Keep From All Thoughtful Men
Page 23
Also, when the program is in excess of feasibility, the work of the Requirements Committee must to some extent be based on compromise and its determinations become much more difficult. Similarly, the mechanisms for distributing materials, no matter how efficient, are likely to bog down when the demands are far in excess of supply.
Finally, when programs are not properly integrated with resources, it is impossible to engage in coordinating and integrating the production of the United States with that of other nations. Until the objectives of the United States are reviewed in relation to feasibility, the work of the Combined Production and Resources Board, as well as other combined boards, must of necessity be seriously restricted.
If such dangers of too large a program are real, the need for continuous check and adjustment is obvious. On the supply side we must continuously review our efforts to expand production and use of resources. On the requirements side we must continuously review the program and its adjustment in the light of strategy, production, and global considerations. At the conclusion of this report we should like to urge upon the War Production Board certain recommendations intended to provide a basis for a continuous check upon and adjustment of the production program.
But before doing so it would be well to indicate why we think the program as it now stands is above the levels of feasibility. In so doing we summarize and supplement the findings of Document 151 [Kuznets’ original feasibility report] in its analysis of the income potential, of the raw materials situation, of the facilities problem, and of the manpower problem. But we would like to emphasize that the findings of the report are only an occasion to raise the broad problem of program determination and adjustment; and that the minutia of its analysis should not obscure the fundamental need for a continuous joint check of the program, both on the side of reviewing the supply effort and on the side of adjusting the objectives to reasonably forward expectations. We turn now to the findings of the report.
For the over-all productive capacity of the nation there is only one common denominator that can be handled expediently, and that is the total dollar value of production. As matters now stand the dollar value of the requirements for munitions and war construction in 1942 aggregate nearly 55 billion. Against this total we have produced in the first eight months of the year slightly less than $26 billion, leaving a balance of more than $28 billion for the remaining four months. The analysis indicates that this residual objective will not be attained by the end of the year by about $7 billion. When the program is broken down as between war construction, including industrial facilities, and munitions production, it appears that the objective for war construction (which is identical with schedules) will be attained. The entire deficit will appear in the munitions category for which the dollar value objective is $40 billion for 1942. A deficit of $7 billion will, therefore, mean a shortage of 17 1/2 percent of the year’s goal in munitions.
For the year 1943 the present requirements for munitions and war construction are given in the report as $87 1/2 billion. There are indications already that this represents an understatement of the true requirements which may now be set at somewhat over $90 billion. If we carry over the 1942 deficiency into 1943 and add it to the objectives for that year, the total in war munitions and construction will range between $95 and $97 billion. If to the total are added such items as pay, subsistence, food for the British, and other miscellaneous expenditures, the total war outlay for 1943 will range close to $115 billion. We may now ask what are the prospects of this program being attained in 1943.
In the first half of 1942 war outlays were at an annual rate of $41 billion and total non-war expenditures at the rate of 107 1/2, showing gross national product of 148 1/2.2 Consumers’ outlay was at fairly high levels, although in terms of 1941 prices it was already below the average for 1941 (by some 5 percent).
We assume that by December 1942 war outlays will be at an annual rate of $78 billion, or 6.5 billion per month, of which 5.55 billion will be munitions and war construction, and a billion in non-munitions. If private gross capital formation—i.e., private gross investment—is cut down to $61 billion, consumers’ outlay to $71 billion (i.e., over 10 percent from their level in the first half of 1942), and we allow $12 billion for non-war Government expenditures, the gross national product in December 1942 will be at the rate of $168 billion.
Let us see now what the program requires in 1943. War outlays are set at 115 billion, of which $97 billion are munitions and war construction and $18 billion are non-munitions. If we assume that private gross capital formation is cut down to $5 billion, non-war government expenditure to $1.0 [billion], and consumers outlay is set at 1932 levels, total non-war expenditures should be $67.8 billion and the gross national product for the year should be at $182.8 billion.
There are several aspects of the comparison between December 1942 and the requirements for 1943 that indicate the impossibility of obtaining a picture such as is shown in the third bar in the chart—viz, 1943 requirements.3 First, in December 1942 war outlays would be at the rate of 6.5 billion. On the straight line progression the attainment of 1943 goals of $115 billion would call for total war expenditures by the end of 1943 of over $12 billion per month, a level that seems impossible (no rise in prices is assumed between 1942 and 1943). Second, if consumers’ expenditures will not decline below the level indicated in December 1942—i.e., $71.5 billion—a cut to an annual tota1 of $52.8 billion implies, again on the arithmetic progression basis, that by the end of the year consumers’ expenditures would have to be at a level of roughly $35 billion—i.e., over 30 percent below the 1932 consumption outlay. Finally, it is clear that the consumers’ outlay, of which services form a very substantial part (between 35 and 40 percent), uses many resources that cannot be diverted to war production.
