A Blueprint for Preparedness

THE real test of U.S. industry in the 1 next decade might not be whether it survives a depression. It might be whether it will be ready if global war breaks out.

In an effort to prepare, industry has gone through a bewildering series of speedups and stretch-outs, conversions and reconversions, mobilizations and demobilizations, shortfalls and slippages. When the Republicans came to power and started to take a new look at defense, confusion was compounded by the fear that they were about to change everything that had gone before, and substitute a narrower base of mobilization for the Democrats' broad base approach. Since then, however, it has become clear that the Republicans, like the Democrats, want the underlying mobilization base for a possible M-day to be broad and, where possible, to limit immediate defense production to primary suppliers. Because the big aim is to get ready for a war that might come tomorrow or 20 years from now, the plan is to substitute, where practicable, production capacity for the stockpiling.of items that might be obsolete by the time war is declared. How far along this road to preparedness is U.S. industry?

By most measurements, it has come a long way since the outbreak of the Korean war. The Government set up production and capacity goals for 237 categories of goods that the U.S. would need in war. They ranged from steel, copper and other raw materials to finished products such as tanks, guns and planes. By & large, under the incentive of fast tax write-offs, i.e., permission to depreciate the cost of a plant for tax purposes in five years instead of the 20 normally required, industry has met the challenge. Despite huge civilian production, the U.S. has been able to build up a national stockpile with $5.7 billion worth of copper, aluminum and 73 other vital raw materials, nearly four-fifths of the amounts needed.

Far more important has been the expansion in production capacity. Private industry has signed up for $29 billion in plant expansion, and has completed about two-thirds of the total. The job has been done so well that Chief Mobilizer Arthur S. Flemming will issue no further tax write-offs for 120 of the 237 defense categories. Among them: blast furnaces, brass mills, metal cans, magnesium, oil wells, paper, rubber, optical glass. Furthermore, Flemming has suspended fast tax write-offs for another 49 categories, including military aircraft, electric power and machine tools, while he takes a second look. The belief is that the U.S. may have enough capacity in those groups, too. But what of the other 68 categories deemed vital?

Here the progress has not been so good. The list of the 68 deficient categories ranges from commercial aircraft to zinc. While it covers many vital raw materials that are likely to become short at the outbreak of war, it also includes such important capital goods as locomotives and tankers that are needed in the long-range execution of a war. Among the worst laggards on this list are taconite, 70% behind the goal; titanium, 50% behind; freight cars, 31%; diesel locomotives, 39%; ocean-going ore carriers, 97%, tankers, 74%. The trouble is that in most of the laggard categories industry is being deliberately cautious. Some of the items, such as copper and lead, are not in short supply now. In fact, prices are dropping because of heavy supplies pouring in from abroad. Thus, though it may be vital to expand domestic production capacity lest foreign supplies be cut off in time of war, there is little incentive to do so. Other industries that have expanded, such as newsprint and steel, know that there is a good civilian market waiting for them, defense orders or no. But producers of such materials as titanium, still dangerously short, have no such assurance.

What is needed is more incentive for these industries to expand. One tried and true method, the fast tax write-off, might be liberalized, i.e., instead of getting a write-off on, say, 60% of a new installation, the producer would be allowed a full 100%. Instead of writing off the cost in five years, he might be allowed to do it in two or three to shorten the risk that new developments might make his plant obsolete. For such items as titanium, which alone may mean air supremacy for the nation with a plentiful supply, the Government may have to go much further and, as Air Force Secretary Talbott has suggested, subsidize them with loans, fast write-offs and contracts to buy all production.

It has often been proved that such incentives are far better--and cheaper in the long run--than the only other alternative: the Government going into business on its own. During World War II, the U.S. Government put more than $16 billion into war plants; since 1950, thanks to the vigorous write-off policy, its outlay for such purposes (except for atomic energy installations) has been comparatively small.

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