Industry's Post-War Responsibilities

THE "A. H." PROGRAM (After Hitler)

By ALFRED P. SLOAN, JR., Chairman of General Motors Corporation Before Forty-sixth Annual Congress of American Industry, Sponsored by National Association of Manufacturers

Waldorf-Astoria Hotel, New York, N. Y., December 4, 1941

Vital Speeches of the Day, Vol. VIII, pp. 174-177.

IN presenting this noon a viewpoint as to "Industry's Post-War Responsibilities," I do so in a spirit of deep humility. To determine factually the conditions under which American industry is to function in the post-war era demands the ability to identify and evaluate the more important national economic, political and social forces, and, in degree, those international forces as well which may at that time exist. Manifestly, that is impossible. But even accepting the impracticability of such a scientific approach, we can, I believe, by an examination of what is now within our horizon of observation and experience, draw certain conclusions which should be helpful in enabling us better to prepare ourselves for what is to come. Perhaps the best measure of our ability as a nation to deal with the great problems of the post-war era is to be found in our attitude of mind toward the problems of the hour.

Some take the position that our every effort today should be devoted solely to the objectives of the defense program. I do not subscribe to such a philosophy. I believe that we of industry and as citizens of a great democracy have two great responsibilities. We cannot afford to ignore either. First and foremost, there must be an all-out effort in the discharge of our vital obligations to the nation at this time of its great need. The war abroad can only be won on the American industrial front. But second, we should keep in mind, in our determination to win the war, that this is NOT an "end" objective. National security, the preservation of a representative democracy, with free enterprise as an instrumentality of national progress—THAT is WHAT we are fighting for.

But we should NOT deceive ourselves. Even if such support should win the war, that does NOT insure the peace. Our fundamental objectives require a national consciousness and understanding that will demand a leadership with courage, imagination and idealism of the highest order. But superimposed upon such qualities must be constructive thinking, consistency and soundness of approach, with the willingness to recognize the fundamental fact that the nation-is no stronger than its weakest part. Such leadershipwould demand political and economic action predicated upon the philosophy that long-term progress and stability require that every part of the economic structure be encouraged and developed to the end that each may contribute a maximum to the effectiveness of the whole. The idea that any part may be eliminated or discriminated against, in the belief that we thus improve the whole, is untenable. Such an approach can only serve to prejudice progress and limit opportunities. Just as the relatively small keystone is the part on which all associate components depend for the solidity of the structure as a whole, just so does the strength of the economy as well as its virility, in terms of progress, depend upon the initiative, courage and the imagination of a relatively few.

I have little doubt as to our ability to win the war. Faulty administration of the effort, inefficiency and waste in its execution may occur as natural shortcomings of a political bureaucracy in times of stress. They serve to increase our economic burdens in the years to come. But wealth can be replaced. Debt can be repaid. The real danger does not lie THERE. Airplanes, tanks and ships are full of dramatic action. They capture our imagination. The fortunes of war, as the tides of victory or defeat flow back and forth require little understanding. Public opinion, emotional as it is and often lacking knowledge of the fundamentals involved is nevertheless I potent force in the final analysis in correcting the more obvious errors of national policy or the shortcomings in administration as affecting these particular problems.

But, on the economic side it is different. Such issues are difficult to understand. Unfortunately, our people see little relationship between such problems and their individual well being or opportunities. They assume that the end of the war will close another successful episode in the evolution of America—that the American way of living will have been reaffirmed. Here is where the real danger lies. We shall be able to deal effectively with physical aggression. But can we deal equally effectively with the forces that are attacking our way of living in a more subtle way? THAT is the question. There is little doubt that these dangers exist, thatthere are far too many among us who look upon the present emergency as a "heaven-sent" opportunity to alter, or at least importantly to reorganize, the American system of free enterprise. They would substitute in its place an order where government is far more dominant, perhaps all-embracive, where the opportunities of the individual become subject to the will of a political bureaucracy, too often dominated by principles based on political considerations and the demands of the pressure groups. This is no idle thought. The time to begin the fight to win the peace is NOW. We must speak frankly and without reserve.

But as to our responsibility. First, we can help to create a better understanding with the hope of more constructive economic policies as they may affect, both today and over the long pull position, the progress and security of our industrial democracy. Here is involved the application of industrial statesmanship. Second, we can, through our individual planning, bring about such adjustments in our operating activities as may result in a better alignment with postwar needs. This requires the application of industrial management. Let us examine these two approaches.

