Kentucky Digital Library

Infrastructure is Good for Business

During the Depression, business leaders knew that public works funding was key to economic growth. Why have we forgotten that lesson?

Democrats last week announced a counterproposal to President Trump’s blueprint for new investments in infrastructure. In contrast to Trump’s plan, which relies primarily on private financing, the Democrats are proposing a whopping $1 trillion of direct federal spending to upgrade the nation’s bridges, roads, transportation systems, and public buildings. The Democrats’ proposal is doomed to remain just that – a proposal – given GOP control of Congress. But it may signal the kinds of contrasts Democrats will try to draw with Republicans in midterm contests this fall.

These sharply opposed approaches call to mind debates over the last great flurry of American investments in infrastructure. Between 1933 and 1939, in the depths of the Great Depression, Franklin Roosevelt’s New Deal put unemployed Americans to work building infrastructure and civic assets through a range of programs that ultimately totaled about two thirds of all federal emergency expenditures. In 1933, the Public Works Administration received an initial appropriation of $3.3 billion (roughly $64 billion today), and, in 1935, the Works Progress Administration (WPA) came online with a $4.88 billion budget (roughly $89 billion today). In terms of expenditures, then (as opposed to, say, regulations), the New Deal was primarily a massive public works program.

In both popular and scholarly memory, the primary beneficiaries of the New Deal were the men who gained public employment, and the broader civic sector, which gained an unprecedented bequest of facilities and improvements. More than eight million Americans were directly employed through the WPA, resulting in some 78,000 bridges and nearly 40,000 public buildings, including libraries, post offices, and swimming pools. The Public Works Administration (PWA), meanwhile, contracted with private firms to construct massive projects like dams and major airports.

Yet our recollection of New Deal works programs neglects another critical set of beneficiaries – local businesses and businesspeople.

This amnesia is in part the result of modern American politics. A privileged cadre of national business elites – from the U.S. Chamber of Commerce to the Koch Brothers – has managed to convince the broader public that businesspeople truly want limited government, calling for private-sector alternatives to just about everything government does. This assumption has, in turn, fueled political polarization, with Republicans widely seen as aligned with the interests of the business class, and Democrats branded as the champions of government spending -- however much they too have embraced market-based solutions.

But the amnesia also results from scholars’ tendency to focus on an earlier generation of New Deal critics. As the New Deal expanded, elite national business associations like the U.S. Chamber of Commerce and the National Association of Manufacturers argued that expansive public initiatives, public works, public employment, and the tax dollars required to sustain them would ultimately stymie private initiative, and perhaps even snuff out the free market entirely.

National Assoc. of Manufacturers advertisement (ca. 1943)
(Courtesy of the Hagley Museum & Library)

At their most extreme, these elites began equating Roosevelt’s New Deal agenda with totalitarian, communist, and fascist regimes abroad. In 1940, the Republicans nominated for president the strident anti-New Deal lawyer and executive Wendell Willkie, whose meteoric rise in politics was fueled by just such claims. In his acceptance speech, Willkie contrasted his experience as “a businessman” with the New Deal’s “vitriolic and well-planned attack against” business. His campaign’s primary theme became the looming specter of “State socialism” – “complete centralized government dominating the complete economic life of the people.” “Private initiative,” Willkie said, “made America,” and faced with Roosevelt’s socialism, only “private initiative can save America.”

Frederick von Hayek, a leading intellectual celebrated by Willkie’s generation of business-conservative anti-New Dealers, argued that incremental steps toward U.S. statism was already, if imperceptibly, putting Americans on “the road to serfdom.” In their self-conception as well as their political mobilization, national business elites framed themselves and their businesses as the last, best bulwark against creeping socialism. Theirs was the true “American Way” toward democratic-capitalism and freedom.

While historians have produced many otherwise excellent histories of business and the rise of modern conservatism, their focus on figures like Hayek, Willkie, Barry Goldwater, and Ronald Reagan have tended to reproduce their subjects’ view of a yawning divide between New Deal liberals and business. This zero-sum reading of public and private initiative, past and present, continues to thrive in the modern Republican Party.

Yet the more numerous but often overlooked ecosystem of local businesspeople – very often members of local chambers of commerce, who paid dues to the national Chamber – had a wholly different and far more nuanced relationship with the New Deal. In 1939, FDR distilled this relationship in a story he told to the American Retail Federation. The president described a meeting he’d taken with an ostensibly limited-government businessperson who suggested that spending on public works could be slashed by at least half. “In every case,” said Roosevelt, “I find what I suspected. His local Chamber of Commerce, his local newspapers are ‘yelling their heads off’ to have those projects built with Federal assistance.” Local businesspeople may have agreed in the abstract with their national lobbying associations’ calls for federal austerity. But Roosevelt put a fine point on the dynamics of federalism that were in fact at play: “‘Consistency, thy name is geography. You believe with the United States Chamber of Commerce that Federal spending on public works should cease—except in your own home town.’”

