My thesis examines records on the institutional organization of the major national economies during World War II, with an emphasis on the United States. However, it is a theoretical rather than historical thesis. Its main line of argument comes from an analysis of cross-national variation in the success of national economic mobilizations during World War II. Its purpose is to write the experience of large-scale economic mobilization during World War II into the nascent but growing literature on varieties of capitalism and the variegated forms a market economy can
Though the topic looks towards the past, it addresses a conceptual and political dilemma facing the present. Many lament growing economic inequality. But the traditional remedy to “market-based” inequality—state redistribution and state involvement in more generally—likewise seems unappealing. At least one way to constructively get around these horns of left and right is to reject the current form of the market economy. In its place, one can propose an alternative institutional arrangement of the market that preserves its characteristic decentralization alongside more egalitarian outcomes.
The destructive critique of the present arrangement is the easy part. Formulating constructive alternatives to the present alternative is the hard part. Thus I looked towards World War II to gather intellectual ammunition to hit the following question: what are some possible alternative arrangements of the market economy? A ton of normatively-loaded historical scholarship dismisses a priori the economies of World War II as a “socialist” or “command” economy. But that line of thinking either fails to account or conspicuously overlooks the decentralized character of the war economies—and their similarity to the organization to the modern economic vanguards of America’s Silicon Valley or Japan during 1980’s.
Before discussing what I actually argued, a few things are worth noting. First, in hindsight the project seems like it would have benefitted from being less ambitious. Its nominal scope was the economy as a whole. Looking back, I would have done well to limit the scope of analysis to a more narrow industry or product. Instead, the focus was on the arms production effort as a whole. Arms production constituted a massive portion of GDP. The sheer breadth of the topic made forming a cogent argument about it daunting. Had I narrowed the scope more, I likely would have been able to achieve a deeper and tighter argument.
The thesis divided the most substantive sections of the argument into three interrelated but distinct economic relationships that are elemental to any economy: the relationship of the government to the private sector, the relationship between firms in the private sector, and the relationship between financial savings and economic production. These context-based sub-arguments occur in the light of a more theoretical argument that presages in them. But this summary focuses on the more substantive dimensions of the thesis at the expense of a cogent delineation of the theoretical argument.
As for the relationship between the government and private firms, this constitutes a particularly interesting section if for no other reason than it flies in the face of the superficial “big government” account of the business-government relationship during World War II. The business-government relationship in the arms industry, however, evinced a remarkable degree of decentralization. For instance, in the Army Ordnance Department, procurement officers operated out of thirteen distinct district offices. This had the effect of creating what noted political economist Mancur Olson referred to as “parallel competition” within the government bureaucracy, since this structure made relative inefficiency so easy to observe. Procurement officers negotiated contracts, and then oversaw the production process. Their role in production rather than mere negotiation was inseparable from their success: the goods produced were novel wartime goods that manufacturers had never produced before, and due to resource shortages, getting it wrong even once proved costly. And these decentralized and local procurement officers did not merely implement pre-specified orders from above. Rather, they chose the specific means to accomplish the pre-specified goals, in a sense altering the definition of the goal itself in the process. Cooperation rather than competition in production and the blurring of the distinction between means and ends mimics how the productive vanguards of Silicon Valley and 1980’s Japan operate. The point of contrast to the United States, ironically, comes from the centralization of procurement authority in World War II Japan. For further reading on the operation of the economic vanguards I am referring to, see: Regional Advantage by AnnaLee Saxenian, or “The Second Way” by Roberto Unger and Charles Sabel (on Professor Unger’s website).
As far as the relationship between firms, the United States again serves as the example of success. There existed an elaborate sub-contracting network that enabled the large suppliers with whom procurement agents worked to capitalize on the productive capacity embodied in America’s smaller firms. Consistent with the notion that sub-contracting between arms procurers increased effective capacity utilization, prices for American arms decreased as sub-contracting increased, even as price levels in general increased. Sub-contracting, in a sense, constitutes a form of decentralization. The point of contrast in this context comes from Nazi Germany, where a state cartel system precluded cooperation between large and small producers.
As far as the relationship between finance and production, this portion of the thesis stands on perhaps the most tenuous grounds. In sum, the United States allocated credit through its decentralized network of procurement officers, permitting it to reap the benefits of decentralization without relying on public stock and bond markets, which privilege certain business strategies over others.
