War Control of Industry and Trade

INDUSTRY AND TRADE, WAR CONTROL OF. Government control of industry has appeared sporadically in every important war of modern times, under the form of com mandeering of supplies and means of transportation and produc tion. It has also occasionally assumed the form of price-fixing. But, except in the rare cases of cities under siege, governmental control never assumed the form of a general system, dominating the whole economical life of a belligerent nation, before the World War of 1914-18. In that war the general control of industry was inaugurated promptly by Germany, after a considerable delay by France and England, and, after many half-way measures that proved ineffective, by the United States in the last year of the war. In the case of every belligerent nation the extension of con trol was a gradual process, which had by no means reached its logical limits when hostilities came to an end.

The conditions that forced control of industry upon the several warring nations were:— I. Universal conscription, with its tendency to disorganize all in dustries, essential and unessential alike, by the withdrawal of the most energetic labourers and "key-men" in the technical and ad ministrative staffs; 2. The vast consumption of material and equipment under the technical conditions of modern warfare; 3. The insatiate demand for financial resources for maintaining and supplying the huge armies in the field and the services incidental to them ; 4. The maintenance of the health and spirit of the working civil population through the provision of the necessities of life at practi cable prices.

While the conversion of national industry to the uses of war was nowhere complete, it is a conservative estimate that in all the chief belligerent states from three-fourths to four-fifths of all in dustry was by the time of the armistice converted to the meeting of war requirements, direct or indirect.

The system of state control of trade and industry in Great Brit ain, which played so vital a part in the successful issue of the war, was not planned as a comprehensive whole by anything in the nature of an economic general staff, but was built up gradu ally in a number of different departments as a series of partial adjustments to particular needs and emergencies. In many ways it was characteristic of British temperament. Modern Germany had shown a capacity for large-scale organization of trade and in dustry which was foreign to the British tradition. Great Britain was, and still is, the home of an obstinate individualism and inde pendence of character which resisted bureaucratic regulation and made even co-operation in trade and industry difficult. France too had a traditional way of thinking based on first principles and clear-cut definition of rights and duties which was equally alien to British psychology. The Englishman distrusted logic and defi nitions, and prided himself on being able to "muddle through." His system of government was based on an unwritten constitu tion, a genius for compromise and a profound distrust of State interference.

With such a background State control of trade and industry on the scale it eventually reached would have been unthinkable be fore the war and certainly formed no part of the Government's plan of operations in the event of a European war. The only meas ure of State intervention which had been carefully worked out bef ore the war was the taking over of the railways. This was car ried out in August, 1914, and throughout the war the railways of the country were run by a Railway Executive on behalf of and for the account of the State. The British "War Book" contained no other plans for State intervention in trade and industry.

Throughout the war there were two slogans which must have been repeated many hundreds of times, in scores of different con texts—"Every private interest must be subordinated to the suc cessful prosecution of the war" and "There must be as little in terference as possible with the normal channels of trade." The real problem was to determine the exact degree of interference with normal trade channels which was necessary for the successful prosecution of the war. On this question opinions varied widely at different times and among different persons. In the abstract there was an almost universal bias against State interference. Manufacturers and traders naturally believed in freedom of trade, the rights of property, and the merits of laisser-faire; they had a deep-rooted dislike for the restrictions on individual liberty and private enterprise which State Socialism implied. By a process rationalisation this instinctive antipathy gave rise to the axiom that State management was necessarily inefficient and that Gov ernment interference would therefore only make matters worse. If this were true, it followed that to substitute an inefficient for an efficient system of industrial organisation just when the na tion was fighting for its existence, would be suicidal folly. Nor was the attitude of ministers and departmental officials very dif ferent. They distrusted the power of the Government to intervene successfully in matters on which there was no past experience to serve as a guide.

During the early stages of the war "business as usual" was the accepted doctrine. During the first few months the main problem was to combat unemployment and get the wheels of industry re started in the normal channels, or, if that was impossible owing to the blockade of Central Europe, to open new markets in other parts of the world. In the absence of any plan of industrial mo bilization for war, this was the only possible policy to pursue. A prosperous state of trade, regular employment at good wages and high profits for the revenue to tax and the Treasury to borrow, were regarded with good reason as essential conditions for the successful prosecution of the war.

First Steps in State Control.

Three large measures of State intervention, however, were introduced in the first month of the war, the first of which—the taking over of the railways—has al ready been mentioned. The second was in the sphere of finance. The Government suspended the Bank Act, introduced a State paper currency and placed the credit of the nation behind ap proved commercial bills payable by enemy and other debtors, who were unable to meet their liabilities. These two measures saved the money market from an acute crisis; but at the same time opened the door for that expansion of currency and bank credit under Government auspices, which more than anything else was responsible for the rise of prices throughout the war. So far as State control was designed to combat high prices, it was an in direct consequence of the system of inflation by which the war was to a considerable extent financed. As Lord Rhondda said in Nov. 1917 (Part. Debates, House of Lords, vol. XXVI., cd. 1077, 1917) :—"The real controller of prices is not the Food Controller but the Treasury. The principal factor in the rise of prices is the expansion of currency arising from inflation of credit and the is sue of large amounts of paper money." Lastly the Government set up the Royal Commission on Sugar Supply to monopolise the purchase and import of sugar on Government account. The out break of war cut off all supplies from Central Europe, which in 1913 sent over 75% of the sugar imported into Great Britain. Large purchases were made by the Government in other markets within the first three weeks of the war, and from that time on wards the import and distribution of sugar was carried on under direct State control. (See FooD, MINISTRY OF.) The next steps in control arose as a result of the difficulties ex perienced in obtaining military supplies for the British and Allied armies. In July 1914 the Army Contracts Department of the War Office consisted of 56 officials and clerks. A staff of not more than 20 was sufficient to handle the business of purchasing muni tions and explosives under the system of competitive tendering then in vogue. (In Nov. 1918, the staff employed by the Ministry of Munitions for the administration of complete control num bered 65,142.) By Oct. 1914, the centralised buying machinery of the War Office, which had functioned smoothly and efficiently before the war, as a result of reforms introduced after the Cri mean and South African wars, was becoming paralysed. In Nov. 1914, the new director of army contracts, U. F. Wintour C.B., C.M.G., presented a report to the army council which contained the following sentences, the truth of which was not generally realised for many months: "The war is a war of organisation, in which the raising of men is one very important item. It is equally important that they should be equipped, clothed, fed and pro vided with guns, arms and ammunition. For the provision of these necessaries, industry, and industry alone, has to be relied upon, and the rapidity and effectiveness with which industry can be organised to meet the emergency cannot but have an enormous influence upon the issue of the struggle." A proposal was made in Oct. 1914, that the Government should take over the big arma ment firms as they had already taken over the railways, but the authorities at that time shrank from assuming such a responsibil ity and preferred to rely on private enterprise and the law of supply and demand to produce an adequate flow of munitions. In June 1915, with the establishment of the Ministry of Munitions, the theory that industry could be left to adapt itself of its own accord to war needs was abandoned. National organisation and detailed control of supplies, prices and methods of production were introduced. National factories were built ; raw materials of all kinds required for making munitions were imported on Gov ernment account and distributed at fixed prices ; and manufac turers, instead of being left to produce munitions or not as they thought fit at prices determined by their own sense of propriety, were now compelled to produce them at prices based on cost and if necessary were instructed how to do it. (See MUNITIONS,