First Flight of the Blue Eagle: The Cotton Textile Code in Operation
JUNE 16, 1933, hereafter will have significance in American industrial activity as the day upon which the National Industrial Recovery Act became effective. The affixing of the President’s signature to the Act at once opened the way to placing the conduct of all American industries under codes of fair competition subject to the sanction of the President and the supervision of a National Administrator.
On the same day on which the Act was signed there was submitted to the President a code for the cotton textile industry. This code had been formulated by a representative committee authorized by the industry to act in anticipation of the passage of the bill by Congress. Following a public hearing, lasting the greater part of a week and attended by several thousand people, the first partnership agreement between industry and the government was approved by the President. The code became effective on July 17, 1933.
I
The problems of the cotton textile industry, dealt with by its code, were largely of war-time origin. Abnormal military requirements had stimulated great expansion of facilities. Not alone was there extensive development of new productive capacity. The pressure of demand invited extra running, and productive schedules were changed over very largely from one-shift to two-shift and in some cases to threeshift operations.
Extended operation was a habit easily acquired in those feverish times. Like all habits, it was more easily embraced than abandoned. When the inevitable let-down from war-inflated activity came, the industry found itself possessed of far greater productive capacity than it required for normal business. The problem was intensified by entrenched extra-shift operation.
It was a natural concomitant that the resultant over-capacity should have disastrous reactions. Reasonable balance between productive capacity and consumptive requirements no longer obtained. In such a situation, there is an acute pressure on each unit in an industry to seek as large a share as possible of the inadequate demand. The overhead based on capacity runs on. There is not enough business to keep all busy, and the pressure to reduce overhead by increasing volume drives the seller into panic selling. The buyer, knowing the over-capacity and the ever-present threat of over-production, holds off in the knowledge that his demands can be more than amply satisfied, and on his own terms, whenever he gets good and ready to buy.
The inevitable result is a scramble of sellers for orders, and volume production without regard to costs. The result is reflected back on the wage earner. There is a steady pressure on the employees to accept lower wages in order to make it possible for the plant to keep operating. There is a tendency to eat up the working capital in continuing to do work below cost in the desperate effort of the concern to keep going. When there is this situation, concerns go under. But the factory and machines are not destroyed — they merely afford a temptation for others to buy them in at a low figure and to increase the destructive competition by operating them at fixed charges that are far less than those which are properly attributable to the amount of capital involved.
These unavoidable results of overcapacity made cotton textile manufacturing a chronically depressed industry which was generally unable to earn profits even in the boom period of 1928 and 1929.
II
In the discussions between the representatives of the President and the industry which led up to and made possible the proposal of the code following the signing of the Act, three objectives were recognized as fundamental by the industry and by the government. These were: (1) putting a bottom to wages; (2) spreading employment; (3) mitigating the disastrous social and economic effects of the cutthroat competition which resulted from the tremendous over-capacity in the industry.
The methods agreed upon by the industry and the representatives of the President to reach these objectives were: (1) provisions as to minimum wages and the preservation of wage differentials; (2) reducing the maximum hours of labor from 60 hours a week to 40 hours a week; (3) reducing the over-capacity of the industry by limiting the running of its looms and spindles to 80 hours a week.
These methods involved the sharing of the work done by a particular employee with employees then unemployed. In the case of employers, it necessarily meant sharing the business which was then being done by the numerous mills which were operating over 80 hours and up to 144 hours a week with those concerns which had been operating from no hours up to 80 hours a week.
All of these drastic provisions were interrelated, interdependent, and equally important, both in the minds of the industry and in the minds of the representatives of the President. Without the stabilization of the industry accomplished by the sharing of business, it would have been impossible for the industry to assume the burdens of the increased costs occasioned by the wage and sharing-of-employment provisions without the wholesale oppression and elimination of small concerns, contrary to the spirit and express provisions of the Act.
