THE PRIMROSE PATH

It was 9 a.m. on Aug. 16, 1945. In the Philadelphia plant of the Edward G. Budd Manufacturing Co., greying, husky Eugene Beuttel and his partner, Samuel Daniels, worked at a long assembly line. On it, fins for 500-lb. bombs moved slowly along. As they moved, Beuttel and Daniels welded the fins, in an electric blue blaze of light. Suddenly the line stopped moving. A foreman's voice shouted an order.

Obediently, Beuttel and Daniels picked up their welding torches. With the rest of the bomb makers they reported to the company's employment office and were assigned to another assembly line. In a matter of minutes they were at work again--welding automobile bodies. Twenty-four hours later, Budd's first auto body in four years moved off the line.

In small, this was the story of business in 1945. Not all reconversion could proceed so swiftly or dramatically. In some plants it was the work of weeks, in others the work of months. For all business that had to convert, it was a period of upheaval, like the period of conversion to war. But there was a difference.

The U.S. economy had spent three years converting to war. It has had only months, as yet, to reconvert to peace. How long it would be until peacetime production reached its full stride no man knew. Miracles of peacetime production to match the miracles of war production had still to be achieved. But the first crisis of converting to peace had been overcome more swiftly than the first crisis of converting to war.

As the year ended, the U.S. was again in the midst of a major economic adjustment, of a new stage of industrial evolution proceeding so swiftly that it might better be called revolution. The nation was baffled and dismayed by battles at the economic barricades, by sniping from the housetops. No one could accurately foretell how or when the economic upheaval would end. But already a new set of economic forces, the demands of peace, were giving the economy a new shape. It would not be the shape which the nation and its businessmen had known.

In Time of War. The shaping lay in the mechanics' hands of the men who had shaped the wartime economy. They had shaped it to turn out 297,000 combat planes, 86,000 tanks, 41,000,000,000 rounds of ammunition. They had also translated a theory of abstract physics into a practical weapon so efficient that it outmoded all other tools of war: the atom bomb. They had also planned for peace.

Businessmen had pored over blueprints of new plant layouts; they had moved toy men and machines in toy plants; they had tailor-made new models of autos and washing machines in secret rooms, hidden from the prying eyes of competitors. In Washington, the planning had been an off-again-on-again affair. It was off after the Battle of the Bulge, on at the Battle of Germany. Hastily, WPBoss Julius A. Krug had unwrapped the Government's overall plan. In its broad outlines, it was a plan to reconvert cautiously, to pluck the web of controls from industry a strand at a time, allocate materials, fix production quotas for the period between VE and V-J days. What businessmen said about this privately was often unprintable. They did not want to be led from war to peace; they wanted to pick up the ball and run.

In April, when the Third Army swept southeast through Bavaria, and the Allies squeezed Germany in two, they got part of their wish. The armies moved too fast for the planners in Washington. The cutbacks came in a downpour; in two weeks the Army ended a $200,000,000 ammunition program, dropped plans to build twelve tank plants, announced that Willow Run would close.

Prepare for Peace. So plans for cautious removal of controls were scrapped; if Washington was not ready for reconversion, industry was. WPB handed out priorities for new machines for civilian goods, for new plants. "Cap" Krug himself, who had once hankered for tight controls, announced: "The danger confronting us is that we will overlook the natural resilience of the economy. Temporary dislocations are inevitable. We must not be stampeded into elaborate controls."

Yet he had done some overlooking himself. On July 1 he gave the auto industry the go-ahead to make cars. Same day, Ford Motor Co. rolled its first car out of the Rouge plant. A slow trickle of cars, flatirons, vacuum sweepers began. General Motors' Moraine City plant, which had been making 6-29 propellers, pushed out its first refrigerators. WPB was still wondering how much reconversion would be permitted before V-J day when the bomb dropped on Hiroshima. Next week, the armed services sent 30,000 telegrams, canceling the bulk of war contracts. For industry, the war was finally over.

The Rough Road. So, surprisingly, was most of reconversion. And the Cassandras were proved wrong. They had predicted 8,000,000 jobless. Yet in September, when the high point of the reconversion layoffs was reached, only 1,650,000 men were out of work. There was still a manpower shortage.

Next month, industrial production hit its low for the year. The Federal Reserve Board index, which had been at its 1945 high point of 232 in February and March, hit an October low at 163. Then production began to climb, and in spite of strikes recovered to nearly 70% of the wartime high before the year's end. Nor did anything disastrous happen to the economy when federal spending plummeted. The economic barometers went down, but they were not jarred enough to fall off the wall.

Government spending had dropped as fast as anyone could reasonably expect, from $8 billion a month last May to $3 billion a month in December. There was even talk of something which the U.S. had not had in years, a balanced budget. But those who could see that in 1945 were farsighted. Yet the drop in federal spending had failed to halt the tremendous momentum of the economy. It rolled on like a great water wheel, gushing out money. It rolled into retail stores, movies, bank accounts. And much of it rolled out again to gas up the gaudiest Christmas spending spree in years. Yet, as store shelves were swept clean, there was little, as yet, in the cupboard to fill them up again.

There was no outpouring of goods. Much of the work that industry was doing was to prepare for production and refill the pipelines to consumers. Example: 298,000 refrigerators had been produced, but 150,000 of them were needed for display in showrooms. The next 298,000 will be a different story.

The year which had begun in the certainty of war ended in the confusion of paradox.

