Home > Major Acts of Congress > National Industrial Recovery Act (1933)

James G. Pope

When Franklin D. Roosevelt was inaugurated in March 1933, almost 13 million workers—about 25 percent of the workforce—were unemployed. Industrial production was barely half what it had been in 1929. While millions faced starvation, dairy farmers poured fresh milk into the dirt to dramatize the fact that overproduction and cutthroat competition had driven milk prices so low that the farmers could not recover their costs.

To pull the nation out of this crisis, the new administration developed a strategy with two central elements: (1) spreading the available work among larger numbers of employees and (2) increasing the purchasing power of the people. To spread the work available to more workers, the government would limit the number of hours already-employed workers could work, thus reducing the labor performed by these workers and forcing employers to hire new employees from among the unemployed. To increase purchasing power, the government would establish minimum wage rates and launch a public works program (construction projects including schools, hospitals, and bridges) that would pump federal funds into the economy. Instead of restricting hours and wages directly through legislation, the administration proposed to work through private trade associations, which had been unsuccessfully attempting to reduce hours and regulate competition on their own.

On June 16, 1933, President Franklin D. Roosevelt signed the National Industrial Recovery Act (NIRA) (P.L. 73-67, 48 Stat. 195) into law to counter what the act called the "national emergency" that had resulted in "widespread unemployment and disorganization of industry." The act was intended to encourage

cooperative action among trade groups, to induce and maintain united action of labor and management under adequate governmental sanctions and supervision, to eliminate unfair competitive practices, to promote the fullest possible utilization of the present productive capacity of industries, ... to increase the consumption of industrial and agricultural products by increasing purchasing power, to reduce and relieve unemployment, [and] to improve standards of labor.

CODES OF FAIR COMPETITION

The NIRA called on private businesses, organized in trade associations, to propose industrial "Codes of Fair Competition" for their industries. Normally, antitrust laws would have prohibited such anticompetitive practices, but the act exempted the codes from antitrust restrictions. Upon approval by the president, the codes became legally binding on all participants in the industry concerned. The act gave the president extensive power to shape the codes. If he wished, he could demand that the trade association accept changes as a condition for his approval. In the event that he received no acceptable code for an industry, he could hold hearings and impose a code of his own.

Later, the act would be criticized for its alleged lack of effective enforcement mechanisms. But on paper those mechanisms appeared strong. The act commanded the district attorneys of the United States to obtain court orders barring code violations. In addition, violators could be criminally prosecuted and punished by fines of up to $500 per violation. Most impressively, the act empowered the president to require that all businesses in an industry obtain a federal license as a condition of doing business in or affecting interstate commerce. Having done so, he could then revoke the license of any code violator—the business equivalent of a death sentence.

To administer the recovery program, President Roosevelt established the National Recovery Administration (NRA), headed by General Hugh S. Johnson. Early on, Johnson decided to rely on consensus and voluntary consent instead of using the act's mechanisms for imposing and enforcing the fair competition codes. The president embraced this conciliatory policy. Johnson feared that if he attempted to force businesses to cooperate, the courts, which at that time tended to restrict economic regulation, might declare the act unconstitutional. Instead of using the law to force compliance, Johnson sought to mobilize public opinion in support of the codes. Businesses that complied would display a blue eagle, the emblem of the NRA, on their product labels or in store windows. Violators would be denied this privilege, triggering a consumer boycott.

During the two years of the program's existence, more than 500 codes were enacted. The standard code contained wage and hours provisions, the essential elements of Roosevelt's recovery strategy. In return for accepting these provisions, businesses in many industries insisted on adding production restrictions and price minimums. Unwilling to use the act's compulsory mechanisms, the NRA had no alternative but to go along. In especially disorganized industries, such provisions might have helped to avoid destructive price declines. But historians believe that in most industries these provisions held back recovery and promoted the interests of the largest and most powerful corporations at the expense of others. The maximum hours provisions did force some work sharing, and it is possible that as many as 2 million unemployed workers obtained jobs as a result. On the other hand, it does not appear that the wage minimums were sufficient to offset price increases.

