Appendices - Hirohito's War
ECONOMICS OF THE PACIFIC WAR – THE NEW DEAL MOBILIZED
Management of the US Wartime Economy: On 6 January 1942, four weeks after the attack on Pearl Harbor, Roosevelt addressed the largest radio audience in the nation’s history. “The superiority of the United States in munitions and ships must be overwhelming… The United States must build planes and tanks and ships to the utmost of national capacity… Speed will count. Lost ground can always be regained - lost time, never. Speed will save lives; speed will save our freedom and our civilization - and slowness has never been an American characteristic. Let no man say it cannot be done, it must be done, and we have undertaken to do it.”1
Ten days later the Roosevelt administration fundamentally changed the way in which the US economy was managed with the establishment of the War Production Board (WPB) by executive order on 16 January 1942. It considerably expanded the powers of the Office of Production Management (OPM) that itself had only come into existence in January 1941, some seven months after the appointment of Donald Nelson, formerly Executive Vice President of the retail giant, Sears Roebuck and Company, as the head of the procurement office of the Treasury in May 1940.
As the manager of Sears Roebuck, Nelson had been responsible for the purchase of tens of thousands of products. His secondment had only meant to be for two or three months but he was soon impressed by Treasury Secretary, Henry Morgenthau’s evaluation of the world situation suggesting that “within a relatively few months the kind of world in which we could live might collapse.”2 Nelson took the hint and, fired up with enthusiasm, stayed on to become one of the war’s key behind-the-scenes orchestrators. As he later admitted, it gave him ‘a grandstand seat… at the most stupendous show in history.’3 Nelson’s experience in buying for Sears Roebuck immediately proved useful to the Army and Navy Quartermaster who he instructed in the dark arts of feeding orders to large numbers of manufacturers at seasonally quiet periods in order to keep prices down.
In spite of the dispersion of orders about 100 major companies received the vast bulk of government contracts. Nelson argued that speed was essential; the nation could not afford to be sentimental about supporting small producers in a time of national emergency. In reality many smaller industrial operations benefitted considerably from the subcontracting of work by larger industrial groups. Nelson was also mindful of the need to control profits; FDR, the New Dealer, did not want to be seen to be lining the pockets of war profiteers. With this in mind, on 3 March 1942 Nelson ordered that contracts should be negotiated not competed for. Cost-plus, fixed-fee contracts would be the norm. A legal limit of 7 per cent margin was imposed, though 5 percent was normal and the Army often got 4 per cent. However, like Roosevelt, Nelson believed that the power of the Army should not become overbearing; as Nelson explained: “We had to get our nation’s tremendous productive machine harnessed… but we had to do it within the framework of American tradition...”4
Compromises between those in the public and private sectors were not solely along the lines followed by Nelson in his move from Sears Roebuck to government. Indeed, the necessities of war sometimes inevitably aligned FDR closely with the industrialist elite; and sometimes this was closer than his New Deal colleagues and supporters would have liked. For example, a Bureau of Budget memorandum noted, “numerous industrialists serving in the (civilian mobilization) agencies sided with the armed services” rather than with the New Deal politicians and bureaucrats. The memo went on to speculate that “they did so in part because they feared the excessive strengthening of the government agencies and they resisted planning devices originating with or supported by academics, other professionals and New Deal Reformers.”5 Arguably views such as this were as much a part of internal power struggles as a dispassionate analysis.
Things were not always clear-cut. For example, making the transition from one side of the public/private divide did not necessarily result in anyone consistently adopting the ideologies of the other side. Morgenthau, the wealthy Jewish son a New York property mogul, educated as an architect and agronomist, became a close confidante of President Roosevelt and was appointed Treasury Secretary in 1934. As a conservative economic thinker opposed to Maynard Keynes, he restrained Roosevelt’s instincts for more full-blooded New Deal economics, and was probably one of the main causes of America’s failure to get back to full production before World War II. However in the devising of war bonds, Morgenthau became the key figure responsible for finding ways for the US government to finance the war effort.
