Roosevelt Uses Business Leaders for World War II Planning

Date May, 1940

President Franklin D. Roosevelt’s appointment of William Signius Knudsen of General Motors Corporation to take charge of the manufacturing aspect of military supply marked a turning point in U.S. military preparation and anticipated the later development of the military-industrial complex.

Locale Washington, D.C.

Key Figures

• Franklin D. Roosevelt (1882-1945), president of the United States, 1933-1945
• William Signius Knudsen (1879-1948), president of General Motors Corporation
• Louis A. Johnson (1891-1966), U.S. assistant secretary of war, 1937-1940, and secretary of defense, 1949-1950
• Edward Reilly Stettinius, Jr . (1900-1949), chairman of the board of the United States Steel Corporation and chairman of the War Resources Board
• Sidney Hillman (1887-1946), president of the Amalgamated Clothing Workers union and associate director-general of the Office of Production Management
• Leon Henderson (1895-1986), administrator of the Office of Price Administration and Civilian Supply, 1941-1942
• Donald Marr Nelson (1888-1959), former executive vice president of Sears, Roebuck and Company
• James F. Byrnes (1879-1972), U.S. senator from South Carolina, 1931-1941, associate justice of the U.S. Supreme Court, 1941-1942, and head of the Office of Economic Stabilization, 1942-1943, and the Office of War Mobilization, 1943-1945

Summary of Event

Modern war involves the conflict of rival industrial complexes as much as it involves armed combat between opposing armies. The crux of the problem of industrial mobilization of the United States for World War II was how to supply the war materials required by U.S. and Allied military forces while meeting the needs of the country’s civilian population. Complicating that task were three fundamental difficulties of war production. The first difficulty involved the technical and engineering problems of large-scale manufacture of new and complex military equipment that had to meet exacting specifications. The second was the shortage of many critical resources, given the magnitude of military demands. The third—which aggravated the other two—was the pressure to meet the goals of war production as rapidly as possible. Overcoming those difficulties required a degree of centralized control, or national planning, that was anathema to most Americans in peacetime. The exercise of such control was sensitive politically because decisions concerning industrial mobilization inevitably affected people’s lives and interests.

During World War I, mobilization of the American economy took place through hasty improvisation rather than planning and preparation. Congress, in the National Defense Act of 1920, assigned to the assistant secretary of war responsibility for planning how to shift the economy from a peace to a war basis in a future emergency. The upshot was a series of industrial mobilization—or M-Day—plans by the War Department in the 1930’s. Although the details varied, the keystone of those plans was the establishment of a new agency, referred to from 1936 on as the War Resources Administration, to assume control over the nation’s resources so as to meet war production requirements.

In the aftermath of the triumph of German dictator Adolf Hitler in the Munich crisis in the fall of 1938, President Franklin D. Roosevelt moved to strengthen the United States militarily to meet what he saw as the threat of German aggression in Europe and Japanese expansionism in the Far East. In the summer of 1939, Assistant Secretary of War Louis A. Johnson, a strong champion of preparedness, induced Roosevelt to allow him to appoint a National Resources Board. That board, made up of top business executives headed by Edward Reilly Stettinius, Jr., chairman of the United States Steel Corporation, reviewed the War Department’s industrial mobilization plans. Johnson hoped that the National Resources Board would become the nucleus of the War Resources Administration envisaged by the War Department’s M-Day plans. Roosevelt, however, shied away from a superagency to handle industrial mobilization as draining too much power from his office, and worse, transferring that power to businesspeople hostile to the New Deal. He thus ignored the board, refusing even to make public its recommendation for economic authority to be held by a single administrator in the event of war.

In the wake of the German Blitzkrieg (lightning war) that swept over Western Europe in the spring of 1940, Roosevelt successfully asked Congress for a special appropriation of $1.1 billion for rearmament and publicly called for the production of fifty thousand airplanes per year. In late May, 1940, he appointed, under a World War I congressional authorization, a seven-member Advisory Commission to the Council of National Defense (popularly known as the National Defense Advisory Commission, or NDAC). The NDAC represented a broader cross section of interests than the War Resources Board had and was firmly under Roosevelt’s authority.

Stettinius was the NDAC commissioner for materials; Sidney Hillman, the president of the Amalgamated Clothing Workers union and a founder of the Congress of Industrial Organizations (CIO), was commissioner for employment; Chester C. Davis, a former administrator of the Agricultural Adjustment Administration, was commissioner for food products; Ralph Budd, president of the Association of American Railroads, was commissioner for transportation; Leon Henderson, a New Deal economist, was commissioner for price stabilization; and Harriet Elliott, dean of women at the University of North Carolina, was commissioner for consumer protection. In June, 1940, Donald Marr Nelson, former executive vice president of Sears, Roebuck and Company, was made a de facto NDAC member as coordinator of national defense purchases. The key member, however, and expected driving force of the NDAC was William Signius Knudsen, the commissioner for industrial production.

