How Free Enterprise Saved Civilization?

This article originally appeared in the May 21, 2012 issue of Forbesmagazine.

Freedom’s Forge: How American Business Produced Victory in World War II—by Arthur Herman (Random House, $28). This fantastic book does two big things. First, it tells the largely unknown story of America’s extra­ordinary output of war materials during World War II—output that almost defies imagination. By war’s end the U.S. had manufactured about 70% of all Allied war material, with U.S. factories outproducing everyone else combined.Ford Motor Co. produced more than Benito Mussolini’s entire Italian economy.

Amazingly, historians gloss over America’s accomplishment, assuming that because we were the world’s biggest industrial country that it was no surprise we could turn out so many planes, ships, tanks, rifles, ammunition, uniforms, etc. However, this miracle didn’t just happen; it was the result of the extraordinary leadership of a handful of American businessmen. Freedom’s Forge focuses on two of the most important, William Knudsen and Henry Kaiser. World War II’s industrial mobilization was in stark contrast to our World War I experience, which was largely a flop.

The second thing this book does is emphasize that it was the practice of free enterprise that was behind these production miracles. Countless companies “carried the spirit of free enterprise like a revitalizing force, with the power to meet the needs of total war without losing their identity or creativity or power of self-renewal. … Human ingenuity could solve problems that government planning or rationing could not.”

The eve of World War II found our industrial base badly run-down by ten years of the Depression. Our military barely matched that of the Netherlands. For example, in 1939 George Patton had to buy spare parts from a Sears & Roebuck catalogue in order for his tanks to be able to perform their maneuvers.

FDR’s economic policies were a disaster, but civilization owes him an enormous debt of gratitude for his foresight in 1939–41 in recognizing that while Americans were overwhelmingly opposed to entering the war, the U.S. had to be prepared. This meant we had to undertake major efforts to build up our own forces, as well as to be in a position to supply those who were fighting the Nazis, principally Britain.

FDR first called on Bernard Baruch to take up the job he’d had for industrial mobilization near the end of the First World War. Baruch demurred. FDR then asked him for the names of three other industrialists who were capable of doing the job. Baruch replied: “First, Bill Knudsen. Second, Bill Knudsen. Third, Bill Knudsen.” Knudsen had succeeded Alfred Sloan as CEO of General Motors a few years before. As Herman relates, Knudsen, an immigrant from Denmark, was both an extraordinarily gifted engineer and a highly effective administrator. His name is unknown today, but this book vividly illustrates why he deserves to be right up there with our most prominent generals, admirals and political leaders in enabling the Allies to win the war.
The other hero of this book is Henry Kaiser, who achieved exalted status during the war, but like Knudsen is also barely known today. Against formidable odds and obstacles these two men achieved jaw-dropping results.

Knudsen’s Office of Production Management had no formal authority. Everything it achieved before Pearl Harbor had to be accomplished through persuasion. Amazingly, most executives of our big companies cooperated, as did their thousands of suppliers, a tribute to the extraordin­arily high respect these industrialists had for Knudsen. At the time Pearl Harbor was attacked our industrial machine was light-years ahead of where it had been in 1917, in regard to meeting wartime needs.

Knudsen had the perfect background. Soon after he came to the U.S. he found himself working with Henry Ford. More than anyone else, including Ford, Knudsen developed the moving assembly line that turned Ford Motor Co. into the largest automobile manufacturer in the world. Ford began to see Knudsen as a rival, and not long after World War I Knudsen quit.

Alfred Sloan, who had been put in charge of a struggling GM, brought the big Dane onboard. Knudsen immedi-ately overhauled the production facilities of moneylosing Chevrolet. It was Knudsen who pushed Sloan to enact the annual model change, showing how production facilities could quickly be retooled. At the time, Ford outsold Chevy 13 to 1. Within a few years Chevy was ahead.

New Deal officials, liberal politi­cians and powerful union leaders distrusted Knudsen. He didn’t get good press, either. Shortly after the attack on Pearl Harbor an associate brought Knudsen a newswire report—Roosevelt had fired him. Washington heavyweights, including the War Department’s esteemed boss, Henry Stimson, and American manufac­turing leaders were appalled. Stimson and others forced the White House to do something unprecedented: Knudsen was promptly made a three-star general and put in charge of prodding and facilitating the production of armaments.

Henry Kaiser was unlike Knudsen in that he had an almost Barnum-like flair for promotion and public relations. At a young age Kaiser went into the nascent highway construc­tion business. He had a winning personality and got along famously with politicians, which helped him to land numerous contracts, first in Canada and then in the U.S. Kaiser was a construction prodigy of bound­less energy. Time and again in the U.S. and overseas he would finish his projects ahead of schedule and under budget. Pulling other construction companies together to work with his own, he won the contract to build the immense Hoover Dam, an awe-inspiring engineering feat.

When war broke out in Europe, Kaiser quickly went into the business of building planes and ships, even though he knew nothing about either industry. The legendary Liberty ship became the workhorse for transporting war materials around the world. Prior to the war it took 220 days to build such a vessel; Kaiser cut the time to 10 days. He also got into the business of building aircraft carriers, repeatedly accomplishing the seemingly impossible.

Politicians, commentators and our military leaders had no conception of the enormity of converting factories from civilian production to war materials, nor did they understand the immense logistical challenges involved in building new facilities and turning out equipment, arms and ammunition in prodigious quantities. It’s easy to say, “Build planes in an assembly-line manner, like cars.” A typical car in those days had 15,000 parts. The B-24, which Ford eventually produced in pro­digious numbers after endless difficulties, had 488,193 parts, which broke down to 30,000 components. The B-29, a plane conceived in the 1930s as a dreadnought in the sky, was a horrific nightmare to bring to reality. The engines alone required 900 modifications. The B-29 was slated for cancelation before Knudsen was brought in to save it. Doing so broke his health.

The flexibility that Knudsen and Kaiser constantly pushed enabled America, once hostilities ceased, to make a rapid conversion back to civilian production.

So why is it that the astounding achievements of American business during World War II have been virtually erased from popular imagination? Precisely because it was business, not government, that performed the miracle. As Herman puts it, “Those … left out of the major decisions about the economy during the war—New Dealers and others—took their revenge by seizing control of the historical message. Business had had nothing to do with the miracle of war production, went the narrative. … It was the vast resources and extended reach of the federal government all along.”

Thankfully Freedom’s Forge sets the record straight, comprehensively and compellingly. Free markets, not big government, are the true source of America’s incredible strength. They enabled us to win World War II, thereby saving Western civilization. And since the war free markets have produced an endless cornucopia of new products and services—and will continue to do so as long as they exist.

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source: Forbes.com

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