War Mobilization and the Use of Small Manufacturers

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The President and Fellows of Harvard College

American War Mobilization and the Use of Small Manufacturers, 1939-1943Author(s): Jim F. HeathSource: The Business History Review, Vol. 46, No. 3 (Autumn, 1972), pp. 295-319Published by: The President and Fellows of Harvard CollegeStable URL: http://www.jstor.org/stable/3112741 .

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By JimF. HeathASSOCIATE PROFESSOR OF HISTORY

PORTLAND STATE UNIVERSITY

AmericanWar Mobilizationand the Useof Small Manufacturers, 939-1943*C Despite political pressure from their Congressionalchampions, smallbusinesses were never effectively utilized in the American mobilizationfor World War II. The Rooseveltadministration ollowed an ambivalentpolicy designed to placate the proponentsof small business while givingthe lion's share of contractsand scarce raw materials to big business.

During World War II, American eaders from the Presidentdown repeatedlycalled for the full utilizationof nationalresourcesto win the war in the shortest possible time and at the lowest cost inlives and treasure. But small businessmen and their supporterscomplainedthroughout he strugglethat despite effusiverhetoricalaffirmations of their importance by public officials, smaller firmswere not being integrated effectively into the mobilization program.Concomitantly, they charged that the position of small firms relativeto big corporationswas being seriouslyweakened.'Whether or not big business did in fact tighten its grip on theAmerican economy during the war is a subject of keen disagreementamong both economists and economic historians. This questiondeservescontinued careful investigation. But the purpose of thisessay is primarilyto examine the policy-makingprocess involvedin mobilizing small manufacturers during the conflict, not to at-tempt to measurequarntitativelyitherthe effectivenessof the poli-cies or their impact on business concentration.2

Business History Review, Vol. XLVI, No. 3 (Autumn, 1972). Copyright O The Presi-dent and Fellows of Harvard College.OThe author gratefully acknowledges a grant from the Faculty Committee on Re-search and Publication of Portland State University for research on this project.1 The widely publicized Report of the Smaller War Plants Corporation, Economic Con-centration and World War II, 79th Cong., 2d Sess., Senate Committee Print No. 6, issuedin January 1946, warned that firms with less than 500 employees accounted for only32 per cent of total manufacturing in 1944 compared with 52 per cent in 1939. Thepublication also charged that during the conflict the 250 largest manufacturing corpora-tions had increased their percentage of total usable manufacturing facilities.2Among the economists and economic historians who agree that concentration did in-crease during the war are A. D. H. Kaplan, Big Enterprise in a Competitive System (Wash-ington, 1964, 2nd ed.), esp. 31; Walter Adams and Horace M. Gray, Monopoly in Ameri-ca (New York, 1955), esp. 102-105; and Thomas C. Cochran, The American Business


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Wartime mobilization may logically be divided into two periods:the conversion of industry from civilian to military production,1939-1943; and the gradual reversal of this process - reconversion- during the last years of the conflict. Since Barton J. Bernstein,Jack Peltason, and others have trenchantlydescribed the govern-ment's part in the bitter controversy between big and small busi-ness during reconversion, the focus here is on the use of small manu-facturers during the conversion phase.3

SYMBOLIC IMPORTANCE OF SMALL BUSINESSIn 1939 the prestige of small companies was much greater thantheir statistical share of the total national economy seemed to war-rant. But as Harmon Zeigler observed, "everyone is for small busi-ness because everyone has an overlapping affiliation with small busi-

ness." Society generally continued to accept the symbolic valuesof small business by believing that numerous independent economicunits and numerous economically independent people were vitalfor political democracy and social stability. Big business appreciatedthe small operator as a valuable ally in preserving private ownership.In their quest for votes, political leaders acknowledged both thetangible and intangible support enjoyed by the "little fellow."''The rapid rate of business concentration which began in the latenineteenth century seriously alarmed Americans who cherished thesymbolic values of small operators. But before the 1930's, effortsto counteract bigness were essentially of a negative character: theuse of antitrust laws to invigorate competition by breaking up con-System (Cambridge, Mass., 1957), esp. 160. Strong disagreement is expressed by M. A.Adelman, "The Measurement of Industrial Concentration," The Review of Economicsand Statistics, XXXIII (November, 1951), 279-285; and Gardiner C. Means, "Thoughtson Concentration," Proceedings of Business and Economic Statistics Section, AmericanStatistical Association, 1962 (Washington, 1962), 120-21.SBarton J. Bernstein, "The Debate on Industrial Reconversion: The Protection ofOligopoly and Military Control of the Economy," American Journal of Economics andSociology, XVI (April, 1967), 159-172 and "The Removal of War Production Controlson Business, 1944-1946," Business History Reciew, XXXIX (Summer, 1965), 243-260;Jack W. Peltason, "The Reconversion Controversy," in Harold W. Stein, ed., Public Ad-ministration and Policy Development (New York, 1952), 215-283; James W. Fessler andothers, Industrial Mobilization for War, Vol. 1, Program and Administration (Washington.1947), 717-862; Bureau of the Budget, The United States at War: Development andAdministration of the War Program by the Federal Government (Washington, 1947).467-502; Bruce Catton, The War Lords of Washington (New York. 1948), 211-288;Donald M. Nelson, Arsenal of Democracy (New York, 1946), esp. xv, 410.4 For especially valuable commentaries on the position of small business in the Ameri-can society and economy see Harmon Zeigler, The Politics of Small Business (Washington,1961), quotation from 145; Joseph D. Phillips. Little Business in the American Economy(Urbana, Ill., 1958); A. D. H. Kaplan, Small Business: Its Place and Problems (NewYork, 1948); John Bunzel, The American Small Businessman (New York. 1962); DavidLynch, The Concentration of Economic Power (New York. 1946); and Kurt Mayer."Small Business as a Social Institution," Social Research, XIV (September, 1947), 332-349.296 BUSINESS HISTORY REVIEW


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centration and preventing one company or a small number of com-panies from dominating any industry. Positive measures to fosterthe economic health of small firms were seldom advocated until theGreat Depression when, between 1933 and 1942, 390 small businessbills were introduced in Congress, with twenty-six becoming laws.Similarly, there were few attempts to organize small businessmeninto political pressure groups until the 1930's. Efforts to do so, how-ever, produced no single organization or a limited number oforganizations that could effectively speak for the millions of diversesmall businessmen when crucial economic policies were formulatedduring World War II. Small operators benefited from their sym-bolically prestigious image, but they lacked political cohesion.5

SMALL BUSINESS AND MOBILIZATIONSerious efforts to strengthen the nation's military power began in1939. As the defense effort gradually accelerated during the pre-Pearl Harbor period, small operators, charging that federal mobili-zation policies favored big business, increasingly complained thatthey were not receiving their fair share of government contracts.Small businessmen writing directly to the President were assured

that the Army and Navy were aware of the role that small firmscould play in the production of defense goods. But not until Oc-tober 1940 did the federal agency then responsible for industrialmobilization, the National Defense Advisory Council (NDAC),tangibly respond to the complaints by creating the Office of SmallBusiness Activities (OSBA) under the supervision of the coordinatorof National Defense Purchases, Donald M. Nelson, a former Searsmerchandising executive. In addition, the Council sought help fromthe Federal Reserve Board in financing smaller enterprises desiringgovernment contracts and urged the Navy and War Departmentsand the Reconstruction Finance Corporation to encourage smallfirms to participate in the defense program.6In January 1941 President Franklin Roosevelt drastically reor-ganized the administrative structure responsible for industrial mo-bilization, creating the Office of Production Management (OPM)to replace the NDAC. Subsequently, the OSBA was renamed theDefense Contract Service (DCS) and transferred from the Pur-