The number of jobless, 3,500,000 at year's end, was swelling week by week; yet jobs went begging because no one would take them at the low wages offered. The earnings of corporations dropped lower than they had been since 1942, yet Wall Streeters boomed the stock market to the highest peak in seven years. The repeal of the excess-profits tax, which had been blessed as a spur to production, was being damned by consumers and cartoonists as one reason goods were being held off the retail market till the new year.

The Primrose Path. The beginning of 1946 looked deceptively like the entrance to a path of profit. In bonds and savings accounts, U.S. citizens now have some $130 billion, and they are eager to spend much of it. Even the conservative estimates of public demand seemed fantastically high.

At best, U.S. automakers never made as many as 5,000,000 cars a year. Yet now there was an estimated demand for some 6,000,000 cars a year for the next few years.

Washing-machine manufacturers, who had never made more than 1.9 million a year, now must set their sights on 2.5 million a year. It was the same story all down the line, from suits to soap flakes, there was overwhelming demand. Loudest of all was the demand for housing.

No more than 937,000 houses have been built in any year of U.S. history. Now there is an estimated demand for 16,000,000 units.

The public not only needs these things; it also has the money to buy them. In buying them, it will create prosperity and thereby more power to buy. On this charming primrose path what mantraps were waiting?

The most immediate trap was that the nation may not prove able to organize the work that it needs and wants done. Having accomplished a superlative job of organizing the work of reconversation, the U.S. might seem certain to succeed in the task that lies ahead. Yet on at least two scores there was reason at 1945's end to doubt how well the work will be organized.

Mantrap No. 1. The opportunity to building 16,000,000 houses (the accumulated deficit of the war years piled on the years of depression) may prove a liability. For in the building-materials industry, neither management nor labor, with their high rices and restrictive preactices erected as self-protection, is prepared to build fast of efficiently. And neither of them yet seems aware of the magnitude of the job required. If they built at the peak boom rate of 937,000 houses a year, the 16,000,000 houses could be built in 17 years--but meantime practically all the other houses in the U.S. will begin collapsing of old age.

Just to stand still--to preserve the present housing shortage without allowing it to grow worse--the U.S. will need to build far mroe than 937,000 houses a year. If the U.S. is to have the units which it needs, then approximately 1,290,000 houses will have to be built each year as replacements (assuming an average life of 30 years per house). If the present shorage is to be made up in 20 years, the average number of houses built will have to be around 2.9 million for the next two decades. Building labor, with its featherbeding practices and limitations on union membership, is not keyed for such an effort. Neither are the makers of brick, the hewers of lumber or other manufacturers. Neither are private builders or Government planners.

The U.S. is no more prepared to build 2.9 million houses a year than it was prepared in 1940 to build 50,000 planes a year. A national effort was required to accomplish the plane program, and the same will obviously be required for housing. As yet, the effort has not got under way. The required size of the effort has not even been recognized.

But if the work on housing is not pressed, the people who might live in them will be without homes, and the people who might build them will be without jobs--and so will many others. For there are factories today which cannot operate because there are no homes for workers, there are other factories which cannot be built if construction is too difficult or costly.

If the U.S. is not able to organize the job of building homes, the primrose path will be only a bath of briars.

Mantrap No. 2. But the biggest job of organization is not the bringing together of brick and mortar. It is the far more complicated matter of bringing together management and labor. A growing series of strikes, particularly a steel strike, would hamstring production.

The argument that industry should pay higher wages because it had made a net profit of $37 billion during the war made no more sense than an argument that labor should take less because it had been paid $405 billion in wages & salaries. Both had profited from the war.

More pertinent was the argument that labor should be paid more in accordance with its increased productivity. If labor would guarantee more productiveness, particularly by offering guarantees against wildcat strikes, featherbedding, etc., then higher wages would be well justified.

But if the U.S. did not find means of bringing management and labor to agreement, the unfilled demand for goods would become a liability. The present threat of more inflation would become a reality.

Over the Horizon....When the U.S. begins to fill its needs by production, its conversion problems will still be far from over. The materials and the manpower of the nation will have to be drastically reallocated. There will not be enough steel to go around, nor enough lead, nor lumber, pipe, tiles, brick.

A New Day? Compared to the distribution of 1939, the reallocation required in 1946 may be almost as far-reaching as it was in converting to a war economy. The reallocation in 1942 was accomplished by Government fiat--by issuing priorities, by rationing, etc. The U.S. would not stand for such re-allocations in peacetime. The postwar reallocation of the nation's resources must mostly take place through adjustments in prices.

To meet a new schedule of national demands, new relationships of prices, costs and profits will have to be worked out. What price 1,600,000 new houses? What price 1,000,000 bunches of red carnations?

Production alone could furnish the answers. If industry did the job in peace which it had done in war, then the answers would sound pleasant to businessmen. They would have their profits. And labor might well have a larger slice of the national pie. There was no reason why industry could not do the job as long as it realized the size of the job to be done.

If industry did not do it, then it might find the state trying to do it. Because it had been ready to pick up the reconversion ball, industry had shaken off the bulk of the wartime controls far faster than optimists had expected. Now it could shake off the rest by doing the job, or have more controls slapped on because it had failed. There was no reason why it should fail.

In technique, in its wealth of new plants and in prestige, industry was never better equipped. It had performed superlatively in doing the first part of the job, reconverting back to 1939. Now it must convert to 1946.

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