But for the inclusion of this basic provision limiting machine hours, with its resultant sharing of business and mitigation of cutthroat competition, the Cotton Textile Industry Committee could not have presented this code for the approval of the President, though as a matter of fact the running time of the individual members of that committee was such that it necessarily involved a direct limitation upon their previous practice and a sharing by them of business with other mills.
Operation involving extremely long hours meant all-night running. The cotton textile industry prior to the World War never was an all-nightrunning industry. All-night running is not tolerated in any other civilized country in the world and in few of the semi-civilized. There is nothing in the operation of a cotton business which makes it necessary that it should be treated as a continuous process with all-night running. The industry to-day has 30,000,000 spindles in place. One half that number, if operated six days a week without limitation on hours of operation, could supply a market equaling the 1929 consumer demand for cotton goods. There lies the crux of the industry’s problem. Control of this over-capacity is all-important; therefore, provision for limitation on operation of productive machinery becomes the corner stone of the cotton textile code.
III
At the time of this writing, the code has been in effect nearly six months, and well-defined reactions have been registered. Let us trace NRA’s progress in the industry toward accomplishment of the objectives previously outlined.
First, as to putting a bottom to wages. There are diverse classifications of employment in mills, ranging from unskilled work to a high degree of craftsmanship. The skilled group includes those workers possessing varying degrees of proficiency for production ranging from coarse bagging to the finest lawn or organdy for evening gowns. Rates of pay always recognized various classifications among workers. Establishment of minimum wage levels was essential under the code. This meant higher levels at the bottom of the pay roll, and new scales must preserve the traditional differentials for the higher occupational groups. A further objective was that the shorter hours should not result in less pay for the shorter week, nor should minimum wages become maximum wages.
These objectives have been accomplished. The established minimums have been observed, but they have not become the maximums. Traditional differences for the higher occupational groups have been preserved and exceeded. For example, the average for seven occupational groups in 1932 that earned, according to government reports, more than the minimum wage now prescribed by the code was 34.9 cents an hour. In August 1933, the average for the same groups was 43.9 cents per hour, an increase in hourly rate of 25 per cent. Furthermore, the August 1933 rate for these groups was about 40 per cent in excess of the code minimum.
The effect of the shorter working week and pay changes has been increased wages all along the line, with workers generally earning as much or more money in less working time than their pay for longer hours.
Next, with respect to spreading employment. The limitation of working hours to 40 hours a waek was directed toward enabling the industry to carry as large a working personnel as was employed prior to the depression. This objective has not only been reached but surpassed. The number of workers employed in March, prior to formulation of the code, was 320,000. By October the number had risen to 465,000. This total raises employment to substantially higher figures than pre-depression levels.
The industry’s pay rolls strikingly reflect the higher wages and increased employment for workers. The pay rolls for March totaled $12,800,000. By September, the monthly total was approximately $26,000,000, and this increase was maintained in October. Increased pay for cotton textile workers has been doing its share toward improvement in national purchasing power. Under the wage and employment provisions of the code the improvement for the workers, reflected in the foregoing paragraphs, speaks for itself. So far, in this presentation, evidence of an improved position for the industry as a whole has not been so conspicuous.
IV
In mitigating the disastrous effects of over-capacity, emphasis is again placed on the most important objective of the code. Rehabilitation in this industry begins there, and, without progress toward rehabilitation under this provision, improvement in the other directions could not be maintained. NRA entailed for the cotton manufacturer minimum pay envelopes, reduced working hours, and a larger working personnel. Largely because of the machine-hour limitation, the industry has been able to carry the burden of its increased costs. Increased wages, plus the necessary addition to working forces because of shorter working hours, have increased the labor costs of many mills by more than 100 per cent. The average labor cost per unit of product for the industry as a whole has increased 70 per cent.
