China’s New Vassal
How the War in Ukraine Turned Moscow Into Beijing’s Junior Partner
"America's brilliant, if pitiless, war industry had entered the service of patriotism and had not failed it. Under the compulsion of military necessity a ruthless autocracy was at work, and rightly, even in this land at the portals of which the Statue of Liberty flashes its blinding light across the seas. They understood war." -- Field Marshal von Hindenburg.
THE United States is again building a war machine which it hopes to make even more efficient than the one which elicited this praise from the German commander in his autobiography. Appropriations for the Army and Navy are the largest in the country's history except in time of war. More than that, the Government is laying plans, now in peacetime, to bring the full weight of its resources in men, materials and morale to the support of its armed forces in case it becomes involved in another great war. Unlike the totalitarian states, the United States cannot institute a war economy in time of peace. Planning can go no further, therefore, than to prepare for an efficient transition from the normal pattern of political, economic and social life to one in which the military machine can attain its full effectiveness when war actually comes.
Since the War Department is most directly concerned with the problem, the advance planning which is already under way naturally centers there. Three agencies are engaged in making these preparations -- the Planning Branch in the Office of the Assistant Secretary of War, the Army Industrial College, and the Army and Navy Munitions Board. Ever since the World War the Planning Branch has worked to devise an Industrial Mobilization Plan. The task of training the personnel necessary to operate such a Plan in all its vast detail falls upon the Army Industrial College, organized in 1924. In this institution annual classes of sixty Army, Navy and Marine officers are taught the principles and methods of economic planning. The responsibility for keeping the Industrial Mobilization Plan up to date devolves upon the Army and Navy Munitions Board, headed by the Assistant Secretaries in the War and Navy Departments.
In the event of a war the Plan will come into operation when the Army and Navy have determined their requirements in men and matériel. The Plan provides for the translation of these general requirements into specific demands on American industry and stipulates what economic measures the latter must take to meet them. It also outlines the governmental organization necessary to see that the economic measures are carried out.
During the first stages of an emergency the Army and Navy Munitions Board is to coördinate the work of supplying the armed forces. This will be done by an Executive Committee composed of three officers from each of the two defense departments. The work of the Board is already distributed among several divisions. In time of war these can be expanded and put under civilian control. The Commodities Division is important. Under it are Commodity Committees, each of them planning to ensure an adequate supply of a particular commodity in which wartime shortages may possibly appear. There also are divisions for Power and Fuel and for Transportation. A Facilities Division makes preparations to obtain the additional manufacturing facilities that will be needed in wartime. The Legal Division prepares forms for war contracts, as well as legislation to put the whole Plan into effect. The Liaison Division works on matters less directly involved in the procurement of munitions -- such as labor, trade, public relations, price control and finance. The Policy Division has two unrelated functions: it standardizes products and materials used by both the defense departments, and it analyzes the plans of the other divisions and the means proposed for carrying them into effect. Each of the two departments is represented on every agency of the Munitions Board, those from the Army being drawn from a corresponding division in the Planning Branch.
In a minor war it is expected that the Army and Navy Munitions Board can administer the necessary mobilization measures without greatly expanding its present staff. If it needs additional personnel, the seven hundred graduates of the Army Industrial College will be available unless engaged in more important duties. In recent years there has also been extensive recruitment of reserve officers with special abilities in trade, engineering, public relations and so forth, who could be promptly mustered into service on the outbreak of hostilities. The close, if informal, collaboration now maintained by the Munitions Board with trade and industrial associations would be strengthened in time of war. The civilian services in a minor war would therefore be directed by an organization headed by civilians -- the two Assistant Secretaries -- but staffed mainly by military and naval officers coöperating with civilian trade and professional associations. Such a setup involves few departures from the ordinary peacetime organization for planning and procurement and indicates that a minor conflict is not expected to put any particular strain on our industrial resources.
