Destructive Creation - Mark R. Wilson American Business, Politics, and Society

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had suffered “a hundred thousand soldiers dead to make a bunch of skunks American millionaires.” In any future war, Clements demanded, the government must “take over munitions plants.” This call brought loud applause from the assembled VFW men.111

      The real question in the mid-1930s was not whether the government should strictly regulate war profits and build weapons in its own facilities, but exactly how far this should go. Some government officials, including NRA chief Hugh S. Johnson, indicated that they could support a full nationalization of peacetime munitions production with the understanding that in wartime, the government would need to contract with the private sector.112 This idea was supported by Ernest Angell, a New York lawyer and Great War veteran who published a lengthy magazine piece on the issue in 1935. Angell did not oppose some kind of extension of peacetime nationalization, but he pointed out that any such move would have to grapple with the technical question of “at what point in the stream of production a proposed government monopoly shall take over.”113 The Navy might not have much trouble taking over all the production of finished warships and guns, which it already knew how to make. But such a scheme would still presumably require lots of private suppliers, who would sell the Navy most of the elements it needed, such as steel products, turbines, boilers, valves, and cable.

      In the end, most of the Nye Committee’s recommendations were not enacted by Congress. The committee’s investigations did contribute to the passage of the 1935 Neutrality Act, which banned munitions exports to nations at war. But Nye’s efforts to ramp up domestic regulation of the defense sector failed, in the shorter run. The government would not impose comprehensive price and profit controls until after a new world war had begun. Nye’s nationalization scheme was resisted by civilian leaders and military officers in the War and Navy Departments, who preferred to maintain their more flexible systems of mixed public and private production. The military was backed by President Roosevelt, who had close ties to the Navy and opted to distance himself from Nye’s more populist approach to the issue.

      Although Nye was thwarted in 1936, it would be a mistake to understand the defense sector of the 1930s as an area that was immune to the progressive push for more regulation and public enterprise. This was obvious in warship construction, which, as the Nye Committee noted, was already semi-nationalized.114 Here there was already a difference from the years before the Great War, when about 80 percent of new warships had been built by private contractors. After the 1922 Washington Naval Treaty, which limited warship construction, it was unclear how much of the Navy’s modest orders would go to its in-house shipyards and how much to the struggling private yards. The private shipbuilders lobbied for more work, but their efforts were countered by those members of Congress who had one of the eight Navy yards in their districts. In the late 1920s, Congress settled on a fifty-fifty policy, which called for half the ships to be built by contractors and half by the Navy yards.115

      The policy of building half the warships in the Navy’s in-house yards was solidified in March 1934, when Congress passed the Vinson-Trammell Act. One of the most important pieces of legislation passed during the interwar period, Vinson-Trammell authorized the Navy to begin a major new building effort that would provide it 1.2 million displacement tons of warships, the maximum allowed under the 1930 London Naval Treaty. Its passage represented a victory for the proponents of a big Navy, including President Roosevelt and Congressman Carl Vinson (D-GA). It was also a victory for public enterprise. According to the law, every other warship needed to be built in a U.S. Navy yard, “unless … inconsistent with the public interest.” (The same level of public production was not required for aircraft, even though the Naval Aircraft Factory had been a major producer during the early 1920s. According to the new law, only 10 percent of Navy planes should come from in-house sources.) Vinson-Trammell also regulated profits, by capping contractors’ earnings on Navy shipbuilding work at 10 percent of production costs.116

      Thanks to the generous appropriations provided by Vinson-Trammell, along with tens of millions of dollars from New Deal agencies, the private shipyards became much healthier. At companies like the Bath Iron Works, in Maine, and Newport News Ship, in Virginia, this was a welcome end to what had been more than a decade of inactivity and financial struggles.117 However, the private yards were none too pleased by the statute’s requirement that production be semi-nationalized. This clause was protested by the National Council of American Shipbuilders, which soon found itself trying to contain an even bigger threat—the Nye Committee’s call for allout nationalization.118

      Having dodged that bullet, the National Council of American Shipbuilders rededicated itself to lobbying against the semi-nationalization required under Vinson-Trammell. Some of the council’s arguments, which stressed that the costs of the GOGO facilities appeared to be competitive only because they were never fully accounted for, were very similar to the ones used by the private electrical utilities in their battle with the TVA. “If navy yards are to be used as yardsticks,” the private shipbuilders complained to Congress in 1937, “then the yardstick should be exactly 36 inches long.” The council also pointed to the private yards’ modest profits, which, since the mid-1910s, had averaged only 5.5 percent of sales, barely half the 10 percent limit imposed by Vinson-Trammell. According to the shipbuilders, they had the added burden of facing tough Navy officers who appeared to enjoy their ability to squeeze the private contractors by subjecting them to the competition of public yards. The council pointed to the example of Admiral Emory Scott (“Jerry”) Land, who had claimed that the art of submarine construction had been improved by the competition between the Electric Boat Company and the Navy’s own yard in Portsmouth. The council quoted Admiral Land as having referred to the private shipyards as “my arch enemy, so far as doing business is concerned, all the time.”119

      Like other business leaders, the executives who led the private shipyards were disturbed by the Roosevelt administration’s willingness to use the “birch rod” of government competition. Tensions over this issue mounted in 1936–37, after Congress passed the Walsh-Healey Act, which required government contractors to pay their workers overtime rates after forty hours a week. Some shipbuilding and steel companies, which were already engaged in a major struggle to prevent the unionization of their plants, began to suggest that they might avoid Navy contracts in the future. President Roosevelt, coming off his landslide victory in November, was willing to play hardball. If the steel companies did not want to fill contracts for armor plate, the president suggested, the government could always reopen its GOGO facility in West Virginia. Then, in a January 1937 press conference, Roosevelt said that although he preferred to continue the fifty-fifty distribution of orders outlined in Vinson-Trammell, he could, if necessary, give an even larger fraction of the work to the Navy yards. Roosevelt then announced that both of the first two North Carolina–class battleships would be built by the Navy’s own yards, in Brooklyn and Philadelphia. Roosevelt’s decision outraged executives at the New York Shipbuilding Corporation, who had expected that the usual fifty-fifty policy would allow them to build one of the massive vessels. This dispute would ebb over the following months, when the private yards would once again receive about half the Navy’s new orders. But for the contractors, the episode demonstrated again the power of government competition.120

      On the War Department side, the situation was somewhat different because the political struggles over Army procurement were more concerned with a future war mobilization. In peacetime, the U.S. Army’s own arsenals were supplying many of the finished weapons demanded by its small force. But as War Department officers knew from the record of the Great War, they would need to equip several million men, instead of a couple hundred thousand, in the event of another major conflict. To accomplish this, they would carry out another “industrial mobilization,” as they called it, comparable with what had occurred in 1917–18. As European observers recognized, the United States was a leader in planning for industrial mobilization. One reason for this was the nation’s unique strategic situation: protected from leading military powers by vast oceans, the United States still seemed to enjoy the luxury of maintaining a small army, until an emergency developed. The U.S. also boasted the world’s biggest national industrial capacity, which American officers expected to tap in the event of war.121

      According to the National Defense Act of 1920, industrial mobilization planning was overseen by the Office of the Assistant Secretary

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