COVID-19 is not World War II

William H. Janeway April 24, 2020 12:37

Although the COVID-19 pandemic feels unprecedented, it is not the first time that exogenous forces have radically disrupted civilian life. The most common parallel is to the American mobilization for World War II. In December 1940 – almost a year before Pearl Harbor, and as Britain stood virtually alone against Nazi aggression – US President Franklin D. Roosevelt declared, “We must be the great arsenal of democracy.”

As it happens, the first comprehensive account of America’s industrial mobilization for war, The Struggle for Survival, was written by my father, Eliot Janeway, in 1951. As a result, I grew up with a certain inherited – and subsequently augmented – knowledge of the political economy of the period, which involved a deeply complex interaction between production logistics, the political expression of competing public- and private-sector interests, and the problematic emergence of effective managers and management techniques.

The first lesson from the historical literature on this era is that the challenges we face today are fundamentally different from those of the WWII generation, with the only common element being the forced shutdown of the civilian economy. The conversion of the United States’ economy to all-out military production came just as the long, haphazard recovery from the Great Depression was finally taking root. But after 1940, civilian demand for products and services was overwhelmingly replaced by military demand.

When that happened, the supply-side challenge was not how to survive in the absence of revenues and cash flow. Rather, it was how to prioritize the explosion of competitive demands from the Army; the Navy; the Lend-Lease program for supplying the British, Soviets, and other US allies; and the remaining civilian demand (which was increasingly constrained by rationing).

As the scale and scope of government intervention expanded, Roosevelt’s leadership style came under intense pressure. He had always sought to divorce effective control from public responsibility, thereby inhibiting any subordinate’s ability to preempt his authority. But this generated frustration among even FDR’s most loyal subordinates. One newly created agency after another failed to establish coherent, consensus-based priorities among the immense array of goods competing for access to the US economy’s rapidly growing – but still persistently strained – production capacity.

In his aptly titled 2016 book, Destructive Creation: American Business and the Winning of World War II, historian Mark R. Wilson distills two generations’ worth of academic work on the American mobilization. He confirms that, as my father put it at the time, the war was won through “the momentum of production,” as growth on the supply side exceeded even Roosevelt’s seemingly impossible goals.

In the summer of 1940, as the German blitzkrieg was overwhelming Western Europe, Roosevelt called for warplane production to increase to “at least 50,000” per year. At the time, the Army Air Force comprised less than 5,000 aircraft. By 1943 and 1944, the US was churning out an average of 90,000 planes per year, owing to a disciplined program to allocate three “critical materials” – steel, copper, and aluminum – through contractors all the way down the supply chain. In addition to enforcing production priorities, the program was effective because it relieved businesses from excessive red tape.

This brief account underscores the most important difference between then and now. Back then, there was too much demand for too many different goods, whereas the problem today is far simpler, because the number of critically needed goods is very small, and the sequence in which they are needed is obvious.

The immediate priority now is to increase the supply of personal protective equipment, such as N95 masks and medical gowns, as well as ventilators. After that, but still in the very near term, the task is to deploy effective tests for current and past COVID-19 infections on a national scale. Then, in the near and medium term, comes the challenge of producing a vaccine.

There is no secret about who will produce these items, and how. Better tests and a vaccine will require intensive research and development, as well as time to conduct clinical trials. In both cases, mapping out the technical and logistical processes involved is not a daunting task.

Given the relative simplicity of today’s production challenge, the fact that the US response has replicated the initial chaos of WWII mobilization speaks to an extraordinary level of incompetence at the center of governance. Back then, competition between the Army and the Navy generated what came to be known as “priorities inflation.” But today, 50 states and elements of the federal government are competing with one another other for access to the same items, generating good old-fashioned price inflation. Hence, the price of an N95 mask has increased from less than $1.00 to more than $6.00 in the space of just a few months.

Moreover, with the 1950 Defense Production Act, the federal government now has everything it needs to drive production and manage the allocation of critical supplies. Following from lessons learned the hard way between 1940 and 1943, the DPA authorizes the president to require businesses to give the highest priority to contracts issued pursuant to federal directives, and to establish regulations and agencies as needed.

US President Donald Trump has (belatedly) invoked the DPA to issue contracts for more ventilators and face masks. He has not, however, established any mechanism for centrally allocating these items according to public-health needs.

As for the testing capacity that will be needed to reopen the economy safely, the Federal Emergency Management Agency first announced orders to procure tests under the DPA on March 24, then immediately backpedaled. Since then, it has been competing against other arms of the federal government (the Department of Veterans Affairs) and the states for supplies.

The historically unique challenge today is that the supply side of the US economy requires financial life support. Even if the US had the competence and institutional capacity to replicate Germany’s successful Kurzarbeit system of direct state funding for payroll support to prevent layoffs, the challenge would be enormous. Nonetheless, managing the demand side of the crisis should be a relatively simple and straightforward task. The fact that the US has failed at it says more about its leader than it does about the nature of the crisis.

Copyright: Project Syndicate
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William H. Janeway

The writer is a special limited partner at the private-equity firm Warburg Pincus and an affiliated lecturer in economics at the University of Cambridge.