Across the country, some 3,000 local boards of trade and chambers of commerce were lying in wait with longstanding wish lists for local improvements. The Roosevelt Administration, in turn, depended on their support. “We would have been awful damned fools,” said Works Progress Administration director Harry Hopkins, “. . . if we thought for a minute that we have either the power or the ability to go out and set up 100,000 work projects as we are going to have to do, probably 200,000 before the year is over, without the complete cooperation of local and state officials. We couldn’t do it if we wanted to.” New Dealers understood that the fastest way to roll out these programs was to tap into this vast ecology of local business leaders. These elites became instrumental in the securing and administration of public works programs. In Cleveland, Ohio, for instance, the WPA’s district office was overseen by a former railroad executive and leader of the local chamber. In Philadelphia, business leaders pioneered a system of hiring unemployed lawyers, engineers, and draftsmen to planning committees for infrastructure and works projects. Their system of employing white-collar workers to generate business-minded works programs was emulated in New York, Chicago, Cleveland, and Columbus. Business and civic leaders in New York eventually produced a report that praised New Deal works programs as having given “a material stimulus to the business of the city.” At the same time that the U.S. Chamber was characterizing federal works programs as a reckless endangerment of the free market, local chambers recognized these projects as a critical stimulus for development.

The hunger for infrastructure spending was particularly strong in the nation’s less developed regions. In December 1937, the Southern Secretary, a trade magazine for southeastern Chambers of Commerce, published a Christmas “wish list” of items submitted by 76 local chambers across the south. Roanoke, Virginia’s Ben Moomaw hoped for “a fine new municipal airport.” In Ocala, Florida, Horace Smith needed “an athletic field, an air mail passenger line, a municipal auditorium, and a five-year agricultural program – a whale of an order, I’ll grant.” In Houston, Bill Blanton desired “a flood prevention program, finishing up the airport, a street improvement plan, four-lane highways, more conventions and industries.”

What these businesspeople knew, especially in the capital-starved south, was that federal investments in infrastructure, federal agency outposts, and with the coming of war, defense, was anything but a zero-sum game. The infusion of fresh capital that accompanied these projects offered much-needed economic escape velocity. Assets like pipes and sewers might seem humdrum, but for cities in rural or underdeveloped regions, a modern water system could be the key to recruiting new industries. In port communities and bigger cities, digging deeper channels into river beds and canals could allow for passage of large modern ships, and thus establish connections to global markets. As a rural South Carolina chamber member exclaimed, such improvements could “mean empire building to us.”

In just the handful of years it was up and running, the PWA built 384 airports; completed over 3,000 sewer and water projects; and constructed more than 7,000 educational buildings. Hundreds of local civic projects were completed – everything from city halls, police stations, and court houses to parks and libraries –  the kinds of municipal assets local chambers loved to highlight when recruiting new businesses to town. The WPA, meanwhile, constructed or improved some 4,000 airport buildings, laid down nearly 6 million linear feet of runways, constructed tens of thousands of miles of road, and made improvements to more than 4,000 miles of river banks and shorelines. The many iconic projects these agencies underwrote include LaGuardia Airport, the Blue Ridge Parkway, Los Angeles’ Griffith Observatory, and the Hoover and Grand Coulee Dams.

Some New Dealers saw these local partnerships as much more than a pragmatic expression of mutual interest. For a fleeting moment, they imagined formalizing them into a national system of federally-funded, locally-administered initiatives. But as the nation emerged from war and faced a period of inflationary prices, budget hawks in Congress joined with national business elites to hack back the key agencies that might have put American infrastructure and public works on surer footing. In the ensuing decades, the federal government continued to subsidize local infrastructure. But this spending would no longer be administered by a non-partisan or bipartisan agency. Instead, it became a creature of Congress, where it was more and more discredited as simply the workings of the pork barrel – no matter how valued much of the spending may have been.

Perhaps the biggest win of the national business elites, however, was in defining how the New Deal would be remembered. As the Cold War set in, they downplayed what had been widespread if decentralized consensus about the value of public spending, cultivating instead the notion that in sturdier economic times, Roosevelt’s statism threatened to snuff out economic liberty. This zero-sum appraisal of the New Deal failed to account for the ways in which investments in infrastructure and civic assets had formed a foundation for the expanding postwar economy.

The Trump administration’s renewed calls for infrastructure investments largely reinforce this zero-sum view of public-private initiative. As the President put it in his State of the Union address, his plan would “build gleaming new roads, bridges, highways, railways, and waterways across our land,” but it would do so with a vanishingly light federal footprint – perhaps as little as $100 billion of his proposed $1.5 trillion in investments would come from the federal treasury. The rest would be subsidized through private investments stimulated by state or local subsidies raised through the bond market, tolls, fees, and other local revenue sources. The administration argues that this approach would jumpstart the economy of the future while avoiding the supposed inefficiencies and bureaucratization of the past.

There are two main problems with the administration’s plan. First is that state and local governments are generally more constrained in their ability to spend than is the federal government. Indeed, as a variety of commentators have pointed out, those local or private sources of funds are wholly inadequate and almost certain not to materialize on the scale imagined. Privatization, furthermore, would likely increase infrastructure costs for the public over the long term.

But the second major problem is more conceptual: the administration’s plan treats public investment as somehow at odds with private initiative, with jobs created through federally subsidized public works programs less “real” than jobs created in the private sector. This notion flows from generations of business leaders who have spun fictions about public investment failing to stimulate sustainable economic growth, adding to our tax burden, and further bogging down the economy. It is a misreading of history that continues to be propagated by influential business conservative organizations like the Koch brothers’ Americans for Prosperity, which entirely rejects the possibility of paying for improved infrastructure by raising public revenues.

As the historical record shows, in the depths of the Great Depression generous federal spending was not only not a threat to private initiative. Businesspeople themselves understood that the jobs it created and the infrastructure it built were essential to jumpstarting private business and industrial growth. If Democrats today are serious about their proposals for a new round of massive public investments, they would be wise to relearn and champion this history.