Unemployment control in the thirties

First insertion on Heterodox Gazette Sam de Wolff: 7 november 2013

E.A. Bakkum is a blogger for the Sociaal Consultatiekantoor. He loves to reflect on the labour movement.

Until the Great Depression, which started in 1929, nearly all states adhered to an economic policy of laissez faire, so that interventions were scarce. The thirties mark a turning-point, because henceforth the states take on the task to stabilize the economy. The present column discusses some Dutch efforts and developments of that period. The study of the engineer-economist Asse Baars presents an interesting theory of the time. Besides, the provision and expansion of employment are described by means of statistical data and empirical studies. The provision of work in the province Groningen is discussed as a typical example.

Although the presented material reminds of a historical essay, the contents does have a direct relevance for the present. In the present political economics the ambition to realize full employment is gradually replaced by the stimulation of the civil participation. The social rights are restricted. The state repositions itself, and keeps the economy at an arm's length. Then it is worth while to ponder over the reasons in the thirties to plead in favour of an economically active state. That time is especially instructive and fascinating, because the social problems surfaced in a clear and undisguised form.

The conjuncture study of Asse Baars

In 1937 the Dutch Economic Institute (Nederlandsch Economisch Instituut, in short NEI) published the report Openbare werken en conjunctuur-beweging by Asse Baars1. Baars has such a remarkable personality, that his ideas must be followed with some suspicion. The character of an individual influences his scientific activity. Therefore a short biographical sketch is justified. Texts on the world wide web state, that he had a "difficult character". This may explain, why he was for many years an internationally active agitator for the Leninism. Between 1914 and 1921 he stayed in the Dutch Indies, and he tried to incite the people to revolt.

Originally Baars was a social-democrat. He joined the Indian Social Democratic Association (Indische Sociaal Democratische Vereeniging, in short ISDV), where Henk Sneevliet was also a propagandist. Soon Baars radicalized, and in 1917 (at the age of 25) he was fired as a teacher because of his critique on the governement. In 1920 he was one of the initiators of the conversion of the ISDV into a Leninist party, the Partai Komunis Indonesia (PKI). It is not surprising, that the governement disapproved of this development. In 1920 the annoyance had become so high, that Baars was expelled by the government.

Baars was not wary of experiments. He went from the Dutch Indies to the recently established Soviet Union. There he worked in the Autonomous Indistrial Colony (AIC) Kuzbass in Siberia. Apparently this experimental project of foreign workers was a disappointment. In 1927 Baars returned to the Netherlands, and he abjured Leninism. From 1928 until 1940 Baars led a rather precarious life. He did economic research, and besides he worked for various trading companies2. It is surprising, that in 1942 during the war he chose to work for some time in Germany, although he disliked Nazism. Later he was arrested in the Netherlands, and because of his Jewish origing he was transported to Auschwitz. There he died on march 6, 1944.

It is clear, that Baars has harboured rather extreme ideas, which he later abandoned. It would be naive to believe that knowledge and character can be rigorously separated3. However, in this column only the empirical part of Baars' study will be discussed, and this consists mainly of economic statistics. These can hardly be perverted, and besides Baars does try to give an accurate exposition.

In fact Baars wants to analyse the relation between the Dutch state expenses and the economic conjuncture. He aims to discover possibilities for bridling the national business cycles. In this respect the most important expenses are the investments, also called the capital expenses in permanent works, for those determine the future production capacity. Baars constructs economic time series for the period 1924-1934, because exactly in the middle of this interval (in the year 1929) the global Great Depression broke out. The period before 1929 is a phase of prosperity (in the French language a hausse), the ensuing period suffers from an economic slump4.

At the time the public investments of capital were mostly done by the municipalities, although the taxes were mainly collected by the central state. The expenses of the Department of Building and Roads, yet a ministry with an enormous collection of capital goods, and of the provinces turn out to be together merely about 10% of the investments of all municipalities5. Therefore it is not surprising, that Baars concentrates his study on the municipalities. Notably he makes a detailed analysis of the capital expenses by the municipality of The Hague. During the whole period the population of The Hague grew with 25%6.

