Free Enterprise in the Postwar Period


By ROBERT GAYLORD, President, National Association of Manufacturers and President, Ingersoll Milling Machine Company, Rockford, Ill.

Delivered before Postwar Forum of American Federation of Labor, New York City, April 13, 1944

Vital Speeches of the Day, Vol. X, pp. 457-460.

IT is a great honor to appear before this Postwar Forum that the A. F. of L. has so ably sponsored, and in which the National Association of Manufacturers is glad to have a part.

The contribution that your representatives made at the National Postwar Conference held in Atlantic City last month was notable. It is of extreme importance that we Americans understand as fully as possible the problems that way ahead of us. That understanding can be enlarged as we meet and talk together.

First and foremost, we must win the war. The best preparation for a solution of our postwar problems will be an early peace. The more effectively we work together now to produce the munitions of war, the sooner that peace will come.

The topic, "Free Enterprise in the Postwar Period," suggests that free enterprise may be entirely different when the shooting is over. Real, true enterprise will be the same then as it is now, but if we wish to enjoy the benefits of that productive system we must each do our part to make it operate more effectively, and to make it conform more nearly to the ideals of the free competitive enterprise system.

Hardly a speech is made today unless it starts out by extolling free enterprise. All bow to its marvelous war record. Men who have publicly and consistently advocated planned economy and have been openly critical of the rugged individualists developed in the free enterprise system now preface every public utterance with a strong, "We want free enterprise." That encouraging statement is often followed by a reservation that unless private enterprise does this or this or that, it must be done by the Government.

These pronouncements all skirt the vital, fundamental issue of whether private or public enterprise is best for the country, and all neglect the fact that it is impossible for private enterprise to compete with public enterprise.

There are important omissions, for postwar economic problems largely revolve around the question as to whether we are to produce both the things we need in our everyday lives under private enterprise as free men, or under public enterprise where the state is dominant.

The terms and definitions of private or public enterprise need not concern us too much but to know which system will give us the greater comforts, the greater freedom, and the more security is overwhelmingly important.

The observations and definitions that I bring you are those formed in the hard-headed business world. They are simple and obvious.

First, human nature in the postwar period will be the human nature of today. Nothing changes less than human nature. The experience of centuries teaches us that some men will be workers, some will be thrifty, some will be dreamers, others content with little, and a few forever discontented. The postwar world cannot be too much concerned with these latter individuals. The vital question is, how will society fare as a whole? Under which system will society as a whole live more comfortably and more happily?

Second, the needs of the postwar will be filled only as we work, and work effectively. Giving a job to everyone who is willing to work is not the answer for our needs Will be filled by production, not by jobs.

Third, industry does not exist to make jobs. It makes the things the people use in their every day lives. The customer never steps up to buy an hour of time. He will buy the goods produced in an hour by an efficient workman who has effective tools and machinery to work with. But we know no consumer ever asks, "how much an hour did it cost to make," but just, "how much?" "How much" determines the market!

Fourth, if we are to make the required greater production of more things at the lower prices necessary to make more postwar jobs, we must have more tools and more machines to make that output possible. Skilled workmen are only skilled when they have the proper tools. The great production of this country stems from the fact that workmen have good tools and productive equipment. They are paid for by thrifty people who are willing to put their savings at risk because they believe they have a chance to earn a profit. All they ask is a chance to earn that profit. We must keep the opportunity to earn a profit on sales made in the open market at competitive prices open to whoever wants to enter the field.

Now, let's take a look at the two systems. True private enterprise, or, to be more explicit, the profit and loss economy has two equally powerful incentives: the hope of profit and the fear of loss.

It is a competitive economy in which the production facilities are privately owned and operated for profit within a framework of laws designed to protect and safeguard the rights of owners, workers, and consumers. Under it men are free to decide how, when, and where they can best serve the people so as to earn a profit.

It is a system in which the competition of the open market place sets the price and which produces and distributes in accordance with a common decision made up of thousands of individual judgments of men all striving to do a better job than their competitors.