Zeigler, Politics, 13-20.* For letters from small businessmen to Roosevelt and the President's answers, see OF172, FDR Library, Hyde Park, N.Y. (hereafter cited as RL); Minutes of the AdvisoryCommission to the Council of National Defense (Hist. Reports on War Admin., No. 1),95, 100, 106.WAR MOBILIZATION 297


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chases to the Production Division. Under furniture retailer RobertMehornay, the DCS built a network of field offices and tried toassist small businesses in establishing relations with the purchasingoffices of the armed services and other user agencies that placedgovernment contracts. Even more important, since few small firmswere able to handle large orders alone, the OPM and DCS empha-sized the value of subcontracting arrangements by which major pro-ducers "farmed out" significant parts of their contracts to smalloperators.7Despite efforts to spread the distribution of defense orders, dis-satisfaction over the utilization of small companies grew, drawingthe attention of the Senate's Special Committee Investigating theNational Defense Program under the capable chairmanship of Sena-tor Harry S. Truman. In its hearings during July 1941, the com-mittee pinpointed a critical and continuing problem: the tendencyof the armed services to prefer awarding contracts to larger firms.One possible help to small companies, stressed by Senator JamesMead, was to require all prime contractors to subcontract a pre-scribed percentage, a practice followed in Great Britain but pre-viously considered by the OPM and rejected as unwieldy. John D.Biggers, director of the Production Division and former presidentof Libby-Owens-Ford Glass, assured the committee that muchprogress was being made to divide procurement requirements with-out resorting to arbitrary percentage arrangements. He also deniedknowledge of OPM officials who were opposed to helping littlecontractors. And he defended the military's tendency to favor bigcompanies as a matter of efficiency and expediency, not an inherentbias.8The armed services tenaciously argued that only large firms were"equipped with the plant and machinery, specially skilled workers,managerial know-how, financial stability, and established contractswith a wide array of suppliers" to adapt quickly to the productionof military goods. Furthermore, the War Department bluntly de-

7Minutes of the Council of the Office of Production Management (Hist. Reports onWar Admin., No. 2), 4; Robert L. Mehornay to Guy L. Moser, March 31, 1941, WPBPolicy Document Files in RG 179, National Archives, Washington, DC., 291C (here-after cited as WPB followed by numbered file). Also see WPB Information Letter No. 47,"Coordination Between Defense Councils and Defense Contract Service Offices," April 16,1941, WPB 291C.g Hearings before the Senate Special Committee Investigating the National DefenseProgram (hereafter cited as Truman Committee), Part 6 (July 22-23, 1941), 77th Cong.,1st Sess., 1605-1620, 1639-1641; John D. Biggers to Harry S. Truman, July 23, 1941,Senate Files, Truman Papers, Truman Library, Independence, Mo. (hereafter cited as TL).Roosevelt expressed concern about people in the Defense Commission who might tend toprofit by their interests in particular businesses. He asked Budget Director Harold D. Smithto check into the situation. Conferences with the President, February 6, 1941, Harold D.Smith Papers, RG 82, RL.298 BUSINESS HISTORY REVIEW


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clared that it was not a social reform agency bent upon changing thenation's industrial pattern. But prodded by the Truman committee,the OPM did act in August to bolster the effectiveness of the De-fense Contract Service. DCS representatives were assigned to thevarious subdivisions and commissions of the OPM, and the Armyand Navy agreed to appoint liaison men to meet with the OPM toseek specific ways to stimulate the spreading of defense work.9Throughout 1941, the expanding emphasis on defense productionsharpened competition among manufacturers for scarce raw ma-trials. By summer it was clear that new arrangements for collectingcritical materials were imperative, and in August a Presidential ex-ecutive order established a powerful new Supply Priorities andAllocations Board (SPAB) under Nelson to handle this task. Forsmall manufacturers producing non-military goods, the tightenedcontrol over raw materials loomed as a major threat to their con-tinued existence, making participation in defense production evenmore important.1OAdministrative reorganization was a favorite tactic of FranklinRoosevelt, and he used it in early September 1941 in an attempt torelieve the precarious position of the small producer. The Divisionof Contract Distribution (DCD), ironically with a big businessman- Floyd B. Odlum of Atlas Corporation - as director, replaced theDCS as the agency responsible for integrating small manufacturersinto the defense program. Functionally, the new division differedlittle from its predecessor, but it enjoyed the prestige of beingcreated by presidential executive order. At least officially, the presi-dential directive made the cooperation of the military services man-datory. OPM officials recognized that small operators were caughtin a painful squeeze play. Without defense contracts, they would beunable to obtain raw materials and would find it difficult, if notimpossible, to meet the escalating wage rates offered to skilled laborby war manufacturers. Thus, even before the establishment of theDCD, some OPM staff members were considering ideas to ease the

* The Army's reasons for favoring big manufacturers are detailed in several volumesof The U.S. Army in World War II. See Elberton R. Smith, The Army and Economic Mo-bilization (Washington, 1959), 414-419; Erna Risch, The Quartermaster Corps: Organiza-tion, Supply, and Services, Vol. 1 (Washington, 1953), 265-66; Harry C. Thomson andLida Mayo, The Ordnance Department: Procurement and Supply (Washington, 1960),40-42. All these writers credit the Army with making a reasonable and generally suc-cessful effort to see that small business got a fair share of war supply business. They con-cede that in the first years of mobilization the Army favored big business, but they arguethat this attitude changed. Also see Gen. Levin H. Campbell, wartime chief of Ordnance,The Industry-Ordnance Team (New York, 1946), 89; Digest of Minutes, OPM Coun-cil Minutes, May 13 and 20, 1941, August 5, 1941, WPB 014.5.10Press release, August 28, 1941, OF 4245C, RL; Samuel I. Rosenman, ed., ThePublic Papers and Addresses of Franklin D. Roosevelt (New York, 1950), X. 349-353.WAR MOBILIZATION 299


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hardships on companies unable to secure federal contracts. Oneintriguing possibility, never adopted, was to create a fund insurancefrom which firms closed by the defense program could obtaincompensation, at least for the expense of maintaining plant facilitiesand paying fixed charges for the duration of the emergency."Another suggestion, seized upon by Odlum as a logical way toassist small manufacturers, was a special materials priority pro-cedure for firms with few employees. Initially, SPAB director Nel-son leaned toward such a plan. But he delayed giving an unquali-fied endorsement, stressing that more needed to be known about thelimits of the problem. However, he urged Odlum to continue ex-ploring the possibilities of such an arrangement. Late in November,Odlum presented his formal proposal - quickly labeled the 2 percent/20 plan - to guarantee manufacturers with twenty or less em-ployees a maximum consumption of raw materials for the first sixmonths of 1942 equal to 75 per cent of the quantity used during thefirst six months of 1940 or 1941. This amount approximated 2 percent of the total supply of critical materials. Odlum further sug-gested that small factories be allowed to concentrate on the produc-tion of essential civilian supplies, with larger firms being used forthe manufacture of war goods. Thus the quantity of raw materialsneeded for the small firms would not actually come out of thoseslated for military hardware, but would merely be a reallocationfor necessary civilian production.12On December 10 Nelson outlined his thoughts on the 2 per cent/20plan in a memorandum to SPAB members. He frankly admitted thatsmall manufacturers were in serious trouble. They lacked the toolsand equipment, the research and development talents, and thefinancial resources for easy conversion to defense production. Andwithout war contracts, they were unable to obtain scarce raw ma-terials. Nelson stressed that a full wartime economy required smallbusiness participation. But Odlum's proposal, he warned, wastricky. What about companies with twenty-five, fifty, or a hundredemployees; were they small businesses or big businesses? And what