For a major war, however, a supplementary organization has been planned, headed and largely staffed by civilians, and capable of exercising a certain degree of control over every aspect of civilian life. A War Resources Administration, roughly comparable to the Executive Committee of the Munitions Board, will centralize control over all the war industries; and this body will be responsible directly to the President, in whose name it will wield broad authority. It is proposed to create other administrative bodies corresponding to the divisions of the Munitions Board. These include Administrations for War Finance, War Trade, War Labor, Price Control, Public Relations, and Selective Service. Divisions of the War Resources Administration will control Facilities, Commodities, Power and Fuel, and Transportation. The heads of these Administrations and Divisions, plus the Secretaries of State, War and Navy, and the commanders of the Army and Navy, will form an Advisory Council to the War Resources Administrator.
These agencies are not to be created all at once, but only as fast as necessity warrants. The rôle of the Munitions Board will be reduced, as each agency is established, until its prime function is that of coördinating the demands of the Army and Navy and presenting them to the proper super-agency. Since the War Resources Administrator is the most important figure in this setup, he will presumably be the first to be appointed. The various administrators will be the ablest civilians, in their respective fields, that the President can find. They will have broad leeway in selecting their own subordinates, not only from among the civilians who possess the necessary technical knowledge and executive ability, but among Army and Navy officers with special training. The administrators will have equally great freedom in deciding the setup of their super-agencies; in so doing they will have the advantage of the Munitions Board's plans.
Present plans call for the institution of War Service Committees, composed of leading civilians in each industry who will speak for it in dealing with the existing Commodity Committees of the Munitions Board. These Commodity Committees, with expanded personnel including civilians, will be retained under the War Resources Administration. The Administrator will thus be able to maintain contact with each producer in each industry.
This war organization requires broad powers if it is to function effectively. Since any war in which the United States engages may be assumed to have the full support of the American people, coöperation rather than coercion should produce the necessary results. However, in case coöperation is given reluctantly, the Government must possess the power to coerce. Here the priority power would be of decisive importance. With this power the Government could direct the flow of materials and services where they would be most useful; it might also choose between the needs of its different agencies, between those of itself and of the civilian population, or between those of individual consumers. Only slightly less important is price control, which might be used to prevent the violent economic dislocation, waste and extravagance which always accompany a sudden and large demand for goods of which supplies are limited. Then there is the "compulsory order," which could be used to relieve industry of existing civilian contracts when its products were urgently needed by the Government. And lastly, there is the power to commandeer, a police measure enforceable against a non-coöperating concern, and the right to license, applicable to exporters and importers in order to control the country's foreign trade.
The Executive already possesses some of these powers. If it were to possess all of them, through appropriate legislation, the war organization would be legally equipped to carry out its task. If, for example, the Army and Navy find that the supply of shoes is short, they will notify the War Resources Administration through the Munitions Board. The shoe manufacturers' War Service Committee will then survey the trade. If it discloses that the facilities for making shoes are inadequate, the Committee will inform the trade that the Facilities Division is ready to approve the construction of new shoe-manufacturing plants. The War Finance Control Commission will approve the sale of securities necessary to raise the funds to erect them. The War Resources Administration will see that the manufacturer obtains the necessary priority on building materials, and on the power and fuel to operate the factory when it is built. The War Labor Administration will help the manufacturer secure the necessary workmen through its nation-wide system of employment agencies, and the Selective Service Administration will refrain from drafting these workmen while they are in his employ. The Price Control Administration will try to keep down the prices of the manufacturer's materials, so that he may complete his contract at the agreed price and so maintain the standard of living of his workers in balance with their wages. On the other hand, if the manufacturer attempts to expand his plant when there are already sufficient facilities available and when labor and material are needed elsewhere, his project will be disapproved and hindered.
This, in simple terms, is the Plan and how it would operate. Now, for what sort of a war has it been devised? The Plan seems to envisage the possibility of a large-scale conflict, for it is based on the needs of a Protective Mobilization force of 1,000,000 men, capable of expansion to 4,000,000 men. It does not, however, provide for their transportation or maintenance overseas; and it assumes that there will be no great expansion of the Navy, since warships cannot be quickly built. Obviously there is no potential enemy force of comparable size in this hemisphere; nevertheless, the Munitions Board must plan for all contingencies. Divisional planning measures have been prepared to deal with any difficulties likely to occur in raising the proposed American force.
