The Way We Won: America's Economic Progress During World War II (2023)

America's response to World War II was the most extraordinary mobilization of a sluggish economy in world history. During the war, 17 million new civilian jobs were created, industrial productivity increased by 96%, and after-tax corporate profits doubled. Government spending helped spark the corporate renaissance that eluded the New Deal. The needs of the war directly consumed more than a third of industrial production, but the increase in productivity also ensured a notable supply of consumer goods for the population. The United States was the only country that saw a boom in consumer goods, despite rationing during the war. In 1944, real weekly wages before taxes in manufacturing were 50% higher than in 1939, due to wage increases and overtime bonuses. The war also created entirely new technologies, industries, and associated human skills.

The war brought full employment and a fairer distribution of income. Blacks and women entered the labor market for the first time. wages increased; as well as savings. The war brought with it the consolidation of the union force and far-reaching changes in farm life. Living conditions were better than before.

Since the mobilization also included the ideological argument that the war was being fought in the interests of ordinary men and women, social solidarity extended far beyond the trenches. Public opinion believed that veterans should not return unemployed to a country without opportunity or education. This 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 civil society than we were before.

It is not an exaggeration to say that the United States simultaneously won the war abroad and the peace at home. To be sure, the historical conditions of the American economic boom during World War II were unique. But we can learn a lot from this achievement if we face our problems today.

Historians, economists, and politicians have long wondered why this remarkable social and economic mobilization of latent human and material resources made war necessary. The answer, I think, is partly ideological. World War II brought the ideological breakthrough that finally brought the United States government out of the Great Depression. Despite the New Deal, even President Roosevelt could not intervene enough to encourage a full recovery. By 1938, he had lost his majority in Congress and a conservative coalition was back, crushing the New Deal programs. As the economy began to recover, FDR cut government spending to balance the budget, which contributed to the recession of 1938. The war was like a tidal wave, sweeping over this conservative coalition; The old ideological restraints have collapsed and public spending has fueled a recovery.

For a time, the government became the buyer of half of all the goods produced by the American people. An important and underestimated fact, however, is that although the government intervened far more than in World War I, imposing wage and price controls and surcharges, raising funds through war bonds, rationing goods, and forcing industry to go to the war. to work in production. FDR negotiated a sense of partnership rather than simply imposing the government's will.

The stereotype of FDR as a lover of regulations belies the experience of the 1940s, when Roosevelt ended his Cold War on business. War planning was much more corporatist than New Deal planning, with much less class warfare. Eleanor Roosevelt was still much more anti-business than Franklin and was often angry with him.

After 1940, the application of antitrust rules virtually ceased. The liberals were upset that ALCOA was a big, bad monopoly. But, as Secretary of War Stimson noted, "I would rather have more sinful aluminum now than good aluminum too late for war." However, the government financed a competitor of Reynolds Aluminum, which helped motivate ALCOA to produce aluminum and gave the government a second supplier.

Despite the entente with the deal, FDR was still willing to promote black and female employment, partly because he believed that overall productivity and wartime morale demanded it. He also continued to promote the union movement. For example, he insisted that Ford Motor Company meet its responsibilities under the Wagner Act. When Ford refused, Roosevelt canceled a lucrative government contract. This helped create the impetus for the great Ford strike in the spring of 1941, which brought the first union to Ford. But on other regulatory issues, FDR made concessions. A government that relied on the mobilization of these companies during the war could not win them simultaneously with antitrust cases.

Basically, Roosevelt made the decision to mobilize the owners of mines, factories and businesses. He realized that Congress could provide the money but could not build the planes, design the tanks, or assemble the weapons. Without industry input, mass production would never get off the ground. The challenge, then, was to engage the owners of the country's most important economic assets as active participants in the defense effort. He also recognized that the private sector could not raise all the capital needed to expand the factories or risk leaving them without orders and excess capacity after the end of the war. So the federal government, through the Reconstruction Finance Corporation, advanced the money needed to expand the factories and often leased them to the industry. The government opened new sources of supply of raw materials and created fast mass transportation. The government also entered synthetic rubber and aluminum production and other booming industries, and helped promote new technologies.