The expenses do not include the purchase of land, because these investments do not generate immediate economic activities. It turns out that in the studied period the three main origins of costs are the construction of roads and bridges, and the building of houses and schools. These expenses are needed in order to satisfy the conditions for urban growth. It is true that most of the house-building is done by private project developers, but first the municipality must open up the plot and make it ready for building.

Figure of time series of building- and conjuncture indices
Figure 1: time series of building- and conjuncture indices:
  capital expenses of The Hague, English employment (%),
  price index for building

The figure 1 shows the development of the capital expenses of the municipality of The Hague, where the monetary sums are normalized on the average for the entire period 1924-1934. The expenses rise somewhat until the year 1930, and then fall steeply from the year 1933 onwards. As an illustration of the conjuncture the same figure shows the development of the employment in England7. A comparison of these two series is meaningful, because the Great Depression developed on a global scale, and at the time England was a global power. It is clear that the economy as a whole exhibits a downward trend already in 1930. In the conjuncture-sensitive branches such as building the employment falls even faster.

There are three reasons, why the municipal investments react so slow on the crisis. Firstly, the crisis, which began in october 1929 in the United States of America with the collapse of the prices on the New York Stock Exchange, reached the Netherlands only halfway 1930. Secondly, the Dutch taxes were collected with a delay of two years. Thus the expenses for 1932 could still be paid with the incomes from the relatively normal year 1930. Only in 1933 do the municipal incomes collapse, and The Hague correspondingly diminishes its expenses. Thirdly, building projects, which began before the crisis, must naturally be completed.

Here an additional phenomenon must be taken into account, namely the deflation of the price level, which in the Netherlands occurs from 1931 onwards. Due to the excess in supply of products the prices get into a downward spiral. In other words, the purchasing power of the guilder increases. Therefore Baars computes the development of the price index for the costs of building. Also this index is shown in the figure 1. It is clear, that the deflation causes a reduction in costs. Therefore the material volume of the activities in the permanent building is somewhat larger than the curve for the monetary investments suggest. But the municipal building activities fall even after the deflation correction, from 1933 onwards.

The capital expenses can differ from year to year, because new needs and distresses emerge. On the other hand, the income of the municipality is rather level in time, and depends on the growth of the population. The negative differences between the income and the expenses is covered by means of loans, which the municipality contracts with the financial sector. The loans are not coupled to the executed projects, but they simply serve to guarantee the municipal liquidity. Thus the conjuncture has merely a limited influence on the yearly loaned total monetary sum.

Now Baars wonders, whether the municipality could have bridled the conjuncture by raising the capital expenses during the depression, and reducing them during the hausse8. That could stabilize notably the building and metal branches. Subsequently the other branches would also profit due to the wages of the concerned workers. Nowadays such an approach is called an anti-cyclical policy. For instance, the municipality could have dropped the building activities during the hausse of 1924-1929, in order to realize them as yet during the depression from 1933 onwards.

On reflection, Baars sees few possibilities for such a policy. For, during the hausse the needs of the households and of the enterprises grow, and the municipality can not ignore them. A stop on the activities would drive away the industry and commerce from the town. Fortunately, there is an alternative: the municipality can start the expansion of her building activities during the depression. Then those additional buildings are erected for the activities, which are expected in the ensuing hausse.

This alternative approach is evidently somewhat speculative. For, the municipality must make an estimate of the expected growth. She must predict the needs for the following years with respect to plots, which are opened up and made ready for building. This may be possible for the growth of the population. But the future growth of the economy is a rather uncertain factor. Besides, in order to truly prevent the unemployment it is also necessary to foresee the depth of the baisse already at the start of the depression. Yet Baars believes, that it is worth while to try this anti-cyclical policy.