The present emergency in its impact upon the economy involves three stages. The start was from a semi-frozen economy. Large reservoirs of economic resources were available. These resources were idle, partly at least, because of restrictive national economic policies and indiscriminate attacks upon accomplishment which served to create uncertainty as to the future of our system of free enterprise. The defense program moved these idle resources into a state of greater productivity. The result: An apparent improvement in the standard of living; more and bigger payrolls; expanding demands for consumer goods of all kinds; increased business profits; reduced unemployment. For great numbers of people these are days of real prosperity. Today we are at the second stage: The period of sacrifice. Here is really where our story begins and where the form if not the substance of the foundation for the post-war era starts to unfold.

Free enterprise contemplates innumerable economic objectives. But war changes this. These innumerable objectives must be made subservient to the single objective of winning the war. That demands of necessity a treatment of the economy destructive of the manifest benefits resulting from individual initiative, ambition, and the urge to accomplishment. Thus it becomes essential that we accept the very economic restrictions on our freedom of action that we are fighting with all our resources and perhaps with our lives to escape. THAT is the irony of it! And also, the danger! History shows that this has always happened under similar circumstances. But previously there was NO danger. To return to the benefits of free enterprise was an entirely natural process. Then men did not exist anywhere in the world who had the ambition and the belief that they were capable of regulating and keeping in balance the highly complex forces of a very involved economy carrying with it the power of regulating the habits and opportunities of hundreds of millions of people. Today such DO exist.

Thus we see the second stage of the defense program brings this great issue squarely before us. As the demands of the defense program, plus our normal demands, exceed our total resources, the former necessarily must be given preference over the latter by action more or less arbitrary. Economic and social sacrifices become intensified as the demands broaden. But all this does NOT mean that we should accept what is demanded without consideration. We should analyze each proposal with the greatest degree of circumspection. We should be sure it is required by the great objective, rather than designed to bring about some new order or to effect a reorganization of the existing one. This responsibility demands a statesmanlike approach. We should recognize that those in government have a stupendous duty to perform. They cannot be expected to give detailed consideration to our individual problems. Though important to us, these are inconsequential in the great scheme of things in which we are involved. It is difficult to lay down universal principles to guide us, but we have a right to demand there be NO discrimination unless clearly demanded by the defense effort. THAT should be the yardstick. The individual viewpoint of those in political power as to how the economy should be constructed or reconstructed should have NO place in this consideration. Here we are on firm ground.

A most important step as affecting the post-war era and beyond is to begin NOW to construct a foundation of confidence in the future of our system of free enterprise. Such confidence does NOT exist as it SHOULD to meet the situation we must face. Rightly or wrongly American business management has little faith in our present approach to the problems of the economy as affecting the opportunities of business. And THAT is serious. Men are actuated by WHAT they believe. A recent canvass covering a broad cross-section of American business management—a group that the nation must largely depend upon for its economic progress—reveals the fact that less than 10 per cent believe that our system of free enterprise will be restored very much along pre-war lines in the post-war era even with modifications to take care of conditions then existing. Seventy-five per cent believe that the government is using the emergency to push still further its more radical social and economic objectives. Over fifty per cent stated their belief that government would take over many public services formerly under private management but still leave many opportunities for private enterprise. Now comes perhaps the most important verdict of all. More than thirty-five per cent expect a semi-socialized form of society with little opportunity for the profit system to operate. Again, whether they are right or wrong, that is WHAT they BELIEVE.

Out of all the circumstances today existing, this fact stands out crystal clear. American business management will be directly challenged by the post-war era. That challenge must be aggressively met. There will be a demand for a more complete utilization of the nation's economic resources. The abundance of the early "forties" in contrast to the shortage of the "thirties" constitutes a political demand that no administration will ignore. We of industry must assume a militant attitude. We must take the initiative in both planning and action for the post-war period.

What might be done to rebuild a foundation of real confidence in the minds of men in the long term future—confidence that would renew the venture spirit, the hopes and ambitions of the old industrial pioneer? Let us look at examples from the moving picture of current economic policy as they may serve to justify or develop confidence in the long term position of American enterprise.

