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.

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.

Government Controls

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

Later Wars

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.