Readjustments Required Within Industry

Because of the Defense Program


By DONALDSON BROWN, Vice-Chairman of General Motors Corporation Before the American Statistical Association, Hotel Biltmore, New York, December 30, 1941

Vital Speeches of the Day, Vol. VIII, pp. 234-238.

WHEN Mr. Riefler invited me two or three months ago to address you on this occasion I was extremely hesitant to accept. Industry's task for 1942, as viewed then or as viewed now, is so prodigious that it is almost staggering to contemplate the problems that are involved. The successful solution of these problems will, in many directions, depend upon conditions beyond the control of industry itself, and will require on the part of management the temporary abandonment of some of the customary yardsticks of industrial accomplishment. The normal purpose of industry in serving the needs and wants of individual consumers is suspended for the duration. Emphasis now must be wholly upon producing the necessities of war. To do this most effectively we must not lose sight of fundamentals.

In this hour of grave peril, and in our preoccupation with the size and complexity of the war program, there is danger that we may be unmindful of what it is we are determined to defend. Production of the weapons of war is the present prime objective, and it is essential that the minds of all of us be focused upon this, and that no interferences with this objective be countenanced from any quarter. The real purpose of the defense program in which we have been engaged, however, transposed now into actual war effort as a result of attack from overseas, has been and is to maintain our American way of life and to preserve our form of government, with the freedoms which we have come to cherish.

Democracy and freedom are false names if they do not include the right of the individual to determine for himself what economic goods and services he shall produce or buy, in so far as his abilities and resources permit. And the system of free enterprise is the essential counterpart of that right. It is the antithesis of the dictator system threatening the world. Under our system, producers and merchants strive, each in his own way and in accordance with his individual ability and judgment, to meet the known or estimated wants of their customers, both as to kinds and quantities of products. There is thus afforded every incentive to gaugethe market as carefully and intelligently as possible, to meet consumer desires promptly, to manufacture efficiently and with close scrutiny of costs. No hierarchy, industrial or governmental, can possibly be in so advantageous a position as the individual business to judge what products or what quantities of them the public is likely to demand, or to say how the business should be conducted to best meet the public wants. It is upon this freedom of businesses to plan and conduct their individual operations, with the freedom of the customer to choose, that the American public has always depended for the satisfaction of its economic wants. No other system affords equal ability or incentive to serve the desires of the consuming public. Under no other system has there been developed equal initiative and efficiency, or such a high standard of living as that to which we have become accustomed.

Large scale mass production has gained ascendancy in various fields because of its inherent economies. No big business, though, has enjoyed continuing success under the exercise of a dictatorship from the top. Leadership is needed; not dictatorship—and I am sure it is fair to say that success attained by all big business enterprises can be measured in terms of the degree to which opportunities have been extended throughout the range of managerial personnel for the exercise of individual initiative within the bounds of prescribed responsibilities. In General Motors, the principle that has been guarded above all others over the years has been the maintenance of a decentralized type of organization under which the various divisions, as well as plants and departments within divisions, enjoy a high degree of autonomy so far as the essential requirements of coordinated control will permit. For the sake of efficiency, a corresponding degree of autonomy is required as to the individual units comprising American industry. Just as within General Motors there must be coordinated control in exacting compliance with central Corporation purpose, so it is in the case of our national family of enterprises that there must be the exaction of suitable regulatory measures by governmental law andfurther coordination of purpose through the force of public opinion which, in the kind of democracy we are defending, could be made more effective in its results than any other kind of policing power known to man.

Briefly, this is the system of free enterprise as it concerns industry and industry's part in our American way of life. It is the system which "for the duration" must bend to the necessities of the emergency—but in the interest of efficiency the vitalizing force of individual initiative must be preserved, and the knowledge and experience of management and men must be utilized to the maximum. In these times, even above all others, we must rely for our accomplishment upon what has so appropriately been termed "the dignity and worth of the individual."

The war program is a threefold job, calling for the exercise of military strategy, governmental action, and industrial production. Leadership in each of these fields is essential, and this leadership calls in turn for planning, administration and control.