Contrary to the cliché of a warlike "command economy", there was a remarkable entrepreneurial spirit, in stark contrast to conditions in Germany or the socialist planned economies. Roosevelt brought in dozens of top executives as "dollars a year" men to help run government commissions so that companies would not feel like the government was just telling them what to do. He allowed companies to make a profit. He used the government to create markets and help companies build new factories and equipment, which companies often leased and then bought cheaply after the war.

It's hard for us today to imagine how such an entrepreneurial spirit could coexist with war mobilization, but it did. One reason, of course, was profit opportunity, although the war tax on excess profits prevented the kind of windfall that occurred during World War I. More fundamentally, a spirit developed in each company to outperform its competitors in order to serve the country. In his informal chats, Roosevelt explained to people why it was necessary to mobilize his prolific genius to win the war. Encouraged by the strong morale promoted by the president, companies and workers worked together to obtain the "E for Excellence" citations that he sold. He not only produced more than his competitor, he produced more than you in the previous quarter and in the previous quarter.

Henry Kaiser's shipyards, for example, managed to reduce production time for Liberty Ships from 365 days to 92, 62, and finally one day. In general, the economy grew at an annual rate of 11 or 12 percent during the war.

The Air Corps aces toured the factories; The pilot told the workers that it was not the pilots who were heroic, but their planes. War production posters emphasized that factories and soldiers formed a continuous front, a theme that Roosevelt also addressed in his speeches. People understood early on that America's dominant contribution to the war would be its production. Pressured by his military advisers to act more like an economic czar, Roosevelt declined that role. The military constantly urged him to introduce compulsory national service, which required people to enlist or work at one of the military installations the government would assign them. Roosevelt successfully resisted this idea during the war, theorizing that somehow the dynamics of democracy would suffice: if jobs existed, people would put their mattresses in their cars and go where there were jobs. of work. He had an extraordinary view of the crowded highways heading south and west. In a fireside chat, he advised people to buy tickets. And the Hammond company in New York sold out its entire inventory of 2,000 cards in a single morning. Although the mobilization was chaotic and there were too many people in some places and not enough people in others, it worked. And the United States still produced more than any other country without the regulated labor that some of the military wanted.

Roosevelt resisted and delayed most of the decisions that concentrated government power. For example, in the spring of 1942, when a rudimentary system of price and wage controls was in effect, Harold Smith, his treasurer, declared that the time for comprehensive controls had come. But the president was concerned that this would result in an overly regulated economy, and he rejected the proposal.

In short, an almost forgotten lesson of the war is that strong government involvement does not necessarily imply a command economy. Despite the mobilization, much of the economy was not affected by the controls. No one was told where to move or work. Production for the government was still done freely by the producers and the government in a contractual arrangement; and the companies argued about these contracts all the time. Private ownership remained dominant across the country, but there were gains. In the World War II experience, the things that we revere in capitalism, the parts that encourage energy, efficiency, and entrepreneurship, were still there. The war harnessed that energy, not restricted it.

In the early years of the war, Roosevelt consciously pursued a conversion program to bring industry to a wartime footing. Linen factories began making camouflage netting, baby carriages became food carts for field hospitals. Lipstick cases became bomb cases, beer cans became hand grenades, machines became automatic pistols, and vacuum cleaners became parts of gas masks. There was planning behind these changes; someone had to see the similarity between lipstick cases and cartridges. While FDR delayed the transition of major consumer industries such as autos for as long as possible, there was a clear and deliberate plan. After the war, the transition to civilian industry, largely accomplished after FDR's death in April 1945, was more abrupt. But it was not without a degree of planning.

The Cold War served as an economic stimulus in the same way that World War II did in the early 1940s. But the Cold War is over, and not one iota of conversion policy remains. And one of the dominant lessons of World War II is that unless there is a conversion or reconversion plan, people are subject to the whims of the free market.