Through the control established by machine-hour limitation alone is the industry able to see ahead a reasonable degree to perform its obligations toward its employees and to do its part toward the reestablishing of credit and the general recovery programme. This limitation has gone far to remove the threat of over-production. Under statistical provisions, the Cotton-Textile Institute receives reports of stocks and unfilled orders with respect to broad divisions and staple constructions of cotton textiles from many hundreds of mills. These reports present broad pictures as follows: —
First, as to stocks, they show that in the middle of September, 1933, stocks approximated 240,000,000 yards as against 240,405,000 yards on September 30, 1932. On October 31, 1933, the total was 288,000,000 yards. With respect to unfilled orders, the volume of seasonal buying of cotton goods last year was very heavy, and on September 30, 1932, unfilled orders amounted to 570,000,000 yards. On September 16, 1933, the same mills had unfilled orders amounting to 425,000,000 yards, and on October 31 the total was 450,000,000 yards. Up to November, production had been fairly well balanced with demand.
This article is being written in early January. The statistics in recent weeks have reflected an increase in inventory and a falling off in unfilled orders. Such a development is not unusual for this season of the year, owing in large measure to a natural tendency on the part of the distributing trade to enter the new year with the lowest possible inventory. Nevertheless, acting on the principle that production should constantly be balanced with demand, the Code Authority met in Washington on November 28 and recommended that for the month of December productive machinery should not operate in excess of 75 per cent of the hours otherwise permitted under the code. It was the unanimous feeling of the committee, including its government representatives, that this emergency recommendation would help preserve an equitable sharing of present inadequate business and employment among the mills and the communities and employees dependent upon the industry’s activities. The proposal was promptly approved by the Administrator and given the same force and effect as any other provision of the code. Reports from Washington indicated that this action was ‘ hailed by government representatives as a constructive step in selfregulation.’
V
While control of over-capacity has opened the road toward rehabilitation, the picture on the earnings side still leaves much to be desired. Prices obtained by mills for their products over a long period of years had been so low as to eliminate profits, with very few exceptions. A careful study based upon the most authoritative data available shows that during the past ten years 1060 mills in the industry had a net deficit of more than $100,000,000 after income tax payments.
Increased production costs under NRA, supplemented by a processing tax which adds from 30 to 45 per cent to the cost of the raw cotton used, are naturally reflected in higher prices obtained by mills for their products. But it is a mistake to assume that the higher retail prices are attributable to unreasonable advances by the cotton textile industry. Before the products of the mills reach the public, they usually pass through four or five other manufacturing and distributing channels, such as finishing plants, converters, garment manufacturers, wholesalers, and retailers. All of these are operating under codes with increased labor and supply costs which must necessarily be added to the retail prices and necessarily paid by the public. So far as the cotton textile industry is concerned, no improper burden has been placed on the consumer.
The industry as a whole is getting back the dollars it has put into the production of the goods; in the main, something for depreciation, and, in some branches, something toward interest on investment. In general, it is receiving nothing beyond that. It has, however, experienced improvement in the economic and credit position from its disastrous situation in the early spring of 1933. NRA, in theory, predicates an expanded national purchasing power stimulating freer consumer buying at prices no longer the origin of balance-sheet tragedy. To this brighter era the cotton textile industry must look for such share of recovery as will assure the industry a living return on investment.
The question which is perhaps uppermost in the public mind is, ‘Will NRA be successful? Will it reach the objectives set for it?’
It is yet too early to give an answer. But those of us who dare not contemplate its failure place our hope in the fearless and able leadership that has so far characterized its administration, in a never-failing recognition of the partnership relation between the government and industry, in an ungrudging public willingness to assume the necessary higher costs attendant upon these efforts to improve the national purchasing power, and finally in wholehearted and unstinted cooperation on the part of labor as well as management.
For the cotton textile industry it can be said that NRA was adopted with a willingness and a desire to give it unrestricted opportunity to succeed. In its collaboration with the government the industry has shown a unity and an ability to work together for the common good. Both in the letter and in the spirit of observance the industry has given the Recovery Administration its full measure of support and cooperation.