11 Executive Order 8891, September 4, 1941; Minutes of SPAB Meeting No. 4, Sep-tember 23, 1941, WPB 017.5M; Herbert Emmerich to Donald M. Nelson, September 15,1941, WPB 291C. WPB staff members suggested several variations of the plan to allo-cate raw materials to businesses with small numbers of employees. See WPB 291.02.Senator Truman repeatedly expressed disgust during 1941 about the state of industrialmobilization in general and the position of small business in particular in letters to JudgeLewis Schwellenbach, a former Senate colleague. See Senate Files, TL, especially letterdated November 27, 1941.12 Floyd B. Odlum to Nelson, October 10, 1941, WPB 291C; Nelson to Odlum, Octo-ber 13, 1941, WPB 291C; Odlum to Nelson, November 27, 1941, WPB 291.01.300 BUSINESS HISTORY REVIEW


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ment car batteries were. Obviously priority controls were neces-sary even for vital civilian goods.15Ironically, when Odlum attempted to follow up on the SPAB'sinstructions to develop a program to assist small business througheach industry branch, he received little cooperation. Many branches,maintaining that they were not well enough organized to providespecific information, suggested that the DCD sample two or morebranches to obtain the needed facts. Obviously piqued, he revivedhis 2 per cent/20 plan, but with modifications: 1 per cent of theestimated 1942 supply of scarce materials to be reserved for smallerfirms and the definition of "small" to be left to each industrybranch.16

Odlum also advanced other ideas about how to help small manu-facturers: the DCD should be separated from the OPM and made asubsidiary adjunct of the armed services to assist them in findingnew sources of supply, and the lines of responsibility for the entireconversion process should be clarified. The executive order creatinghis division, he complained, stated that conversion plans should clearthrough DCD, but none had been submitted. As a result, conver-sion was going on piecemeal."Odlum was not alone in his concern about the war mobilizationprogram. Roosevelt, too, was convinced that major changes werenecessary, and on January 16, 1942, the President named Nelson aschairman of a new War Production Board (WPB) with broad au-thority for the complete mobilization of industry. Although facedwith innumerable problems, the former executive director of SPABquickly announced a Modified Production Requirements Plan whichsignificantly eased paper work demands on small manufacturersseeking allocations of scarce raw materials. The new arrangementbenefited small producers but clearly indicated

that Nelson had notchanged his mind about the inadvisability of Odlum's flat percent-age set-aside for small firms; the WPB would judge requests formaterials on their individual merits.18

Congressional dissatisfaction with the pace of industrial conver-15Report on manufacturing establishments by Stacy May, November 12, 1941, WPB291R; A.C.C. Hill, Jr. to Nelson, December 19, 1941, WPB 291.01. The President's viewsundoubtedly influenced the decision of SPAB, and he consistently urged that everydoubtful case between non-essential civilian and military production be resolved in favorof the latter. Roosevelt to Nelson, February 11, 1942, OF 4735, RL.~1Odlum to Knudsen, January 1, 1942, WPB 291.01; William E. Levis to Knudsen,

January 2, 1942, WPB 291.01; Odlum to Knudsen, January 13, 1942, WPB 291.01.17 bid.a8 xecutive Order 9024, January 16, 1942; memorandum signed by Harry Hopkins,January 14, 1942, Hopkins Papers, RG 24, RL; WPB Press Release for January 28, 1942,OF 4735, RL; Odlum to Nelson, Februaiy 6, 1942, WPB 291.01.302 BUSINESS HISTORY REVIEW


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sion for all-out war waxed intensely in the weeks following PearlHarbor. But Roosevelt's decision to place responsibility for thisvital task in one man was applauded, and his choice of Nelson tohead the WPB was popular. The former Sears executive clearlyrecognized that mobilizing the nation's industrial resources to winthe war was his number one priority. How best to obtain this goalinvolved making critical policy decisions governing a multitude ofhighly sensitive and controversial issues, including the use of dollar-a-year men in the WPB, the enforcement of the antitrust laws, andhow to integrate small firms into the war effort effectively.Shortly after assuming his new position, Nelson moved to allayCongressional antagonism towards the role of dollar-a-year men inthe WPB. In June 1940 Congress had approved the policy of high-salaried officials from major corporations working for the govern-ment while still drawing compensation from their civilian employers.Many solons, however, especially those who championed the causeof small business, remained hostile to the arrangement. Nelsonunequivocally told the Truman committee that the practice wasabsolutely essential in order to secure the services of the talentedmen needed to win the war. Executives with high incomes hadcostly financial obligations, making it hard for many of them toadjust to the low salaries paid by the government. Nelson com-plairted that honest men were reluctant to come to work for theWPB because of Congressional criticism. Truman bluntly declaredthat he disliked the practice and that those in the service were alsosacrificing salaries. Nevertheless, he assured Nelson that winningthe war came first and that he did not want to hamper the WPB.19Nelson's arguments temporarily eased Congressional oppositionto the use of dollar-a-year men, but the issue flared again in Marchwhen Robert Guthrie, chief of the textiles, leather, and clothingbranch of the WPB, resigned, heatedly charging that dollar-a-yearexecutives were delaying conversion to military production in orderto protect certain industries and big companies. Nelson immediatelyasked the Truman committee to investigate Guthrie's allegations.After a lengthy inquiry, the committee concluded that Philip C.Reed, chief of the WPB's industries branches, had not taken thenecessary action to obtain maximum conversion of private industryin the shortest possible time; and that James S. Knowlson, directorof industry operations, had not acted promptly to assure effective19Hearings, Truman Committee, Part 10 (January 28, 1942), 77th Cong., 2nd Sess.,4025-4030; Nelson, Arsenal, 329-335; Edwin A. Locke, Jr. to Sidney J. Weinberg, Febru-ary 20, 1942, Locke Papers, TL; Business Week, July 4, 1942, 46-62.

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curtailment of nonessential civilian production until after Guthrie'sresignation. The committee tartly observed that the case indicatedthat certain dollar-a-year men were unable to divorce themselves"from their subconscious gravitations to their own industries."Nelson stood firmly behind the men, both ranking executives inmajor corporations, expressing absolute confidence in their integrity.But he conceded that airing the affair had produced a positive netresult because it helped to focus attention on the need to speedconversion.20Nelson's handling of the prickly dollar-a-year dilemma wasshrewd. His candid testimony on the need for executives in thiscategory and his issuance of administrative orders strictly governingtheir use helped to moderate Congressional opposition initially.When the Guthrie affair threatened to undermine his efforts, hewisely asked for a Congressional inquiry, thus stifling possiblecharges of a WPB whitewash.The use of dollar-a-year men from blue chip corporations to setmobilization policies worried the defenders of small business. Theirfear was intensified by the government's diminishing interest invigorous enforcement of the antitrust statutes. As the war emer-gency worsened, administration officials responsible for maximizingproduction increasingly criticized antitrust division chief ThurmanArnold's enthusiasm for upholding the law. Arnold sharply ques-tioned the extensive use of dollar-a-year men. And he bluntlywarned that if antitrust investigations were suspended for the dura-tion, "it would be in effect a license to any company engaged innational defense . . . to destroy independent business organizationsin order to maintain control after the war." Arnold noted with alarmsituations where companies holding patents refused to license po-tential competitors, or offered prohibitive terms, for the use of patentrights to produce necessary war materials. His meaning was obvi-ous: the threat of antitrust action could be used to further - nothinder - the war effort.21

