Enough Steam?

U.S. industry was converted to war production in record time by a simple expedient: the Government told manufacturers to produce and it would pay them prices that would ensure profits. What kind of expedient is going to power reconversion? Or will there be none?

Most manufacturers will be eager to get back into peacetime business. Most have reserves to pay for the actual costs of the changeover. But is there going to be enough prospective profit to speed production after the changeover? That was the issue raised last week by the National Industrial Conference Board. It took OPA to task for trying to fix prices of civilian products at 1942 levels, or only a shade over them. This price policy, said the Board, may do exactly what OPA does not want. It may hamstring big-scale production of the civilian goods which would relieve the present pressure on prices.

The OPA policy, said the Board, is based on three mistaken assumptions: that 1) labor productivity has so increased during the war that "current wage rates are justified or desirable"; 2) manufacturers will sell more than in 1941, thereby cutting costs by quantity output; 3) the profit which manufacturers made in 1936-39 is an adequate measuring stick.

Actually, the Board asserted, the weight of evidence is all the other way:

P: N. I. C. B. and Bureau of Labor Statistics figures show that output per man has dropped in many a civilian industry.

P: There is no reason to believe that production will soon be high enough so that manufacturers will make savings by high volume production. ("The automobile industry will not reach the 'break-even point' for eight months after the cancellation of military orders, and full production for 15 months.")

P: 1936-39 profits, in many cases, are not adequate because, for one reason, in that period "more than 50% of manufacturing corporations failed to make a profit."

All these things, said the Board, will combine to squeeze many manufacturers between high costs and low ceilings, to squeeze out incentive to start new enterprises, or expand old. Gloomily the Board concluded: "Unless more realistic pricing formulas are adopted ... a great many will be driven to the wall."

OPA Boss Chester Bowles, who is necessarily more afraid of high-flying prices than of a shortage of goods, promptly answered:

"The first thousand out of any run of typewriters produced will cost about $800 each. Obviously, we can't base our ceiling prices on the costs of these first few units. We have to base them on the volume which industry reasonably expects to produce.

"Nobody knows exactly what the costs of production are going to be as industry gets into full swing. We do know that there's lots more production know-how, more and better plants, and that volume will probably break all records. We are confident that profit margins will be much higher than in 1936-39."

Then he added: "We are prepared to consult with industries continuously . . . and modify our policies as fast as new circumstances make it desirable."

In other words, if steam is really proved lacking, the valve will be turned.

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