Business and Conscription


By PAUL G. HOFFMAN, President, The Studebaker Corporation

Delivered before the Des Moines Chamber of Commerce, Des Moines, Iowa on December 13, 1940

Vital Speeches of the Day, Vol. VII, pp. 189-192.

THE first year in one of the most crucial decades in our history draws to a close with the attention of practically all citizens focused on one objective—national preparedness. We stand united in our agreement that defense comes first. It is not "business as usual"! It is, rather, the unusual business for America of producing armaments that has priority over all else.

Everything must give way to adequate defense for our country. It is a stupendous task, but it has a tremendous appeal to the patriotic impulses of all real Americans. Industrialists and businessmen of America lay no claim to being the only group willing to put forth a total effort on behalf of our country. At a class, however, they have been singled out for questioning as to their incentive for this devotion to a patriotic cause. Some people would have you believe that their purpose is ulterior—that it has a price. I want, therefore, to take this opportunity to deny categorically that we are spurred to these efforts by a desire for profit. Experience, if nothing else, substantiates the logic of that assertion. The last war demonstrated clearly for the businessman the ephemeral character of war profits. Selfish commercial reasoning would lead business away from, not toward, Govern-

ment contracts. No-—industry's determination that America should be made strong—quickly—has been nourished by something far more impelling than profits—the security and safety of our free institutions. In that cause, industry is ready and eager to release for the task all of its engineering skill, its production talent, and its knowledge of management, and to accept the headaches and gray hairs that are part of any new undertaking. In the face of this, the question has been raised as to whether the methods of private industry assure the quickest and best results.

There is a very real belief on the part of some Americans that conscripted and regimented industry would prove more efficient than America's established system of free enterprise. In company with most businessmen, I have a very positive belief in the capacity of private industry to build an impregnable defense for America. I have serious doubts about the ability of conscripted management and conscripted labor to do a similar job. I maintain that, taking either a long or a short view, it is vital that enterprise be kept free—that an attempt to conscript industry would delay our defense program and bring ultimate disaster to our economy.

Before intelligent judgment can be passed on the issue of whether conscripted industry or free enterprise can best serve America in this emergency, it is important that we understand precisely what is meant by both of these phrases. They have been bandied about very freely. Reactionaries have waved the flag of free enterprise; self-styled liberals have spoken of conscription of industry as though it were a holy cause. Perhaps it is even more important that we understand how there systems function—what makes the wheels go around—and something of their underlying philosophy and dynamics.

In July of this year Congress passed a law giving our Government the right to conscript industry. If that authority is exercised, does it mean that the Government will merely take over the bricks, mortar and machines? Decidedly not! To give any significance to such an action, the Government would have to conscript management and labor also and rule by edict. The final authority in any plant would be a Government official. Responsibility would be divided between that authority and private management. Inevitably, with the Government in charge of a business, labor would have to give up some of its rights. Those who advocated conscription of industry used the argument that if we conscript men, we should conscript business. It is a slogan that has an emotional appeal which will not withstand sober analysis, for it should be clear that its goal, really, is governmental control over management and men.

Those who favor government control of industry in the defense emergency, fall into two categories: first, those who are swayed to the extreme by an emotional upheaval; and, second, those who whole-heartedly subscribe to the philosophy that supreme authority must be vested in the State in order to achieve the maximum productivity of our economic system. The concept, in either case, is totalitarian. Regardless of the motivating force, inherent in the concept is the belief that coercion is a more effective instrumentality than persuasion; that force and fear are more effective dynamics than freedom and hope of reward.

The true believers in conscription of industry point to Hitler's record in the building up of his magnificent war machine. They say that we must fight fire with fire. Let us examine in a dispassionate manner the Hitler method and see whether it could be applied to the American scene. It is true that Hitler has gotten results by issuing edicts, but we should remember that when Hitler issues an edict, he backs it up with bayonets and concentration camps. An

industrialist or a workman who does not comply is shot or imprisoned. I know of one workman who got six months in a concentration camp because he asked for the privilege of spending Christmas day with his family. It is true that Hitler has made successful use of fear as a dynamic, hut it is fear raised to the 'nth degree of fury. He is utterly ruthless. Does anyone believe that we the people of America would tolerate for one moment the full use of the totalitarian method in our country? The question answers itself but the matter does not rest there, because the answer inspires the question as to the effect of a partial use of that method—of the employment of an anemic amount of force and fear in our economy.

