Wars - Business in United States of America
Definition: Armed conflicts between the United States and other sovereign nations or entities
Significance: Throughout history, both declared and undeclared wars have caused the U.S. government to work closely with the business community in mobilizing the nation’s economy to support military operations. Wars often determined the use of natural resources, the production of goods, the availability of labor, and the opportunity for businesses to generate profits from their efforts to support the country in a time of crisis.
Viewed from an economic standpoint, American engagement in warfare from the eighteenth into the twenty-first century has always had a significant impact on the nation’s business community. Although some wars have been initiated in part to either protect or enhance the country’s economic interests, all have led to shifts in the relationships between government and private commercial enterprises, often changing radically the fortunes of individuals, companies, and even entire industries. Private industry has played a key role in times of war, because the United States has always operated from the premise that when the government needed resources for military operations, private enterprise could and would supply what the military required. As a result, armed conflicts have given business leaders opportunities to demonstrate patriotism but have simultaneously provided them a chance to improve their companies’ bottom lines.
Boom and Bust
From the establishment of the republic until the end of World War II in 1945, the United States resisted the establishment of a large standing army and the creation of government-controlled facilities to manufacture weapons and equipment needed for warfare. Hence, wars tended to create what can best be described as a boom-and-bust economy during the period from the initial decision to prepare for war through the months (sometimes years) after hostilities ceased. When conflicts arose, the country was forced to mobilize rapidly, requiring many businesses to ramp up production or switch from manufacturing items for civilian use to ones required by the armed forces. At the same time, industries were stepping up production cycles, often taking on additional workers, and the government was increasing the number of people in uniform. This situation led to a favorable environment for labor, most notably during World War II when the vestiges of unemployment caused by the Great Depression were eliminated, and women were hired in great numbers to take the place of men drafted into the military services.
At these times, certain materials were needed in greater quantities to produce weapons and ammunition, manufacture the gear for military personnel, or build vehicles needed to transport fighting forces. Prices for commodities in high demand such as steel, copper, chemicals, and even textiles rose dramatically. During such times, businesses that expanded to meet demands for war materiel saw income and profits rise. To finance wars, the federal government was often forced to issue bonds to generate the substantial capital needed to pay business owners for goods and services. This decision provided investors with opportunities to purchase government securities at good rates of interest with minimal risk. After hostilities ceased, many companies found it necessary to downsize. That action, coupled with the arrival of returning veterans, often led to massive unemployment. The situation was particularly critical after World War I, when more than one million veterans joined thousands of others looking for work in a country that could not employ them all.
The Response of Business
Historically, the response of the business community in supporting wars has been mixed. Many executives have complied readily with government requests. At other times, however, the president and senior members of his staff have found it necessary to impose regulations on business to ensure that the nation had sufficient resources to equip its fighting force while controlling as best as possible the inevitable inflationary pressures resulting from increased demand for limited resources. Action was also necessary to guard against unscrupulous suppliers, who saw war as a means of generating substantial payments for their goods.
Profiteering began as early as the Revolutionary War and was a problem during every conflict that followed. Practices included hoarding scarce commodities to drive up prices, conducting black market operations, substituting poorer quality goods for those ordered, shortchanging the government on deliveries, and bribing public officials to obtain lucrative contracts. During both World War I and World War II, the government created elaborate systems for reviewing production and delivery of goods to cut down on profiteering, but the practice continued. Despite knowing that some businesses were unfairly profiting from the work they performed for the military, the administrations of both Woodrow Wilson and Franklin D. Roosevelt showed great reluctance to exercise the one tactic they had at their disposal to curtail such activity: government takeover of private industry for the duration of the conflict. Although that happened in a few cases, it was more generally left to businesses to behave ethically in supporting the war effort. Periodically, Congress addressed problems of profiteering, passing laws to penalize profiteers in 1944, 1985, and 2007.
In the twentieth century, the need for total mobilization before both world wars caused major changes in the way the federal government dealt with the business community. At the outset of World War I, the cumbersome methods used by the military to contract for materiel proved woefully inadequate as a means of mobilizing for a large-scale modern conflict. At this time, war plans took no account of the nation’s economic capacity, and bureaus in the Army and Navy were often competing with each other to contract with businesses for the same items. To correct the problem, the Wilson administration made a concerted effort to enlist the services of industry executives as advisers in placing the nation to a wartime footing.
Hundreds of committees and commissions, such as the War Industries Board in World War I and the War Production Board during World War II, set priorities for production and allocation of key resources. These advisory groups, dominated by senior executives from America’s most important industries, also assisted in handling labor relations, which often became testy in industries in which unions were strong. Union leaders felt it important to assure members that management would not take undue advantage of labor during national emergencies.
The Wilson administration had significant problems managing labor relations, and a number of work stoppages occurred as the country prepared to mount its expeditionary force. Roosevelt was more successful than his predecessor in convincing private industry to support the war, partly because the policies developed by his administration minimized the negative impact of shortages, so inflation was— by contrast with the World War I—relatively mild. Roosevelt’s advisers, many of them industry executives, worked hard to develop methods for determining the fair prices of needed goods. The practices allowed businesses to profit—but not excessively—from their government work, while not bankrupting the U.S. treasury. Nevertheless, during the war, salaries of executives at many companies rose dramatically, while those of workers were adjusted modestly to account for inflation.