Born in Denmark in 1879, Knudsen immigrated to the United States in 1900 and worked for a bicycle manufacturer that turned to the manufacture of automobile parts. After the firm was purchased by the Ford Motor Company, Knudsen rose to production manager of the giant Ford plant at Highland Park, Michigan. While there, he made his mark applying and improving the techniques of mass production associated with the moving assembly line. After he was fired in 1921 by an increasingly erratic and eccentric Henry Ford, he became vice president in charge of operations and then president and general manager of the Chevrolet division of the General Motors Corporation (GM). By 1927, he had pushed Chevrolet ahead of Ford as the best-selling automobile brand.

Thanks to Knudsen’s cost cutting through continuous improvement of the techniques of mass production, Chevrolet continued to show a profit even during the worst of the Great Depression. In 1933, Knudsen became executive vice president of General Motors in charge of all car, truck, and body operations in the United States and Canada. In 1937, he succeeded Alfred P. Sloan, Jr., as GM president. Knudsen was attractive to Roosevelt for many reasons. Although not a supporter of the New Deal, he was not identified with the more extreme antiadministration wing of the business community. His role in negotiations ending the 1937 sitdown strike at GM and opening the door for unionization of GM made him acceptable to organized labor. The German invasion of Denmark had made him strongly anti-Axis. Most important was his reputation as a production wizard.

Knudsen achieved no more than mixed results in his efforts during the summer and fall of 1940 to overcome bottlenecks in the production of such critical items as machine tools, airplane engines, and tanks. He was handicapped by his lack of experience in Washington politics and by the ramshackle administrative structure of the NDAC. The major problem was that the NDAC lacked the power to force manufacturers to switch to military production. Most personally embarrassing to Knudsen was continued noncompliance by the automobile industry.

By late 1940, complaints about the effectiveness of Knudsen’s leadership were growing. Critics found him too willing to cater to the estimates of military needs of the U.S. armed services, thereby neglecting American civilian and allied military needs. Owners of small businesses grumbled that the bulk of defense contracts were going to a relatively few giant corporations. Liberals and leaders of organized labor were unhappy with the generous financial inducements—such as cost-plus contracts, under which the contracting firm received the cost of production plus a fixed fee or guaranteed profit—offered to businesses to win their cooperation. The loudest complaints came from those, such as Secretary of War Henry L. Stimson, calling for a more aggressive program to expand the country’s industrial capacity. Knudsen shared the Depression-fed anxiety of many corporation executives that adding new plants would aggravate the problem of overproduction in peacetime. The attacks by “all-outers” against what they charged was Knudsen’s “business as usual” approach were heightened when he brushed aside in the fall of 1940 a proposal advanced by Walter Reuther of the United Auto Workers union for large-scale conversion of the automobile industry to airplane production.

In January, 1941, Roosevelt reshuffled the industrial mobilization machinery to meet expected new demands from the planned lend-lease program. He replaced the NDAC with the Office of Production Management (OPM), keeping Knudsen on as director-general of the new agency. In a bow to organized labor, Sidney Hillman was named associate director-general. Knudsen soon lost the confidence of the White House. Roosevelt was dissatisfied with an agreement Knudsen reached with the automobile industry in the spring of 1941. That agreement called for a 20 percent reduction in civilian car production, less than Roosevelt wanted. His unhappiness was heightened by the public conflict between Knudsen and Leon Henderson, the administrator of the new Office of Price Administration and Civilian Supply (established on April 11 to protect consumer interests) for control over the allocation of materials such as steel, building supplies, and copper that were in short supply.

The upshot was that Roosevelt, in late August, 1941, established the Supply Priorities and Allocations Board (SPAB), with Donald Marr Nelson, the head of the OPM’s division of purchases, as executive director. The SPAB would be the policy-making and coordinating agency for the entire defense program. The OPM was relegated to implementing the policies laid down by the SPAB.

On January 16, 1942, soon after the Japanese attack on Pearl Harbor, Roosevelt created the War Production Board (WPB), with Nelson at its head, to replace the OPM and SPAB. Knudsen was assigned to expedite production in plants under War Department control, given an army commission as a lieutenant general, and made special adviser to Undersecretary of War Robert P. Patterson. In September, 1944, he was appointed director of the Air Technical Service command, with the responsibility of purchasing, distributing, and maintaining the aircraft and other equipment of the Army Air Force. Although Hillman remained head of the WPB’s labor division, he no longer played a major role in the war mobilization effort. The focus of his interest shifted to the CIO’s political action committee.

Under the War Powers Act of March, 1942, the WPB was given broad authority over all aspects of production and procurement. Nelson was only partially successful in overcoming the obstacles of full war production. Adoption of the Controlled Materials Plan in November, 1942, resolved the problem of allocating scarce raw materials by dividing the available supplies among the different government purchasing agencies, which then made allocations to their prime contractors. Roosevelt’s appointment of special “czars” to deal with the problems of petroleum, rubber, and manpower, however, diluted the WPB’s overall authority.

Although the WPB at its first meeting prohibited the manufacture of civilian automobiles after January 31, 1942, Nelson generally shied away from compulsion except as a last resort. Like Knudsen, he preferred to win business cooperation by offering generous financial inducements. Liberals were unhappy with the possible conflicts of interest resulting from the WPB’s reliance on so-called dollar-a-year men, business executives on temporary leave from their firms to work for the WPB while still drawing their regular salaries from those firms. Most important, Nelson allowed the armed services to handle procurement, or contracting for equipment and supplies.

