Revisiting Corporatism Eighty-Five Years After Schechter

Eighty-five years ago this past May, the Supreme Court struck down a statute that overhauled U.S. economic regulation according to principles promoted in a papal encyclical. The case was A.L.A. Schechter Poultry Corp. v. United States (“Schechter”),[1] the statute was the National Industrial Recovery Act of 1933 (“NIRA”), and the encyclical was Quadragesimo anno. NIRA, and the agency it created (the National Recovery Administration (“NRA”)), represented the high tide of the U.S.’s brief experiment with corporatism.[2] To the extent NIRA is remembered at all, it is often viewed as an unwieldy, ill-conceived–but perhaps understandable–response to the Great Depression. Among right-liberals in particular, NIRA is denounced as a shameful flirtation with an un-American authoritarian continental ideology. Indeed, the Supreme Court’s unanimous decision striking down NIRA seems to reflect distaste with the corporatist principles underlying the statute. Since 1935, however, the specific legal grounds on which the Supreme Court invalidated NIRA have either become obsolete or called into question and, in any event, Schechter’s concerns can be avoided in future legislation. Notwithstanding the historical importance of Schechters death-blow to American corporatism, neither Schechter nor any other constitutional principles foreclose reinvigorated corporatist reforms, which are as needed today as they were during the Great Depression.

Corporatism and Quadragesimo anno

Corporatism has its origins in the guilds of the Middle Ages and the institutions of the Ancien Régime.[3] It was developed in the post-revolutionary and industrial era by 19th-century Catholic philosophers like Bonald and La Tour du Pin. Although Rerum novarum[4] was not an explicitly corporatist encyclical, Leo XIII seems to have gestured toward corporatism by suggesting the possibility of associations that could mediate the rights and duties of both employers and employed. More generally, corporatism is undoubtedly consonant with Leo XIII’s rejection of the class conflict assumed by both socialism and liberal capitalism:

In a State is it ordained by nature that these two classes should dwell in harmony and agreement, so as to maintain the balance of the body politic. Each needs the other: capital cannot do without labor, nor labor without capital. Mutual agreement results in the beauty of good order, while perpetual conflict necessarily produces confusion and savage barbarity.

Following Rerum novarum, corporatism (like distributism, which bears a family resemblance to corporatism) attempted to embody the “third way” that Leo XIII called for. In the first decades of the Twentieth Century, corporatism began to find expression in several European countries. Corporatism was promoted in a variety of regimes, including those of liberal, Catholic, and (yes) fascist orientation. Needless to say, however, an endorsement of corporatism does not also entail sympathy for fascism, which has no necessary or intrinsic connection with corporatism at all.[5]

Corporatism received its greatest endorsement in Pope Pius XI’s 1931 encyclical Quadragesimo anno.[6] Space limitations make it impossible to do justice to the depth of Pius XI’s theological and philosophical vision and the economic sophistication of his proposal, so I will offer only a brief sketch of Pius XI’s view of corporatism.

Pius XI proposed “the re-establishment of the Industries and Professions” (i.e. mixed associations of both labor and capital) as an alternative to the unnatural division of society along class lines:

Because order, as St. Thomas well explains, is unity arising from the harmonious arrangement of many objects, a true, genuine social order demands that the various members of a society be united together by some strong bond. This unifying force is present not only in the producing of goods or the rendering of services – in which the employers and employees of an identical Industry or Profession collaborate jointly – but also in that common good, to achieve which all Industries and Professions together ought, each to the best of its ability, to cooperate amicably. And this unity will be the stronger and more effective, the more faithfully individuals and the Industries and Professions themselves strive to do their work and excel in it.

These Industries and Professions, while remaining voluntary associations, would receive juridical personality from the state and a “monopoly-privilege.” They would have the ability to bind their members, both labor and management, who would jointly govern the association and “direct the syndicates and coordinate their activities in matters of common interest toward one and the same end.” Because rules and agreements of the Industries and Professions reflect the agreement of both the employees and the employers, “strikes and lock-outs are forbidden.” In the event of an impasse, “public authority intervenes.”

