Why the Allies are Losing

This week a telling document was added to the tragic literature of hindsight. In a dissection of Allied war economics ("Blood, Toil, Tears & Sweat"), FORTUNE for July tots up the assets and liabilities of Britain and France and their empires, points up their strength and weakness for totalitarian war. Written before the final collapse of France, it helps explain why that collapse occurred.

Most startling fact exposed: even before war began, the incalculably rich British and French empires were operating at a deficit, had to pay for part of the goods they imported out of their accumulated capital. In the "good" year 1937, FORTUNE estimated that this deficit (imports not balanced by exports, shipping, interest and dividends, tourist expenditures and gold production) amounted to $768,800,000. Only Canada had an export surplus (including services), and that amounted to only $73,200,000. For 1940, FORTUNE estimated that the combined empires, "like a run-down family selling off its heirlooms," would need to draw on capital assets to the extent of $2.3 to $2.45 billions.

To swing this mounting deficit, the Allies (including Belgium, The Nether lands, their possessions and Norway) had an estimated total in gold and foreign in vestments of $24,475,000,000. Upwards of half of their investment is now in belligerent areas, of doubtful liquidating value.

But their quick assets in the U. S. alone were sufficient to last them four years at the 1940 deficit rate. Against an enemy "strong only in heavy industry and in will" they had, in addition to this accumulated fat, control of trade routes over which their empires could transport:

> Food and to spare for Britain, except for maize and, to a lesser extent, sugar.

> Iron and coal enough to allow for considerable export surplus.

> A large part of their petroleum needs, so long as the Mediterranean was open; thereafter tankers enough, with Norway's and Holland's added, to make up their needs from Allied-owned Western Hemisphere production.

> Strategic materials to burn. The Allies controlled about one-quarter of the world's copper, more than half its rubber, about 40% of its tin, one-third its zinc, practically all its nickel.

> On the economic front, Germany had only one great advantage which can be statistically measured: heavy industry.

Allowing for full use of Czech, Polish, Austrian and Luxembourg steel works, the Nazis could produce perhaps 35 million tons of steel a year, almost a quarter of the world's capacity (perhaps 30% of the world's capacity including France), against Britain's 10%. When the war began Britain was still taking 30% of her machine-tool imports from Germany. British buying in the U. S. (producer of half the world's steel) could overcome this discrepancy if there were time. But halfhearted Allied approximations of totalitarian economic control, and futile attempts to preserve empire trading customs for a post-war world, used up time when the Allies had it. Now time works for the Nazis.

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