Let us start with the public debt. Can business assume obligations extending into the future in the face of a budgetary policy such as existed in the second half of the "thirties"? Can it have confidence in the face of such startling pronouncements by highly placed officials, as have recently been reported in the public press? Apparently, increasing national indebtedness is being looked upon simply as a means to an end, in itself of little consequence. The tremendous expansion of the public debt, now inevitable, contains the germ of a monetary inflation. It demands drastic taxation and an effective control of the price level. Thesoundness of the dollar is at issue. Depression expediencies should be liquidated, non-defense extravagances eliminated. Here is an opportunity to rebuild confidence in the long term business position.

Then there is the price level. HERE lies the most important economic problem of the hour as affecting post-war conditions. It involves taxes, prices, wages and the public debt. An important price inflation underwrites an ultimate economic catastrophe in proportion to the size and severity of the movement. Inflation is about the worst economic disease. With every great war of modern times has come an enormous rise in prices. It creates arbitrary and harmful changes in the distribution of real income. It results in an illogical allocation of the war burden between different groups in the communities. It enormously increases the cost of the war. Maintenance of order in the price level can only be successfully accomplished by attacking the sources of price disturbance. Our present policies contemplate an artificial stimulation of farm prices, ignore the factor of wages, attempt to control industrial prices. Economically, prices must eventually increase if cost factors like wages increase, or profits must ultimately be eliminated. Inflation has already started. Unless some realistic attack on this problem is made before it is too late, we must prepare to deal with the price level as a serious post-war problem with all the resulting confusion and distress. Prices can be controlled economically; but in all probability NOT politically.

Then comes taxation. The immediate situation, involving the financing of national defense, demands measures entirely different from those of normal times. But it seems clear that no more constructive contribution could be made in reestablishing business confidence as we enter the post-war era than a frank recognition now of the fact that the whole present system of Federal taxation requires drastic change. It must be entirely reconstructed. It must be based on the concept of encouraging rather than of attempting to regulate and penalize enterprise. Lower prices are essential to a state of full productivity. Lower taxes contribute to lower prices. Increased government revenues, even at lower rates, can be developed from increasing business activity. Restrictions now imposed upon the flow of capital from one part of the economy to the other should be eliminated. The method of taxation is as important as the amount. An enlightened policy on the future of taxation would be an important step in re-establishing business confidence.

Undoubtedly there is no greater opportunity to re-establish confidence in the business future than in the field of labor relations. The present chaotic situation is the logical evolution of the course we have followed. The responsibility of management is being restricted. We all recognize the economic importance of a sound balance between wages and prices. It is a MUST in our objective of full productivity. We MUST have producers. But likewise, we MUST have more and better consumers. We subscribe to the principle of collective bargaining. But we protest against the discriminations prescribed in existing law. Monopolies in general are enemies to the system of free enterprise. But this applies to labor as well as to capital. Labor, if it is to continue to enjoy its great privileges, must be held responsible for its obligations. And again, like capital, should be required to make a public accounting of its acts. We can at least hope something comprehensive WILL BE DONE.

The economic background of the post-war era in its first stage is likely to form a pattern consistent with what has occurred under similar circumstances in the past. The close of all wars has resulted in a period of hesitation, followed by a period of business activity involving an expansion in theoutput of consumers' goods, both non-durable and more particularly durable. There is likely to be a strong but temporary export demand to cover the more immediate and pressing needs of countries affected by the physical destruction and economic dislocations resulting from the war. Its importance, duration and ultimate consequences depend upon the approach to the financial considerations involved. If the war should end in a stalemate, there might be expected restricted demand for defense production necessitated by an advancing war technology. There will be a need for industry to replace its machinery with the more efficient equipment then available. Superimposed upon all this may be the stimulating effect of government expenditures in the area of public works. The aggregate might well constitute an important, although a temporary, business boom.

Now the second stage. The great test! Shall we be able to construct a self-sustaining economy—a MUST for real confidence and a great forward movement of business?

The dominating forces on the positive side concern the ability of private enterprise to expand employment not only in the production of entirely new industrial products, but likewise by making available existing products at lower prices through increased efficiency in production and distribution, This to expand the real purchasing power.