Upon the military strategists we must depend for the determination of the kinds and quantities of the armament required and the necessary timing of its production. Neither industrial managers nor political leaders are competent to make such decisions.

Upon the political leaders we must depend for the necessary legislative and administrative action which will make effective the plans of military strategy through the best use of the nation's human and physical resources. This does not mean that the country's industries should be run by the Government. It does mean that there must be enlightened political statesmanship directed toward an acceptance of governmental policy that will encourage and stimulate the maximum application of the skills, techniques and know-how on the part of management and men engaged in industry.

Upon industrial managers we must depend for direction of the actual production of the war materials required. There must be the greatest possible utilization of existing plants and facilities, and the engagement of these, together with necessary new plants and facilities, in the way that will extend the maximum advantages of experienced management and the applied skills of factory workers.

With industry's primary responsibility lying in the vital field of war material production it is most encouraging that industry has already been able to bring its productive forces so greatly to bear on this task. Within the period to date, operating under the broad guidance of those responsible for the magnitude and nature of the armament program, our industrial techniques have created a flow of war materials now proving of inestimable value to ourselves and to our allies, and at the same time there has been set in motion a production momentum which will gain acceleration with every passing month.

The extreme gravity of the situation is recognized today by all Americans. In the course of the emergency, adjustments are necessary in every field of activity and in the life and habits of the individual. Sacrifices in service of the common good must be suffered by all, if we are to escape the far greater sacrifices that failure of our efforts would bring. Successful conduct of the war is the first concern of the managers of industry themselves, because it is recognized that the defense of America and the preservation of America's institutions are one and the same thing. Speed is of the essence because thus the war can be shortened, the burden upon our national economy lessened, and our chief ultimate objective—the preservation of our form of government and the free enterprise system—thereby made more certain of realization.

There are definite areas within which adjustments arenecessary in the normal course of thinking and planning, affecting the conduct of industry and entailing sacrifices which must be made in the cause. Leadership on the part of Government, and controls when necessary, are required so that action will gain direction along coordinated lines towards an over-all purpose—always with our minds on two prime objectives; first, winning the war, and second, emerging from the war a strong virile nation. Some of these areas may be mentioned:

Priorities with Respect to Materials. Determination of the armament requirements and of measures necessary to meet them is definitely the responsibility of Government. Through an effective plan of allocation, the availability of materials to meet these requirements, in the order of importance, must be assured. Inevitably, many businesses will be forced to curtail their normal operations drastically, and non-essential civilian supplies must suffer deprivation. Large numbers of workers will thus be deprived of their usual employment, and the problem of transfer to war production or other essential activities will be a difficult one.

In view of the strains and dislocations caused by the necessities of the case, it is imperative that curtailments in civilian production be gauged and determined in the light of factual evidence with avoidance so far as possible of unnecessary economic disturbances. Arbitrary curtailment of civilian production when necessary, should be considered always from the standpoint of whether it will result in expediting the war effort. To borrow a shopworn phrase from industry, the war effort must be expedited by making available "the right goods at the right place at the right time."

Sub-Contracting. Small manufacturers are part of the life-blood of our industrial system. To the extent that they can take on efficiently the manufacture of armament material or component parts it is important that their facilities or managerial capacity be so employed.

Sub-contracting is only another name for a practice which industry has always employed and which has been conspicuously prevalent in the automobile industry. General Motors, for example, in the course of its normal business buys millions of dollars worth of materials and parts from thousands of small companies throughout the country. As a natural sequence, the fullest possible use will be made of the facilities such suppliers possess under the new requirements of the armament program.

The essence of sub-contracting, especially in the case of intricate war materials calling for extreme accuracy with parts produced to extraordinarily fine limits for assembly with others, lies in close technical cooperation between the prime contractor and the sub-contractor. Sub-contracting shops must have the experience, the organization and the facilities to produce quality workmanship in accordance with the all-important delivery schedule, and large industrial establishments are called upon to do anything in their power to aid the small manufacturer in gaining the necessary qualifications. The responsibility for the finished product, however, rests upon the principal contractor, and the greatest efficiency in war material production, as in normal production, will result through effective cooperation with sub-contractors of his selection.