While Pius XI recognized that the state had an important role to play in overseeing and coordinating the Industries and Professions–and intervening if necessary–he emphasized that the principle of subsidiarity must be respected:

The supreme authority of the State ought, therefore, to let subordinate groups handle matters and concerns of lesser importance, which would otherwise dissipate its efforts greatly. Thereby the State will more freely, powerfully, and effectively do all those things that belong to it alone because it alone can do them: directing, watching, urging, restraining, as occasion requires and necessity demands. Therefore, those in power should be sure that the more perfectly a graduated order is kept among the various associations, in observance of the principle of “subsidiary function,” the stronger social authority and effectiveness will be the happier and more prosperous the condition of the State.

Pius XI concluded his outline of corporatism by stating: “Anyone who gives even slight attention to the matter will easily see what are the obvious advantages in the system We have thus summarily described: The various classes work together peacefully, socialist organizations[7] and their activities are repressed, and a special magistracy exercises a governing authority.” He cautioned, however, that to achieve “the lofty aims, and in particular to promote the common good truly and permanently” it will be necessary for any such system to be imbued with Catholic principles “under the leadership and teaching guidance of the Church” accompanied by moral reforms.

The National Industrial Recovery Act

Two years after Quadragesimo anno, President Franklin Roosevelt signed into law the National Industrial Recovery Act. The corporatist orientation of NIRA is obvious in its first section, which states: “it is the policy of Congress . . . to provide for the general welfare by promoting the organization of industry for the purpose of cooperative action among trade groups, [and] to induce and maintain united action of labor and management under adequate governmental sanctions and supervision.”[8] NIRA gave the President the authority to approve “codes of fair competition” proposed by “one or more trade or industrial associations,” with such revisions as the President sees fit “for the protection of consumers competitors, employees, and others, and in furtherance of the public interest.” These codes had the force of law and were enforced through injunctions, fines, and a licensing regime. NIRA required that the trade or industrial associations be “truly representative of the trade or industry or subdivision thereof represented by such organization.” Crucially, NIRA specified that all codes of fair competition must permit collective bargaining without coercion from the employer and “employers and employees in any trade or industry” must be given the opportunity to “establish by mutual agreement, the standards as to the maximum hours of labor, minimum rates of pay, and such other conditions of employment as may be necessary in such trade or industry or subdivision thereof . . . and the standards established in such agreements, when approved by the President, shall have the same effect as a code of fair competition.” In the event labor and management were unable to reach a mutual agreement, the President was “authorized to prescribe a limited code of fair competition fixing such maximum hours of labor, minimum rates of pay, and other conditions of employment in the trade or industry or subdivision thereof investigated as he finds to be necessary to effectuate the policy of this title, which shall have the same effect as a code of fair competition approved by the President.”

While it would be an exaggeration to say that NIRA was directly inspired by Quadragesimo anno, it is likely that Pius XI had some influence on NIRA. Indeed FDR publicly praised Quadragesimo anno in a campaign speech in 1932, the year before he signed NIRA into law.[9] The compatibility between the statute and the encyclical was not lost on U.S. Catholics. One prominent American Catholic, Msgr. John A. Ryan, wrote in 1934 that “[t]he accord between [NIRA] and the principles of ‘Quadragesimo Anno’ is easily perceived,”[10] even though he acknowledged that “the Pope is more radical than even the New Deal” and NIRA “does not go as far as the occupational group or organization recommended by Pope Pius XI in Quadragesimo.”

Indeed, the similarities between NIRA and Quadragesimo anno are apparent. “Trades and industrial associations,” like the Industries and Professions in Quadragesimo anno, have the ability to propose rules and regulations for themselves, subject to the approval of the state, which grants these associations a “juridical personality” and “monopoly-privilege” by giving these codes of fair competition the force of law. Moreover, NIRA sought to foster class cooperation by requiring all industries to permit collective bargaining with the aim of reaching a mutual agreement on wages and other matters. Consistent with Quadragesimo anno, however, the state had the authority to step in and impose wage and hour regulations if mutual agreement cannot be reached. Under NIRA, the ultimate criterion for the various regulations was “fair competition” or the “public interest,” which understood correctly, is consistent with Pius XI’s invocation of the common good. While not a perfect implementation of Quadragesimo anno (for example, it could be argued that NIRA failed to meaningfully facilitate robust and organic vocational associations and gave short shrift to subsidiarity) it would be hard to find another example of a U.S. statute that so clearly reflected principles advanced in a papal encyclical.

