The Way We Won: America's Economic Breakthrough During World War II

America's
response to World War II was the most extraordinary mobilization
of an
idle economy in the history of the world. During the war 17
million new civilian
jobs were created, industrial productivity increased by 96
percent, and corporate
profits after taxes doubled. The government expenditures helped
bring about the
business recovery that ;had eluded the New Deal. War needs
directly consumed over
one-third of the output of industry, but the expanded
productivity ensured a
remarkable supply of consumer goods to the people as well.
America was the only
that saw an expansion of consumer goods despite wartime
rationing. BY 1944, as
a result of wage increases and overtime pay, real weekly wages
before taxes in
manufacturing were 50 percent higher than in 1939. The war also
created entire
new technologies, industries, and associated human skills.

The war brought full employment and a fairer distribution of
income. Blacks and
women entered the workforce for the first time. Wages increased;
so did savings.
The war brought the consolidation of union strength and
far-reaching changes in
agricultural life. Housing conditions were better than they had
been before.

In addition, because the mobilization included the ideological
argument that the
war was being fought for the interests of common men and women,
social solidarity
extended far beyond the foxholes. Public opinion held that the
veterans should
not return jobless to a country without opportunity and
education. That led to
the GI Bill, which helped lay the foundation for the remarkable
postwar expansion
that followed. The war also made us more of a middle-class
society than we had
been before.

It is no exaggeration to say that America won the war abroad and
the peace at
home at the same time. No doubt the historical conditions of
America's economic
surge during World War II were singular. But we have much to
learn from that
achievement as we face our troubles today.

Historians, economists, and politicians have long wondered why
this remarkable
social and economic mobilization of latent human and physical
resources required
a war. The answer, I think, is partly ideological. World War II
provided the
ideological breakthrough that finally allowed the U.S. government
to surmount the
Great Depression. Despite the New Deal, even President Roosevelt
had been
constrained from intervening massively enough to stimulate a full
recovery. By
1938 he had lost his working majority in Congress, and a
conservative coalition
was back, stifling the New Deal programs. When the economy had
begun to bounce
back, FDR pulled back on government spending to balance the
budget, which
contributed to the recession of 1938. The war was like a wave
coming over that
conservative coalition; the old ideological constraints collapsed
and government
outlays powered a recovery.

For a time the government became the purchaser of one-half of all
the goods
produced by the American people. A magnificent and
little-appreciated fact,
however, is that even though the government intervened far more
deeply than in
World War I by imposing wage and price controls and surtaxes,
raising funds
through war bonds, rationing goods, and compelling industries to
work for war
production FDR negotiated a sense of partnership rather than
simply imposing the
government's will.

The stereotype of FDR as a regulation-lover flies in the face of
experience in
the 1940s, when Roosevelt ended his cold war with business.
Wartime planning was
far more corporatist than New Deal planning, with far less class
warfare. Eleanor
Roosevelt was still much more anti-business than Franklin, and
was often furious
at him.

After 1940, antitrust enforcement virtually shut down. Liberals
were upset that
ALCOA was a big, bad monopoly. But, as Secretary of War Stimson
observed, "I'd
rather have more sinful aluminum now than good aluminum too late
for the war."
Nevertheless, the government did finance a competitor in Reynolds
Aluminum, which
helped to motivate ALCOA to produce aluminum and gave the
government a second
supplier.

Despite the entente with business, FDR was still willing to go
forward on the
employment of blacks and women, in part because he believed that
full
productivity and wartime morale required it. He also continued to
advance trade
unionism. He did insist, for example, that Ford Motor Company
live up to its
responsibilities under the Wagner Act. When Ford refused,
Roosevelt cancelled a
lucrative government contract. This helped to produce the
momentum for the big
Ford strike in the spring of 1941 that brought the first union
into Ford. But on
other regulatory issues FDR compromised. A government that
depended on these
businesses to mobilize during the war could not be slapping them
with antitrust
suits at the same time.

Basically, Roosevelt made the decision that he had to mobilize
the proprietors
of the mines, the factories, and the shops. He realized Congress
could provide
the money, but it could not build the planes, design the tanks,
or assemble the
weapons. Without the cooperation of industry, massive production
would never get
off the ground. So the challenge was to bring the proprietors of
the nation's
chief economic assets into the defense effort as active
participants. He
recognized also that private business could not find all the
capital required for
the expansion of the plants nor take the risk that the end of the
war would leave
them with no orders and excess capacity. So the federal
government, through the
Reconstruction Finance Corporation, advanced the necessary money
to expand the
factories, often leasing them to industry. The government
developed new sources
of supply for raw materials and created quick mass
transportation. The government
also went into the business of producing synthetic rubber and
aluminum, as well
as other emerging industries, and helped stimulate new
technologies.