Distribution of the Production Load. So far as possible, with necessary regard for considerations of military strategy, the production of armament material should be established where the problems of manufacture can be integrated with experienced existing management, and where labor may become available by transfer from peace-time activity. In the case of all defense contracts undertaken by General Motors, this basic consideration has been constantly borne in mind. The advantages in this regard, with the opportunities foreffective employment of existing man power, must be recognized generally if we are to move with maximum speed and efficiency into full war production. Accomplishment in this course will likewise be of inestimable value when the emergency is over, in that transition back to peace-time production will be facilitated and the problems of post-war unemployment thereby alleviated.

The Labor Problem. It is to be hoped that labor leadership will come to show a spirit of enlightened service and cooperation commensurate with the requirements of the hour. Statesmanship in this quarter, and an understanding of the determined purpose of the American public and the American worker himself, is needed beyond anything that has been displayed thus far. The culmination of the Labor-Industry conferences in Washington last week was discouraging in that the labor leaders participating were unwilling to abandon their determined purpose to gain the closed shop in industry through the instrument of mediation, conciliation or arbitration under war-time governmental auspices.

The drive on the part of labor leaders for the closed shop in some form has been one of the principal causes of labor disputes and crippling strikes during the past year. The play for power which this drive represents cannot be permitted to jeopardize the production of essential war materials. The right to work is the "fifth freedom." It is a democratic right, which cannot safely be infringed in a nation which is fighting to preserve the principles of democracy. In these times above all others, no individual should be deprived of his right to work, or required against his will to pay tribute to anyone for the privilege of serving his country.

Nor should the Government of the United States, which represents all the people, require any citizen to join any private organization against his will. Union maintenance, in the sense of a union's ability to attract dues-paying members, should depend upon services rendered, and not upon force or resort to compulsory arbitration. The President of the United States himself gave voice to this principle when he declared, on November 14, 1941:

"The Government of the United States will not order, nor will Congress pass legislation ordering, a so-called closed shop."

Apart from the drive for the closed shop which has so frequently interrupted industrial production in this time of emergency, interruptions have also occurred as a result of jurisdictional disputes and quarrels between rival unions, and as a result of demands for higher wages or shorter hours. It is hard to see how any of these issues justifies any interferences with the maximum production called for by the constantly expanding demand for war materials. Wages generally in industry are already higher, and hours far shorter, than in any other warring country. Keeping down the costs of war and preventing inflation—results obviously to be sought by labor itself—would appear to call for a wage policy of greater moderation than has hitherto been observed by labor spokesmen. Both Government and the public must recognize the need for a cooperative attitude by labor if industry is to perform its task of maximum production within the shortest possible time.

For its own part, industrial management has the obligation to pursue a fair and enlightened attitude in its relationship with employees, and to make its position in this regard known publicly, so that acceptance will be commanded by the very force of the popular approval it brings forth. This should have the consequence of strengthening the hands of such governmental representatives as may be concerned in standing as they must for what has come to be recognized as sound public policy.

Prevention of Inflation. From an over-all standpoint there is nothing that constitutes a greater threat against the recuperative power of the nation in the post-war era, or against the effective conduct of our war effort itself, than the spectre of inflation. Any steps calculated to prevent this evil of all evils should be taken that do not unduly violate our fundamental concepts. This calls for a high degree of statesmanship expressed both in the direction of suitably conceived and administered governmental controls, and in the force of moral suasion.

Fiscal Policy of Government. Obviously this problem falls completely within the province of Government Leadership in this field, involving taxation and methods of deficit financing, is imperatively called for to safeguard the fundamentals upon which we are dependent in the ultimate resumption of our normal way of life.