2o Nelson to Truman, March 16, 1942, Senate File, TL; Truman to Nelson, March 17,1942, Senate File, TL; Minutes of the War Production Board (Hist. Reports on WarAdmin., No. 4), 34-35; Hearings, Truman Committee, Part 12 (April 14-21, 1942), 77thCong., 2nd Sess., 4957-5097 passim; Senate Report No. 480, Additional Report on Chargesof Robert R. Guthrie in Connection with Administration of Dollar-a-Year Men of theWar Production Board, 77th Cong., 2nd Sess.; Nelson, Arsenal, 337-340. Knowlson andReed were the chief executive officers of Stewart-Warner and General Electric, respectively.Guthrie was originally a Paducah, Kentucky retailer. Subsequently he participated inseveral corporate reorganizations and promotions in New York."'Thurman Arnold to Francis Biddle, March 6 and 10, 1943, WPB 760; Arnold toNelson, February 7, 1942, WPB 760; Arnold and J. Sterling Livingston, "Antitrust WarPolicy and Full Production," Harcard Business Review, XX (Spring, 1942), 265-276; EliotJaneway, The Struggle for Survival (New Haven, 1951), 187-89.304 BUSINESS HISTORY REVIEW


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Despite Arnold's arguments, the prevailing sentiment withinNelson's agency and among big business was summed up by a WPBstaff member who wrote, "The legalistic dead hand [antitrustlaws] must be removed." One of the chief complaints against ag-gressive antitrust enforcement was that corporation executives wereforced to divert their attention and time from defense activities inorder to defend their firms against antitrust suits. As early as mid-1940, executives in the NDAC and the military departments hadurged relaxation of antitrust statutes. At that time Attorney Gen-eral Robert Jackson opposed Congressional action. Urging a case-by-case approach, he promised to suspend prosecution whenever theadvisory commission certified that a particular case involved actionsessential to national defense. This policy was further clarified byPresident Roosevelt in March 1942, when he approved a plan agreedto by Attorney General Francis Biddle and Arnold to postponeprosecution when either service secretary stipulated that a suitwould harm the war effort. To insure that no company wouldpermanently escape legal action, Congress, at the request of theadministration, enacted a law in October 1942 suspending the run-ning of existing statutes of limitations applicable to antitrust viola-tions until June 30, 1945. Key mobilization officials, however, werefar from satisfied with this arrangement. Pointing to antitrust suitspending against major war producers - including Standard Oil, avital cog in the synthetic rubber program, Alcoa, the chief supplierof aluminum, and others - they continued to press for a furthereasing of the antitrust laws.22Small industrialists were obviously interested in antitrust policy,but they were more directly concerned with securing federal finan-cial assistance to facilitate converting their plants to military pro-duction. An estimated 40 per cent of the subcontractors performingdefense work in October 1941 had submarginal credit standing, andthe existing financial machinery - commercial banks, the Recon-struction Finance Corporation, and the Federal Reserve System -was inadequate to meet the needs of smaller firms. To solve theproblem, two methods were considered: a federal fund to guaranteeloans made by commercial banks or a new government corporation

2 Memorandum, June 17, 1940, "Relationship of Antitrust Laws to Defense Program,"unsigned but pencil notation: Blackwell Smith; memorandum for files by Blackwell Smith,June 20, 1940; Robert H. Jackson to O'Brian, April 29, 1941; memorandum for thePresident initialed JLOB [John Lord O'Brian], March 3, 1942. All in WPB 760. Also seeMinutes, NDAC, 2-3, 6-10. Smith to Nelson, February 5, 1942; letters from businessmenand business groups such as the National Association of Manufacturers urging the removalof antitrust restrictions on defense production; Frederick Eaton to O'Brian, February 16,1942. All in WPB 760. Also see Rosenman, Roosevelt Papers, XI, 181-85; 56 Stat. 781.



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with its own revolving fund supplied either from the RFC or byCongressional appropriation.23Jesse Jones, the influential administrator of the Federal LoanAgency, which included the RFC, pledged complete cooperation inattacking the knotty financial problem, and he advised Odlum thathe did not believe any more credit facilities were necessary or de-sirable. Jones strongly urged all banks to make loans to any manu-facturers holding government contracts or subcontracts. The RFCwould be the source of funds only if commercial banks felt unableto make a particular loan. Odlum, however, remained skepticalabout submarginal credit risks securing capital from the RFC;Jones's reputation for caution in making loans was well known. TheDCD chief thus warmly endorsed a proposal to create a newcorporation under Federal Reserve jurisdiction to fund small op-erators. By late January 1942 a bill establishing a Federal IndustrialCredit Corporation was ready for consideration. Jones, jealous ofany threat to his suzerainty over government loans to business, vig-orously opposed the plan, but Nelson placed the WPB squarelybehind the idea.24As the debate over the proposed new lending agency continuedin Congress, Roosevelt moved in another way to ease the financialpinch on government contractors. In late March the President is-sued an executive order authorizing the War and Navy Departmentsto guarantee loans made by banks to defense producers.25A variety of bills intended to assist small operators by guarantee-ing access to scarce materials and providing financial aid wereproposed by Congress during 1941, but none passed. Early in Feb-ruary 1942, companion measures were introduced in both the Senateand the House to create a division of small business productionwithin the WPB. Sensing that Congress was serious about enactingconcrete legislation to benefit the "little fellow," the WPB closelyreevaluated the whole question of the small manufacturer's role inwar production. Odlum, indirectly agreeing with the military's

23D. H. Silberberg to Odlum, accompanied by report by Bradley Nash, "Financing Sub-marginal Prime and Subcontractors by a Revolving Fund," October 16, 1941, WPB 291C;Lincoln Filene to Roosevelt, October 1, 1941, OF 172, RL; Roosevelt to Filene, October 29,1941, OF 172, RL.A Jesse Jones to Odlum, January 6, 1942; Jones to All Banks and Bankers in the UnitedStates, January 1, 1942; Charles B. Henderson to All Banks and Bankers in the UnitedStates, January 15, 1942; Henderson to Odlum, January 15, 1942; Silberberg to Odlum,January 8, 1942; Odlum to Nelson, January 21, 1942; Lawrence Clayton to Weinberg,January 30, 1942; Marriner Eccles to Nelson, February 16, 1942; Nelson to F. J. Bailey,March 13, 1942. All in WPB 291C.2 Executive Order 9112, March 26, 1942; Rosenman, Roosevelt Papers, XI, 186-89.Senator Truman was skeptical about the value of the Executive Order, calling it "mostlyfor the purpose of a sop . . to the little business men." Truman to Lou E. Holland,March 26, 1942, Senate Files, TL.

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position that big firms were more easily adapted for the manufac-ture of war goods, reiterated his argument that the key was to usesmall companies (less than twenty employees) for essential civilianproduction. Such a policy, he explained, would save small operatorsduring the conflict and benefit them in the postwar readjustmentperiod.26Other WPB officials, however, argued that since winning the waras rapidly as possible was the top national goal, the role of smallbusiness had to be considered both in the context of that priorityand as a political issue. WPB staffers advising Nelson asked somehard questions. Was small business small because managementdid not know any better? Was not small business actually an imi-tator? Did small firms lack the "know-how" and the engineeringskills for conversion? If the answer to all of these questions was yes,then should the WPB even concern itself with the health of smallcompanies? 7Nelson could not afford the luxury of a purely ad hoc decisioneven if definitive answers to these riddles were available. BetweenJune 1940 and December 1941, the nation's 100 largest companieshad received over three-fourths of all primary war supply contracts,a percentage far in excess of their share of prewar production. Andsome $13,000,000,000 had been spent or allocated by the govern-ment for new facilities to be used by big firms. In view of theanxiety over big business domination and the possible "socializa-tion" of business, any open opposition by the WPB chairman toCongressional efforts to help small manufacturers would have beenpolitically inadvisable. But many of the legislators seemed intentupon simply relieving the wartime suffering of small operators, thusveering away from the principle of aiding small plants accordingto how they could contribute to winning the conflict. However, inthe spring of 1942, WPB policy makers knew that military goodswere not being produced as quickly as desired. The productioncapacities of the large firms were basically filled, and the construc-tion of new facilities meant a delay of a year or more. No compre-hensive effort had been made to bring small factories into warmanufacturing on a large scale. If this could be accomplished,