Here Baars warns, that the building activities, which are planned for the depressions, must already be prepared in detail during the hausse. For, the various administrative procedures, such as the acquisition of permits, take much time. The building projects must be readily available, so that at the start of the depression they can be executed immediately. Furthermore, it must be accepted, that the permanent building is not yet profitable during the depression. This may cause psychological difficulties, because there seems to be a lack in demand. The profitability must be judged on the basis of the expected utilization in the coming hausse.

State interventions during a high unemployment

The anti-cyclical policy, which is proposed by Baars, aims to further the employment. The state tries to stimulate the economy in such a manner, that the unemployment is avoided. This is called work-enlargement. In the book Geeft ons Nederlanders toch werk by F.G.W. Goudriaan two other policy instruments are discussed, besides the work-enlargement9. They are the control of unemployment itself, and the fight against its consequences. Contrary to Baars, Goudriaan studies the entire state policy, and not merely the municipal policy. Moreover, Goudriaan focuses his study on the thirties. In this paragraph the study of Goudriaan with regard to these three policy instruments will be summarized.

In 1939 the unemployment is solved thanks to the military mobilization against the Nazist threat. It is striking that in the thirties the policy instruments are still so limited. In the various programmes and projects at most 15% of the concerned unemployed target-group is reached. On the other hand the measures aim at the most hard-hit groups. Goudriaan makes a comparison with the measures against unemployment during the early eighties of the last century. Then the reach of the programmes turns out to be even more limited: between 5% and 10%. This is the consequence of the policy choice to further the employment (work-enlargement) instead of fighting the (consequences of) unemployment.

The work-provision in Groningen

The two preceding paragraphs present mainly a technical story of state interventions in the economy. The policy is needed, because the labour market is destabilized by the business cycles. The reader will not be surprised, that now the effects on the job satisfaction are studied, a subject which has already been discussed here, and which interests your columnist. What remains of the human preferences and needs, when people are coerced by the whip of hunger to accept an arbitrary job?

It is obvious that the negative consequences appear notably in extreme situations. Therefore the work-provision in the peat-moors in the province of Groningen is a good example. An interesting description for the period 1924-1939 can be found in the book De hel van Jipsinghuizen by C. Stolk11. The study includes many in-depth interviews with the concerned people, and therefore gives an accurate portrayal, albeit not entirely representative. The contents of this paragraph is based on the book of Stolk.

The work-provision in Groningen is an initiative of the municipalities of Groningen, notably of the illustrious burgomaster of Delfzijl, J. Buiskool. Together the municipalities found the N.V. Vereeniging Groninger Gemeenten (VGG), which buys parcels of peat-moor and uses the unemployed for their reclaiming. The reclaiming requires to dig up the complete top layer of approximately 70-100 cm. The reclaiming makes the fields suitable for the agriculture, so that afterwards they can be sold to this branch. In the crisis years the initiative becomes exemplary at the national and even international level. In the peak years (1935, 1939) about 8000 men are employed.

Figure of barrack in Vught
Figure 2: brick barrack in camp Vught;
  the VGG barracks were made of wood

The primary aim is the conservation of a good worker's moral12. Therefore the reclaiming is executed with teams of ten workers, armed with merely a spade and without the use of machines. The VGG obtains the necessary means from the state, and the Heidemij takes care of the daily supervision. Since the unemployed are enlisted everywhere in Groningen, and sometimes even in the western part of the Netherlands, they are housed at the field of work, in barracks or sheds, with dormitories for thirty men. They can go home only during the weekend. The larger settlements for reclaiming consist of some ten barracks, with from 1932 onwards a religious recreation centre.