A complete pay-as-you-go plan is out of the question, even though the tax burden will necessarily be much heavier than any the country has endured in the past. If the program is designed, as it should be, as part of a coordinated plan of revenue raising and inflation control, great care will have to be taken that inequitable or ill-considered measures do not defeat the very ends that are sought. Any plan of taxation which, through profit limitation or otherwise, serves to protect some producers from the results of their own inefficiency, and to withhold from other producers all of the benefits of their superior efficiency, would be as bad as the universally condemned principle inherent in the cost-plus contract—and for the same reasons, in that it would remove the incentive to produce efficiently, and thus destroy its own ends. Similarly, any plan of taxation that would enable certain classes to pass on the whole of their tax burden to others would be inequitable while at the same time exerting serious inflationary pressures, as for example if wages or salaries were to be raised by an amount equivalent to the additional taxes imposed.

We must hope that wisdom will prevail in the broad field of fiscal policy in which our future is enwrapped.

Production Costs and the Profit Motive. It is vital if waste and the risk of inflation are to be avoided, that the war program be prosecuted at the minimum of cost consistent with the maximum effort. To this end it is important that the government agencies concerned should recognize the need of retaining those incentives which will not only spur on the industrial production of war materials, but which will also lead to a minimizing of costs. The driving force that is inbred in our American economic system is the profit motive. The continuance of the profit incentive to the efficient producer, with decreasing costs reflected in some measure of increasing profits, can do much to hold down the final net cost of the war. A $10 cost, plus a $1 profit, is cheaper to the taxpayer than a $12 cost with no profit. The taxing power of the government can be depended upon to insure that profits will not be out of proportion to effortPrices and Price Controls. It is undoubtedly true, unfortunately, that some control is required over prices, particularly as pertaining to products for civilian needs where arbitrary restrictions upon supply are made necessary. This control must be exercised by Government, but it is to be hoped that where regulatory powers in this field are necessary wisdom will be employed and competitive enterprise will be free from any plan designed to affect arbitrarily the position of one competitor as against another. In this connection, it must be accepted that any attempt to control prices that does not result collaterally in an effective control of costs would be futile.

I have mentioned the foregoing areas requiring though and application in temporary adjustment to the exigencies ofwar, for the purpose of emphasizing their importance in achieving our objective. Obviously in the time allowable I could not discuss the many elements of principle involved. I am convinced that the American public looks for—yes, will demand—constructive leadership in proper quarters and appropriate action in the prosecution of our war effort and the safeguarding of our country's future.

In its own sphere, industrial management is called upon to exercise this leadership in the execution of its own primary defense job, which is the production of the military goods the nation requires—including its responsibility for quantity, quality and cost performance. Industrial leadership is necessary, furthermore, in making available in proper governmental quarters knowledge of the productive possibilities within industry, so as to aid in the efficient planning of the war program. In this connection, industrial leadership must take the initiative in securing the speediest possible conversion of those peace-time facilities which can be adapted to production for war-time purposes.

It is the part of political leadership, certainly, to foster in every way possible that spirit and determination on the part of the American people which is indispensable to the winning of the war. The overwhelming majority of the people holds unswervingly to its belief in individual liberty and free enterprise, and anything that appears in any way to weaken the foundation stone upon which our American way of life is built threatens to break that spirit and determination. Political leadership is called upon, therefore, to use every means constitutionally at its disposal to oppose any force that arises to challenge or weaken the unity of the nation. There can be no spirit of tolerance for the display of false leadership that would fan the flames of class conflict. There can be no spirit of tolerance for the course of the labor leader who seeks to satisfy his selfish ends at the expense of the common good, or for the industrialist who blindly and selfishly aspires to "business as usual."