A careful analysis made soon after the World War showed that there were twenty-eight "strategic" commodities essential to the production of military supplies but scarce in the United States. The Commodity Committees, after consulting government agencies like the Bureau of Mines and non-governmental bodies such as the Minerals Advisory Council, have eliminated eleven of these, either because new sources of supply have been discovered in or near the United States, because substitutes are now being produced or because reserve stocks have been built up. The Committees will continue to strike other items off the list whenever possible; rubber may be the next to go if present experiments with substitutes are successful. The Commodity Committees also work out plans for securing ample supplies of strategic raw materials. In cases where these are not subject to deterioration, a stock pile may form a temporary safeguard. There also exists a second list, composed of "critical" raw materials -- those in which the problem of supply is less pressing than is the case with the so-called strategic items, but a shortage of which might cause "bottlenecks" in wartime production. These also receive the attention of the Commodities Division. War conditions may move items from the critical to the strategic list. The United States will inevitably have to depend on foreign sources for some of its strategic and critical raw materials. Control over the importation of these will be in the hands of the War Trade Administration. In order for the United States to obtain the supplies it requires this agency will probably have to negotiate trade agreements with other nations, either allies or neutrals.
Let us now turn from raw materials to manufactured articles. The Planning Branch has surveyed some 20,000 plants to assure itself that facilities exist for producing the 14,000 items the Army will need. The production of many of these items is at present so far ahead of demand that no action is required. In the case of the other items, either the supply is short or the product is not being made commercially. In these instances, producers are asked to accept tentative wartime production schedules, and their plants are placed in the "allocated" category. There are about 10,000 such plants. When the Army and Navy both need the product of the same plant, the allocation is made by the Munitions Board. As a means of accustoming manufacturers to producing unfamiliar items, small "educational orders" are given them.
If the plants manufacturing a certain article are inadequate or are not strategically located, the Facilities, Power and Fuel, and Transportation Divisions of the Munitions Board are called in to plan for the construction and equipment of additional plants. In most lines, however, it is anticipated that present industrial capacity will be sufficient. The Facilities Division will plan to locate the new plants in areas near the supply of raw materials, where transportation facilities are not likely to be overtaxed, and where power and fuel are available. Where all these favorable conditions are not found together, a balance must be struck among them. During the World War, the greatest industrial and transport strain developed in New England and in the area between Pittsburgh and New York. Now that industry has become more decentralized through the use of electricity, it is easier to plan for these areas. Here the Power and Fuel Division is benefiting from the research of the National Defense Power Committee. By permission of the Federal Power Commission electric power may be shifted from one part of the nation to another.
The work of the Transportation Division is based on the assumption that the railroads are still the backbone of our transportation system and that motor and water transport will be merely auxiliary feeders. The railroads are to be left in private hands under a plan of operation which is being elaborated by the Association of American Railways to meet government needs.
Proper contract forms for war supplies are difficult to prepare. Peacetime procedure is not adapted to war conditions, being designed to safeguard the Government at every turn regardless of resulting delay. Open competitive bidding and the rigid limitation of profits are feasible in peace; but in war they may seriously hamper the procurement of necessary supplies. The removal of the restrictions normally surrounding the making of contracts undoubtedly opens the way to profiteering. But during the World War loose contracts were not the principal cause for excess profits. As a result of the Government's foresight in time of peace, both as regards the probable needs of the defense forces and in cataloguing the country's natural recources, there should be less improvident purchasing in another war than there was in the last. Under the present system of allocations and educational orders, competitive bidding will be restricted to certain specified firms; this does not mean, however, that there will be no time and opportunity for determining whether the prices set by these are out of line. The "cost-plus" form of contract used during the World War has not been eliminated; but government checks on manufacturers' costs are now more effective. Further, the types of contracts have been reduced from 400 to eight and this should simplify auditing. The new contracts contain provisions by which manufacturers may be allowed compensation, after appropriate hearings, in cases where their labor and material costs rose after the contract was awarded. Since it is expected that there will be some form of price control, this particular form of abuse, prevalent in the World War, should be largely eliminated.