As early as the first quarter of 1940, the Roosevelt administration had realized the US economy needed to be geared up to the possibilities of war. In essence FDR started to prepare some two years before the Japanese attack on Pearl Harbor. Nelson, successively appointed to head the Office of Procurement Management (OPM) and then the War Production Board (WPB), became responsible for public investment in war production, the allocation of scarce raw materials and the prohibition of non-essential goods. Oil products, metals and rubber were rationed. Speed was essential. Roosevelt prepared his public for the national priorities and sacrifices ahead. As Roosevelt said in an later address to the country on 6 January 1942, “The superiority of the United States in munitions and ships must be… so overwhelming that the Axis nations can never hope to catch up with it… all out scale production will hasten the ultimate all-out victory… speed will save lives; speed will save this nation which is in peril; speed will save our freedom and civilization…”6
The WPB provided the organizing bureaucracy for a board that consisted of representatives from the Army and Navy as well as civilian agencies such as the Office of Price Administration and the Department of Agriculture. The WPB managed twelve regional offices and 120 field offices. It grew into a 20,000 strong bureaucracy and by summer of 1942 needed to be rationalized. That this mighty bureaucratic force did not become all powerful in pursuit of the national wartime goals set out by FDR was largely because Nelson failed to control competing agencies such as the Office of War Mobilization, created in May 1943, and the Army and Navy whose leaders demanded a large measure of operational autonomy through the Army Navy Munitions Board (ANMB). In effect the WPB’s main potency came in the allocation of materials while the Army and Navy Departments operated largely independently through the joint ANMB; a freedom that had been effectively handed over in Administrative Orders 2-23 and 2-33 respectively in the spring of 1942.
To a large extent Nelson was overwhelmed by the competing demands of hundreds of governmental agencies. These included New Deal agencies such as the Reconstruction Finance Corporation, which incorporated other agencies such as the Defense Plant Corporation, the Defense Supplies Corporation, and the Metal Reserve Company. Other pre-WPB organizations also fought turf wars; the Board of Economic Warfare and the Office of Defense Transportation were notable adversaries. Powerful individuals such as Winston Churchill’s great friend Bernard Baruch, head of the Office of Lend-Lease, also had the power to thwart the War Planning Board. Even Roosevelt undercut Nelson by the creation of new agencies such as the Petroleum Administration for War and the War Manpower Commission. As output of munitions fell to just half of the target eight months into the war, criticism mounted and inevitably led FDR to listen to other voices. In February 1943 Nelson narrowly avoided being toppled in a putsch by the Army faction led by Stimson who wanted him replaced by Bernard Baruch.
Other moves were afoot to reduce such grip as Nelson did have on the war economy. While Roosevelt needed to get the institutions of war planning in place, the Army itself needed to reform and this perhaps inevitably resulted in a shift of power. When Marshall was appointed to the role of Chief of Staff on 1 September 1939, he had found himself directly responsible for 30 major Army commands and 350 smaller ones. As he put it, he needed “a drastically complete change, wiping out Civil War institutions.”7 He implemented a ruthless streamlining to three commands - Army Ground Forces, Army Air Forces and Army Services of Supply. To this last command he appointed General Brehon Somervell.
The son of a doctor from Little Rock, Arkansas and grandson of a plantation owner, Somervell won a place at West Point where he excelled in every discipline graduating sixth in his class of 107 in 1914. Having served in France during World War I, his career took him down peculiar paths: river navigation survey work for the League of Nations, economic survey for Turkey, President of the Mississippi River Commission, and the Work Progress Administration (WPA) administrator in New York. He gained a reputation as a brilliant manager, with talents that he would bring to the organization of army supply in all its aspects from procurement and economic mobilization to supply. Structurally he moved responsibility for construction from Ordnance to the Engineers and also set up a new bureau, the Transportation Corps. The US Army Air Force meanwhile, which consumed some 30 percent of the War Department’s budget, set up its own supply systems.
