Freedom's Forge Forsaken
The sad saga of the Office of Defense Mobilization.
Arthur Herman is the Pulitzer Prize Finalist author of Freedom’s Forge: How American Business Produced Victory in World War II. His newest book, Founder’s Fire: From 1776 to the Age of Trump, will be published by Center Street in April.
By now everyone understands the key to America’s successful mobilization in World War Two was unleashing the drive, energy, productivity, and innovation of our private sector to solve a national security crisis. It’s one reason why so many people, including people in Congress and the current administration, are turning to my book, Freedom’s Forge, for inspiration as they grapple with the problem of reigniting America’s defense industrial base today.
At the time it was an American president, Franklin Roosevelt, who saw the right path forward: letting the private sector take the lead despite his New Deal and progressive instincts. That decision—contrary to the recommendations of his leading advisors—set the direction and tempo of the entire mobilization, as he turned the initiative over to General Motors CEO Bill Knudsen and his business colleagues.
It was FDR’s successor Harry Truman who decided to try another way: a top-down, centralized model, with the government telling industry what and how to produce the weapons we needed, rather than the other way around.
The culmination of this effort was the Office of Defense Mobilization, set up in 1950. The result? A major procurement mess during the Korean War. It also triggered a national economic crisis that rocked Truman’s presidency to its foundation—and left a toxic legacy for defense procurement that we’re still trying to clean out today.
The date was 1947. As the federal government was coming to grips with the challenges of global leadership and a nascent Cold War with the Soviet Union, a series of acts passed Congress creating a new national security establishment. That included creating the National Security Council, Central Intelligence Agency, and a unified Defense Department that merged America’s armed forces.
Another part of the effort was setting up an office to oversee any future defense mobilization, dubbed the National Security Resources Board (NSRB). At the time—and indeed for many observers and historians still today—the issue of merging the armed forces overshadowed everything else.1 But the creation of NSRB would have far-reaching consequences no one considered or imagined.
The issue was: how to capture and institutionalize the magic that made mobilization in World War II possible?
Official Washington had convinced itself that government—not private industry—had the answer. Under the National Security Act of 1947, the NSRB was supposed to mobilize and coordinate government agencies and adapt America’s economic resources to meet military and civilian needs in time of war. It was also supposed to set policies for “establishing adequate reserves of strategic and critical material, and for the conservation of these reserves,” i.e. vital supply chains for the moment when America found itself at war again.2 To complete Washington’s control over the NSRB, Truman centralized its power in a single chairman and moved it over to the Executive Office of the President.
Americans didn’t have long to wait before the NSRB faced its first major test. On June 25, 1950, North Korean troops poured over the border into South Korea and a desperate struggle for control of the Korean peninsula was on. Truman and policy makers immediately realized America’s demobilization after V-E and V-J Day had gone too far—the U.S. Army had shrunk from over 8 million personnel in 1945 to just 600,000 four years later—leaving the United States vulnerable on multiple fronts.
Truman hoped his NSRB would figure out how to rapidly close the production gap. He quadrupled the defense budget to $50 billion and the NSRB was put in control of prices, wages, and raw materials. The result was soaring inflation and shortages in consumer goods and housing, which grew worse with China’s intervention in the war in November.
Truman’s response was to give the federal government even more authority over the economy and defense production. On December 16, 1950 he declared a national emergency. Using the powers granted to him by the Defense Production Act (which Congress passed in September), Truman created a new Office of Defense Mobilization (ODM) to oversee virtually every aspect of the American economy to meet its wartime needs.
When assessing Truman’s fateful decision, it’s important to remember this was a real crisis. Massive Chinese intervention in the war had forced United Nations forces into a hurried, large-scale retreat from North Korea culminating in the Hungnam evacuation, where troops and over 98,000 Korean civilians had to be evacuated by sea under intense communist attack.3 Tanks were in such short supply the Army was reduced to seizing Sherman tanks used in war memorials at home and refurbishing them for use in Korea. The economy was rocked by seven-plus percent inflation even as American support for the war was floundering. Finally, everyone expected a similar war to break out in Europe, with the possibility that the Soviets might use their newest weapon, the atomic bomb.
Under these conditions, Truman’s desperation was understandable. But his response violated every lesson learned in the World War II buildup. The creation of ODM foreshadowed a takeover of the entire U.S. economy that Nazi Germany or the Soviet Union might have admired, even envied.