That the drastic contraction in consumers’ outlay required to establish the level of $52.8 billion for 1943 is beyond attainment is shown by reference to the experience of other countries. On the basis of rough estimates available, it appears that in U.K. civilian consumption plus private gross investment declined from 1933 to 1941 by 18 percent, and from 1938 to 1942 by 20 percent (in constant prices). In Canada, the same total rose from 1938 to 1941 by 21 percent and then dropped from 1941 to 1942 by 10 percent. In Germany, rough data suggest a shrinkage in real volume of civilian consumption by about 40 percent from 1938 to 1942. But a decline required here from 1942 to 1943 (i.e., from $76 billion to $52.8 billion in consumers’ outlay and from $87 billion to $57.8 billion for the total of consumers’ outlay and private capital formation) means a decline of well over 30 percent in a single year. On the other hand, if we assume that the level of $52.8 billion for consumers’ outlay and $5 billion for private capital formation is to be reached only in December 1943 (rather than represent averages for the year), gross national product in December 1943 would have to be at the annual rate of $215 billion. This would represent a rise in gross national product of almost 30 percent in a single year—a feat much beyond attainment for an economy that has already absorbed most of its surplus resources.
Another approach to the 1943 picture might be secured by comparing the distribution of the gross national product here with countries that have had long experience and a long history of active war participation. For the first half of 1942 war outlays in the U.S. formed approximately 27 percent of the gross national product. At the December 1942 rates forecast the percentage rises to about 46 percent. For 1943 the set-up on the basis of requirements would mean that war outlays absorbed 63 percent of the gross national product; and for the December 1943 distribution needed to assure the 1943 total, the percentage of gross national product absorbed in war outlay would amount to 75. Yet in 1942 a similar ratio for U.K. was 44 percent; for Canada, 43 percent; and for Germany, 50 percent.
The Document indicated why we assume the goal of $75 billion for war munitions and construction as feasible. On this assumption the shortages over against cumulative goals of $97 billion will be $22 billion
, or almost 30 percent of the feasible levels. If a somewhat greater reduction of consumers’ outlay appears possible and a somewhat greater intensification of our war effort, the excess over the feasible levels might be cut down to 25 percent. Thus, on the basis of our analysis, the present program appears much higher than its feasible levels; and it is quite possible that with larger bottlenecks appearing in almost all areas of the economy we might fall considerably short of the levels that we characterize here as attainable.
If we turn now to raw materials we may look at the picture shown in the other chart with reference to supply and requirements for carbon steel, alloy steel, copper, and aluminum. In this chart the deficits are cumulative from the last quarter of 1942.4 They show briefly that for carbon steel the cumulative excess of requirements over supply does not disappear until the last quarter of 1943; in IV—1942 it is close to 11 percent of total supply. In alloy steel the situation is much more critical in that the cumulative excess in supply grows through 1943; and the current excess ranges between 11 and 25 percent of the total supply throughout the first two quarters of 1943. Even a more critical situation exists in copper with the excess growing cumulatively to the end of 1943; and ranging on a current basis from 20 to 25 percent of supply. In aluminum the cumulative deficit disappears only by the fourth quarter of 1943.
Two aspects of this materials analysis must be emphasized. First, the estimates are in terms of ingots and, therefore, we must look to bottlenecks in certain shapes and forms. Thus, in aluminum it is not the ingot supply but the supply of certain types of extrusions and forgings that is critical. Second, the fact that the deficits are beginning to be offset for some metals in the second half of 1943 is of help only if we can assume that rates of utilization of facilities can be raised not only in accordance with schedules but also beyond so as to absorb the excess of supply over requirements and offset the cumulative deficits. The question of timing is the most important in judging the feasibility of the program since the program has no meaning except in connection with the time schedule which is attached to it. A delay in balance of supply and requirements in materials to the second half of 1943 means in essence the impossibility of doing the 1943 program, even regardless of those cumulative deficits that do not disappear by the end of 1943.
This element of timing is also exceedingly important in the analysis of facilities. Scarcity of statistical data and difficulties in measuring productivity of industrial facilities limits the analysis. Yet, even in this field, major limitations are indicated. Whereas for the entire eighteen-months period ending December 31, 1943, machine tool requirements are slightly below estimated capacity, there are a great many critical machine tools that will be short throughout the period and many others that will be in inadequate supply for most of the period. This is especially true for the high quality and special type tools. Further, it should be noted that many of the facilities now under way are substantially behind schedule. An analysis of a large sample of facilities indicates that scheduled completion dates for all facilities have been postponed for about 30 percent of all projects with an average delay of about three months. On projects that are nearly complete, over two-thirds are expected to be delayed in completion, with an average delay in excess of four months.
The question as to whether the war production program is feasible from the point of view of facilities can hardly be answered from an over-all analysis. The limitation imposed upon the program on the basis of facilities will be specific rather than general. It is also quite possible that other limiting factors will be more restrictive in character. In general, our conclusion is that for many facilities capacity has proven and will continue to be above expectations. Also, more facilities can be made available for war production through more intensive requisitioning. Finally, it may be possible to convert equipment for less essential war work to more essential war work. This again, however, is a matter of meeting specific bottlenecks very promptly. Despite all these favorable factors there still remains the problem of specific tools for specific purposes and these may continue to limit production in 1943, especially during the early part of the year.