As a practical matter, Nelson probably had no alternative except to allow the military service to handle procurement. The services had established purchasing offices that would be difficult and time-consuming to duplicate, and Nelson thought it best to defer to military expertise in the laying down of specifications for equipment and supplies. Still, the decision had far-reaching consequences. The services’ heavy demands threatened to leave the Allies and the civilian economy with shortages. The result was the so-called feasibility dispute that climaxed in the fall of 1942, when many civilian officials, including Nelson, questioned the ability of the economy to meet military demands.

The immediate conflict was resolved by a compromise whereby the military program was scaled back through extending scheduled delivery dates farther into the future. Keeping military demands within realistic limits remained a continuing source of friction. An additional problem was that the services suspended the peacetime requirement of competitive bidding for most contracts because of time constraints. Because procurement officers preferred to deal with a small number of suppliers, the bulk of wartime contracts went to a relatively few large corporations. Cozy relationships often developed between procurement officers and the firms with which they dealt.

In October, 1942, Roosevelt appointed James F. Byrnes, a former senator from South Carolina and Supreme Court justice, to head the new Office of Economic Stabilization. Although the agency was set up to coordinate the government’s wartime price and wage stabilization efforts, Byrnes gradually extended his control over all aspects of the economy. That control was formalized by the creation in May, 1943, of the Office of War Mobilization, or OWM (later renamed the Office of War Mobilization and Reconversion, or OWMR), headed by Byrnes. The WPB was placed under supervision of the OWM. Byrnes was successful in ironing out most of the remaining difficulties in the government’s direction of war production.

By early 1944, the military situation appeared so promising that Nelson wanted to begin a gradual reconversion to civilian production. His idea was to assist the smaller firms that had been largely left out of the war contract bonanza by giving them a head start in the postwar civilian market. The plan faced strong resistance from big business. The military services were similarly hostile, warning that Nelson was too optimistic. In the controversy that followed, Byrnes sided against the gradual reconversion plan. Nelson was eased out as head of the WPB in August, 1944, and sent on a fact-finding mission to China.

Significance

Even under the strains and redirections caused by the government’s mobilization efforts, American industry during World War II was extremely productive. The gross national product (in constant dollars) rose from $91.3 billion in 1939 to $166 billion in 1945. The index of manufacturing production rose 96 percent, that of agricultural production 22 percent, and that of transportation services 109 percent. By 1942, American war production equaled that of Germany, Italy, and Japan combined. By 1944, American factories were producing twice the volume of the Axis powers. The WPB began to loosen its controls over the economy in the spring of 1945. The issuance of “spot authorizations” allowing manufacturers to resume civilian production began in April; orders prohibiting civilian use of critical materials were rescinded soon after the German surrender in early May. The WPB was terminated on October 4, 1945.

Bibliography

Catton, Bruce. The War Lords of Washington. New York: Harcourt, Brace, 1948. An indictment of big business domination of the war mobilization program, by an associate and admirer of War Production Board head Donald M. Nelson.

Chandler, Lester V., and Donald H. Wallace, eds. Economic Mobilization and Stabilization: Selected Materials on the Economics of War and Defense. New York: Henry Holt, 1951. An anthology of materials treating the problems of economic stabilization during wartime that draws heavily on the experience of the United States in World War II. Part 2 focuses on the machinery of World War II economic mobilization.

Koistinen, Paul A. C. Arsenal of World War II: The Political Economy of American Warfare, 1940-1945. Lawrence: University Press of Kansas, 2004. Massive, comprehensive study of U.S. production and industrial and economic mobilization during World War II. Bibliographic references and index.

Nelson, Donald M. Arsenal of Democracy: The Story of American War Production. New York: Harcourt, Brace, 1946. Nelson’s account, and defense, of his role in the war mobilization effort.

Polenberg, Richard. War and Society: The United States, 1941-1945. Philadelphia: J. B. Lippincott, 1972. An excellent survey of all aspects of the American home front during World War II. Includes a brief but perceptive treatment of the problem of industrial mobilization.

Smith, Ralph Elberton. The Army and Economic Mobilization. Washington, D.C.: Office of Military History, U.S. Army, 1959. A balanced and judicious history of War Department planning for and involvement in World War II economic mobilization.

Somers, Herman M. Presidential Agency: OWMR, the Office of War Mobilization and Reconversion. Cambridge, Mass.: Harvard University Press, 1950. An excellent account of James F. Byrnes’s coordination and direction of the government’s wartime management of the economy.

U.S. Bureau of the Budget. The United States at War. Washington, D.C.: Government Printing Office, 1946. This official history is a comprehensive survey of the administrative machinery for wartime government management of the economy.

U.S. Civilian Production Administration. Industrial Mobilization for War: History of the War Production Board and Predecessory Agencies, 1940-1945. Washington, D.C.: Government Printing Office, 1947. The in-depth official history of the administrative problems and techniques involved in the mobilization of American industry during World War II.