26John Lord O'Brian to Nelson, February 11, 1942, 291C; summary of testimony byOdlum before the Senate Banking and Commerce Committee on the Murray Small BusinessBill, February 26, 1942, WPB 291C.27Memorandum, "Small Business Under the Defense Program," by Seymour Graham,February 10, 1942; C. I. Gregg to Nelson, February 10, 1942; Clinton Scilipot to Hill,April 3, 1942. All in WPB 291C.WAR MOBILIZATION 307


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these companies could be sustained and the war effort could befurthered.28But would the bills being considered by Congress achieve thisgoal? Nelson and his associates seemed unsure. The WPB chieftook the position that his organization could work with the billsif they passed, but he was skeptical about substantially increasingthe number of prime contract awards to smaller firms. Noting thatpooling arrangements - by which several smaller producers collab-orated in order to qualify for prime contracts - had not been as suc-cessful as had been hoped, he argued that the real answer was forsmall companies to pursue subcontracts more aggressively and forbig manufacturers to cooperate more fully in spreading their work.29The final version of the Small Business Act contained nothingthat would seriously hamper the operation of the WPB. Signifi-cantly, Congress made the WPB chairman specifically responsiblefor mobilizing the productive capacity of small operators. In partbecause there was no powerful national organization to exert strongpressure on behalf of small business, the act signed by the Presi-dent on June 11, 1942, was the only major legislation passed duringthe conversion period to assist the small operator. It created botha Smaller War Plants Division (SWPD) within the WPB and anindependent Smaller War Plants Corporation (SWPC) with a cap-ital stock of $150,000,000 to use for making loans to smaller manu-facturers.30

Ironically, opponents of vigorous antitrust enforcement secured a28WPB report, "One Hundred Corporations or Independent Companies Holding GreatestAmount of Prime War Supply Contracts," WPB 260.51S; Graham memorandum, February10, 1942, WPB 291C; Gregg to Nelson, February 10, 1942, WPB 291C; Fessler, IndustrialMobilization, 314-324; Robert R. Nathan to Nelson, July 1, 1942, WPB 038.16. The con-tention that the share of military business received by the 100 largest companies far ex-ceeded their share of prewar production is supported by the fact that in 1939 the 176 firms

with 2,501 or more employees (0.1 per cent of all manufacturers) accounted for only11.388 per cent of total manufacturing output measured by the amount of value added. G.Warren Nutter and Henry A. Einhorn, Enterprise Monopoly in the United States, 1899-1958(New York, 1969), Table 14, 68. Not all WPB officials agreed that using small businessmore fully would contribute effectively to winning the war. Philip D. Reed suggestedshutting down small firms and releasing all labor, tools, and materials to large plants, withthe government paying the fixed charges of the closed companies. This would win the warin the quickest time and preserve the "backbone of American industry and private industryin the post war reconstruction period." Reed to James S. Knowlson, May 26, 1942, WPB291.1.2 Minutes, WPB, 45-46; Philip F. Maguire to Nelson, May 23, 1942, WPB 038.11;Hearings, Truman Committee, Part 10 (April 21, 1942), verbatim transcript, 3768-69,Senate Files, TL; Report of the Senate Special Committee to Study Problems of AmericanSmall Business, Pooling for Production, 77th Cong., 2nd Sess., Senate Committee Print No.12, 1-2.3056 Stat. 351. Compared to federal funds already expended or earmarked for bigbusiness facilities, the SWPC loan total was indeed modest. But the small amount wasprobably not significant, since historically the credit needs of small business have oftenserved as a foil to cover more crucial infirmities of small operators, such as differentialmarket power compared to large firms.308 BUSINESS HISTORY REVIEW


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substantial acceptance of their goals with the enactment of theSmall Business Act. Section 12 empowered the chairman of theWPB to verify to the Attorney General that certain actions were req-uisite to the war effort and in the public interest and were exemptfrom prosecution under the antitrust laws or the Federal TradeCommission Act. The Attorney General had no authority to approveor disapprove of an exemption; he had only to be "consulted" bythe WPB chairman.31

Nevertheless, the activities of Arnold's Antitrust Division con-tinued to disturb the WPB. In September 1942 Nelson bitterly com-plained to Attorney General Biddle that harassment of the WPBby Arnold and his staff was undermining public confidence in themobilization agency, distracting and discouraging its personnel, andmaking it difficult to obtain the services of additional first-rateexecutives. In particular Nelson indicted the activities of the anti-trust division's small business unit. The pattern of antitrust actionwas so obvious, he wrote, that "the conviction was spread widelythrough American industry that Mr. Arnold had made it his specialextra-curricular purpose 'to drive the businessman out of Wash-inton.'" 32Arnold flatly rejected Nelson's accusations. "I cannot escape theconclusion," the Antitrust Division chief wrote Biddle, "that thereal complaint . . . is that large industry is being curbed in itsefforts to dominate the present and post-war markets." The princi-pal reason for the shortage of war materials, he charged, was thatindependent business had not been converted to war production.Despite Arnold's firmstand, Nelson won the battle with the antitrustdivision. Guy Holcomb, chief of the offending small business unitof the antitrust division, was ousted, and in January 1943, Arnold,aware of the wartime facts of life, accepted appointment as afederal judge. For the balance of the war, big business had little toworry about from the antitrust division.33Friends of small business found little encouragement in Nelson'sattitude towards Arnold's attempts to prevent major corporationsfrom escaping antitrust prosecution. Yet the Small Business Actprovided hope that the "little fellow" might be able to obtain moreof the financial rewards offered by lucrative military contracts. But

a1Patterson, Forrestal, and Nelson to Senator Frederick Van Nuys, May 1 and 19, 1942,WPB 760. For presidential support of Section 12, see Wayne Coy to the Secretary of WarMay 18, 1942, WPB 760.a Minutes, WPB, 125-26; Nelson to Biddle, September 5, 1942, WPB 760.33Arnold to Biddle, September 9, 1942; Arnold to Nelson, September 9, 1942; Biddle toNelson, September 12, 1942; Nelson to Arnold, September 19, 1942; Nelson to Biddle,September 19, 1942. All in WPB 760. Roosevelt to Arnold, January 8, 1943, PPF 8319, RL.



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the slowness with which the WPB chairman implemented the pro-visions of the new law perplexed small operators. Nelson wiselysought to maximize coordination by naming the same person -Kansas City small manufacturer Lou E. Holland - to be his Deputychairman for SWPD and the chairman of the SWPC. A friend ofSenator Harry Truman, Holland's principal credential for the jobwas his success as president of the Mid-Central War ResourcesBoard, an organization working to solve the wartime problems ofsmall industrial plants in Missouri and Kansas, primarily throughthe formation of pools to secure defense contracts.34Although Nelson appointed Holland on July 10, not until Septem-ber 8 did the WPB chief issue an administrative order actually es-tablishing the SWPD. The reason for the time lag, WPB officialsexplained, was the need to reconcile jurisdictional, legal, financial,and organizational questions between the SWPD and the parentWPB. But despite assurances by Holland that the delay did notmaterially affect the functioning of the new division, the languidpace suggested the existence of hostility, or at best indifference,towards small business within the sprawling WPB bureaucracy. Italso raised serious doubts about Nelson's sincerity in wanting to usesmall plants to maximize war production.35Holland's initial need was to create an efficient operating organi-zation, a job he declared completed in mid-November. He alsopromptly secured signed agreements from the various federal userdepartments pledging their cooperation with the small business di-vision. But the Missourian failed to boost small operators' shareof military contracts fast enough for an impatient minority of Con-gressmen who were attempting to protect the interests of smallmanufacturers. Statements made by members of RepresentativeWright Patman's Committee on Small Business

underscored thegrowing dissatisfaction with Holland. The small business law, theyinsisted, was sufficient to accomplish the task of helping small manu-facturers; they blamed the failure to do so on the poor direction ofthe SWPDand SWPC.36