Partly as a result of careful planning by the Roosevelt administration, the boom economy created by the nation’s buildup for World War II did not collapse when hostilities ceased in 1945. A greater factor, however, was actions by communist-ruled nations, including the Soviet Union and China. In the eyes of most Americans, these nations suddenly seemed to pose a new threat to world peace. The government therefore found it expedient to maintain a large force under arms and continue purchasing items for national defense. Military and civilian leaders in the newly established Department of Defense made a convincing case to the American populace that the country was still engaged in warfare—the Cold War. Further, they argued that the United States would not have the luxury of a long lead-time to mobilize if new enemies initiated nuclear warfare.
Presence of Contractor Personnel During U.S. Wars or Conflicts
Source: Data from Congress of United States, Congressional Budget Office, “Contractors’ Support of U.S. Operations in Iraq,” August, 2008
a The Saudi Arabian government supplied significant amounts of products and services during Operations Desert Shield and Desert Storm; these personnel are not included in the data.
b Iraq theater equals Iraq, Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Turkey and the United Arab Emirates.
Those in industries such as aviation, weapons production, and hi-tech security systems, which had grown exponentially during the war years, found a continuing and ready market for their wares, and leaders in what became known as “the defense industry” developed close working relationships with senior Defense Department officials. This alliance between the military establishment and contractors was dubbed “the military-industrial complex” by President Dwight D. Eisenhower in 1961. It led to many tacit arrangements that would keep businesses in the defense industry operating (often at high rates of production) for the next half century.
In times of limited war such as the Vietnam conflict, the Persian Gulf War, and especially the war in Iraq, the nation’s economy as a whole was not adjusted to support military operations. Manufacturers in defense industries saw some increased profits and concurrently required additional labor to meet the military’s demands, but in general, these wars had fewer repercussions on the national economy than had the global conflicts of the first half of the twentieth century. One industry, however, was notably affected by U.S. military involvement in the Middle East. America’s demand for oil had risen sharply by the 1990’s; therefore, threats to supplies anywhere in the world influenced the bottom line of global energy companies headquartered in the United States—and these firms ultimately passed along increased costs to American consumers.
Since the 1990’s, several changes in the government’s management of military operations have had notable effects on American business. For example, one group that saw significant increases in government work were those willing to provide services in the combat zone. Firms specializing in food service, construction, and security were granted sizable contracts to perform functions formerly managed by the military, thus freeing up soldiers to carry out their principal combat functions. Accusations that these firms charged excessive rates or were awarded highly profitable no-bid contracts led to political scandal and created a sense of distrust toward big business in many Americans.
At the same time, virtually every business in the country felt the effect of the Department of Defense’s policy to rely more extensively on National Guard and Reserve troops to augment active-duty units in time of conflict. For both the Persian Gulf War and the Iraq War, thousands of citizen-soldiers were called to active duty, forcing employers to either find temporary replacements or manage without them. While the impact of this policy was fairly mild during the Persian Gulf War, the extended need for combat and support troops in Iraq and Afghanistan after 2003 resulted in multiple call-ups for many reservists, often for as much as a year at a time. Their employers were left in the unenviable position of having to make other arrangements to ensure that business operations continued smoothly. Industries relying on skilled workers such as computer technicians, law-enforcement professionals, and medical and legal personnel were especially hard hit.
Brandes, Stuart D. Warhogs: A History of War Profits in America. Lexington: University Press of Kentucky, 1997. Analyzes the involvement of various businesses in wartime, concentrating on tendencies of business leaders to generate income from supporting mobilization and efforts of government officials to control both production and profits.
Conner, Valerie Jean. The National War Labor Board: Stability, Justice, and the Voluntary State in World War I. Chapel Hill: University of North Carolina Press, 1983. Detailed study of the relationship between the federal government and the business community during World War I. Explains how the government controlled a number of industries vital to the war effort and redirected production to support the armed forces.
Gropman, Alan L. Mobilizing U.S. Industry in World War II: Myth and Reality. Washington, D.C.: National Defense University Press, 1996. Examines the federal government’s efforts to mobilize for war, focusing on activities to direct businesses to produce materials needed for military operations. Includes appendixes detailing production of war-related items and a list of government agencies involved in managing resource acquisition and allocation during the war.
Koistinen, Paul. Arsenal of Democracy: The Political Economy of American Warfare, 1940-1945. Lawrence: University Press of Kansas, 2004. Discusses efforts to mobilize the United States for war against the Axis powers. Includes a discussion of the government’s interactions with and control of key industries capable of producing weapons and supplies essential to the war effort for the United States and its allies.
__________. Beating Plowshares into Swords: The Political Economy of American Warfare, 1680-1865. Lawrence: University Press of Kansas, 1996. Explores the relationship between the government and business during the colonial period, the American Revolution, the War of 1812, the Mexican War, and the American Civil War.
__________. The Military-Industrial Complex: A Historical Perspective. New York: Praeger, 1980. Explains the emergence of the military-industrial complex during and after World War II; traces its roots to America’s earliest national conflicts. Provides a brief summary of government-business relationships during periods of conflict from the American Revolution to the Cold War.
__________. Mobilizing for Modern War: The Political Economy of American Warfare, 1865-1919. Lawrence: University Press of Kansas, 1997. Traces the growing interdependence of the federal government’s military branches and certain businesses from the Civil War through the Spanish- American War and World War I. Explains how the government organized to fight overseas.
See also: arms industry; French and Indian War; Iraq wars; Korean War; Spanish-American war; Vietnam War; War surplus.
Arms industry: The Cold War Era