On the negative side, taxes are likely to continue on a high scale in the struggle to maintain the government's financial stability and the soundness of the American dollar. The rank and file of the lower and middle income groups will have a materially reduced purchasing power. This, involving as it does approximately one-third of the entire population, constitutes a restrictive influence on an important source of demand for a wide range of consumer goods. The consuming power of the upper income groups will be reduced relatively even more. Sales and excise taxes likewise will take a toll on all consumers. The influence of various pressure groups through the exercise of their political power will continue to have a depressing influence upon business confidence by preventing sound solution of our economic problems, by promoting unsound policies and by resisting the essential economic adjustment resulting from the war effort. The liquidation of an inflated price level would mean a more or less protracted period of uncertainty and adjustment—perhaps a real crisis while the forces of economic distress are overcoming the inertia of political action.

Passing to the export field, the war effort has accelerated remarkably the developing industrialization of markets which normally offer favorable opportunities for American exports. Such markets, in whole or in part, are being lost to local manufacture, or to sources favored by political alliances. The latter handicaps would be enormously intensified in case of a HITLER victory. American technique and capital must now be exported in increasing quantity in substitution for goods and services, otherwise there must be a decline in our national influence throughout the world. Wage rates having increased more rapidly than technological efficiency mean that higher prices will prejudice our competitive position in overseas markets still available. Such economic movements serve to lower the hopes of a higher standard of living of the world's people generally, but the trend exists and will probably still continue, nevertheless.

Finally, even recognizing that national economic and political policies have the power to expand or contract our field of opportunity, that by no means relieves us, either individually or collectively, of responsibility. We shall enter the postwar period with a greatly expanded industrial plant—more or less unbalanced by the necessity of the war effort as measured by pre-war consumption demands. Intensified engineering and promotion must be employed to develop the most constructive use for such surpluses, thus expanding job opportunities. We must deal with great readjustments in the economy increasing in scope with the duration of the war. This will require intelligence, courage, hard work and capital. In many areas of the economy, serious losses must be expected.

We must maintain the strongest possible economic positions and the most virile organizations. This is essential to the post-war era. Any sacrifices made to those ends will be justified. We should not curtail our research during the emergency. We should expand it, if possible, for it is only by such means that free enterprise can continue to exist. I refer to research in a broader way—NOT limited by physics or the laboratory, but as applying to all the functional activities of business; distribution, labor policies, production, management technique are all involved. We can encourage and develop the young men in our organizations. Give them the responsibility. The emergency will be a great developer of talent. Let us use it. Let us encourage forward thinking and initiative. Free enterprise is just as essential within business as within the economy.

There does not appear to be in sight for the post-war era any important single new industrial development comparable with the automobile, the radio or the motion picture, such as followed the last World War. But there will be available a relatively large aggregation of new methods, new materials and more efficient instruments of production. Some materials whose use has been restricted will be more broadly available at lower prices. These will open up entirely new fields of opportunity with increased job opportunities. As a result of the depression of the "thirties" and the uncertainties surrounding enterprise, and for other reasons, the American production plant is obsolete as measured by current technology. And this is NO idle thought. Thus to rebuild America offers tremendous opportunities for improving our efficiency along a broad section of the industrial front; likewise, a stimulation to our capital goods industries whose activities are otherwise likely to be importantly curtailed.

We should plan now for the post-war era. As a case study, here is how we, in General Motors, have approached this objective. First, we organized around the problem of National Defense. We assigned executives on the central staff and a policy group to the task. In each operating unit civilian production and defense production have been separated. The executives discharging the former responsibility are charged specifically with planning for the post-war era for that particular production unit. I am attempting myself to stimulate and coordinate these activities into a harmonious whole. I call it our "A. H." Program (AFTER HITLER).

Such an approach contemplates accelerating the development of new products, re-engineering existing products, making use of new materials and new methods, and in other ways—thus improving quality and value, particularly having in mind the necessity of lower post-war prices. It contemplates the substitution of new instrumentalities in all functional activities wherever gains are possible. Again, lower prices. It contemplates studies to develop the possibilities of further horizontal expansion. In total, on the liquidation of the defense program we hope to have available concrete programs for each production unit, engineered and approved and founded on the most modern technology—ALL READY FOR ACTION.

That completes my story. It is a call for an all-out effort to defend the American system of free enterprise—for a more realistic approach to the great economic problems of today as affecting business opportunities in the days to come—for the advancing of business efficiency as measured by present technology—for an organized effort on the part of American business management to meet the challenge for a broadening utilization of the nation's expanded economic resources by increasing job opportunities and developing real purchasing power. Such I believe to be, in part—"INDUSTRY'S POST-WAR RESPONSIBILITIES."