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 emigre 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 the
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."