Schechter

Brooklyn slaughterhouse operators A.L.A. Schechter Poultry Corp. and Schechter Live Poultry Corporation were convicted of criminal violations of the Live Poultry Code, an industry-specific fair competition code promulgated by the President pursuant to Section 3 of NIRA. The Live Poultry Code established a 40-hour work week, a minimum wage of 50 cents per hour, prohibited the employment of anyone under the age of sixteen, guaranteed collective bargaining, and established various regulations concerning trade practices and prohibiting unfair methods of competition in the industry. The Code also provided for the creation of an industry advisory committee “to be selected by trade associations and members of the industry, and a “code supervisor,” to be appointed, with the approval of the committee, by agreement between the Secretary of Agriculture and the Administrator for Industrial Recovery.”

Writing for the unanimous Court, Chief Justice Hughes declared Section 3 of NIRA unconstitutional as a violation of the “nondelegation doctrine” and beyond the scope of the interstate commerce clause (as applied to Schechter Poultry). The Commerce Clause holding is probably the less interesting of the two grounds. The Court held that the criminal activity of the poultry slaughtering business in question was neither “in” interstate commerce nor did it “affect” interstate commerce. This conclusion was based on the Court’s view that “where the effect of intrastate transactions upon interstate commerce is merely indirect, such transactions remain within the domain of state power.” This standard would become obsolete just seven years later when Wickard v. Filburn held that “even if . . . activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce and this irrespective of whether such effect is what might at some earlier time have been defined as ‘direct’ or ‘indirect.’”[11]

With respect to the nondelegation doctrine, the Court identified two improper delegations of legislative power: (1) the power of the President to approve industry-specific codes of “fair competition”[12] and (2) the power of trade and industry groups to draft codes of fair competition subject to the President’s approval.

With respect to the delegation to the President, the Court held that NIRA was improper because it did not establish standards for determining what constitutes “fair competition,”

To summarize and conclude upon this point: Section 3 of the Recovery Act is without precedent. It supplies no standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be applied to particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative undertaking, § 3 sets up no standards, aside from the statement of the general aims of rehabilitation, correction and expansion described in section one. In view of the scope of that broad declaration, and of the nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered. We think that the code-making authority this conferred is an unconstitutional delegation of legislative power.

The Court did not clearly articulate a test for distinguishing between permissible statutes that “prescrib[e] rules of conduct” and impermissible statutes that “authoriz[e] the making of codes to prescribe them.” Such boundary-drawing was presumably unnecessary in the Court’s view because NIRA provided “no standards” at all. That was an exaggeration, of course, as NIRA authorized the President to promulgate codes of “fair competition” only. Notably, both Chief Justice Hughes’s opinion for the Court and Justice Cardozo’s concurring opinion drew a distinction between statutes authorizing the President to promulgate regulations prohibiting unfair competition (permissible) and Section 3 of NIRA, which authorized the President to promulgate regulations promoting fair competition (impermissible). As Justice Cardozo explained:

[T]he function of [codes of fair competition under Section 3 of NIRA] is not merely negative, but positive–the planning of improvements as well as the extirpation of abuses. What is fair, as thus conceived, is not something to be contrasted with what is unfair or fraudulent or tricky. The extension becomes as wide as the field of industrial regulation. If that conception shall prevail, anything that Congress may do within the limits of the commerce clause for the betterment of business may be done by the President upon the recommendation of a trade association by calling it a code. This is delegation running riot. No such plenitude of power is susceptible of transfer.”[13]

