the United Auto Workers (UAW) were among the most militant unions to emerge. The UAW, for example, burst onto the scene and organized tens of thousands of workers as a result of the Flint Sit-Down Strike of 1936-37. The workers took over several factories owned by General Motors and refused to leave until the union – and with it collective bargaining, higher wages, and better conditions and benefits – was recognized by the company. The Steel Workers Organizing Committee (now the United Steel Workers) also succeeded in organizing tens of thousands of workers throughout the industry. Various other industrial unions emerged, and previously-existing unions such as the United Mine Workers of America were also strengthened and joined the CIO.

In the South, where the CIO had more trouble making inroads, independent left-wing unions such as the Mine-Mill Union and the Food, Tobacco, Agricultural and Allied Workers Union of America succeeded in organizing thousands of black and white workers alike through aggressive unionizing campaigns.

However, the once militant leaderships of these unions were gradually tamed. World War Two cut across the growing mood for a break with the Democrats and the formation of a mass party of labor. A “no-strike” pledge was accepted by the union leaders for the duration of the war, which meant an end to strikes over wages in exchange for government arbitration, greatly reduced the number of large strikes and resulted in shorter and less militant strikes when they were called. The Communist Party USA, which had significant influence in many unions, also supported this policy.

This contributed to the beginning of the end of the “Golden Age” of class struggle unionism. After a brief burst of militant strikes immediately after the war, as workers sought to make up for ground lost during the “no strike” period, the relative prosperity of the lengthy post-war boom continued and strengthened this conservative trend. Anti-labor legislation such as Taft-Hartley was passed, left-wing radicals were driven out of the unions, and in 1955, the CIO merged with its former rival, the traditionally more conservative AFL. The policy of “partnership with the bosses” became firmly entrenched in the labor movement.

In 1946, 35% of American workers were represented by unions. By the early 1980s it was down to 20%. Today, just 12% of workers are unionized, and the level is substantially lower in the private sector. Unionization rates also vary greatly from state to state, from nearly 25% in New York to less than 4% in the Carolinas. Unfortunately, the current labor leadership is so in bed with the bosses that many workers wonder why they even have a union in the first place. But the fact remains: particularly due to the absence of a mass party of labor, the unions are the traditional mass organizations of the US working class. The accumulating frustrations of both unionized and non-unionized workers will eventually be expressed in bitter struggles over the policy and leadership of the unions.

FDR and Obama

FDR [Franklin D. Roosevelt] was not elected on a New Deal program and initially had no intention of implementing these policies when he first entered office. But he was forced to enact these policies by the pressure and threat of mass unrest. It was a question of granting reforms and concessions from above, or risk a potentially uncontrollable social explosion from below. Although FDR's New Deal succeeded in letting off some steam by putting people to work in a series of massive public works projects, it was nowhere near enough to guarantee the survival of the system. It was World War II that really pulled the US out of the Great Depression. In other words, it was production for a war that killed millions of people and brought billions in profits to corporate America that “saved” US capitalism.

Franklin D. Roosevelt, 32nd President of the United States However, FDR had a few advantages not available to Obama. At that time, the US was the world's largest creditor nation, with two-thirds of the world's gold reserves; today it is the biggest debtor and owes over $11 trillion. Back then, the US was able to use the war to jump start industrial production for the war effort and suck millions of unemployed into the military. By 1945, 17 million had joined the armed forces, and the government heavily subsidized the wages and training of skilled industrial workers in the private sector. Obama, on the other hand, has inherited the quagmires in Iraq and Afghanistan and is unable to expand war production or enlist people in the military on such a massive scale. Also in the 1930s, there was still plenty of room for the expansion of industrial production as a percentage of GDP as millions left the farms and made their way into the cities and factories. Today the agricultural sector is a relatively small part of the economy, dominated by a handful of agro-industrial giants, and the US has become a largely services-oriented economy. Obama simply doesn't have the room to maneuver that FDR did.

Marxists are not against reforms that truly improve the lives of the majority. For example, if Obama were to offer socialized universal health care and free education for all, we would be all for it (although it is more likely that pigs will fly!), even if he only did so in order to preserve the system as a whole. But that's the whole point. Within the limits of the profit system, this kind of reform cannot be fully realized and would always be under threat of being rolled back. This is why he is offering a series of minor, partial reforms, in the hopes that this will be enough to “ride out the storm” of the current crisis. He may well be forced to grant more substantial concessions in the future, on the basis of mass pressure from below, even if it means taking on more debt, we cannot rule that out. But we can absolutely rule out the possibility that he will make any fundamental changes to the capitalist system, which he defends. As we have explained time and again, Obama's task is to do what Franklin Delano Roosevelt did in the 1930s: stave off the social revolution and save capitalism.

