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Democracies in Crisis
Political responses to the Great
Depression
The Department of Political Science
Presents
The Territory of Somewhat Requited Dreams:
Creating an ethnically-sensitive state in Nunavut
Dr. Annis May Timpson
Director of Canadian Studies
University of Edinburgh
Science Building Lecture Theatre
February 12, 2008 @ 7:30pm
The 1929 crash

October 1929: NY Stock market crashes
Immediate knock-on effects



‘Scramble for liquidity’
Bankruptcies, bank failures
•




Creditanstalt (1931) > runs on other banks, firms, pressures on
gov’ts dependent on credit
Rising unemployment
Falling demand reinforces downward spiral
US responds by raising tariffs, calling loans
Impact spreads rapidly to Europe:


Germany’s ability to pay reparations depends on US loans….
Contraction of world trade
Initial responses
Some relief efforts (e.g. UK) but for the most
part economic orthodoxy prevails
 Governments use tariffs & quotas restrict
imports, prevent outflow of gold
 Try to balance budgets by raising taxes,
reducing expenditures, cutting wages
 Firms respond in same way
 Net effect: pro-cyclical, reinforcing
downward spiral > vicious circles
Britain






Minority Labour government tries to balance budget
Attempts to lower wages by 10% in 1931
Resistance forces Britain to abandon gold standard
Devaluation improves competitiveness, mildly countercyclical effects
National coalition (Liberals, Conservatives, Ramsey
MacDonald without Labour) presides over depressed
economy
Nevertheless



Some nationalizations (e.g. London transport), rationalization of
coal industry
Investment in housing (facilitated by cheap money
Existing pensions & unemployment insurance systems
overwhelmed by the magnitude of the problem
Germany:
 Withdrawal
of American loans results in
precipitous decline in production &
employment
 Brüning government responds by
increasing taxes to reduce deficits &
balance budgets
 Deflation & end of reparations fail to arrest
downward spiral
 Support for Communists & Nazis grows
France

Initially cushioned



Tardieu gov’t attempts to modernize & reflate economy but maintain
gold standard



Torpedoed by divisions within coalition: his own Radicals fail to
support…
Conservative coalition assumes office
1932 election brings coalition of left to power


large # of small, self-financing firms
But decline in exports (because of gold standard) & fall in commodity
prices ripples through economy
Unable to act because of divisions between Socialists & Radicals
Increased polarization


Workers radicalized – move left
Peasantry moves to the right
The 3rd Republic Party system
PCF SFIO RADICALS
independents far right
__________________________________
Left
Right
Toward the Popular Front
 From
1932: left majority if Communists,
Socialists & Radicals can cooperate
 But

Communists turned inward:
•
•
•
•
Bolshevized
unwilling to cooperate with ‘socio-fascists’
Socialists distrust Communists
Socialists and Radicals unable to sustain
cooperation: Radicals unwilling to accept Socialist
demands for reforms, 40 hour week,
Changing domestic & international
situation
Domestic side
 Growing unrest: increasing activities of far right,
fascist groups –




Action Francaise
Faisceau
Jeunesse Patriotes
Croix-de-Feu…
Financial scandal results in “Stavisky” riots &
resignation of Daladier government (1934)
 Fears of fascist takeover (not necessarily wellfounded)

International
fear of Nazism – espec. among
Communists
 Alliance between France & USSR from
1935
 Growing

Maintaining it contingent on keeping right from
coming to power
 Growing
sense that a popular front &
common program needed
The Popular Front (1936-1938)



Coalition between Socialists & Radicals under Leon
Blum -- Communist support but stay out of government
Committed to progressive policies
Implementing them another matter:


Unions stage wave of strikes, factory occupations
Matignon Accords (1936):
• employers concede wage increases, 40 hour work week
• Unions recognized as collective bargaining agents

Problem: investors move money outside the country
• increased uncertainty about profits,
• maintenance of gold standard

Problems containing right, support, containing left (Spanish civil
war) or maintaining coalition
Demise of the popular front

Blum in office until 1937

Under constant pressure from not only from bourgeoisie but also
Communists, others favouring:
• Intervention in Spanish Civil War (1936-39
• Further concessions to workers

Popular Front governments in power through 1938







broaden ownership of Bank of France
Devalue (leaving the gold standard)
Nationalize munitions industry
Fix price of wheat
Raise school leaving age from 8 to 14
Begin rearming
By 1938 Popular Front dissipates, coalition shift to the
right, workers gains rolled back > strikes & unrest
Sweden: public works & countercyclical management

Background



19th century = fortified poorhouse
Early adoption of universal suffrage & proportional representation
Four party system:
Social Democrats, Agrarians, Liberals, Conservatives
__________________________________________


Through1920s, no clear majority
From 1933:



Social Democrats gain strength
Form SD gov’t with Agrarian support
Begin long period of SD rule
• In power for all but 6 years through 1990s
Policies


Deficit financing
Immediate spending on public works, housing, creating
work


1938: Saltjöbaden Accords – agreement between trade
unions (LO) & employers federation:



In effect counter-cyclical management or Keynsianism -foundation of post World War II welfare states
Employers recognize unions, agree to bargain centrally them
Unions recognize right of owners to manage firms as they see fit,
make profits
Lay foundations for well-developed welfare state, with
workers earning high incomes & owners of capital high
profits – what elsewhere would be called the postwar
settlement
Why Sweden?

Unified labour movement – not split on religious
or ideological lines

two legs:
• Social Democrat
• LO (trade union federation)
Pragmatic – not hemmed in by Marxist theory
 Sufficient support to set terms of a bargain which
capital can accept (vs. Matignon accords)

Why not elsewhere?

Two reasons:


Those who do want to experiment lack the
power to do so:




Limits of dominant ideas, especially classical
economics
Social Democrats in the Netherlands
French Socialists
Mavericks in established parties
Osvald Moseley in UK – leaves Labour to
establish British Fascist Party
Ironically
Keynes’ ideas – foundation of post-world War II
economic management – are around
 Keynes publishes General Theory of
Employment, Interest & Money in 1935
 Not only Swedes, but two other countries adopt
similar policies:



United States under Franklin Roosevelt
Nazi Germany, as a result of military spending, public
works projects