We face then the question as to how to retain the advantages of high levels of objectives as an important stimulus towards a greater war effort; and remove the disadvantages likely to arise if the high goals set are not realized and a lack of balance in the results appear.
3. Goals and Balances
The answer to this question lies in a better definition of what production goals really should be. The formulation of what it is that agencies concerned with the war effort are trying to achieve is the paramount task, and one that has to be carried through before any planning can be undertaken.
Production goals are statements of what final products are needed, when they are needed, and where they are needed. The what, when, and where cannot be disassociated from each other. But, if we can fix the when and where, the question of what can be answered in several ways, ways directly determined by the problem of feasibility and balance.
I see no reason why the authorities concerned with formulating the needs for military production should not be asked to formulate them with specific time objectives (and specific place objectives in cases where transportation may be an important problem). Further, there is no reason in the world why quantities needed at specified dates and places should not be determined for a minimum program, an intermediate program and a maximum program. The problem of balance is one that can best be solved by this differentiation among goals at various levels.
This suggestion may seem to run into two difficulties. The first is that the existence of several sets of goals, of which some are materially lower than others, may have a depressing effect upon the war effort in that people might be too easily satisfied by the attainment of minimum goals. In other words, the incentive towards a maximum effort might be lost if any set of goals short of the maximum is at all formulated. This, however, seems to be an organizational problem which should not be too difficult to solve.
There is no reason why the various bases for action, such as appropriations from Congress, plans and schedules for production, etc., should not be worked out for the maximum goals. There is no reason why the restrictive mechanisms intended to shut off non-military production should not be brought into operation in order to attain maximum goals. In short, there is no reason why the whole effort should not be organized in such a way as to permit the attainment of maximum goals if they are at all attainable. Only one difference should be permitted as compared with the situation that would prevail were we to have a single set of maximum goals; the scheduling of the productive effort should be such that if the maximum goals proved unattainable, the composition of the output of military items during any significant period of time would still be balanced.
The possibility of this happy result is denied by a second objection that might be made to the suggestion of distinguishing sets of goals. It will be claimed that the suggestion does not solve the problem since for a number of items in the military production program planning has to be done far in advance; unless commitment for the higher goals is made at the very beginning, the possibility of attaining them may have to be given up from the start.
It will be argued, for example, that if the maximum goals call for the production of X thousand heavy bombers, whereas the minimum goals call for the production of X minus A heavy bombers, unless facilities are planned in advance for the production of the differential amount of A bombers, you are not likely to get them. On the other hand, if you do commit yourself to this high goal in the way of new facilities, you run the danger of imbalance associated with setting goals that are impossible of attainment.
An answer to this problem lies in a more careful consideration of the goals. All goals, whether minimum, intermediate, or high, should presumably be attained as quickly as possible. But the minimum goals should be the more pressing ones; further extension beyond these minima should comprise components in military production the need for which is less pressing. If this is the case, then the problem of planning of facilities or of complements may be at least partly solved by saying that:a. All efforts are to be directed to the most prompt realization of minimum goals.
b. Such efforts imply maximum utilization of all resources not yet engaged upon the satisfaction of minimum goals.
c. All commitments to new facilities can be accepted only if they are needed for or do not interfere with the satisfaction of minimum goals. A similar set of criteria can then be applied to the planning of such net additions to minimum goals as would convert these into intermediate goals; and, similarly, with the still further additions that would convert intermediate into maximum goals. Thus the whole question can be resolved in terms of planning specific as to amounts, types, dates, and places; and formulated in terms of basic preferences or priorities.
This will place a difficult task upon the agencies concerned with formulating military production goals and requirements. And it may be granted that no exact formulation of this type, without a substantial margin of error, is feasible. Yet, I don’t see how we can plan without having such blueprints at hand; and it seems extremely important to urge the need for such blueprints and the utmost value of efforts directed towards securing them.
4. Work on Feasibility
In the past the analysis of feasibility developed in the Statistics Division was concerned with raising our sights—i.e., with demonstrating the possibility of much higher goals of military production. These resulting estimates had the advantage of being both fairly reasonable approximations of what could be done towards intensification of the war effort. It may seem rather fanciful, but all estimates concerning objectives have that tendency; within certain limits they exercise an effect that tends to make them come true.
Recently, the analysis of feasibility has been employed to suggest a need for limiting military objectives rather than extending them. And if the results of the analysis are taken seriously, they will eventually result in the restriction of the military program and hence of military production. The danger is that they may be restricted to levels below ones that might have been attained were the original goals left at a high level. Granted that the problem of balance is exceedingly important, there are several basic difficulties in our analysis of feasibility that would lead me to urge that a call for reduction of a single set of goals be immediately replaced by a call for several sets of goals of the type indicated in the preceding section.
