Governments in Business

By Joseph E. Davies
(Members of the Federal Trade Commission)

[The Independent, November 24, 1917]

The economic significance of the Great War is, to my mind, preeminently, the fact that all of the belligerent nations and most of the neutrals have gone into business. War, it might be said, and state socialism, in some salient respects, are not unlike: both project governments into business. War socializes industry for the supreme purpose of saving the state itself; in other words, what perhaps hundreds of years of socialistic peaceful propaganda could not have accomplished in Europe, a few months, relatively, of war have served to bring about. Government function or control in all forms of productive industrial and commercial activity has been projected by the European war by practically all of the belligerent nations and by many neutrals.

It is not meant to infer that these conditions have come, necessarily, to remain. There will be very powerful forces at work tending to restore former individualistic conditions. Property will cease to be imprest with national need to the same vital extent and will again be valuable as an individualistic right. The heroic attitude of mind will subside and yield to practical considerations of living necessity. The men running these governmental activities are for the most part representatives of the industrial and capitalistic class who have been called in by governments to displace the old landed proprietors; and by reason of their training and outlook they might naturally be disposed to a resumption of the old order of things, tempered with broader outlook upon public need. And organised labor, which in stress of war has made great concessions, will probably insist upon the re-establishment of rights, it has taken years to establish; and it is easily conceivable that labor might object to permanent government control of industry, which would deprive organized labor of the advantage it now has in bargaining with capital for better hours and working conditions, for government ownership would make these matters dependent not upon contract between employers and employees but upon considerations of the general good, determined by government. Powerful forces are working toward the resumption of the old individualistic order in industry, in short; but there are great forces making for the retention of business activities by governments in times of peace. If governments are permanently to remain, or to attempt to remain, in business, it is doubtful whether the economic efficiencies now obtaining would persist after the stress of war necessities had subsided. Should these governmental activities obtain for any considerable length of time after the resumption of peace, however, the effect upon the commerce and industry of the world and indeed, even upon the peace of the world itself, would be far-reaching. Governments engaged upon large-scale productive industrial and commercial enterprizes, would, themselves, be rivals in world commerce, and the very combinations in industry known as international trusts, even, would yield to the competition of government monopolies.

No man can foretell what conditions will prevail in the future. But America should understand what the facts now are; for they are not speculative; they exist—and will be the basis of future conditions. In the warring nations two changes of serious and fundamental character seem to have occurred. (1) Property seems, temporarily at least, to have lost its individualistic character. Private rights have yielded to the needs of the state. (2) There seems to be complete acquiescence in the propriety of governments engaging in all-lines of enterprize and activity that were formerly the recognized field of individual effort.

In face of any great calamity private property, doubtless, takes on a communistic character. Men shipwrecked on a raft in mid-ocean have but little respect for private property; their necessities invest what food or other resources they have with a common right. Fires, earthquakes, have the same effect. And war, of course, is the greatest of national calamities. War needs have affected the psychology of whole nations. Hotels in London may be commandeered and peremptorily emptied for war purposes. Considerations of property right therein are thrust aside. In the war regions property has become hopelessly confused, and all this is taken as a matter of course; families of great wealth have made themselves destitute by giving what they had to the state or to war sufferers. The warring peoples, in short, are not thinking in terms of private property but in terms of national need and preservation. To an extraordinary degree private property has been imprest by public interest; and this fact will have much influence in the future, undoubtedly, upon the conceptions of society.

Modern war, in short, is a business—"a grim business," as the President said. Neither England, France, or any of the Allied Powers could sustain the present war without their remarkable industrial organization of munitions, foundries, shell factories, steel mills. The fact is, the European war is really a conflict between two of the most gigantic industrial undertakings the world has ever known.

Modern industry, thus, has become a part of modern war. So the warring states are running industrial enterprizes. They have to do so to win. And the result is, European industry is becoming socialized, on a gigantic scale. War, in a word, has completely revolutionized industry and upset all the hitherto, established relations between governments and business.

But how?

Let us note, in a few illustrative instances, just how.

Not much needs to be said about Germany. It is generally conceded that at the outbreak of the war Germany was best prepared for the fullest possible cooperation between industry and government. Her industrial preparation was no less remarkable than her military. Her railroads were state owned or regulated, laid out, planned, and operated, with consideration of national need. Thirty-eight per cent of all the financial requirements of the federated states of Germany in 1913 were met out of the profits of government-operated or government-owned enterprizes. Iron, coal, steel, chemical goods, textiles, leather, rubber, many other fundamentals of industry were closely syndicated thru cartels, which were in direct touch with central authority and immediately available for speedy and effective war mobilization. The war tended promptly to intensify further this centralization and control of industry by government, and the scientific and exacting degree of control, which in the emergency the German Government exercized over all processes of industry, whether of extraction, manufacture, or distribution, has been one of the marvels of the war. The German War Bureau, organized for taking over the control of all industrial works in the empire, with offices for production and distribution of fleet ordinance, munitions, war raw materials, factories, food supply, export and import and substitution service, was ready. The rapidity of the movement of troops over railroads, the remarkable degree in which the armies in the field have been supplied with equipment, munitions, big guns, all bespeak the extraordinary control that Germany projected over her industry by reason of these conditions.