The application of a modified form of the Hitler method would, in my opinion, produce one result, and one result only. Industry and labor would be half-slave and half-free and as a consequence our system of free enterprise would be vitiated. We must either go the whole way with Herr Hitler or resolutely stand by our free enterprise system and apply our energies to fortifying rather than to hampering its performance. I urge that we not be dazzled by Hitler's success in this split-second of world history. I consider it at best a thoroughly second-rate method. I urge that to defend our freedom against outside aggression, we should preserve our freedom from internal attrition. To those who believe that we should adopt Hitler's methods to get Hitler's results, I say that we must avoid Hitler's methods to surpass Hitler's results.

And now let us turn our attention to free enterprise. Let us contrast its functioning philosophy and dynamics with those of totalitarianism. We can then come to an informed conclusion as to which road we want to travel.

The elements of the free enterprise system are: capital, labor, customer, management, and government. Each has its special function—each its special, even selfish, interest. The special function of capital is to supply the money with which to do business; the special interest of capital is return on investment—bigger and better dividends. Labor's special function is to manufacture goods; labor's special interest is shorter hours and higher wages. The special and vital function of the customer is that of buying the products of industry; his special interest is that of obtaining better products at lower and yet lower prices. This special interest of the customer has a powerful ally in free and open competition—the life-blood of private enterprise.

The interests of capital, labor and the customer, it will be seen, are conflicting. If capital demands too high a return, both labor and the customer are set at a disadvantage. If labor insists upon hours that are too short and wages that are too high, capital and the customer are the sufferers. If, as a result of some abnormal competitive situation, the customer gets too much for too little, both capital and labor are in a distressing plight.

On casual consideration, the conflicts between these three elements might seem to be destructive. As a matter of fact, these very conflicts generate the pressures which give vitality to our system. They all converge on a fourth "party at interest"—management. Management is an element quite distinct from capital, although there is much confusion in the public mind on this point. Management, obviously, has responsibilities alike to capital, to labor, and to the customer. The combined pressure of these elements is so potent that it forces management to engage in that most unpopular of all human activities—thinking. It has had to think—both in and out of working hours—about how to make new and better goods for less money, but at a profit; how to distribute its products more effectively and at lower costs, but, again,

at a profit; and about maintaining conditions of work and rates of pay which assure a high morale in the working force. All the billions spent for research, for inventions, for new machines and for better factories also stem from that pressure which has forced management to be alert, to think, and to create.

Now let's talk about the fifth element in our enterprise system—government. Obviously, the interest of government is to assure that the system so functions as to produce the greatest good for the greatest number. As to responsibility, in that area where the public interest is best served by monopoly there must be government regulation of services and prices. Outside that area, government's responsibility is of a very different nature. It should give equal protection to capital, labor and the customer—protecting for each his right to exert all reasonable pressure on management. Capital, as represented by the stockholders, should have the benefit of a full disclosure from management of all important facts relative to the business. More importantly, the right of capital to a return on its investment should not only be recognized but protected. Labor, if it is to exert its pressure effectively, must have the right of collective bargaining and it should be guaranteed that right. Government should see to it that there is no abridgment here. The customer should and must have the benefits that flow from free and open competition if he is to enforce his demand for better goods for less money. Who is better able than government to see that the customer is protected? The government, then, has the duty of taking vigorous action against all practices and restraints which would affect the rights of any or all of these parties at interest. If the government discharges this umpiring assignment, and handles is impartially, capital, labor and the customer will all benefit.

Woven into the woof and warp of the fabric of our free enterprise system is the philosophic concept of the right of the individual to further his own material and spiritual welfare, subject only to the restriction that the similar rights of others must be respected. Our founding fathers believed that individuals, if given reasonable opportunity for the free expression of their abilities, could bring about a higher standard of living and a better social order for themselves. They were concerned with the rights of the individual and sought by every means possible to protect them against the power of the State. The State was to be the servant of the people—not the people the vassals of the State.