Finally, and of great importance, it is a system which tan only induce acceptance of its goods by the public in counter-distinction to planned economy, which compels acceptance of its goods and services by the authority of government

The ideal free competitive enterprise system is a dynamic, bold, risk-taking economy controlled by the combined judgments of many individuals, while public enterprise is a cautious one following the decisions of a single group of men moved by political expediency and having as a prime purpose the avoidance of mistakes.

Here in America, free enterprise has worked. We know of the wealth of goods it has made available to all, rich and poor. We also know of men who have become wealthy because they discovered new methods to produce the things we wanted at lower prices. Not infrequently we saw their fortunes vanish, but the low priced goods from whence they came did not disappear. Often success was attained only after many failures, but the opportunity to try again was never gone.

Some people would have us believe that free enterprise means the right to conduct a business or earn a livelihood without regard for anyone else—an economy which is free and untrammelled, in which the law of the jungle prevails, or in which monopoly may exist by government between individuals. They are mistaken. That is not free enterprise.

Competition is at the very heart of the enterprise system and competition, not government control, has proven to be the best mechanism for social control of production.

Government cannot force competition; it can only make it possible for individuals to compete. True, it can prevent individuals from setting up practices that restrict competition. Free enterprisers want that. They believe that the laws forbidding restraints in competition should be made more clear and their endorsements made strict. Competition cannot be forced; it comes only because men strive to outdo one another in the hope of the reward of the market place.

Public enterprise is managed by men who can hold their position through the goodwill of those in power. This calls for playing politics and outlaws risk and daring.

The head of a governmental monopoly cannot afford to take chances. He must be a hide-bound conservative. He can take orders but no chances. If failures occur, subordinates will point out the disastrous effects of those mistakes, argue that the manager is incapable, and plausibly suggest that they might be better in his place. A premium is thus placed on caution. It becomes more important to maintain the status quo than to enter upon new ventures.

The rewards that come with success are paid to those who put their abilities and skills at risk, as well as to those who venture with their money.

For in private enterprise, a young man of capacity can urge a change upon his employers, and if he is not permitted to make it, he can go elsewhere with his ideas. Successful ideas mean profit and competing employers willingly take a chance. Even if his ideas fail, he does not lose his chance to try again.

In public enterprise the reverse takes place. Men are encouraged to do the job only as well as it was done so as to avoid mistakes and are trained to avoid the possibility of mistakes and criticism. Important also is the fact that there is no other employer.

Under public enterprise, it is not difficult to promise the people work and goods—security, if you will, from the cradle to the grave. All the people have to do is to surrender their freedom to the governors, agree to work as directed, and take their share of the goods produced as their pay. They must work at the jobs to which they are assigned and spend the money in the manner in which they are permitted for the kind of goods prescribed by the state.

No one doubts that one hundred thirty million people who can be made to work can produce enough to exist and to do so without economic uncertainty. But, is such security worth the price and are we Americans willing to pay it? The price is the loss of freedom and a lower standard of living that our free enterprise system not only promises but delivers.

So far, this has been definition by indirection. A formal, precise definition of free enterprise would be that it is a system which is individualistic and characterized by the ownership and control of the facilities of production, distribution, and living by individuals or groups of individuals. It is based upon three simple propositions, namely:

1. The voluntary division of labor, including the right of the individual to seek the kind of gainful employment he chooses to do under the conditions he is willing to accept and can find.

2. The free exchange of goods and services, including the right of the individual to sell the products of his services and/or of his possessions to whom, when, and where he can and for what he chooses to accept; and then to take the proceeds thereof and buy what he chooses when, where and for what price he chooses to pay.

3. And the institution of private property which may be defined as the right of the individual to own property and to enjoy its use so long as such use does not interfere with the enjoyment of another of the like use of his own property.

Public enterprise can be defined as an economy in which the Government owns the facilities of production and controls the processes of manufacture and distribution; an economy, which, in the final analysis, decides where men shall work, what they shall buy, and how they shall save. Where it exists, the state is dominant and the citizens serve the state.

Despite this, there are places in a country such as ours where public enterprise is desirable—for instance, the postal system, vehicular highways, and other similar areas. Once public enterprise occupies an area, it shall do so exclusively, for private enterprise cannot and should not compete with them. Not because the Government is more efficient, but because it is subsidized competition.