England has taken over the operation of all the privately managed, railroads and they are now being run by the state. Duplication in service has been eliminated, the various competing systems have been articulated, and the result, it is said, is that England has transported the bulk of her troops and war supplies without cost while paying interest on the railroad bonds and some interest on the stock. War necessarily induces efficiencies; whether they will persist under ordinary peace conditions remains to be seen. Steel and munition factories covering square miles, built and manned entirely by the Government, are commonplace in England. Peat bogs have been transformed into communities devoted solely to the making of munitions. One of these is described as employing 16,000 workers in a plant 30-square miles in extent— a plant built with government workers, manned with government employees, housed in government houses, fed from government kitchens with government cooks preparing government food. Within eighteen months after the war had been declared 2500 factories employing 1,500,000 workers were being operated in England under government control. It is now stated that the number of factories so operated is far over 5000 and that no less than 7,000,000 men and women are employed under control of Government operation. But that is not all. The British Government is engaged in collective buying on a tremendous scale, just as the United States now is. Even the raw materials not subject directly to use in the manufacturing of munitions but necessary in the conduct of the war—hides, leather, glass, coal, many other articles—are under strict Government supervision. There are few important commodities, in short, the prices of which are not fixed by the English Government.

Italy is reported to be controlling and operating about 2500 plants employing about 3,000,000 workers. The situation in France is even more intensified. But there is not space here to tell, in detail, the miracles of change that have been wrought in Russia, which constructed about eighty grain elevators for the benefit of. its population; in Australia, where wheat crops were poolers by the Government and prices fixed thereon, where, in New South Wales state abattoirs, even, were, established and state bakers in the year 1915 made a profit of $30,000 tho reducing the price of bread four cents; where brick works, lime works, quarries, timber yards, clothing factories, have been taken over and operated by the state Sweden, Switzerland, Holland, Spain, Norway, Denmark, have all projected governmental function into industry to an extent never dreamed of before. As to some commodities, even, not only has one government resorted to collective buying for its people and collective distribution, or selling, but several governments themselves have combined Italy, France and England, thus, established a joint commission for the purpose of buying sugar in the markets of the world, tho six or seven American refineries of raw cane sugar refrained from collective buying of the raw product and sought individually to meet this collective competition of the three governments. And now even this step has been passed by Mr. Hoover's collective purchasing for all the allies and our other efforts at similar collective buying in the metals, etc.

This remarkable new interpretation of public interest in industry, these remarkable experiments in industrial and commercial activities have been impelled by great national needs brought about by this extraordinary war. They are, of course, war measures. To what extent they may persist after the treaty of peace is a problem that is fraught with great significance to the character of future civilization.

There will be strong forces at work to retain these governmental activities. The simple startling fact that were the war to end today some of the belligerent nations could not, from ordinary sources of revenue such as taxation and tariffs, pay interest on their debts and current expenses, is evidence that resort must be had, in some measure, to governments going into business. Should the war last much longer the very inertia of these established institutions will tend to preserve them. The need of finding employment for large bodies of men returning from the front will naturally have a similar tendency. The stimulus of war necessity, the necessity of future industrial preparedness, will tend to make these efficiencies persist. There will be a disposition to refuse to give up the efficiencies in railroad management which these conditions have developed, and it will be only natural, if collective buying and distribution of food stuffs has materially reduced the cost of living to consumers for consumers to believe that in times of peace the same economies and efficiencies be conserved and that thereby the real wage of wage earners be increased.

What the future will develop is uncertain, of course. The facts suggested here, however, disclose great forces at work which will have great effect upon the governments projecting them. Certainly it is only by taking cognizance of these facts and forces, which are working alterations everywhere, here in America no less than in Europe, that the United States will be enabled to protect its interests and sustain its place in world industry and commerce.

The problem which the United States has to solve for democracy and for civilization is to retain the efficiencies that have been demonstrated and hold to the fundamental concept of cooperative democratic individualism, which alone will preserve industrial and political democracy for mankind.

© J. Fred MacDonald, 2013

If you appreciate the articles, read the e-novel informed by them —


A Novel of World War One
By J. Fred MacDonald

The Headlong Fury