America does not believe in "centralized planning" or "economic planning" as these terms are commonly understood. American industry, and particularly the unit in industry that has been engaged in the production and distribution of goods and services going into the hands of the ultimate consumer, knows from experience the throttling effect upon industrial activity in fulfillment of the wants and satisfactions of the consuming public that would result from centralized planning in the form of unnecessary governmental control and regulation. The fact must be recognized, however, that in the existing emergency the opportunities for individual planning inherent in our free enterprise system are necessarily limited. Under the extraordinary conditions prevailing, production for civilian supply is not determinable by intelligent judgment and the sensing of demand from prospective customers, but is restricted on account of the preemptive requirements of war. As to the armament program, there is just one customer, and that customer is the United States Government. Industry itself cannot determine what the requirements of our war effort will be. The number and variety of ships, of planes and bombers, tanks, guns and other indispensable equipment—the quantity of ammunition of all kinds —must be determined according to a centrally conceived plan subject to change without notice as the course of master strategy continues to unfold in the processes of a merciless war. Government must do the planning with respect to all of this, and must dictate to industry to a large extent the requirements of the program. So long as the emergency lasts, the basic free enterprise principle, in which the "market" determines the nature of the product and the volume of production, is necessarily limited, and individual industrial enterprises are called upon, in their own enlightened interest andthe higher interests of the nation, to accept coordination and integration of their common effort. Neither "business as usual" nor "Government as usual" is the order of the day.

During the period of national emergency, greater control of the productive resources and of the activities of the people is essential if the Government is to function as the effective instrument of a determined and united nation. This control must be exercised at the one source where balanced consideration can be given to the course of production and supply in the light of the changing demands of the high military strategy for which this same source is responsible.

It is essential that the managers of industry should acknowledge the necessity for this extension of governmental authority and control during the period of the emergency. It is equally essential, however, that in common with all other Americans they should make every effort to insure that these controls be limited to the emergency itself, and that the exercise of the powers granted shall not lead to the loss of the very liberties we are arming to defend. It is also essential to this end, and to the ends of the war effort itself, that the controls so exercised over the course and direction of the national economy, shall not extend to the point of interference with the authority and responsibility of industrial management necessary in the actual processes of production.

Dealing with the relationships as between industry and Government, and in view of the requirements of the war program, adjustments in thinking and in the course of conduct are required on both sides. Both industry and Government must realize that we are in a period of extraordinary conditions calling for extraordinary measures necessary to bring this producing machine of ours into maximum productivity for war purposes. Industry is not merely capital a represented by plants and machines. Industry is not alone management, qualified to organize the flow of materials and work in process resulting in the most effective utilization of floor space and facilities. Industry is a combination of capital, representing the physical facilities to produce; management, representing the organizing and directing force; and labor, an essential link in this chain of productive power. No one link among the three in this chain can function productively without coordinated action on the part of the other two. Physical facilities are obviously a prime requisite, but often it is brought to appear that management and labor are not fully recognized as being indispensable to each other. It has been evident at times that there are some even in high quarters of Government who regard labor and management as things apart and capable of being divorced. That just is not possible.

Management and labor are the human factors involved in industry. Government is not in any sense an integral part of the industrial machine. Government can, through the exercise of the power it possesses, take over the physical facilities of production if it chooses to do so and if public opinion will support such action. Government cannot supply that driving force which can come only from individual initiative and cooperation among men and management, inspired by patriotic motives and working at a common task.

We are in the midst of a great emergency. The successful prosecution of the war calls for focusing upon the one single objective of victory all the resources—material, personal and spiritual—that the nation possesses. To an extent never before approached, modern conflict demands production—production in prodigious quantities of a vast variety of materials to back up the courage and fortitude of our armed forces.

The readjustments required within industry, during the period of the emergency, are those that are necessary in serving the vital purposes immediately concerned, without prejudice to the longer ends those purposes involve today and for the future. These readjustments can be made, and the future of America can be assured, if full advantage is taken of the efficiencies inherent in our industrial system, and if the Government will exercise its control and direction over the whole defense effort in such a way that these efficiencies are not impaired. The job of production that is before us is industry's job. The managers of industry are committed tothe doing of this job with every resource at their command. America is a strong nation. It is strong in resources, in the requisite ability and manpower, in the capacity for cooperative and coordinated action essential to great achievements. Above all America is strong in the will to win—determination that freedom and right and justice shall live, and that those things for which America stands shall be maintained and strengthened for the days to come. To this objective we must all dedicate our whole thought and effort.