The second improper delegation identified by the Court–the delegation of rule-making authority to private industry groups–struck at the heart of NIRA’s corporatist framework. While acknowledging that it may be salutary to encourage the voluntary adoption of codes by trade or industrial associations, the Court was alarmed that NIRA enforced such codes through “the coercive exercise of the lawmaking power.” The Court observed that the views of trade and industrial associations might be a legitimate source of administrative rules in limited circumstances “with respect to the recognition of local customs or rules of miners as to mining claims, or, in matters of a more or less technical nature, as in designating the standard height of drawbars.” But Congress could not “delegate its legislative authority to trade or industrial associations or groups so as to empower them to enact the laws they deem to be wise and beneficent for the rehabilitation and expansion of their trade or industries.” The Court declared that “such a delegation of legislative power is unknown to our law, and is utterly consistent with the constitutional prerogatives and duties of Congress.”

At first glance, Schechter seems to pose a problem for corporatist reforms. According to the Supreme Court, Congress may not empower private industry associations to create binding, coercive codes and Congress may not empower the President to approve such codes based on a standard as broad as “fairness.” The Court thus seems to have rejected the fundamental corporatist principle that vocational associations should be able to create binding rules on matters such as wages, hours, and trade practices, subject to the supervision of the state. Upon closer inspection, however, Schechter muddles rather than clarifies. After all, NIRA technically did not delegate legislative power to private industry groups, as the codes proposed by such groups required Presidential approval. Thus there is good reason to believe that Schechters comments on private delegation are merely dicta.[14]

Helpfully, a series of cases post-Schechter provide greater clarity on the contours of the private nondelegation doctrine. Without getting overly into the history or details of the cases, in Carter v. Carter Coal Co. (1936), the Supreme Court rejected a corporatist-like provision of the Bituminous Coal Act that would have allowed a mining industry group (notably consisting of both labor and management) to promulgate wage, hour, and other rules for itself without the need for government approval. This provision was invalidated as an impermissible delegation of legislative authority. Shortly thereafter, however, the Court upheld a law that effectively gave tobacco growers a veto over rules proposed by a government commission (Currin v. Wallace (1939)) and an amendment to the Bituminous Coal Act that created rules and government oversight governing the rules developed by the industry group (Sunshine Anthracite Coal v. Adkins (1940).

The upshot of these cases is that Congress cannot give private groups free rein to promulgate rules for themselves. But industry participation in rule-making is permissible if the government exercises oversight and supervision over the industry proposals or otherwise limits the scope of the industry groups’ discretion in adopting codes.[15] In a sense, the status quo on delegation to private groups is consistent with the corporatist principles established by Pius XI: The Industries and Professions should be given significant leeway to craft rules for themselves, but they cannot have complete independence. Rather, the civil authority must retain its role of “directing, watching, urging, restraining, as occasion requires and necessity demands.”

Eighty-five years after Schechter, we have a clearer picture of what types of corporatist proposals will pass constitutional muster: the delegation to private parties may not be absolute and Congress must establish some set of standards for the President or executive branch to follow in approving or otherwise providing oversight over the proposals of the industrial or vocational groups. Any crafty lawyer can see that this leaves quite a lot of room to maneuver. Ultimately, Schechter’s relevance to corporatism is historical rather than legal. The eighty-fifth anniversary of Schechter provides an opportunity to reflect on the corporatist era that might have been while prompting consideration of new corporatist reforms for our own times.

Toward a Corporatist Revival

Given the tremendous economic and social changes since the Great Depression, it should be obvious that any corporatist reforms today would look very different from NIRA. The specific content of those reforms will require contributions from and collaboration among jurists, economists, and industry experts–not to mention moral philosophers and theologians. To that end, the journal American Affairs recently published an issue with a focus on corporatism. In particular, Gladden Pappin’s Corporatism for the Twenty-First Century[16] and Michael Lind’s Tripartism, American Style: The Past and Future of Sectoral Policy[17] make the case for corporatist reforms and offer contours of potential policy proposals. There is also interest in corporatist-like ideas among prominent U.S. politicians, although none has explicitly embraced “corporatism.” For example, in a break with the economic libertarian orthodoxy of the Republican party, Senator Marco Rubio has called for “common good capitalism” and has endorsed a role for the government in directing the economy toward the common good.[18] On the other side of the aisle, Senator Elizabeth Warren has proposed the Accountable Capitalism Act, which would require large corporations to provide board representation to employees and would replace shareholder primacy with a broader set of duties to society as a whole.[19] Notably, both Rubio’s and Warren’s proposals have been deemed “corporatist” by their right-liberal critics. Beyond the realm of statutory and regulatory law, the common law is also ripe for rethinking along corporatist lines, building upon the common law’s long tradition of common good jurisprudence. As a challenge to prevailing schools of legal philosophy, like the ultra-liberal Law and Economics movement, corporatists (perhaps in conjunction with distributists[20] and others loyal to the Magisterium) should devote themselves to developing a jurisprudence of law and economics rightly understood.