LABOR UNDER THE BLUE EAGLE

Section 7(a) of the NIRA required that each code prohibit employers from interfering with the workers' right to organize unions. This was the first such protection ever to appear in a generally applicable national statute. Regarded by many as a symbolic concession to labor, section 7(a) turned out to be the act's most contentious provision and arguably the most influential in the long run. As of early 1933, the unionized labor was down to fewer than 3 million members from a high of more than 5 million in 1920. But the year 1933 saw a spectacular upsurge in union organizing. In some industries, like coal and garment manufacturing, this recovery was already far along before section 7(a) was enacted. But in the great mass production industries of automobile, steel, and rubber, where previous organizing efforts had been crushed by mass firings and blacklisting, the upsurge came only after section 7(a) gave workers the confidence to organize.

By themselves, these early gains meant little. The unions had yet to win recognition or contracts from their employers. Employers interpreted section 7(a) to permit the establishment of company-dominated unions, and the Roosevelt administration agreed. Many employers also discharged workers and refused to recognize unions in violation of section 7(a), but the administration was reluctant to bring enforcement actions or even to withdraw the blue eagle. As a result, the unions that made lasting gains during the NIRA period did so through strike action. For example, the United Mine Workers (UMW) increased its membership by more than 300,000—by far the largest gain of any union—but only after local activists organized a powerful strike movement against opposition not only from the coal operators but also from their own union president, John L. Lewis. Unfortunately for the miners, Lewis, who had hand picked the labor representatives on the NRA coal boards, used the boards to defeat competing unions and to consolidate his dictitorial control over the miners' union. This development contributed to the loss of democracy in other industrial unions, which looked to the mine workers for leadership and support.

COURT CHALLENGE AND THE FAILURE OF THE NRA CODES

On May 27, 1935, the day known as "Black Monday" to supporters of the New Deal , the U.S. Supreme Court struck down the act's code-making provisions in A.L.A. Schechter Poultry Corp. v. United States. Hugh Johnson had been correct to fear the unconstitutionality of forcing industries to accept the codes. After Schechter, Congress replaced the NIRA with more narrowly focused statutes. Under these statutes, government agencies, instead of representative boards, carried out regulatory and enforcement functions. Examples include the National Labor Relations Act of 1935, which protected the workers' right to organize unions, and the Fair Labor Standards Act of 1938, which set minimum wages and minimum hours.

The verdict of historians on the codes has been largely negative. Most agree that they did little to stimulate recovery, and that they tended to benefit large businesses at the expense of consumers and (although this is less clear) small businesses and labor as well. The reasons for failure are disputed. Some historians focus on the absence of strong presidential leadership to counter the demands of special interests and to ensure effective enforcement. Others point to the lack of clear legal directives in the act itself. Such directives could have prevented large corporations from shaping the codes to their benefit. Still others charge that the act embraced an overly ambitious concept of social cooperation and failed to confront the reality that groups with their own special interests tend to conflict with each other. But the act never received a genuine test. From the outset, administrators feared that the Supreme Court would hold the act unconstitutional. To avoid a constitutional confrontation, they refrained from using its strong provisions for shaping and enforcing codes. In a sense, then, the Supreme Court defeated the NIRA long before the Schechter decision finished it off.

PUBLIC WORKS

One important piece of the NIRA did survive the Schechter decision. The act established an ambitious public works program and created the Public Works Administration (PWA) to administer it. Established barely a decade after the notorious corruption scandals of the Harding Administration (1921–1923), the PWA managed to spend more than $6 billion over a period of six years without any serious charges of corruption. Using a combination of direct spending, loans, and grants, the PWA contributed to thousands of construction projects including schools, government buildings, hospitals, subways, and bridges, most of which were built to high standards and many of which are still in service today.

See also: AGRICULTURAL ADJUSTMENT ACT; FAIR LABOR STANDARDS ACT; FARM CREDIT ACT OF 1933; NATIONAL LABOR RELATIONS ACT.