BLOOD AND SWEAT VS. WAR PROFITEERING
Follette, Sen.Robert M. La Jr.
Blood And Sweat vs. War Profiteering By SEN ROBERT M. LA FOLLETTE, Jr. WHEN the last war was over Americans vowed that never again would they permit another crop of war millionaires. They vowed...
...So in order to get the goods without undue delay, the procurement agencies, including the Army and Navy, were inclined to accept the contractors' estimate of his expected costs and set the price accordingly...
...But whatever obscurity may surround the fight on other fronts, it stands out clearly on the current question of amending the law on renegotiation of government war contracts...
...The Senate Finance Committee has already approved some of these amendments...
...Experience has shown that in a great many instances these estimates were higher by far than the actual costs proved to be when the job was done...
...More often it is obscured from view...
...It refunded $76,000,000 in cash to the government and reduced its prices on 1943 deliveries by $135,000,000...
...By the fiscal year of 1942-'43 its total sales had jumped to $18,400,000...
...As a result of this increased volume, its profits on each dollar of sales jumped from 10 cents to 25 cents...
...When the federal government began the job of mobilizing the nation's war might, speed was imperative...
...The amendment exempting subcontracts, unless the article furnished under the subcontract becomes a component part of the product purchased by the government, would exempt a great part of the machine-tool industry's contracts from renegotiation in spite of the fact that already the government has renegotiated large machine-tool subcontracts and discovered tremendous excessive profits which the companies involved have been willing to concede and refund...
...How It Works All these problems present situations in which it is difficult if not impossible to determine in advance the exact production costs on each contract...
...About one-third of the cost of each Liberty Ship goes for items that would be exempt from renegotiation under the amendment approved by the Finance Committee...
...We are at war again, and it is time for every American citizen, who respects the heroic sacrifices being made by our men and women for our common victory, to stand up and be counted on the question of whether wealth shall be coddled while men are sent out on the battlefield to die...
...Both the Democratic and Kepublican platforms in that campaign pledged their support for the principle that wealth as well as men and women must be obliged to share in the sacrifices of war if war should come again...
...There are other technical exemptions, both directed and authorized, but they have no important bearing on the present issue at stake...
...It is constantly involved in the day-to-day administrative relationships between the federal government and the business world, in the award of contracts, the allocation of materials, the expansion of production facilities, the terms governing their operations, and the determination of production policies...
...It was no reflection upon the contractors, for it was clearly recognized that in many, if not most, cases the excessive estimates had been honest mistakes...
...The Maritime Commission estimates it will need approximately two billion dollars worth of them for the ships it still has to build...
...If these articles are exempt from renegotiation, it will mean that these tremendous sums which rightfully should go to reduce the cost of the war program will be handed out without question to the individual contractors and subcontractors...
...Struggle On Many Fronts That question will not be determined in any single engagement...
...Of this tremendous saving to the taxpayers, two and one-half billion dollars has been in the form of actual cash refunds from the contractors to the government, and three billion dollars has been in the form of price reductions on future deliveries...
...The argument made on behalf of this amendment may sound plausible on the face of it, 4>ut it is grossly deceptive because it overlooks one fundamental fact...
...It is an issue that must be fought out on several fronts...
...The sordid, selfish influences that motivate the war profiteer cannot be overcome that easily...
...There cannot be equality of sacrifice in war, but we have a solemn obligation to spread the burdens of war as equitably as possible...
...Certainly the emasculation of the renegotiation law, as the Finance Committee has proposed, will break faith with the American boys who have offered their lives to their country on the battlefield and to all the men and women who are carrying forward the war effort at home and abroad, making whatever sacrifices, great or small, that may be asked of them...
...As a consequence Congress undertook early in 1942 to authorize the recovery of these excessive profits through renegotiation of the contracts...
...A Deceptive Argument The phrase "standard commercial articles" is used to designate articles that were produced and sold commercially under normal and presumably competitive conditions before the war and which are now produced for war purposes under OPA price ceilings...
