Defense Plant Corporation

U.S. GOVERNMENT INVOLVEMENT IN WORLD WAR II INDUSTRIES

The federal government's effort to mobilize the U.S. economy during World War II began before the Japanese attack on Pearl Harbor. On May 16, 1940, President Franklin D. Roosevelt, appearing before Congress, stated that national defense was a necessity and that the country should be ready to produce at least 50,000 planes per year. The call for increased production was enormous and extended to all industries that would be necessary for the war effort, including those producing metals, such as aluminum, steel, magnesium, tin, nickel, copper, lead, and zinc, minerals, machine tools, natural and synthetic rubber, radio equipment, aviation gasoline, and industrial chemicals.[4]

Although private companies were willing, in most cases, to increase production for the good of the country, they also were concerned about financial risk.[5] If they paid for the expansion of existing production facilities and built new facilities, they worried that the government might cancel its contracts before they recovered the cost of their investment. For its part, the U.S. government did not want to guarantee that the companies would recover their costs regardless of whether the government needed the production or not. If the threat of war ended, guaranteed payments would be a windfall, and the companies would be getting new or expanded facilities at little cost.[6]

The federally created Reconstruction Finance Corporation ("RFC") responded to this dilemma. Established by Congress in 1932 by the Reconstruction Finance Corporation Act, the RFC served as a Depression-era government corporation that provided financial assistance to private banks, insurance companies, mortgage companies, agricultural institutions, and railroads, at first, and then later expanded into other business areas.[7] In summer 1940, the RFC received congressional approval to purchase and stockpile materials of strategic importance to the United States and to assist with the financing of new and expanded industrial facilities. After some debate, the RFC decided to pay for the expansion of industrial capacity and to retain ownership of the new equipment and industrial facilities in which it invested. Once facilities had been built, the RFC entered into lease and operating agreements with private companies. The RFC created a subsidiary called the Defense Plant Corporation ("DPC") to finance the construction of new industrial facilities and the expansion of existing ones. The DPC eventually owned properties in nearly all states.[8] See the sidebar below for a list of additional wartime governmental agencies that were involved with private industry.

From its creation on August 22, 1940, until June 30, 1945, when it was folded back into the RFC as the Office of Defense Plants, the DPC invested $7 billion to increase the industrial capacity of the United States. It took title to new facilities and equipment. Even after the RFC had subsumed the DPC, the bulk of the properties remained under government title, and in many cases, the government retained title to DPC-owned facilities and equipment until the late 1940s. Some facilities, most notably plants associated with the production of synthetic rubber, were owned until the mid- 1950s.

The DPC invested in three principal ways: First, the DPC built entire standalone facilities. Second, it built additional units in existing private industrial complexes, called "scrambled" facilities. Third, it purchased equipment and installed it in privately owned facilities for the purpose of converting the facility to the production of a wartime product or for the purpose of expanding the capacity of an existing facility. The DPC also purchased most of the wartime production of machine tools and allocated the tools among countless private companies, as needed. In one form or another, the DPC invested in many of the industrial facilities operating in the United States during the war.[9]

OTHER WARTIME GOVERNMENT AGENCIES INVOLVED WITH INDUSTRY

In addition to the Reconstruction Finance Corporation ("RFC") and its subsidiaries, the government also exerted significant control over industrial production through other government entities. Through the following assorted agencies, among others, the federal government exerted unprecedented power and, in many cases, almost dictatorial control over the operation of private industry during World War II:

-- War Production Board (controlled the distribution and allocation of essentially all products mined or manufactured in the country).

-- Office of Defense Transportation (controlled the trains and the pipelines, among other things).

-- War Department and Joint Army-Navy Munitions Board (purchased the needs of the military). In some cases, the military also manufactured products for itself through industrial facilities that it owned directly. Some munitions plants are an example of direct military investment in production.

-- Maritime Commission (controlled shipping).

-- Petroleum Administration for War (combined petroleum companies' operations, including production, transportation, and refining, into one coordinated entity).

-- Smaller War Plants Corporation.

-- War Manpower Commission.

-- Office of Price Administration.

-- National War Labor Board.

Footnotes

4. See Bureau of Mobilization, INDUSTRIAL MOBILIZATION FOR WAR: HISTORY OF THE WAR PRODUCTION BOARD AND PREDECESSOR AGENCIES, 1940–1945, vol. I (1947), 3–13 (New York: Greenwood Press Publishers, 1969).

5. See Gerald T. White, BILLIONS FOR DEFENSE: GOVERNMENT FINANCING BY THE DEFENSE PLANT CORPORATION DURING WORLD WAR II 1, 67–82 (University of Alabama Press 1980). In addition to the industries noted in the article, such as metals, minerals, machine tools, aviation equipment, and rubber, the government directly invested in the following products and industries: petroleum production, refining, and transportation; industrial chemicals, such as styrene, butadiene, caustic soda, carbon black, soda ash, toluene, alcohol, ammonia, chlorine, and DDT; radio and communication equipment; ships and shipyards; pipelines; and clothing. This list is merely illustrative and by no means exhaustive.

6. We use the word "private" throughout this article in the sense of nongovernmental. We are not distinguishing between privately held and publicly held companies.

7. See BILLIONS FOR DEFENSE, supra note 5, at 3–11.

8. The Reconstruction Finance Corporation Act, 47 Stat. 5 (1932).

9. See BILLIONS FOR DEFENSE, supra note 5, at 11–37. The DPC owned property in all regions of the United States. The top 10 states with the most DPC projects at the end of the war were Ohio, Michigan, Texas, Illinois, Pennsylvania, New York, Indiana, California, New Jersey, and Utah. See id., at 81. It helped to finance wartime production for such leading companies as ALCOA, General Motors, U.S. Steel, Chrysler, Ford, Standard Oil, Goodyear, Dow Chemical, and DuPont. See id., at 49.

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