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

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foreign orders were finally outpaced by domestic appropriations. The change occurred well before the end of December 1940, when the president, in a fireside chat, announced that the United States “must become the great arsenal of democracy.” These words paved the way for the Lend-Lease Act, which Congress passed in March 1941. Lend-Lease paid for $7 billion worth of additional ships, planes, tanks, and other munitions, much of which the United States would effectively donate to Britain. After July 1941, when Germany invaded the Soviet Union, Lend-Lease authorities began to plan for shipments to the Soviet Union as well. By September 1941, the military had already prepared a “Victory Program” plan for a nine-millionman army, which came very close to anticipating the ultimate size of the U.S. armed forces. According to one estimate, between June 1940 and December 1941, $64 billion was spent and promised for defense production. This was a third of the total amount that would be spent by 1945.37

      The so-called defense period of 1940–41 also saw the U.S. government displace Britain and France as the leading public investors in war plant. In 1938 and 1939, British and French capital had served as the most important source of funds for the American aircraft industry’s expansion. But now, suddenly, the U.S. government became the world’s most important investor in manufacturing capacity. Between June and December 1940, U.S. government agencies spent at least $1.4 billion on manufacturing facility projects, compared with about $1.0 billion invested in them by the private sector. The government spent another $1 billion to build new Army camps, where recruits could be housed and trained.38

      These public outlays in 1940 were just the beginning of a flood of public investment in manufacturing plant. During all of World War II, the U.S. government would spend close to $20 billion on manufacturing facilities and machinery, more than double the amount invested by the private sector. Public capital had financed only about 10 percent of American war plant during World War I; during World War II, it financed over two-thirds of new plant. The construction of new government-owned plant was so widespread that by 1945, the United States would own most of the manufacturing capacity in the aircraft, shipbuilding, synthetic rubber, and aluminum industries, as well as in ordnance production (see Table 1). This massive investment in war plant transformed the shape of the broader American economy: by war’s end, the federal government would own close to a quarter of the nominal value of all the nation’s factories.39

Industry U.S. Investment Capacity Ownedby U.S., 1944–45
Enriched uranium and plutonium $1.38 billion 100%
Shell and bomb loading $1.25 billion 100%
Synthetic rubber $0.70 billion 97%
Aircraft $3.43 billion 89%
Ships $2.19 billion 87%
Guns and ammunition $1.60 billion 87%
Nonferrous metals (aluminum, magnesium, etc.) $1.72 billion 58%
Chemicals and explosives $2.26 billion 43%
Aviation gasoline $0.25 billion 33%
Machine tools $0.15 billion 26%
Combat and motor vehicles $0.60 billion 23%
Iron and steel products $1.20 billion 14%

      Sources: WPB, “Selling the Surplus Plant,” War Progress Report 256 (11 Aug. 1945), in folder War Progress Reports, box 208, entry 118, RG 80, NARA; atomic weapons plant cost data from Richard G. Hewlett and Oscar E. Anderson, Jr., A History of the United States Atomic Energy Commission, vol. 1, The New World, 1939/46 (University Park: Pennsylvania State University Press, 1962), 723.

      Although the public investment in new war plant would not peak until early 1942, it took shape during the second half of 1940. During those months, the U.S. government started to build a huge new war economy based largely on the form of the government-owned, contractor-operated (GOCO) plant. The GOCO scheme had been used during World War I in the merchant shipbuilding and explosives industries but became much more important during World War II. There were several varieties of GOCO plant arrangements. Most commonly, the government would pay for a large new plant, which was built, leased, and managed by a private contractor. The contractor was paid for his trouble with fees, normally set as a small fraction of anticipated costs.

      The GOCO plants financed by the DPC and the military were not the only important form of wartime investment in manufacturing. Government-owned and operated plant, such as the U.S. Navy yards and the Ordnance Department arsenals and armories, received nearly $2 billion in new investment. Private companies (mostly in the steel, oil, rail transport, and electric utility industries), taking advantage of new tax incentives, paid for about $8 billion worth of new plant in 1940–45.40 Besides all this new plant, plenty of older private facilities ended up being used to make munitions.

      But it was the GOCO plant that constituted the largest part of the wartime investment in manufacturing capacity.41 All the largest new plants built especially for the war were paid for entirely with public funds. And of all plants, including those that predated the war, that turned out the most finished munitions (by dollar value), all but a handful were entirely government financed, or had been renovated with millions of dollars of new public investment (see Table 2 and Table 3).

      Nearly half of the government investment in the new GOCO plant came directly from the War and Navy Departments. The other half flowed through the Defense Plant Corporation (DPC). Created in summer 1940, the DPC was a new subsidiary of the Reconstruction Finance Corporation (RFC), which had been serving since 1932 as the federal government’s biggest bailout machine, infrastructure bank, and multipurpose source of loans and credit.42 The DPC became especially important as a financier of new plant in the aircraft and aluminum industries.

      As military expenditures ballooned and as the GOCO model took off in 1940 and 1941, the shape of the American industrial mobilization shifted. During the late 1930s, it had been confined mostly to transactions between experienced, midsize contractors and the Navy and War Departments (along with foreign purchasing commissions). Starting in 1940, military procurement began to rely more heavily on larger industrial corporations, many of which started to serve as builders and managers of large GOCO plants. It was at this point, during the months before Pearl Harbor, that critics of the mobilization were perhaps most justified in claiming that the war was serving as an engine of economic concentration. By July 1941, of the $9 billion in current munitions orders, a third of the dollar volume was in prime contracts handled by just six corporations.43 Three of these—Bethlehem Steel, New York Ship, and Newport News Ship—were among the handful of experienced warship builders that had been expanding since the mid-1930s. Another, Curtiss-Wright, was a leading producer of planes and aero engines. But the other two, GM and Du Pont, had not held any significant military orders during the 1920s and 1930s. Their appearance in the top ranks of contractors in mid-1941 indicated the rise

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