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 Clutch Plague. 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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