So while we are not against reforms, we are against reformism, the idea that somehow the capitalist system can be made “kinder and gentler.” This system is based on the exploitation of the many by the few, of ownership and control over the vast majority of the wealth of society by a tiny handful of the population. It cannot be merely reformed or tinkered with. Only a complete transformation of how we organize society can lead to a world in which meeting human needs, not corporate profits, is the priority.

Eventually Americans will come to realize that it is capitalism itself, not this or that rotten or corrupt individual or party that is the cause of so much instability and misery. Nonetheless, illusions in Obama and in the American Dream remain high for many. How could it be otherwise? To accept that the Democrats are incapable of solving this mess and that the American Dream is finished means to accept that capitalism itself has failed. To acknowledge that everything you've been led to believe and worked for is based on an illusion means making a profound break with everything that is familiar, comfortable, and secure. This is not something most people do on a whim. But events and experience are pushing more and more Americans to draw these very conclusions. As the Rasmussen poll referred to above shows, the “times they are a-changin'.”

The Economic Cycle and the Class Struggle

However, we must be careful not to fall into a mechanical and formalistic understanding of the rhythm of the class struggle. The manner in which it unfolds is often contradictory and counter-intuitive. There is a complex, dialectical inter-relationship between the economic cycle and the class struggle. Economic crises do not necessarily directly and automatically lead to greater radicalization, and economic booms do not automatically guarantee social peace. As we have seen, it took several years after the Great Depression began before US workers recovered their confidence and went on the offensive against the bosses. In fact, it was only on the basis of the recovery of 1934 that they again raised their heads, after years of keeping them down. By the same token, the most important revolutionary strike wave in world history took place in France in May of 1968, at the height of the post-war boom, at a time of rising wages and generally improving standards of living.

Leon Trotsky As Leon Trotsky explained in 1921 in his Report on the World Economic Crisis and the New Tasks of the Communist International:

“The reciprocal relation between boom and crisis in economy and the development of revolution is of great interest to us not only from the point of theory but above all practically. Many of you will recall that Marx and Engels wrote in 1851 – when the boom was at its peak – that it was necessary at that time to recognize that the Revolution of 1848 had terminated, or, at any rate, had been interrupted until the next crisis. Engels wrote that while the crisis of 1847 was the mother of revolution, the boom of 1849-51 was the mother of triumphant counter-revolution. It would, however, be very one-sided and utterly false to interpret these judgments in the sense that a crisis invariably engenders revolutionary action while a boom, on the contrary, pacifies the working class...

“But when the [post World War I] crisis is replaced by a transitory favorable conjuncture, what will this signify for our development? Many comrades say that if an improvement takes place in this epoch it would be fatal for our revolution. No, under no circumstances. In general, there is no automatic dependence of the proletarian revolutionary movement upon a crisis. There is only a dialectical interaction. It is essential to understand this.”

It is one thing to analyze history with the benefit of 20/20 hindsight. It is quite another to develop an analysis and intervene in the movement correctly as the chaos of events unfolds around us. This is our task. The world has entered a truly unprecedented period of instability. In the few weeks since the last issue of Socialist Appeal, we have seen a military coup in Honduras, the bankruptcy of Chrysler, the collapse of a dozen more US banks, and nearly a million more unemployed. But we have also seen the beginnings of the Iranian revolution, mass revolutionary mobilizations against the coup in Honduras, and the Hartmarx workers keep their jobs by threatening to occupy their factory.

Events are moving quickly. This is not the same world it was ten years ago. And workers' consciousness is not the same either. Nowhere is this more true than in the heart of imperialism itself.

It may sound like a cliché, but the fact is that even more momentous events are on the horizon. While things today may appear more or less calm on the surface, enormous discontent is simmering just beneath that apparent calm. Just as the class struggle seemed to have subsided once and for all during “Roaring '20s,” only to emerge on a higher plane in the 1930s, we must do our utmost during the current “calm before the storm” to prepare for similar developments in the coming period. Fighting shoulder to shoulder with the working class as these struggles emerge, we can, must, and will succeed in bringing about fundamental and lasting change. Contact the Workers International League (WIL) if you want to fight for this perspective.