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Contrary to the stereotype of a wartime "command economy," there
was a remarkable entrepreneurial spirit in sharp contrast to the situation in
Germany or in
socialist, centrally planned economies. Roosevelt brought in
dozens of top
business executives as "dollar-a-year" men to help run the
government commissions
so that businesses didn't feel the government was simply telling
them what to do.
He allowed business to realize profits. He used government to
create markets and
to help business set up new plants and equipment, which business
often leased and
later bought cheaply after the war.

It is hard for us to imagine today how such an entrepreneurial
spirit could
co-exist with war mobilization, but one did. One reason, of
course, was the
opportunity to profit, though the wartime tax on excess profits
prevented the
kind of windfalls made during World War I. More fundamentally, a
spirit developed
within each business enterprise to produce better than its
competitors to serve
the country. In his fireside chats, Roosevelt explained to the
people over and
over again why their productive genius had to be mobilized to win
the war. Buoyed
by the strong morale the president fostered, business and labor
worked together
to get the "E-for-excellence" citations that he spread around. It
was not just
producing more than your competitor, it was producing more than
you did the
previous quarter, and the quarter before that.

For instance, Henry Kaiser's shipyards were able to get the
production time for
Liberty Ships down from 365 days to 92, 62, and, finally, to one
day. Overall,
the economy grew at a rate of 11 or 12 percent annually
throughout the war.

Air Corps aces would visit the factories; the pilot would tell
the workers that
it wasn't the pilots who were heroic, it was their planes. The
war production
posters emphasized that factories and GI's were one continuous
front, a theme
that Roosevelt also struck in his speeches. The people understood
from the start
that America's dominant contribution to the war would be its
production. When he
was being urged by his military advisers to function more as a
economic czar,
Roosevelt rejected that role. The military was constantly urging
him to institute
compulsory national service, in which people had either to enlist
or work in one
of the military plants to which the government would assign them.
Roosevelt
successfully resisted that idea throughout the war, on the theory
that, somehow,
the momentum of democracy would be sufficient: If the jobs were
out there, people
would put their mattresses on top of their cars and go to where
the jobs were.
He had this extraordinary vision of the highways filled with
people going south,
going west. In one fireside chat, he advised people to get maps.
And the Hammond
company in New York sold out their entire stock of 2,000 maps in
a single
morning. Even though the mobilization was chaotic and there were
sometimes too
many people in some places and too few people in other places, it
worked. And
America still produced more than any other country without the
regimented
manpower that some in the military wanted.

Roosevelt resisted and delayed most of the decisions that
concentrated government
power. For example, in the spring of 1942, when there was a
rudimentary system
of wage and price control, Harold Smith, his budget director,
declared it was
time for comprehensive controls. But the president was worried
that it was adding
up to an overly regimented economy, and he rejected the
proposal.

In sum, one almost totally forgotten lesson of the war is that
deep government
involvement doesn't have to mean a command economy. Despite the
mobilization,
large segments of the economy were unaffected by the controls. No
one was told
where to move or work. Production for the government was still
freely entered
into by producers and government in a contractual arrangement;
and business ar-

gued about those contracts all the time. Private property
remained predominant
throughout the country and still there were profits. In the World
War II
experience, the things we revere about capitalism the parts that
spur energy,
efficiency, and entrepreneurial skill were still in place. What
the war did was
tap that energy, not constrain it.

In the early years of the war, Roosevelt consciously pursued a
conversion program
to shift industry to a wartime footing. Lingerie factories began
making camou-

flage netting, baby carriages became field hospital food carts.
Lipstick cases
became bomb cases, beer cans went to hand grenades, adding
machines to automatic
pistols, and vacuum cleaners to gas mask parts. Behind these
shifts was planning;
someone had to perceive the similarity between lipstick cases and
cartridges.
Though FDR delayed converting large consumer industries, such as
autos, as long
as possible, there was a clear and deliberate plan. After the
war, reconversion
to civilian industry, mostly carried out after FDR's death in
April 1945,
occurred more abruptly. But it was not without a measure of
planning.