Wartime conversions have not been without their difficulties, but most of them have resulted from too little planning, not too much. In 1942, after a delay, the government finally had to force the automobile industry to convert its factories to make airplanes. Four hundred thousand autoworkers were thrown onto the streets before this change could occur. All car dealers and salesmen were suddenly out of a job. Eleanor Roosevelt had a falling out with General Motors Chairman William Knudsen because a year earlier he was unwilling to agree to a plan. What she finally made it work was the realization that there had to be a plan, that the government was behind the plan, and that the plan had public support. In 1992, despite all the rumors, there is no collective effort to plan for the aftermath of the Cold War.

World War II produced remarkable social achievements. In the factories during the war, attempts to boost morale, such as holding more softball games and building additional canteens and gyms, also fostered a sense of community. The logic of mobilization produced a logic of social progress.

In particular, Eleanor Roosevelt successfully argued that a fully productive workforce requires the talents of all, blacks and women alike; and if women go to work in factories, their children need childcare. She showed that absenteeism was high in factories because concerned women returned home to care for their children. She had restaurants prepare hot meals so women could take home hot dinners. As a result of these measures, productivity rates skyrocketed.

When Henry Kaiser built his big shipyard in California, the government paid for 24-hour day care. It was a state-of-the-art facility with the best kindergarten teachers because it was considered a pioneer test of early childhood education. Workers from any shift could bring their children. If they worked at night, they could put their children to sleep. Working the day shift gave the children an education they never had before. Children, especially those from lower-class families, have made great progress. But when the war ended, all the centers were closed. The teachers were fired the day after the Hiroshima bombing.

The war ended longstanding opposition to women working outside the home. In fact, in the 1930s, due to a lack of jobs, many states enacted laws that prohibited married women from working if their husbands had jobs. In the Kelsey-Hayes strike of 1941, the United Auto Workers went on strike against hiring women for men's jobs, fearing it would lower the pay scale. Finally, when women were needed to fill vacancies, the UAW understood that the answer was obviously equal pay for equal work. Unfortunately, that momentum also evaporated with the end of full employment at the end of the war.

The various facets of the war economy worked hand in hand. The war was financed by a combination of taxes and loans, but FDR's control over interest rates guaranteed by the Federal Reserve would remain low. Wage and price controls and rationing ensured that full employment and scarcity did not lead to inflation and panic buying. Public investment provided the capital the factories needed. An economic understanding of the workers ensured that there would be no disruptive strikes. It was all in one piece. The government has been a source of full employment, macroeconomic recovery, technological advancement, worker education, reindustrialization, and a host of secondary social advances.

Can we achieve the same benefits today without war? In retrospect, the war economy seems like it was all carefully planned and somehow unavoidable. But of course Roosevelt was the great improviser. Some of what happened during the war has no equivalent in peacetime, the rationing, the ten million men in uniform. But a lot of it happens. For example, we could have much more public investment in technology, infrastructure and education. We don't want or need wage and price controls, but to achieve the same containment we certainly could have what economists call an incomes policy that links wages to real productivity gains. We could have excess taxes on profits. And if in 1942 they had childcare facilities in war production factories, we certainly can today. With industry starved for capital and the banking system reeling, a new Reconstruction Finance Corporation would also make sense.

Fifty years ago, a shared desire to win the war and a sense of revenge against the Japanese and the Nazis created a sense of national community. The first task today is to define the common problem of the nation, which requires a comprehensive look.

Without war, the job of leadership is to help people understand our competitive economic position in today's world. Leaders need to remind the public that we still have resources and talent, but we must reorganize and reorganize the relationship between government and people, just as we did during World War II.

There have been critical moments in our nation's history when the relationship of government to private business had to change to allow for both economic expansion and democracy to flourish. Now is one of those times. The experience of World War II shows how bold these efforts must be.