As a consequence, the great dynamics of our enterprise system have been freedom and hope of reward. It is these that have released the individual energies of men—that have put a premium on initiative, inventiveness, alertness and resourcefulness. It is freedom of the individual and of groups to fight for their reward that has kept complacency from laying its withering hand on our economy. It is freedom and hope of reward that have kept alive the spirit of adventure that has pushed us on and on to new frontiers in science and industry. It is the fact that all men are free and all men have equal opportunity that has made possible reliance on hope of reward rather than fear as a driving force; on persuasion rather than coercion as a technique in our relationships with each other. These great dynamics have been at work here in America ever since 1776. You and I know that the overall results they produced have been the envy of every other people. Here in America we have continuously enjoyed the highest standard of living of any country in the world. With six per cent of the world's population, we have accumulated forty-five per cent of the world's wealth. This is dramatic proof of the statement made by Woodrow Wilson, that: "The highest and best

form of efficiency is the spontaneous cooperation of a free people." No mere high-sounding phrase is that statement—but a practical factory axiom—proved again and again in every-day manufacturing. Cooperation, freely given, will produce better goods faster than any other method known to man.

Our Government is in the process of proving the truth of Woodrow Wilson's statement in its current development of our national defense program. It has not used its power to conscript industry. Industry is still free. Instead, it has rallied industry behind a civilian defense commission made up of great industrial leaders. We at Studebaker are proud that the Chairman of our Board, Mr. H. S. Vance, served on the commission in an important capacity. The defense commission has issued no edicts. It has coordinated and directed the active cooperation which industry has offered. Where necessary, it has used persuasion rather than coercion. The progress made in the months since the commission was organized has been praiseworthy. What might have happened if industry had been conscripted forthwith? Well, no one knows, but I venture the opinion that by now the program would be bogged down in a morass of red tape, and our free enterprise system would be in a disorganized and distressing state. As it is, there is an eagerness on the part of everyone in industry to jump in and do what is asked, and do it better and quicker than ever before. I predict that by the end of two years the combined efforts of the defense commission and private industry will have produced accomplishments that will leave no room for inquiry as to whether freedom or fear is the more effective dynamic.

In view of the fact that industry is still free, the question may well be asked—What is the shouting all about? The answer is that the authority of the Government to take over industry might be employed in some moment of discouragement or hysteria unless the public is informed as to the implications and dangers of such an action. Furthermore, if we are agreed that our free enterprise system should be maintained, now—right now—is the time to strengthen and fortify it.

No economic system ever has worked perfectly or ever will. Ours is no exception. During the 1930's its capacity to serve the greatest good of the greatest number failed to measure up to the standards set for it. Among other things, national income was on the decline despite increasing population. For the first time in our history, the national income was lower at the close of the decade than at its commencement. That record constitutes a challenge to us to find out where and why the system failed us.

No comprehensive or final answer to that challenge could be given without studying in detail the attitudes and actions of labor, capital, customer, management and the Government, not only during the period under discussion but for previous decades. The study would undoubtedly show that during the 1930's we suffered the consequences of many things that happened prior to 1930. It also would weigh the impact of the international situation upon our economy. I have no illusions as to my own ability to make such an analysis. I do believe that even at the risk of oversimplification an attempt to determine how well all of us have protected and safeguarded the dynamics of our system—freedom and hope of reward—might prove useful.

I have stated previously that if our free enterprise system is to function, capital, labor and the customer must all be free to exert their pressures on management and on each other. I believe that to exert its pressure effectively, labor should have the right of collective bargaining; therefore I consider that during the 1930's we registered a definite gain in this

particular because labor was guaranteed that right. By so doing we also assured labor the opportunity of obtaining a more equitable share in the distribution of national income.

Now, capital has always had freedom to put pressure on management, but freedom without hope of reward is a dynamic that has been short-circuited. Capital, to perform its vital function, must venture forth in new enterprise—it must take chances. During the 1930's, capital went into hiding. The figures prove that. During the 20's an average of three and a half billion dollars of new capital was invested annually in industry; during the 30's 700 million a year—a mere dribble. No single factor was responsible—but a destructive, chaotic and punitive system of taxation, which largely dissipated any reward for boldness, was a factor of tremendous force.