However, no acceptable principle of price control has yet been worked out. Mr. Baruch, who was chairman of the 1918 War Industries Board, favors establishing a "ceiling" over all prices. This ceiling would be the level obtaining on that date preceding the declaration of war when prices last appeared normal. Thereafter any rises would have to be approved by the price control authority. Others consider this method unworkable in practice and believe that it would induce bootleg prices. Some experts would at first have the Government control the prices of only the most important raw materials and then slowly extend its supervision of the price structure as it became administratively practicable and as appeared necessary to protect the general price level. The Brookings Institution is now studying this subject at the request of the Munitions Board. Some agency with adequate powers, such as the Federal Trade Commission, should extend the study and keep it up to date.
What, now, about man power, both for industry and the armed forces? Since no difficulty in securing adequate man power is expected, the principal problem will be that of utilizing it wisely. We will require a draft only in a war of major proportions; and this will have to be voted by Congress. If necessary, all men of military age would be registered; those not needed immediately would be placed in deferred categories. Volunteering in the early stages of the war would be permitted until a selective service act had been passed and come into operation. A system for coördinating and supplementing state employment agencies would be needed in order to provide labor for the nation's industrial machine. In this way the whole nation could be made into a single labor market. Preparations for meeting labor's own problems and for settling its wartime disputes are still incomplete; these await the smoothing out of difficulties in labor's own ranks and the revision of our national labor legislation.
Plans for the conduct of public relations involve no sharp departures from World War practice. The Army and Navy will control the dissemination of information concerning strategic activities. News from the civilian branches of the Government will be distributed through a central civilian agency. The press presumably will again abstain voluntarily from printing military information likely to give aid or comfort to the enemy. The radio can be completely dominated by the Government through its power to grant or refuse licenses. The motion-picture industry will probably desire to avoid controversial issues, and so will readily adhere to any rules imposed by a supervisory authority. The Munitions Board feels that this supervising body should be composed of civilians. The Army and Navy are concerned only with the proper presentation and control of their own military information, and they feel that other matters connected with the war should be left to civilian publicity agencies.
In the past the plans of the various divisions described above were embodied in annexes attached to the Industrial Mobilization Plan; however, in the 1939 version they were omitted. This does not mean that the principles underlying these plans have been changed. Rather it is an indication that in time of war they will be put into effect largely by civilians, with the Munitions Board serving in only an advisory capacity. Also, the Plan has heretofore been accompanied by the drafts of legislative bills designed to give the President powers to put it into effect. In these the President was authorized to register all men between 18 and 45 years of age, and either to enroll them in the armed forces or to grant them deferments. He was also given power to fix prices and profits. He could license any occupation and fix its rates of compensation. He could open and close stock exchanges, and permit or stop the sale of securities. When the Nye Committee investigated the Plan in 1934, it sharply criticized both the annexes and the bills; in their place it substituted a bill of its own which added a confiscatory war profits tax, though it granted sweeping powers to the Executive. Thereafter the Munitions Board's Plan contained the same grant of powers to the Executive as that of the Nye Bill, with slight modifications. However, it has now been decided not to include drafts of legislative bills in the Plan. Instead, the Legal Division of the Munitions Board will prepare tentative drafts of necessary legislation which can be changed as conditions may require.