Even though the target group is rather diverse, yet the work-provision aims primarily at the unemployed farm workers from Groningen itself. The VGG is founded already in 1924, so far before the start of the Great Depression. Originally the aim is to offer a relief for the seasonal unemployment. The farm workers are often so-called casual labourers, who go from farm to farm in order to find jobs. Farm work (drag and plow) is their daily existence. At home they have a kitchen garden in order to supplement their daily alimentation. Smuggling to Germany, for instance butter, and begging for charity are also popular pastimes. Thus the picture emerges of an anarchistic type of man. This explains the popularity and political success of the "free" socialists and of the Leninists in the province of Groningen13.

The reader understands, that among the workers there were many hard-core complainers. Spontaneous strikes are not rare on the work-provision of the VGG. The trade unions keep their distance, because in this work the production is a thing of secondary importance and thus the strike is devoid of power. The social-democracy even tends to sympathize with the Work-provision in Groningen. Some of the compainers are interviewed in De hel van Jipsinghuizen, in order to justify this high-sounding title14.

Perhaps the best insight into the job satisfaction is given by the story of the so-called shed-women15. Each shed is managed by a shed-woman, who lives there with her family and provides for the meals and the cleaning. Her husband takes care of the thirty plank-beds, and besides also works on the peat-moor. A shed-woman says: "Most of the time we were all in the shed. A village in itself, and quite pleasant". Another tells: "The atmosphere among the workers was good. Playing cards and drinking coffee. The friday-evening was always special. Then sometimes a worker played on his mouth-organ". Another: "There was dancing on friday-evening. The men with each other and with me". Her son: "I often played football on the heath, together with the workers".

This does not remind of a hell. Moreover friend and foe agree, that the food (for instance peas and bacon dripping, and half a liter of porridge from buttermilk) is excellent. There does prevail dissatisfaction with the beds, albeit not with everybody. Namely, some workers spread flees and lice, and these infest the beds. The taking turns worsens the situation, because different workers sleep in the same bed. Everybody remembers the stench of lysol, because the blankets are disinfected on a daily basis, unfortunately without ending the plague. A tidy worker tells that at night he wrapped sheets around his legs, against the bites of the flees16.

When one reads between the lines in De hel van Jipsinghuizen, the impression remains that the work-provision was a welcome solution for some unemployed. Others went with some dislike, realizing that she is a part of the difficult depressions years. But there were definitely also workers, who experienced the work and/or the housing as a vexation. Here the dark side of this policy instrument appears. Coercion and arbitrariness are not a good combination. Also for some the primitive and inefficient working method must have been demoralizing17. Machines would have done the reclaiming faster, cheaper and with a better quality. For the sake of the employment the mechanization can be slowed down somewhat, but she must not be abandoned.

More generally, the work-provision in Groningen illustrates the disadvantages of the coerced accepting of arbitrary and ill-suited work. When workers are not allowed to do jobs that they like and where their skills matter, then productive capacity is wasted. Social rights such as a generous unemployment benefit help to place the unemployed in jobs, where their productivity is maximal. However, when the state limits his interventions to guaranteeing merely the civil rights, while neglecting the social rights, then the social production will fall to a lower and thus sub-optimal level.