Now let us consider the customer. He exerts his pressure for better goods at lower prices through the competition which he compels for his patronage. In his case, Public Enemy No. 1 is monopoly. Monopolistic practices are not new phenomena, but both Government and business have at times been confused as to the position they should take toward them. For example, in the year 1933, for the first time in our history, price-fixing and monopoly were given the halo of Government sanction under the NRA, with the blessing of large sections of the business community. That experiment met a belated death at the hands of the Supreme Court. Fortunately, the Government later reversed its position and is now engaged in a campaign to restore competition by the elimination of monopoly. While confusion still prevails in some quarters on the attitude which should be taken toward these anti-monopolistic efforts, I believe the Government's campaign has the support of the great majority of businessmen who recognize that competition is the life not only of trade but also of the free enterprise system.

Next, let's see wherein management has met difficulties during the last decade. One of management's principal functions, which has already been pointed out, is that of harmonizing the conflicts of interest between capital, labor, and the customer. This function is most effectively and most usefully carried out if all of these groups are free to exert their pressures on management and on each other. When such freedom prevails, but government nevertheless enters the field as a protagonist of one group at the expense of another—whether the object of its special interest be capital, labor, or the customer—, the freedom of the other group to bring its pressure to bear is curtailed or at times even eliminated. Under such conditions, management cannot hope to handle its assignment satisfactorily because it must deal not with the free interplay of group interests and pressures but with an artificial situation wherein an inequality of influence for one group places another at a disadvantage. In recent years there have been instances where one or another group has been under just such a disadvantage. The customer was in that position under the NRA. There have been many cases where the authority and influence of government have gone beyond assurance of the right of collective bargaining and have been exercised on behalf of labor in such a manner as sharply to limit the ability of the

other groups to exercise their pressures and of management to discharge its responsibility for harmonizing the interests of all the groups to which it owes the competent discharge of its particular function.

I believe not only in collective bargaining but in high wages. But high wages must always be relative. If they become too high or advance too rapidly as an arbitrary result of combined labor and government pressure, they not only have unfortunate and unfair results on the other groups in our enterprise system but finally defeat their own ends with repercussions upon all. Daniel Tobin, president of the Teamsters' Union, denied the wisdom of such a policy when he said, and I quote: "There is a point of saturation for wages and hours, and if you go beyond that point or even if you reach that point, in some instances you can rest assured that if you go any farther, you will destroy the employment and, therefore, destroy yourself."

It will be seen, I think, from even this limited citation of restrictive influences that have been at work that freedom and hope of reward were abridged and curtailed during the period under review. Events of the 1920's undoubtedly were instrumental in creating some of the conditions which resulted in the abuses perpetrated in the 1930's. Nevertheless, the fact remains that the dynamics of freedom and hope of reward are the vitalizing influences which must be restored to their full vigor if the free enterprise system is to accomplish the great ends that have always been within its reach.

If my conclusion is sound, the correctives needed to revitalize our free enterprise system suggest themselves. We must not further abridge our freedom—we must strengthen it. We must keep alive and fortify hope of reward. Much of the responsibility for the attainment of these objectives rests with the Government. Only the Government can so revise our system of taxation that venture capital again will be attracted into our economy. Only the Government can see that all elements of the economy are dealt with fairly. But there are many things that you and I as individuals can do. We must be willing not only to die for America but to live for America. We cannot discharge that obligation by standing up and cheering when our flag is shown or by singing "God Bless America" lustily. We must challenge every act and be certain that each one of them contributes toward the strengthening of our way of life. If you are a capitalist who is seeking exorbitant profits, you are sabotaging the free enterprise system. If you are a working man demanding wages that are too high or hours that are too short, you are weakening our democracy. If you are the manager of a business and are not putting forth your best effort, not lying awake nights trying to give a better deal—a better break-to the customer, to labor and capital, you are guilty of neglect of duty. And, finally, if you don't put the interests of your country above everything else, you are not meeting your obligation. The time has come when we must be businessmen second and Americans first; workers second and Americans first; and political officeholders second and Americans first!