There are two important gaps in the Munitions Board's current Plan. The first is a lack of any provision for war financing. The defense departments quite correctly consider that this problem belongs to the Treasury. They merely state that taxation must not be so severe as to discourage industrial production. This limitation applies particularly to taxation on excess profits. But the Treasury has not been authorized to prepare war finance legislation. The whole question, then, is still open, even though Congress in recent years has given it much attention. One of the Nye Committee's recommendations was that the war be paid for as far as possible out of revenue. It therefore wrote a "pay as you go" bill placing a tax of 100 percent on all incomes over $10,000. (The corporation tax provisions in this bill were based on those of the existing revenue law, and when this was later revised, the Nye provisions became obsolete.) In 1938 a new bill was introduced requiring the Treasury to draft a war revenue bill and keep it up to date. But this bill has never become law; as a result there is still a gap in our war planning. A succession of bills has been introduced into Congress (beginning in 1935 with the McSwain bill) to tax all the profits out of war. Such proposals might discourage possible "warmongers." But as war revenue bills they can scarcely be taken seriously, since the rates they set are so high that they probably could not be enforced.
The second gap in our planning is the failure to make preparations for the period of neutrality intervening between the outbreak of some general war abroad and our possible entry into it. The Plan of the Munitions Board does not provide for the application of preparatory measures previous to our declaration of war. But civilian preparations for war should be undertaken during this crucial interval; and if economic dislocations became severe, as they well might, steps would have to be taken to mitigate them. Price control will be particularly important at such a time; frantic bidding for supplies by foreign belligerents may force prices up to a point where attempts to prevent inflation in this country would be futile after we had become a belligerent.
Existing legislation can be invoked to a certain extent to tide us over this period. The Executive possesses emergency powers which might be used both to prevent price kiting and to inaugurate a defense program. Under the National Defense Act the President may preëmpt any factory's output and authorize its reorganization if necessary for national defense. The Federal Power Act gives him authority to redirect the flow of power for the same purpose. The Merchant Marine and Federal Transportation Acts give him similar emergency powers over transportation. To prevent violent fluctuations on the exchanges he may close them for three months. Although these measures give him no direct power to govern prices, his control over exchanges and transportation and his power to requisition factory output at prices fixed by him (subject to review by the courts) could certainly be used indirectly to attain that end.
There remains an urgent need for the creation of stock piles of strategic materials for use during this emergency period. For instance, there would be no time to obtain tin and rubber in the East Indies after a crisis in that area had cut off both the supply and our access to it. Legislation providing for the purchase and storage of strategic materials is now before Congress, also a proposal to barter American surplus wheat and cotton for them. Action along these lines should not be deferred.
Should Congress for any reason fail to pass legislation granting war powers to the Executive immediately on the outbreak of what appears likely to be a major war, the President has two alternatives open to him. He may do what Lincoln did, and what Buchanan failed to do -- take whatever measures appear imperative to preserve the nation, and seek legislative authorization when Congress assembles. Presumably this would be unnecessary today, since Congress could assemble in two days. Or, like Wilson, he could broadly interpret the authority already granted him by Congress. For example, Wilson created the whole system for mobilizing industry which centered around the War Industries Board on no more authority than the Overman Act permitting the reorganization of the Executive branch.
Another course would seem to be the most sensible -- to ask Congress in advance for whatever powers would be needed to meet an emergency. The American Legion recommended the enactment of adequate legislation to the War Policies Commission in 1931, and has continued to advocate it since. The War Department recommended specific legislation in its 1933 version of the Industrial Mobilization Plan. The Nye Committee favored such a grant, though in different terms. Each session of Congress sees bills of a similar nature introduced. They fail to pass for two reasons: the delegation of so much power is considered dangerous; and, until recently, the necessity for it has appeared remote. As a matter of fact, experience indicates that in a major war, power finds its way into the President's hands whether it has been specifically placed there or not. But this country has never waged war against a totalitarian state; in such a conflict we could not afford to delay giving the President full powers.