34Nelson to Holland, July 10 and 15, 1942, Lou E. Holland Papers, TL; WPB pressrelease, "Biographical Sketch of Holland," October 30, 1942, Holland Papers, TL.35Houlder Hudgins to Senate Special Small Business Committee, December 30, 1942,WPB 291.1C; Joint Hearings before House Select Committee on Small Business and SenateSmall Business Committee, A Study and Investigation of the National Defense Program inits Relationship to Small Business, Vol. 2, revised (December 15, 1942), 77th Cong., 2ndSess., 1986-2068.soWPB press release, November 19, 1942, WPB 038.017; agreements between Hollandfor SWPC and other federal procurement agencies, Holland Papers, TL; Business Week,October 10, 1942, 20-22; Wade T. Childress to Holland, November 27, 1942, WPB038.16; O. M. Jackson to John W. Hubbell, December 10, 1942, WPB 038.1; press re-310 BUSINESS HISTORY REVIEW


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December 1942 was a criticalmonthfor Holland. He attemptedto defend his leadershipof the SWPCand SWPDin lengthyappear-ancesbefore Congressional ommitteeson smallbusiness. His testi-mony that he was receivinggreatly increasedcooperation romthemilitaryserviceswon him enthusiastic hanksfrom GeneralBrehonSomervell of the Army and Undersecretaryof the Navy JamesForrestal,who were smarting romstingingchargesthat the armedservicesfavoredbig business . Hollandwas less successful n placat-ing the legislators. SenatorJamesMurray,chairmanof the SenateSmallBusinessCommittee,was sympathetic,expressingconfidencethat the SWPCchief was trying to do his best. But Murrayalsowarned Holland that he could not do the job alone; that he mustcreate an effective organization. Patman, however, remainedstronglycritical of Holland. On December 16 he complained toRooseveltthat while Holland was honest and sincere,he "doesnothave any more executive abilitythan a section foremanon a rail-way." The SWPCto date, Patmancharged,was an absoluteflop.37Franticallyawarethathe was in serious rouble,Hollandrepeatedhis earlierappeals to Nelson to strengthenthe board of directorsof the SWPCand to authorizecreationof a field organizationcon-trolleddirectly by the SWPD headquartersn Washingtonand in-dependentof the WPB field offices. Nelson affirmedhis continuedsupportof Holland and reacted favorablyto his request. The at-tempt to improvethe quality of the board of directorswas frus-tratedby stiffpressureappliedby Congressionalriendsof membersNelson tried to replace,but early in January he WPB authorizedthe autonomous ield organizationdesiredby Holland.38Althoughboth Nelson and the War and Navy Departmentsin-dicatedtheirconfidence n Holland,his days as directorof the smallbusinessprogramwere numbered.The SWPC-SWPDreportof op-erationsfor the year ending December 31, 1942, indicated insuffi-cient progress to still Congressionalcomplaints. Patman in par-ticularrefusedto moderatehis oppositionto Holland,bluntlywrit-lease, December 17, 1942, "Preliminary Report of the Committee on Small Business of theHouse to the Speaker of the House of Representative," WPB 291C.87Transcripts of telephone conversations between Holland and Gen. Brehon Somervell,December 7, 1942 and December 26, 1942, Holland Papers, TL. Transcript of telephoneconversations between Holland and James V. Forrestal, December 16, 1942, WPB 038.017;Sen. James Murray to Holland, December 16, 1942, WPB 038.017; Rep. Wright Patmanto Roosevelt, December 16, 1942, WPB 038.12; Patman to Nelson, December 24, 1942,Holland Papers, TL.

88Holland to Nelson, December 16, 1942, WPB 291.1C; Holland to Nelson, December22, 1942, WPB 038.12; Holland to Nelson, December 23, 1942, WPB 038.17; memorandumdetailing Holland's attempts to secure a stronger board of directors for SWPC, undated,Holland Papers, TL; telegram, Sen. Alben W. Barkley to Nelson, December 28, 1942,WPB 038.12; WPB General Administrative Order 2-75, January 7, 1943, WPB 038.016.WAR MOBILIZATION 311


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ing Nelson that the will of Congress - to aid smaller firms- wasbeing thwarted by the ineffective operation of the SWPC.39On January 19, 1943, Nelson abruptly informed Holland thatColonel Robert Johnson of the Ordnance Department would replacehim as chief of the SWPD and SWPC. Holland was asked to re-main as a director of SWPC and assistant to Johnson. Understand-ably disappointed, the Missourian - describing his demotion as "therankest kind of political move" - at first accepted the advice offriends and the urging of Nelson and Johnson to stay on. SenatorTruman gave Holland hope of repairing the damage to his reputa-tion by assuring him that he was not going "to sit idly by and let myfriend's throat be cut." But the situation for both Holland andJohnson proved to be embarrassing and awkward. By mid-February,Johnson wanted Holland's removal, and on February 16 the formerSWPC chairman resigned in a letter to Nelson which clearly re-flected his bitterness.40Several factors contributed to Holland's failure to make theSWPD and SWPC function effectively. His inability to build anaggressive and efficient organization was caused in part by thedifficulty in obtaining top-flight executive personnel. By the timethe Small Business Act became law other federal agencies had ab-sorbed a high percentage of the most experienced people. Markedimprovement in the SWPD's performance occurred after earlyNovember when a group of seasoned men from the WPB chairman'soffice were assigned to assist Holland. Unfamiliar with the ways inwhich government worked, he needed and appreciated the help.Nelson should have taken the action sooner, but he chose to giveHolland a reasonable time to see what he could accomplish on hisown. Nelson also delayed for months in honoring his pledge to ap-point new directors to the SWPC board. Initially he told Hollandthat he wanted to wait until after the November Congressionalelections. Why the WPB chief hesitated afterwards is unclear.41To his credit, Holland was able to woo promises of greater co-

8Memorandum, Francis Goodell to Files, notes on monthly meetings with Mr. LouHolland, January 28, 1943, WPB 038.012; Smaller War Plants Corporation and Division,Operations for the Year Ending December 31, 1942, OF 4735, RL; Patman to Nelson,January 12, 1943, WPB 038.17.4oWPB press release, January 19, 1943, OF 4735, RL; transcripts of telephone con-versations between Holland and Colonel Robert W. Johnson, January 20, 1943; Weinberg,January 22, 1943; Nelson, January 22, 1943; Truman, January 23, 1943; Jones, January 20,1943; and Morris L. Cooke, January 29, 1943. All in Holland Papers, TL. Also see,Holland to Rufus Crosby Kemper, January 22, 1942, Holland Papers, TL; Johnson toNelson, February 14, 1943, WPB 038.12; Holland to Nelson, February 16, 1943, WPB038.12.41Unsigned memorandum to Nelson regarding smaller war plants, February 8, 1943,WPB 038.014.312 BUSINESS HISTORY REVIEW