The analysis of labor requirements has been made with the help of such independent forecasts of labor requirements as are available. Based upon a program of war production (munitions and construction) consistent with the feasible levels indicated above—i.e., the levels of roughly 45 to 47 billion in 1942 and 75 in 1943—there will be a deficiency of more than 4 million workers by the end of 1943 relative to the normal labor force. It should be emphasized that in arriving at these conclusions the estimates assume, a total armed strength of 7.6 million by 1943 (this figure being the lowest of those available on the base of authoritative sources). The estimates of the War Plans Division indicate requirements of nearly 3 million more than this total in all armed services by that date. On the basis of this higher figure the deficiency at the end of 1943, if compared with the normal labor force, will be more than 7 million. The potential reserve of labor beyond the normal force is very considerable, including women engaged in home work, persons attending school, older people who may be brought back to labor markets, and others. While the indicated deficiency may be overcome through mobilizing the potential labor force, serious labor mobilization problems will be encountered in accomplishing this task. Here again total analysis may under-state the sum of specific situations. There are certain to be major problems in specific occupations, industries, and geographic areas, serious impacts already being encountered in agriculture, in mining, and in lumber. Further shifts of major magnitude will be required if the manpower needs of the feasible program are to be met. In the metal and chemical industries the labor demand is expected to increase from slightly under 7 million in June 1942 to over 11 million in December 1943.
It thus appears from the data relating to labor as well as to those relating to other productive resources that a major challenge faces us in attaining the problem indicated as feasible above, let alone the achievement of the objectives on the present excessively large program.
Three aspects of this analysis must be borne in mind if a proper evaluation of the inferences is to be made. First, the analysis is in aggregate terms in a sense that it relates aggregate demand to aggregate supply. It should be emphasized that even if total supply and demand balance there is by no means assurance of feasibility for the various specific parts. In other words, specific bottlenecks in machine tools, in labor skills, in shapes and sizes of materials, may well render any conclusions drawn from an over-all analysis too optimistic. Secondly, it is believed that the supply estimates, especially for raw materials, are on the optimistic side and can be validated only under the most favorable circumstances. This again tends to make our conclusions perhaps too optimistic. Third, the requirements stated may also be on the low side because of the general tendency on the part of the various claimant agencies to raise their claims. As the nature of the war unfolds, programs always tend to increase, and it is probable that in the coming months, as battle experience is gained, new demands will greatly exceed reductions through obsolescence and other factors. These three aspects of the analysis, all of which tend to make its inferences as to feasibility perhaps too optimistic, must be taken into account in interpreting its conclusions.
It must be emphasized that the levels of feasibility which we set as desirable represent a marked expansion of war production and a fairly drastic contraction of civilian consumption. It is far from our mind to call for a reduction of a program just to make things easier for people concerned with the war production effort; or allow fat to grow upon the body of the civilian economy. And it is equally far from our mind to place the whole onus of adjustment upon the armed services. But we are honestly convinced that the situation calls for immediate steps in the way of a review of the program, a review which, along the lines indicated above, should be periodic and involve joint action by the agencies responsible for production and by those responsible for program planning.
&n
bsp; Two recommendations flow from the discussion of the broad problem at issue—the specific details of the analysis only serving to emphasize the urgency of action. The first recommendation calls for much tighter production control and scheduling than have been accomplished to date. In some degree this suggestion is gratuitous because of the major attention now being given to this problem. It is our belief that theoretically a system of scheduling, production control, and distribution of materials could be evolved that would operate to yield the maximum of feasible war production irrespective of the size of the goals. In other words, it is possible to conceive a system of scheduling which would insure the maximum output of the most critical items, even though the objectives might be many times what might be accomplished. However, such a system cannot be developed practically until in the program the levels of importance, the “must” part and the “non-must” are clearly distinguished, and until the complexity and decentralization of our war effort have given place to greater simplicity and unity. As matters now stand every war agency, every branch, every section, and every procurement office must of necessity attempt to accomplish its total objective, irrespective of what other more important demands might come first. It isn’t practical to introduce such a complete control so as to deny access to even the least scarce materials to the less essential until the more essential items are complete. As a result, unfinished items are bound to appear in a program that is considerably beyond what can be accomplished.
The second recommendation calls for a continuous review of the program so as to bring the objectives in line with feasibility, and feasibility to the highest level. It is obvious that the War Production Board is called upon to exercise its greatest effort in attaining maximum utilization of resources for purposes of war production. The analysis of feasibility summarized below suggests as feasible levels rates of production for 1943 that are greatly in excess of the present rates of production. These levels will not be attained unless we apply ourselves towards the maximum utilization of materials, facilities, and labor in the field of greatest need for them, that is in the field of production of fighting equipment and means of transportation to the fighting fronts. Perhaps in a few months successful efforts will show us that our present forecasts of feasible levels were too pessimistic. We sincerely hope that this will prove to be the case. At any rate it is part of our second recommendation that the War Production Board periodically review its estimates of feasibility so that beginning with the present base there will be continuous improvement in our estimates of the productive capacity of the nation.