* * *

In an address last year, Pope Francis urged lawyers to counter “the idolatry of the market”:

The fragile, vulnerable person finds himself “defenceless before the interests of a deified market, which become the only rule” (Evangelii gaudium, 56; see Laudato si’, 56). Today, some economic sectors exercise more power than the States themselves (cf. Laudato si’, 196): a reality that is even more evident in times of globalization of speculative capital. The principle of profit maximization, isolated from all other considerations, leads to a model of exclusion – automatic, no? – that violently inflicts on those who suffer its social and economic costs in the present, while condemning future generations to pay for its environmental costs. The first thing jurists should ask themselves today is what they can do with their own knowledge to counter this phenomenon . . .”[21]

One way jurists can “counter this phenomenon” is by adapting and reinvigorating for today’s world the corporatist principles taught by Pope Francis’s predecessor, Pius XI. In the United States, despite the demise of one attempt at corporatism eighty-five years ago at the hands of the Supreme Court, there is fertile ground for legal reforms that counter “[t]he principle of profit maximization, isolated from all other considerations” and instead reorient economic activity toward the common good.

Yves Casertano

  1. 295 U.S. 495 (1935).

  2. Corporatism is a politico-economic system in which the law confers juridical status on industry or profession-specific associations or “corporations” for the purpose of promoting class cooperation and orienting political and economic activity away from narrow private interests and toward the common good. The oldest forms of corporatist theory hold that participation in politics and the economy should be mediated through organic corporations (such as guilds, professional associations, universities, etc.) which have a recognized juridical status. By the 20th century, the cooperation of labor and management/capital under the guidance and supervision of the state, became an additional defining characteristic of corporatism. This arrangement is also called tripartitism (the three components being labor, capital, and the state). For purposes of this post, I will treat tripartism as an essential feature of corporatism.

  3. See generally, e.g., Abel Poitrineau, Corporations ou Jurandes, Dictionnaire de l’Ancien Régime, Lucien Bely ed., Quadrige/PUF (1996), at 339-42 (“The ideology of the Common Good, of Thomist inspiration, formed the basis of the so-called corporative organization and indirectly constrained all the professions.”).

  4. http://www.vatican.va/content/leo-xiii/en/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum.html

  5. As clear proof of the distinction between corporatism and fascism, Pope Pius XI published his scorching condemnation of Mussolini’s “statolatry” in Non abbiamo bisogno just one month after issuing Quadragesimo anno. While all forms of modern corporatism propose formalized class cooperation through vocational associations as an alternative to socialism and liberal capitalism, there are important differences between fascist corporatism and Catholic corporatism, particularly with respect to the nature and role of the state.

  6. http://www.vatican.va/content/pius-xi/en/encyclicals/documents/hf_p-xi_enc_19310515_quadragesimo-anno.html

  7. Lest the liberal capitalists think they’re off the hook, Pius states elsewhere in the encyclical: “The right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. . . . [F]ree competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life – a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle” Q.A. para. 88.

  8. The text of NIRA can be found here: https://www.ourdocuments.gov/doc.php?flash=true&doc=66

  9. At a campaign stop in Detroit, FDR offered the following preface before reading quotes from Quadragesimo anno: “I am going to read you another great declaration and I wonder how many people will call it radical. It is just as radical as I am. It is a declaration from one of the greatest forces of conservatism in the world, the Catholic Church. I quote, my friends, from the scholarly encyclical issued last year by the Pope, one of the greatest documents of modern times.”