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operation from the military services. But Patman deprecated eventhis accomplishment, charging that Army and Navy officials pri-vately laughed at Holland's way of doing things while flattering himbecause he took the rap for them before Senate and House com-mittees. Congressional criticism of Holland was almost certainly aprincipal cause for his dismissal. Nelson maintained that he did notfire him, and the final decision, made in the White House, waslargely dictated by political considerations. Significantly, no broadly-based small business organization existed to complement Holland'sefforts. And without the backing of a militant pressure group, it ishard for a government agency to be very successful. Nevertheless,Patman's appraisal that Holland was simply not a big enough manfor an admittedly difficult job contained much truth.42Holland's successor - Colonel, later Brigadier General, RobertJohnson - excelled in the area where Holland was weak: the orga-nization and management of a large and basically unwieldy opera-tion. An executive of the medical supply firm Johnson and Johnsonand a reserve officer, his success in placing contracts with smallfirms while serving as chief of the New York Ordnance Districtearned him his promotion to Washington. Johnson acted immedi-ately to improve office procedures and to raise morale in his division.He asked for and received the transfer of the SWPD to the SWPC.Continued close liaison with the WPB was theoretically assured bythe chief of the SWPC also remaining as Nelson's deputy for smallbusiness. But alleged lack of coordination between the SWPC andthe various WPB divisions was a sore spot throughout the balanceof the war. Attempts by Johnson to improve the functional abilitiesof the SWPC field organization met with mixed success. Congress,despite its professed interest in small business, was tight-fisted withappropriations for Johnson's organization, voting only two-thirds ofthe money and personnel requested. Finding experienced andcapable men to work aggressively in the field was another seriousproblem never completely solved.43Under Johnson's leadership the SWPC increasingly focused on as-sisting "distressed" plants, defined as those operating at less thantwo-thirds of their normal operating capacity. Small business wasvaguely defined as any unit of manufacturing and production doing42 atman to Johnson, January 23, 1943, WPB 038.002; transcripts of telephone con-versations between Holland and Weinberg, January 22, 1943, and Holland and Nelson,

January 22, 1943, Holland Papers TL.S3Robert W. Johnson, But General Johnson - (Princeton, N.J., 1944), 3-4, 28-30, 51--53, 71-72; Nelson to Johnson, March 12, 1943, Senate Files, TL; Johnson to Weinberg,April 6, 1943, WPB 291C; Johnson to Hill, April 29, 1943, WPB 291C; Johnson to DonaldD. Davis, June 2, 1943, WPB 038.16.WAR MOBILIZATION 313


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in normal times a relatively small percentage of the total nationalvolume. Johnson specifically denied that it was the duty of theSWPC to solve problems of small merchants, except indirectly. Norwas the corporation responsible for aiding in building new manu-facturing facilities. The emphasis on distressed plants ironicallymeant that the SWPC was doing precisely what many mobilizationofficials had hoped to avoid: giving aid to small firms as a form ofrelief rather than according to what contribution they could maketo the war effort. But Johnson was convinced by the spring of 1943that the end of the industrial build-up for war production was onthe horizon, even though the conclusion of the conflict itself was notso visible. To prevent crippling setbacks to thousands of smallmanufacturers, he believed that relief was necessary and shouldbe acknowledged as such. The SWPC chief candidly described hisorganization as "an agency to defend small business from govern-ment." Federal orders, priority regulations, wage rate restrictions,and price ceilings, he explained, all combined to snare the smalloperator in a confusing, and possibly fatal, web of contradictions.44Despite his complaint that "there is no way to be responsiblefor an operation when the essential controls are outside the opera-tion," Johnson did succeed in improving the effectiveness of theSWPC, although direct military contract awards to small companiesincreased but slightly. Johnson recognized soon after taking officethat apparently it was not possible to use the entire productivecapacity of small firms for war production. Aware that the publicand Congress were exerting strong pressure on the administrationfor the largest possible allocation of goods and services for civilianconsumption, Johnson determined to emphasize the wisdom of smallplants receiving a sufficient share of nonwar production to keepthem in business. This goal, strikingly reminiscent of Odlum's

earlierproposal to have small manufacturers concentrate on providingessential civilian goods, increasingly dominated the thinking ofSWPCofficialsduring 1943.45Nelson proved to be receptive to such a policy. In March, he

44Information memorandum signed by Johnson, March 19, 1943, WPB 291.1C; John-son, But General, 33, 55; Minutes, WPB, 218-19; Maguire to Nelson, May 23, 1943, WPB038.11; SWPC Field Letter No. 57, June 30, 1943, WPB 038.18.45Johnson, But General, 61; bi-monthly reports of the Smaller War Plants Corporation,OF 4735, RL; Johnson to Nelson, April 5, 1943; Minutes of the Production ExecutiveCommittee of the WPB, meeting No. 32, June 16, 1943, WPB 291.1C; Johnson to CharlesE. Wilson, June 17 and June 21, 1943, WPB 251C. The War Department was unhappyabout a military officer pushing publicly for more civilian production. The Army believedthat Johnson's plan imperiled the war effort. Under Secretary of War Robert P. Patterson toNelson, June 21, 1943, WPB 038.12. Johnson refused to desist in his demands, but he didagree to request the Army to transfer him to inactive status. Johnson to Nelson, July 2,1943, WPB 038.12.314 BUSINESS HISTORY REVIEW


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decided that the existing civilian supply organization should remaina part of the WPB rather than becoming a separate agency, as someCongressmen were suggesting. Thereafter, Nelson began to putmore emphasis on providing nonwar goods. When Johnson askedfor a WPB directive giving smaller plants preference wheneverpossible in the civilian program, Nelson agreed, issuing a GeneralAdministrative Order to that effect on September 14. This decisionto aid small producers sowed the seeds for a major fight the follow-ing year over WPB policies affecting small business during thereconversion period. Nelson's proposal to allow small firms to shiftgradually from military to civilian manufacturing was bitterly op-posed by many mobilization officials. According to studies byBarton J. Bernstein,,Jack Peltason, and others, the military and bigbusiness combined in 1944 to block Nelson's plan, the former be-cause it feared a premature cut in the production of vital war sup-plies, the latter because it sensed a threat to its prewar dominationof key civilian markets.46By the time the reconversion controversy flared, the energeticJohnson was no longer a part of the mobilization team. By the endof the summer in 1943 he felt generally optimistic about the state ofsmall business. But he was also in poor health, and on September10 he resigned, though acquiescing to Nelson's appeal to stay on astitular head of the SWPC for a few more weeks. The WPB chiefwas keenly aware that Johnson's replacement had to be acceptableto Senator Murray and Representative Patman, the champions ofthe "little fellow" in Congress.47Albert M. Carter, a director of the SWPC, became acting chair-man and executive director of the corporation, but it was clearlyunderstood that he was only a stop-gap appointment. As the weekspassed without the selection of a permanent chairman, morale in theorganization sagged badly. SWPC officials attempted to convey toNelson the growing bitterness and the damage being done to smallbusiness. In December Johnson warned the WPB chief that theSWPC was slowly disintegrating from the lack of positive leader-

4 Minutes, WPB, 188-89, 210-11, 223; Civilian Requirements Policy Committee, Docu-ments No.'s 1, 2, 5, WPB 035.125; Minutes of the Civilian Policy Requirements Com-mittee, meeting No. 1, July 9, 1943, WPB 035.125; Joseph L. Weiner to Wilson, March 20,1943, WPB 812; Johnson to Nelson, August 24, 1943, WPB 291C; Nelson to Johnson,September 14, 1943, WPB 291.1C; Policy memorandum, Wilson to Vice Chairmen, Bureau,and Divisional Directors, "Implementation of Office of Civilian Requirements Program andDesignation of Smaller War Plants," October 21, 1943, WPB 291.01. By mid-1943reconversion studies were being made by numerous federal agencies. See Rosenman,Roosevelt Papers, XII, 341; Henry Morgenthau to Roosevelt, August 12, 1943, OF 172B, RL.4 Johnson to Nelson: August 30, 1943, WPB 038.17; September 10, 1943, WPB038.12; September 17, 1943, WPB 038.17; September 29, 1943, WPB 038.12; Nelson toWilson, September 18, 1943, WPB 038.