Looking at the Plan in general, we find little in it that does not find some sort of precedent in what happened in the World War. It does not set up a completely planned economy, but allows individual initiative to continue, encouraging or discouraging it according to its effect on the Government's needs. It preserves the profit motive as an incentive to production. It also recognizes the right of workmen to change jobs and seek higher wages, although it restricts the opportunities for finding them to necessary war industries. It institutes no limitations on the Constitutional Bill of Rights other than those applied during the World War. And it is based on the principle that time is of the essence and can best be saved by speeding up existing methods and smoothing the way for producers already in business.
The fear is frequently expressed that the complete system of controls envisaged in this Plan would inevitably create just that sort of totalitarian régime which we now so vigorously condemn. The Plan undoubtedly modifies sharply the sort of government we enjoy in time of peace. However, it will be put fully into effect only in a major war, and in any case provision has been made to prevent the organization which carries on the war from continuing its existence after hostilities are over. A line has been carefully drawn between present government departments and wartime super-agencies, in order to deprive the latter of any postwar function. All bills granting extraordinary war powers to the Executive limit the grants to the duration of the war emergency.
The World War showed what obstacles lie in the way of any attempt to build a permanent Executive dictatorship based on agencies staffed by businessmen and industrialists temporarily drafted into Government service. In 1918 the nation recognized only dimly that it was living under a form of dictatorship. As soon as the war was over the executive personnel of the agencies created for the emergency lost interest in their work. They simply wound up their affairs and went home to resume their ordinary vocations, leaving the process of cleaning up to the permanent officials of the regular government departments.
If the Plan is to work efficiently, and at the same time along as democratic lines as war conditions permit, its formulation should be regularized and broadened. Until recently only the War and Navy Departments have had any official part in planning. The National Defense Act authorized the Assistant Secretary of War to undertake the work. When the Army allocation system began cutting into the Navy's sources of supply, the two departments made joint plans. No other branches of the Government have an interest comparable to that of the Army and Navy, and until recently none of them took any initiative, merely advising the Munitions Board when invited to do so. But the personnel of the Board is limited both in number and tenure of office. Like the personnel of the Planning Branch and the Industrial College, it is composed of Army and Navy officers subject to the usual changes in assignments. For Army men these changes are made every four years, and for Naval men every two. No matter how vital their part in planning, they move on at the end of their assignment. The students in the Industrial College attend a nine months' session, and then return to ordinary duty, often at tasks quite unrelated to those they have just left.
Two means could be employed to broaden participation and give greater continuity. The first would be to submit different parts of the Plan to interested groups of outsiders for their judgment and suggestions as to possible modifications. This method is now being developed by the Board, though on a limited scale. More interdepartmental committees should be formed for study in such fields as war trade, where the Department of State and the Treasury Department (through the customs service) must coöperate with the Army and Navy. Closer contacts should be made with the trade associations, so that they can work out with the Board the details of their wartime rôles. Reserve officers are now recruited from every field of civilian activity; officers from each field should participate in the work of the Board, and bring to it the benefit of their specialized knowledge.
A second method would be to broaden the policy-forming group to include prominent civilians. This was done in the World War. The Council of National Defense, consisting of the heads of the principal Executive departments, created an Advisory Commission of civilians, each prominent in some field of activity, including industry, finance and labor. Out of this group of able men grew the War Industries Board organization, which brought to the Government the administrative services of many of the best-trained executives in the country.
As now organized, however, no civilian leaders have any controlling part in the plans being made. This seems particularly an error in planning for the super-agencies. The Munitions Board proposes to turn over its control to civilian administrators as soon as the super-agencies are established. But these administrators will not be bound by the plans of the Munitions Board and may have ideas of their own; to that extent the Board's plans might lose their value. If these plans had been passed on and approved by a powerful civilian advisory committee, composed of men of the type from which the administrators would be chosen, there would be less chance of their being scrapped later on.
Whenever a war crisis comes, the transition from our normal form of government to that outlined above will be greatly facilitated by wide and accurate knowledge of the Plan's provisions, and the feeling that those to whom it is to apply have participated in its creation. If these conditions are fulfilled, there ought to be little anxiety that the provisions of the Plan will be invoked on any occasion less solemn than one which would warrant it.