...knowledge the storm of resentment that swept-over the people as they counted the thousands of new war millionaires who had amassed their fortunes while American boys were giving their lives for their country...
...The Worst Amendment There were certain contracts exempt for legal and administrative reasons...
...It must be fought out on the tax front, ¦ on the price stabilization front, on the anti-trust front, and a host of others...
...Not only does the proposed amendment exempt these subcontracts on present and future sales, but it makes the effect retroactive so that the government will find itself required to give back probably one half billion dollars of admittedly excessive profits to the machine-tool, the building equipment, and other industries in a similar position...
...Two-thirds of this volume was for war orders...
...Production of these articles has been greatly accelerated by the war, and the law of decreasing unit costs in manufacturing operations calls for some adjustment of price...
...Yet in the face of this record there are powerful influences at work endeavoring to scuttle the renegotiation law...
...Manufacturers had to convert facilities from other types of production to go to work on the things needed by the government...
...The most objectionable amendments approved by the Finance Committee are the two that seek to exempt from renegotiation those contracts covering "standard commercial articles" and to exempt subcontracts for articles and services that do not go directly into the finished product purchased by the government...
...It remains to be seen what the Senate itself will do with them...
...Those were pious words, written when there appeared to .be no immediate prospect of being called upon to make good the promise...
...Moreover, questions of exact cost were often impossible to determine in advance...
...They vowed that the same requirements of patriotic sacrifice applied to the flesh and blood of the nation in time of war must, in the event of another war, be applied to wealth...
...The first and foremost objective was to get the materiel and to get it as quickly as possible...
...The situation is different today...
...The Aluminum Company of America was one of the first companies to settle on the renegotiation of its contracts...
...Similar authority was granted the Reconstruction Finance Corporation and its subsidiaries by Congress last year...
...But ^negotiation has proven its worth as one way of rectifying the honest mistakes made in estimating production costs, and as an added weapon against the profiteer...
...Cost was secondary...
...Renegotiation is no magic cure-all that will take the profit out of war...
...We must decide once and for all that this country will not permit sacrifice of blood and sweat on the one hand and high war profits on the other...
...Both the major political parties in the Presidential campaign of 1924 were c o m p e 11 ed to ac...
...Sometimes the conflict comes out into the open where the general public can see and recognize what is going on and what is at stake...
...It is estimated that at present prices there are $250,000,000 of excessive profits in the standard commercial articles the Navy will need for its current building program of auxiliary and landing craft, and another $600,000,000 of excessive profits on standard commercial articles in the naval ship program...
...There the issue is inescapable, and the outcome will mean a great deal in the ultimate determination of how many war millionaires are going to emerge from this war...
...A similar situation prevails with respect to the naval building program...
...Those contracts on which final payment was made prior to Apr...
...28, 1942, the effective date of the first renegotiation law, are exempt, as are the contracts of contractors doing less than $100,000 worth of business per year with the government...
...The renegotiation law, as it took shape in 1942, authorized the War and Navy Departments, the Maritime Commission, and the Treasury Department to direct the renegotiation of .%ny of their respective contracts if there was any reason to believe the contractor was realizing excessive profits from them...
...The government was calling for new items, products never produced before in any volume, many never produced at all...
...For example a company manufacturing nuts and bolts did an average annual pre-war business amounting to about $7,000,000...
...Armed with this law, the procurement agencies of the government have brought about refunds and price reductions of five and one-half billion dollars to date on these contracts...
...A powerful minority of short-sighted business leaders who cannot see beyond the dollar sign on the end of their noses are trying to put over on Congress a series of amendments to the law that will open up disastrous loopholes and ultimately sweep away the whole structure in an uncontrolled wave of war profiteering...
...These standard commercial articles account for a vast segment of contract costs...
Vol. 8 • January 1944 • No. 2