  1. See Openbare werken en conjunctuurbeweging (1937, De Erven F. Bohn N.V.). The Nederlandsch Economisch Instituut was managed by J. Tinbergen, P. Lieftinck, N.J. Polak and F. de Vries. (back)
  2. On p.146 of Openbare werken en conjunctuurbeweging the amusing lamentation is written: "For the engineer this area promises to create new activities, so that not only will the demand for technical workers rise, but also these workers will more than now contribute to the stabilization of the social relations and to avoiding the economics depressions with all their horrible consequences". The connection with his own situation strikes the eye. (back)
  3. Although your columnist believes that the work of Baars deserves several columns, he can not sympathize with his behaviour. For, the "passionate" character of Baars is also visible in his personal life. At the age of 22 years he marries for the first time, with a doctor. Six years and two children later the marriage is dissolved. The children are assigned to the mother. Barely a year later Baars marries again, this time with an Indian girl, at the age of 17 years. The marriage is contracted in the month, when he is expelled and moves to the Soviet Union. Thirteen years and two children later also this marriage was dissolved. Then the family had already returned to the Netherlands and the children were assigned to the father. Just six months later he married for the third time. (back)
  4. If desired, the interested reader can consult the concerned column about the theory of business cycles. (back)
  5. See p.47 in Openbare werken en conjunctuurbeweging. (back)
  6. See p.78 in Openbare werken en conjunctuurbeweging. Due to the urban expansion the part between the Laan van Meerdervoort and the foot of the dunes is added, as well as the area around the Laakhaven. (back)
  7. See the annex in De konjunktuur (1933, N.V. De Arbeiderspers) by J. Tinbergen. This books addresses the target group of executives in the labour movement, where your columnist feels at home. It is likely that nowadays data about the Dutch conjuncture during that period are available, but your columnist does not have them readily at hand. According to Baars on p.26 of Openbare werken en conjunctuurbeweging the Dutch employment in 1930 is even slightly larger than in 1929. Incidentally, he does not mention, whether these are numbers or percentages. For the present purpose the English time series suffices. (back)
  8. Nowadays such ideas are attributed to Keynes. However, Baars refers to A.L. Bowley, who published them several decades before. The congenial Sam de Wolff is not even mentioned in the book of Baars. (back)
  9. See Geeft ons Nederlanders toch werk (1986, Staatsuitgeverij) by F.G.W. Goudriaan. (back)
  10. This aspect is explained on p.42 of Politische Ökonomie des Sozialstaats (2009, Verlag Westfälisches Dampfboot) by H. Ganßmann, albeit in the context of the willingness to pay taxes. (back)
  11. See De hel van Jipsinghuizen (1999, Uitgeverij Mijnders) by C. Stolk. Your columnist acquired this book some ten years ago in a museum during the holidays (by bicycle) in the former peat-moor fields. Thus in the end everything finds its proper place. (back)
  12. According to p.23 of De hel van Jipsinghuizen Buiskool complains: "Gradually the old virtue of thrift and stubborn self-help, and the aversion to ask the community for support, have been lost almost completely". And he wants to get the unemployed off the streets, "where since some years they tended to knock about, to the annoyance of all reasonable people, and especially those who pay taxes". And: "There is no better means to select the really unemployed than this: send them to a workshop, which is far from home, and forces them to stay away for two weeks". It is typical for Buiskool, that during rebellions he appears on the scene by himself, visibly armed with a gun. Before that Buiskool was a priest. He is an adherent of the liberal democrats. (back)
  13. Worth mentioning is the socialist anarchist Harm Rienmeyer, who was employed by the work-provision for fifteen years, and apparently felt at home. He writes poems, which he sells to the workers. Stolk publishes his poem Werklozenlied van Jipsinghuizen and De hel van Beetse. The Werklozenlied (13 stanzas) begins like this: Far from home, from wife and kids / On the fields of Westerwolde / the worker must toil, slave / There he sings his song of revenge / Under the knout of Reverent Buiskool / With the curse of Beerenbrouck / And the whole kapitalist lot / There he sighs his curse of aversion. The Hel starts with: There yonder on the Beets / That land of sand and heath / Lives an oppressed class / In its deep slavery. Well! (back)
  14. Most complaints concern the lack of justice and the humiliation. Supporters reply, that the humiliation in charity was even worse. Also there are complaints about the wage, which is meagre and is reduced further during the recession years. Stolk does not mention, that at the same time the prices fall due to the deflation, certainly those of the nourishment. Not all indignation is justified! (back)
  15. See p.115-121 of De hel van Jipsinghuizen. (back)
  16. See p.95 of De hel van Jipsinghuizen. (back)
  17. On p.96 of De hel van Jipsinghuizen a former dock worker says: "It was all dead, useless work. Of course draglines could have done the work. But these were rotting elsewhere". (back)