To an important degree, the Cold War served as an economic
stimulus as World War
II did in the early 1940s. But the Cold War has now ended, and
there is not even
a shred of a conversion policy. And one of the dominant lessons
of World War II
is that unless there is a plan for conversion or reconversion,
people are subject
to the whims of the free market.

Wartime conversion was not without hardships, but most of them
resulted from too
little planning, not too much. In 1942, after delaying, the
government finally
had to force the automobile industry to convert their plants to
the manufacture
of planes. Four hundred thousand automobile workers were thrown
out on the
streets until that conversion could take place. All the auto
dealers and
salespersons were suddenly out of jobs. Eleanor Roosevelt had an
altercation with
General Motors Chairman William Knudsen because he had been
unwilling to accept
a plan a year earlier. What made it finally work was the
recognition that there
had to be a plan, that the government was behind the plan, and
the plan had
public support. In 1992, despite all the talk about it, there is
no collective
effort to plan for the aftermath of the Cold War.

Word
War II produced remarkable social gains. At war production
plants, attempts
to boost morale such as holding more softball games, and
building additional
canteens and health clubs also fostered a sense of community. The
logic of
mobilization produced a logic of social advance.

Eleanor Roosevelt, in particular, was successful in arguing that
a fully
productive work force requires everyone's talents, blacks and
women alike; and
if women are to work in the factories, their children require day
care. She
proved that absentee rates were high in the factories because
worried women were
going home to care for their children. She got restaurants to
prepare hot meals
so women could bring home hot dinners. The productivity rates
soared as a result
of these measures.

When Henry Kaiser built his big shipyard in California, the
government paid for
a twenty-four-hour child care center. It was a state-of-the-art
facility with the
best nursery school teachers, because it was seen as a pioneering
test of early
education. Workers on every shift could bring their children. If
they worked at
night they could bring their children to sleep. If they worked
the day shift
their children received an education that they had never had
before. The
children, especially those from lower class families, showed
enormous gains. But
when the war ended, all the centers were shut down. The day after
the bomb was
dropped on Hiroshima, the teachers got their dismissal
notices.

The war broke down the long resistance to women working outside
the home. In the
1930s, because of the scarcity of jobs, many states actually
passed laws barring
married women from working if their husbands had a job. In the
Kelsey-Hayes
strike of 1941, the United Auto Workers went on strike over the
hiring of women
for men's jobs, for fear that it would lower the wage scale.
Eventually, as women
were needed to fill vacancies, the UAW grasped that the answer
was obviously
equal pay for equal work. Unfortunately, that momentum also
dissipated with the
end of full employment at the end of the war.

The several facets of the wartime economy worked in tandem. The
war was financed
by a combination of taxes and bonds, but FDR's control of the
Federal Reserve
guaranteed that interest rates would stay low. Wage and price
control and
rationing made sure that full employment and shortages did not
create inflation
or hoarding as a side effect. Public investment provided the
capital that the
factories needed. A labor-business entente assured the absence of
disruptive
strikes. It was all of a piece. Government was a source of full
employment,
macroeconomic recovery, technological breakthrough, worker
training,
reindustrialization, and a good deal of incidental social
progress.

Can
we obtain the same benefits today, without a war? In retrospect,
the war
economy seems as if it were all neatly planned, and somehow
inevitable. But, of
course, Roosevelt was the great improviser. Some of what occurred
during the war
has no peacetime counterpart the rationing, the ten million men
in uniform. But
much of it does. For example, we could have a great deal more
public investment
in technology, infrastructure, and training. We do not want or
need wage and
price controls, but to achieve the same restraint we could
certainly have what
economists call an incomes policy, tying wages to real
productivity increases.
We could have an excess profits tax. And if they had day care
centers in war
production plants in 1942, we can certainly have them today. With
industry short
of capital, and the banking system reeling, a new Reconstruction
Finance
Corporation would also be sensible.

Fifty years ago, the common desire to win the war and the feeling
of revenge
against the Japanese and the Nazis created a national sense of
community. The
first task today is to define the common problem facing the
nation that requires
an overarching vision.

Absent a war, the task of leadership is to create an
understanding in the people
of our competitive economic position in the world today. Leaders
must remind the
public that we still have the resources and the talent, but we
must reorganize
ourselves and the relationship between the government and the
people just as we
did during World War II.

Throughout our nation's history, there have been critical moments
when the
government's relationship to private enterprise had to change,
allowing both
economic expansion and the flourishing of democracy. Now is one
of those times.
The World War II experience shows just how bold that effort has
to be.



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