Our feasibility analysis rests upon four types of approaches:a. The over-all analysis in terms of national income or gross national product and its apportionment
b. The raw materials
c. The industrial facilities
d. The labor supply.
All of these approaches are couched in rough and general terms.This means that our feasibility tests may not be critical enough insofar as they do not deal with the problem of specific shapes, forms, skills, types, sizes, etc. On the other hand, other defects might yield too pessimistic a picture. Of these, the basic defect is that our analysis is almost always couched in terms of conditions as of a given date and place, and therefore does not allow enough for the possible adjustment and dynamics of the situation under conditions of an all-out effort. In our over-all approach, we guide ourselves largely by either: the expected size of the national product and the maximum share of it that could be devoted to military production, or the current rates of total outlay of military production and the realistic expectations of their possible rise [emphasis in original].
Either way of attacking the problem yields results subject to wide margins of error. In the first approach the all-important problem of unit costs enters, with the margin of error in it alone as high as 10 to 20 percent. If one adds the uncertainty in the forecast of the total national product (which maybe in error on the negative as well as on the positive side) one does not feel too sure about conclusions that may be derived on this basis. Similarly, the extrapolation of monthly out-lays or volumes of output is based largely upon hunches. True, the analysis by both of these approaches may prove quite accurate as a forecast of the
volume of output that could be attained. There is considerable inertia in the movement of the national product and in its distribution among various components so that one can gauge with some degree of reliability the range of its change over the near future.
The translation into raw materials raises a number of questions that crucially affect the results. The specifications used are not firm, our bills of materials may be in error, our estimates of civilian requirements are exceedingly vague, our measures of supply pay inadequate attention to existing inventories. On all of these counts shortages today may disappear tomorrow, because of change in the specifications, because actual consumption of raw materials in military production may turn out to be much lower than estimated, because the civilian requirements are cut under pressure.
Here again our analysis is of considerable value in suggesting the existence of a problem. Yet, it would be dangerous to use its results as an unequivocal measure of the existence of an insoluble problem; and we have tended to use them in this way in asking for a review of military requirements.
The analysis in terms of industrial facilities yields even less firm results. Estimated requirements for industrial facilities do not take sufficient account of conversion possibilities; of the inadequate spread of work among firms; of the possibility of raising rates of utilization of already available equipment.
Except for specific bottlenecks, the industrial facility problem cannot by the nature of the case be crucial. We have a large stock of industrial facilities which, on short hours, has turned out a huge national product. Presumably an increase in the intensity of utilization by raising the number of shifts, etc., can serve to raise enormously the productive performance of our complex of industrial facilities. True, there are some special cases, particularly those where facilities have always been operating around the clock, in which we may encounter serious bottlenecks that cannot be easily broken because of shortage of time. But certainly our analysis of the industrial facilities has never reached the point of demonstrating a case beyond doubt for the restriction of a set of final military objectives such as the one given for 1942 or for 1943.
The analysis of labor supply has always been in fairly rough terms. It has been based too much upon a general ratio between the additional dollar value of military production and increase in employment required. It also seems to me that the estimates of maximum labor force available were firm only in terms of the institutional framework of today.
In sum: our feasibility analysis has not been without value. It served to point out the problems that were likely to be created if the programs and objectives were pursued under the present conditions of social organization, specification, labor organization, etc. But, while it served to indicate the existence of problems under the conditions, and thus to direct attention to the solution of these problems, it would be dangerous to use its results as proof of absolute impossibility. So long as the lack of feasibility demonstrated was relative rather than absolute, its results should not be used to force downward revisions of military objectives.
But they can be used directly as a basis for asking the authorities responsible for military requirements to formulate them in programs of different magnitude. In this formulation the maximum would be the largest amount that seems to be needed, compatible with military utilization possibilities. Quite obviously this maximum is not going to be infinitely large. The limitations of supply of human skill for the use of instruments of warfare will impose definite limitations upon what the armed services can call for in such a maximum. We should be careful not to add to these limitations other restraining factors that might have a depressing influence on the war effort.