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ship. Nelson cannot be excused for the long delay, but by late 1943it was generally accepted that conversion was essentially completed,and he was determined to replace Johnson with an executive ca-pable of strongly representing small operators in the critical recon-version period. As his actions during reconversion testified, theWPB chairman firmly believed that the '"littlefellow" should be as-sisted in regaining his competitive position in the postwar years. Hebalked over appointing Roosevelt's initial selection, Morris L.Cooke, a Philadelphia consulting engineer who had served the NewDeal in various capacities, preferring a chairman likely to have moreweight with Congress. His choice, agreed to by the President earlyin January 1944, was Maury Maverick, a popular and talentedformer representative from Texas. An aggressive defender of freeenterprise, Maverick fought tenaciously, but with only modest suc-cess, to protect the interests of small operators as the war machinewound down.48

CONCLUSIONThe evidence is convincing that the federal government failed toestablish a policy firmly and clearly defining how small industrialswere to be utilized in the war program. Efforts to convert smallfirms to military production were frequently half-hearted and ap-peared to be more for the relief of distressed companies than part ofa clearly conceived plan. As with other aspects of the mobilizationexperience, programs to use small plants suffered from the absenceof early planning. World War I provided valuable lessons aboutindustrial mobilization, but the nation's interwar preparations foran emergency were sadly inadequate. And foot-dragging by both

government and business between 1939and 1942 wasted valuable

time when workable blueprints for full conversion could have beendrawn.4948 Herbert O. Eby to Wilson, October 2, 1943, WPB 038.12; S. Abbot Smith to Nelson,October 30, 1943, WPB 038.12; November 22, 1943, WPB 038; Harry W. Colmery toNelson, November 12, 1943, WPB 038; Johnson to Nelson, December 16, 1943, WPB038.12; Murray to Nelson, November 22, 1943, WPB 038; Nelson to James F. Byrnes,January 3, 1944, WPB 038.012. For messages of support for Maverick's appointment, seeOF 4735F, RL.4 For useful accounts of the early mobilization program, see Catton, War Lords; Jane-way, Struggle; Fessler, Industrial Mobilization; Bureau of the Budget, The United States atWar; Albert A. Blum, "The Birth and Death of the M-Day Plan," in Harold Stein, ed.,American Civil-Military Decisions (Birmingham, Ala., 1963). On planning during the

interwar years, see Paul A. C. Koistinen, "The 'Industrial Military Complex' in HistoricalPerspective: The Interwar Years," Journal of American History, LVI (March, 1970), 819-39. For a more detailed historiographical summary of wartime mobilization, see Jim F.Heath, "Domestic America During the Second World War: Research Opportunities forHistorians," Journal of American History, LVIII (September, 1971), 384-414.316 BUSINESS HISTORY REVIEW


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The Roosevelt administration's basic mobilization policy fellsomewhere between effective full mobilization of small firms andcomplete reliance on the largest manufacturers. Since there was noclear commitment to utilize small operators in the war effort, federalauthorities might have wisely elected to maximize the nation's in-dustrial potential by closing down small plants and transferring theirskilled personnel and valuable tools and equipment to big com-panies. With fewer production units to deal with, coordination be-tween war needs and industrial capabilities conceivably could havebeen improved. Some mobilization planners recognized this factand even suggested it, contributing to the charge that representa-tives of blue chip corporations conspired with the military to favorbig business at the expense of smaller firms. Although there issome basis for the contention that small business was sabotaged byits enemies, it is also true that small operators were themselves notcompletely innocent of playing the "war game" for advantages. Inthe name of patriotism they were undoubtedly trying to strengthentheir postwar competitive position.50The President must be held primarily responsible for the ambiva-lent nature of industrial mobilization. His strategy for the con-version of industry was to avoid concentrating power in any one manwhile counting on the vitality of the American economy to do thejob despite the considerable confusion that his policy engendered.He won his gamble, and it is certainly arguable that his plan actu-ally benefited small business - and the nation - in the long run.By not concentrating power and by not arbitrarily shifting smallcompanies' personnel, tools, and equipment to a relatively limitednumber of large war producers, he contributed to the preservationof democracy within the economic system. But it is also true thatthe potential maximum contribution of industry was not realized.And a more efficient mobilization might have shortened the war bya day, a week, or a month.Nelson, like Roosevelt, was harried by innumerable problems.Cool and generally efficient, although at times indecisive, hehonestly felt that small business was worth preserving. In this re-spect his view reflected the position of big businessmen who theo-retically support small business, because they recognize that Ameri-can society's belief in the symbolic value of the independent operatorhelps greatly to protect capitalism against government ownershipand the demands of labor. Nelson repeatedly declared that his first

50Emmerich to Nelson, September 15, 1941, WPB 291C; Reed to Knowlson, May 26,1942, WPB 291.1.WAR MOBILIZATION 317


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objective was to win the war, and he seemed less than confident andcertain that small plants were really essential to this goal. Duringthe conversion period, he thus did not press energetically for the useof small manufacturers; he failed to implement rapidly the provisionsof the Small Business Act, he did not demand quick results fromHolland, and he took much too long to replace Johnson. But heenthusiastically endorsed plans to insure the postwar health of smallentrepreneurs.51Although there was no militant and powerful small businessorganization to apply political pressure, Congress held hearings,published results, and passed one significant act to help small manu-facturers participate in war production. By airing the grievances ofsmall firms about the Army's and Navy's purchasing policies early inthe emergency, Congress prompted more vigorous efforts by themilitary services to spread war work among small companies. In-dividual lawmakers got good political mileage from the small busi-ness issue, but the legislators, although at odds with many of Roose-velt's domestic policies during the conflict, did not cause theadministration to alter its basic strategy for industrial conversion.In sum, the Roosevelt administration's policy for the use of smallmanufacturers during World War II paralleled the position occupiedby small business in America at that time. Big business, because ofits know-how and resources, was essential for winning the war. Butsmall business was symbolically important and could not be com-pletely ignored.The war caused changes in American life that altered the imageand position of small business; just how great and how permanentthe impact was is not entirely clear. The practice of federal aid tosmall firms, started in the 1930's and accentuated by the Small Busi-ness Act of 1942, was broadened with bipartisan political supportin the postwar period by the creation of the first independent agencyresponsible for the entire small business community, the Small Busi-ness Administration (SBA). But neither the SBA nor other effortsat the end of the war to facilitate the entry of veterans into inde-pendent business produced a golden era for small operators.Criticized by some as backward-looking, ideologically rigid, and abastion of ultra-conservatism, small business perhaps does not, asJohn Bunzel charged, deserve its image as a guide for democracy.Large companies - thanks to a successful record in World War II,51For examples of Nelson's early support of proposals to insure the postwar health ofsmall business, see Nelson to Murray, December 11, 1942, and November 23, 1943, WPB291C.318 BUSINESS HISTORY REVIEW


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a proven ability to provide the goods for a high material living stan-ard, and skill in producing the complex weapons deemed essentialfor national security when Cold War fears were at their peak - bol-stered their popularity with many Americans. Strong antitrust ac-tion against big firms, Richard Hofstadter noted in 1964, no longergenerated public enthusiasm. But in the late 1960's, bigness ingeneral began to attract renewed hostility. Major corporations weresharply rebuked for their activities in the "military-industrialcomplex," the "establishment," and environmental pollution. Theattacks suggest that although the symbolic image of the indepen-dent businessman may be somewhat tarnished and even unjustified,it continues to persist.52

52Zeigler, Politics, esp. 87-115; Martin Trow, "Small Businessmen, Political Tolerance,and Support for McCarthy," American Journal of Sociology, LXIV (November, 1958),270-281; Bunzel, American Small Businessman, esp. 246-277; Phillips, Little Business;Richard Hofstadter, "What Happened to the Antitrust Movement?," in Earl F. Cheit, ed.,The Business Establishment (New York, 1964), 113-151.


War Mobilization and the Use of Small Manufacturers

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