  10. Zachary R. Calo, “The Circumscribed Radicalism of New Deal Catholicism: Catholic Liberalism in the 1930s,” available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1407525

  11. Wickard v. Filburn, 317 U.S. 111, 125 (1942).

  12. There is good reason to reject the nondelegation doctrine tout court (at least with respect to purported delegations of legislative power to the executive) as nothing more than a metaphor masquerading as a legal principle, with no basis in the text, structure, or original understanding of the Constitution. See Adrian Vermeule & Eric Posner, Interring the Non-Delegation Doctrine, 69 Chicago L. Rev. (2002), available at https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2731&context=journal_articles. That being said, certain Supreme Court justices have recently called for applying increased scrutiny of delegations to the executive branch. See Gundy v. United States 588 U.S.. — (2019) (Gorsuch, J., dissenting) (citing Schechter and arguing that the statute in question should have been invalidated on nondelegation grounds).

  13. This distinction between positive and negative delegation has not been developed in subsequent case law. Arguably, the distinction reflects positivistic skepticism about there being such a thing as “fairness,” which is objective and identifiable apart from the will of the legislature. In contrast, “unfairness” can be identified by reference to concrete harms. The validity of the distinction between positive and negative commands in administrative law, and the law generally, may be a fruitful topic for further inquiry. It has been suggested that the distinction between negative prohibitions and positive prescriptions “is best understood in light of interrelated considerations of administrative regularity and judicial reviewability. . . . In contrast to [prohibitions on ‘unfair competition’], prescriptive codes of fair competition will tend to reflect unguided interest group compromises, which courts cannot assess by any genuinely legal means at their disposal.” James R. Conde & Michael S. Greve, Yakus and the Administrative State, 42 Harvard J. L. Pub. Policy, 807, 822 n.81 (2019). This may be a persuasive explanation of the concerns underlying the Court’s distinction between prohibitions and prescriptions. But it is not obvious that the judiciary (whether reviewing de novo or applying a standard of review deferential to the executive) is inherently incapable of conducting a legal assessment of the fairness of “interest group compromises.” Indeed, corporatism assumes that the civil authority is capable of making such an assessment.

  14. It is possible that the Court had an implicit concern that, due to the lack of detailed standards guiding the President’s review of the industry codes (and perhaps because of the sheer number of industry codes being proposed), the President was effectively powerless to provide any real oversight over the industry proposals and his review was simply a rubber stamp. Yet there is a clear tension between this explanation and Schechter’s stated concern that NIRA giving the President too much power.

  15. In 2013 (Association of U.S. Railroads v. United States Department of Transportation), the D.C. Circuit invalidated a statute on (apparently) private nondelegation grounds. The details of the case and statute are too complicated to discuss here. In any event, it is not clear that this decision reflects a departure from the principles articulated in the earlier cases.

  16. American Affairs, Volume IV, Number 1 (Spring 2020), 89-113, available at https://americanaffairsjournal.org/2020/02/corporatism-for-the-twenty-first-century/

  17. American Affairs, Volume IV, Number 1 (Spring 2020), 63-88, available at https://americanaffairsjournal.org/2020/02/tripartism-american-style-the-past-and-future-of-sectoral-policy/

  18. See, e.g., Marco Rubio, Deindustrialization, racial discrimination, and the case for common good capitalism, https://medium.com/@SenatorMarcoRubio/deindustrialization-racial-discrimination-and-the-case-for-common-good-capitalism-dafabef958e2

  19. https://www.warren.senate.gov/imo/media/doc/Accountable%20Capitalism%20Act.pdf.

  20. C.f. Gabriel S. Sanchez, Towards “Law and Distributism,” Ethika Politika (Mar. 27, 2014), https://ethikapolitika.org/2014/03/27/toward-law-distributism/

  21. Address of His Holines Pope Francis to Participants of the World Congress of the International Association of Penal Law (Nov. 15, 2019), http://www.vatican.va/content/francesco/en/speeches/2019/november/documents/papa-francesco_20191115_diritto-penale.html