5. Positive Steps
If the arguments above are at all valid, both the Statistics Division and the Planning Committee ought to consider immediately what type of military requirements are needed for the better organization of the war effort. Obviously these requirements should be specific with reference to type, amount, place, and time; and should distinguish especially those minimum goals that comprise the most pressing and the most indispensable items; from extensions that are of the lesser order of priority and still further extensions that might bring the program to its maximum. Clearly, requirements formulated are needed from one and every branch of the armed services, as well as from such other agencies as Lend-Lease and the Maritime Commission. The objectives or requirements should be stated not only in terms of physical units but in dollar values, with the dollar values based upon a recognizable basis of reckoning. Furthermore, these sets of requirements will be changing. Indeed! with the fluctuating fortunes of war, it would be suicidal to demand a rigidly fixed set of objectives. But given the changes (which should be kept within narrow limits), it should be the responsibility of the armed services to supply data not only on the changed requirements but also on the present commitments and schedules, so that at any given time a comparison of appropriations, requirements, commitments, and schedules can be made.
If the various sets of requirements are to be formulated and the feasibility of extensions and the needs for complementary parts and balances reviewed, we need a mechanism by which a continuous integration of results submitted by the various branches of the armed services could be attained with the information and planning for the national economy that are the responsibility of the WPB. It seems to be extremely wasteful for the armed services to prepare plans and formulate requirements without apparently much relevance to feasibility; and then for the WPB to come back with feasibility analysis that may make for further revisions of the military requirements program. What is needed is continuously inter-related planning on the part of both the armed services and related agencies on the one hand, and WPB, on the other.
What is needed is a continuously operating Resources and Requirements Planning Committee. Whether or not it can be established, I sincerely think that we should take the initiative in asking for formulation of production goals (or requirements) of a character quite different from the ones we have been getting; and that the task of planning for balance at different levels of total magnitude of attainment be imposed upon the agencies that are responsible for formulating the requirements.
APPENDIX 2
The First Feasibility Study (14 March 1942)1
PLANNING COMMITTEE DOCUMENT 31
March 14, 1942
Simon Kuznets
Feasibility of Military Production 1942–1943
Section I. Gross National Product and Military Production
National income for 1941 was estimated by the Department of Commerce at 94 1/2 billion dollars. This total, however, does not describe adequately the fund upon which we can draw for real resources for military production. It is too large in that it includes profits from revaluation of inventories to the tune of $3 billion; and excludes consumption of durable capital sustained in the process of production, which can be estimated (excluding depreciation of owner-occupied residences) at $8 1/2 billion. With further adjustments for special emergency and contingency reserves and bad debt allowances ($1 1/2 billion), gross national product for 1941 can be estimated at $101 1/2 billion, exclusive of net additions to governmental inventory of assets which may well amount to several billion.
Similar measures of gross national product for 1939 and 1940 are $80 and $86 1/2 billion respectively. In 1941 prices the rough totals of gross national product for the three years are then as follows:
What increase, if any, maybe expected in gross national products as between 1941 and 1942? The answer can only be guessed at. I believe that we shall not be over pessimistic if we assume that the rise in gross national product from 1941 to 1942 will equal the percentage rise from 1940 to 1941. True, there will be a substantial rise in government outlay on military production and a drive to expand the volume of the latter. But, on the other hand, there are restrictive factors that did not operate in 1941: (a) Shortages of critical materials; (b) time and efficiency loss in conversion from peace time to war uses of large blocks
of industrial facilities; (c) Shortage of skilled labor and dilution of skill.
If then we allow: (1) an addition to gross national product of 1941 of about $5 billion representing net additions to such government assets as structures, military equipment, lend-lease, stockpile, etc. (additions in excess of deficits); (2) an increase from 1941 to 1942 of between 10 to 15 percent—we obtain an estimate for 1942 of gross national product ranging from $116.7 to $122.5 billion (as compared with $106.5 in 1941). Let us accept a rough figure of $120 (in 1941 prices) in further discussion.
How much of the gross national product can take the form of military production (of hard items) and construction? The answer depends upon the resources available for such production; and these can be surmised by studying the composition of the gross national product in 1941. According to the estimates of the Department of Commerce, the gross value of durable consumers goods in 1942 amounted to $11.2 billion, of producers’ durable commodities to $14.0 billion. However, these values include distributive costs. The proportion of the distributive costs in consumers’ durable amounted to 40 percent of the final value product and in producers’ goods to 15 percent. For construction, the adjustment for distributive costs is not made since construction values in the military program are likely to include distribution charges of dealers in construction materials. Excluding distributive costs, the total output in 1941 of durable commodities and construction amounted, therefore, to $29 billion. This total excludes, however, the value product of Government arsenals and shipyards for which I have no estimates at present.
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