As a common sense measure, it is to be hoped that in the postwar period we taxpayers who are stockholders in government enterprise will insist that we be more fully informed as to the operation of our business. If government enterprises have to make financial reports audited and supervised as meticulously as those of private enterprise, we will be able to judge better the progress made and more intelligently decide whether or not we wish government enterprise in other areas.

Of one thing we can be sure; our postwar requirements will not come to us post paid under either system. In both cases it will be C.O.D., for the two systems have this in common: we cannot get something for nothing out of either one.

Sure, there is going to be tough going—particularly in the transition period. There's going to be some unavoidable dislocation in employment. If the public is deluded by the dream-planners' promise of jobs-for-everyone, it will become so disappointed with the immediate transition period that they will holler for government help. The enterprise system might never get its chance to function successfully.

We must not through soft thinking about temporary hard sailing throw away the greatest potentiality America has ever had. We have all the ingredients present for unusual prosperity j we must put them together correctly.

The pent-up demand for ten million automobiles, twenty million radios, many more millions of vacuum cleaners, refrigerators, washing machines to be paid for out of the consumer public's estimated one hundred million in savings will insure us the start. On top of this, business will need at least ten billion to replace worn-out and outmoded equipment, plus new machinery for new products and for new jobs.

If we can handle these demands intelligently, we will have adequate employment. If we can avoid bidding for a shortage of merchandise, and if we can encourage people to invest part of their savings so as to supply the needed productive machines, many of the depression mistakes of the past can be avoided.

That's going to take teamwork and understanding and patience with hard work.

Working together we can make free enterprise work even more effectively than it has in the past.

This is not the responsibility of management alone. It is not the responsibility of labor, but it is a common responsibility of all who make up this country of ours—labor, farmers, manufacturers, Congress, lawyers, doctors, merchants.

Business has a vital part in it, for if business wishes to remain in private hands, it must make its contribution to the country worthwhile. It must see that it is truly competitive, that it treat fairly the investors and labor who share in making it valuable, that it learn to avoid depressions which penalize all of us.

Labor's part is no less important. If it wishes to be free and to choose its employment where it will and without onerous restrictions, it must see that it produces effectively. There is no more place for monopoly in labor than there is for it in management. Specifically, this means that restrictions that are presently being placed on production in some places must be removed. It means that time-wasting and expensive regulations that make work for some but do not make for lower costs must be abolished.

If society as a whole wants the full volume of goods that this system produces, and if it wants freedom among the citizens enlarged and maintained, it must see that its laws really make free enterprise's full contribution possible. A few will stand looking into:

The Security Exchange Act, insofar as it safeguards the rights of investors, is good, but the damage it has done to the country as a whole by restricting investment possibilities is bad. We can keep the good and eliminate the bad.

The labor laws that have been passed in recent years which guarantee the rights of labor are good, but where they are unfair to unorganized labor or to employers, they are bad. A fair and impartial labor policy, one which is fair to all and favors none is vastly important. This can and must be done without abridging the right of men to organize and bargain through their own representatives—and it must be done without hurting organized labor.

Tax laws should encourage risk and venture; they should not take the major part of the profits and let the investors suffer the losses. They can be so written.

Nor are all government detrimental restrictions a matter of law. Some are by regulation, such as the present Treasury Department regulations which interfere with setting up adequate depreciation reserves.

Unless business can scrap existing equipment as rapidly as economically possible so as to replace it with modern facilities that will produce better goods at lower prices, we will not make the strides to a better country that free enterprise permits.

Free enterprise in the postwar period will give us a chance to work. It will give the thrifty a chance to invest their savings. It will give security to the whole country through a greater production of houses, clothes, food, automobiles—all the things that make men's lives secure.

Nor will all the advantages be material. Free enterprise will ioster the freedom of individuals that has made this country so great and which distinguishes us Americans from all other peoples of the world. These things will not come easily, nor will they come

through the efforts of a single class. Labor, management, and the Government united can do a great deal. United and devoted earnestly to seeing that our business is carried on in a competitive fashion, facing the tests of the marketplace and free from undue governmental control, yet subject to the impartial restraints necessary to respect the rights of others, we will make this country of ours better, happier, and stronger.