As the war developed it was General Somervell, who had concluded a concordat outlining the modus operandi with Nelson’s War Production Board, who increasingly held the strings of procurement strategy. Indeed in a report after the war it was concluded, after the agreement made with the Army, described by Nelson as “the Magna Carta of our operation”, that “the military was relatively unrestrained in its placement of contracts.”8
As Nelson’s grip over the competing military and civilian interests at the War Production Board declined, power over the war economy gravitated toward the Office of Economic Stabilization (OES) following the appointment of James Byrnes, a former South Carolina Senator and Supreme Court Justice. Working closely with the President in the White House, Byrne gained Roosevelt’s confidence by getting a firm grip on the problem of rising prices to the extent that Roosevelt turned the OES into the Office of War Mobilization (OWM) in May 1943. In a piece of classic political chicanery, FDR avoided the sacking of Nelson by forcing the War Production Board to report to the newly established OWM. Eventually Nelson became such a nuisance in Washington that Roosevelt sent him out to China with Patrick Hurley in September 1944, nominally to prepare a report on the Chinese economy. On hearing the news, Treasury Secretary Henry Morgenthau reflected, “You get three years in Washington to find out whether or not you are a schlemiel (Yiddish for habitual bungler).”9 Morgenthau’s assistant, Harry Dexter White, gleefully added, “and if you are you get promoted.”10
The Office of War Mobilization’s remit gave Byrnes awesome power; it was tasked “to unify the activities of the federal agencies and departments engaged in or concerned with production, procurement, distribution, or transportation of military or civilian supplies, materials, and products and to resolve and determine controversies between such agencies or departments”11 Byrnes, who became arguably the most powerful man after Roosevelt in wartime America, was a southerner. Born in 1882 in Charleston, South Carolina, Byrnes, after the early death of his father, was brought up by his mother, a dressmaker of Irish descent. He abandoned his Catholic faith to become an Episcopalian and a lawyer. He moved into politics winning a house seat for the Democrats in 1910. His first run at the Senate was thwarted by the Klu Klux Klan who exposed his Catholic upbringing in the deeply protestant south, but he won the Carolina seat at the second attempt in 1930.
He was an ardent New Dealer. An astute politician, Byrnes spoke for the President in the Senate arguing for much of the New Deal legislation, and in Carolina he pushed through the Santee Cooper hydroelectric dam project. He was appointed an Associate Justice of the Supreme Court in 1941; Roosevelt soon after brought his loyal friend into the White House. Byrnes accrued real power over the economy, not only because of his friendship with Roosevelt and because his office resided in the White House, but also because he had the character to seize it. He was an astute politician and fixer who knew the inner workings of government, could deal with the legislature and at the same time understood how to locate and use the levers of power.
On one occasion in January 1945, when the Joint Chiefs of Staff overruled the Joint Production Committee regarding their demand that the Army and Navy cut their orders for 40 additional oil tankers, Byrnes overruled the Joint Chiefs. Similarly, when the Joint Chiefs tried to influence shipping priorities, the Office of War Mobilization wrote to Admiral William Leahy, Chairman of the Joint Chiefs, making it clear that “responsibility for making final decisions as to the proper balance in the employment of manpower and production resources to obtain maximum war efforts rests with this office.”12
In January 1944 the President even wrote to Byrnes, “You have been called ‘The Assistant President’ and the appellation comes close to the truth.”13 Roosevelt, by now in sharp decline, was delighted. He told a friend, “since appointing Jimmy B… he for the first time since the war began, had the leisure to sit down and think.”14 By contrast at the beginning of the war, Roosevelt occasionally went so far as to intervene directly in planning issues. Famously he pushed through the urgent building of light carriers after Pearl Harbor and was probably quicker than anyone to recognize the importance of landing craft, raising this item to the “most urgent category.”15 Roosevelt was prescient. As the theater chiefs, Nimitz, MacArthur and Mountbatten, planned their respective advances in Asia and the Pacific there were never enough landing craft to go round and they became the frequent subjects of political tugs of war.
Perhaps the largest contribution to the war effort made by the wartime bureaucracies was in the direction of government spending toward new construction expenditure. In 1939 the private sector outspent the public sector by US$3.9bn to US$2.5bn; by 1942 the position was reversed with the public sector spending US$10.7bn to US$2.8bn for the private sector. Regarding the dramatic increases in government power over the economy, Donald Nelson reflected that “business was fearful and labor was anxious.”16 Ultimately however, the Roosevelt administration fumbled its way toward a reasonably efficient allocation of resources and a war economy mobilization to match.
Curiously the administrators and government who had sided with the ‘all-outers’ (i.e. the factions that favored all-out war mobilization) and who were against the industrialists who wanted to maintain their civilian production, switched sides after Pearl Harbor. After the outbreak of war with Japan it was the industrialists who became the ‘all outers’, driven by a potent motivational mix of patriotism and profit perhaps, certainly pushing for more resources for the war effort, while Nelson and his cohorts in government sought to sustain an adequate production of civilian goods. Nevertheless it would be a mistake to conclude that this change in American industry, alongside the rise in the power of military procurement agencies, represented the creation of a quasi-command economy, and wrong to think that it was the root of America’s successful wartime mobilization after Pearl Harbor. Roosevelt always was keen to avoid the Army acquiring “too much power… (the economy) should be left in charge of the civilians.”17 The structure overseen by Roosevelt with the multiple layers of management bodies was a recipe for power struggles and backbiting. Roosevelt liked it that way; it kept the power of the military at bay and him in charge.