NRSB already had the power to control prices, wages, and the flow of raw materials. ODM raised the game to the next level under Truman’s interpretation of the DPA by setting up two new organizations. The first was the Defense Production Administration, which established production goals and supervised production operations for military procurement. The second was the Economic Stabilization Agency, which coordinated and supervised wage and price controls across the country. And that was just the beginning. In all, 19 separate mobilization agencies sprang up inside ODM to control and direct every aspect of the American economy.4 Truman also directed ODM’s head to attend NSC meetings and then made him a member of the senior staff.
Truman’s pick for ODM director was Charles E. Wilson, the president of General Electric known to colleagues and the media as “Electric Charlie” to distinguish him from the Charlie Wilson who was CEO of General Motors (“Engine Charlie”).5 Wilson had been a leading mobilization executive in World War II, but he was hardly the reincarnation of the business executive FDR had put in charge of mobilization before World War II, namely GM’s William “Big Bill” Knudsen. Instead, Wilson firmly embraced the twin principles of government centralization and coercion to get the economy revved up for war.
For example, Wilson was given power over national wages through his Wage Stabilization Board as part of ESA. He simultaneously had power over all critical raw materials in America, from steel and aluminum to copper and coal.6
Wilson went on to set wartime production quotas for American businesses, with sharp sanctions against any company that failed to comply. Government now told businesses outright what they were to produce and when it was needed—a complete reversal of the cooperative approach during World War II. No new plant investment was allowed for private businesses unless it was pre-approved by ODM. Even more, Wilson decided it was too dangerous to have any new defense plants close to the traditional hubs of U.S. manufacturing in the Midwest and Northeast. Instead, ODM laid down permits for new facilities across the Southeast and South in order to disperse resources in case of a concentrated Soviet attack.7 This in turn disrupted the kind of efficiencies of scale and reliance on in situ industrial and engineering expertise in places like Detroit that had helped to make America’s mobilization in World War II so swift and effective.
Meanwhile, the Economic Stabilization Agency immediately canceled price increases by Ford, General Motors, and Chrysler.8 At the same time, Wilson and ODM imposed price controls on all good and services in the United States, while making workers’ wages subject to government approval and direction. In total, these actions represented a level of government intervention that not even FDR’s takeover of the U.S. economy with the National Industrial Recovery Act (which the Supreme Court declared unconstitutional in 1935) could have hoped for or imagined.9
Despite all the government fiats and oversight, defense production still lagged—as anyone who truly understood the World War II model could have told Truman and Wilson. Supply chain bottlenecks became inevitable when any raw material now required an ODM permit. At the same time, despite the boost in defense spending from $15 billion to $50 billion, the production of new equipment came in fits and starts. Many businesses chose to stay out of the Department of Defense’s way rather than submit to overregulation if they wanted to produce war materiel—the start of a long-term trend.
Instead, it was the opening of the procurement process to foreign sources, especially Japan—outside ODM’s reach—that saved the Korean War effort from catastrophe and also laid the foundation for the revival of the Japanese economy. In 1951, 40 percent of all Japanese exports came from U.S. military procurement. The next year, in 1952, that number doubled.10
But all these already-considerable problems were upstaged when ODM decided to intervene in the negotiations between the United Steel Workers and the steel industry over a long-overdue wage increase.
Steel companies were ready to give in to labor’s demands, but only if they could also get a price increase. Under the new ODM rules, both required government approval. Truman and his Democrat administration were very sensitive to the need for union support. They OK’d the wage increase—but not the price increase Big Steel wanted to offset the additional expense. With ODM saying no to a price increase, major steel companies said no to the wage increase. The steel workers were now poised to strike on January 1, 1952.
Truman was desperate. He persuaded union leader Phil Murray to delay the strike, although industry still refused to play ball without a price adjustment. Electric Charlie quit in disgust over the impasse. Congress was in an uproar over the possibility that steel workers would shut down America’s steel plants when their output was most needed, especially for the war effort. His back to the wall, Truman decided to nationalize the entire steel industry, just hours before the strike was supposed to begin at midnight, April 9, 1952.
A court injunction halted Truman’s move just in time and the case eventually wound up in front of the Supreme Court. The issue had become: can a president as Commander-in-Chief issue an executive order taking over an entire industry for the sake of national security? In a 6-3 vote, the Supremes said no, he did not have that power. It was a landmark case for future limits on presidential power—and limits on ODM’s power, as well.11
A Republican-majority Congress now stepped in to strip away the powers of the Wage Stabilization Board, which had been ODM’s primary weapon in controlling Americans’ pay. The end of the fighting in Korea also defused the crisis atmosphere and brought to a halt most, but not all, of ODM’s production, wage, and price control authority.
When Dwight Eisenhower became president the following year, he curtailed ODM’s role even further. First under Ike-appointed directors Arthur Flemming and then Gordon Gray, it confined its activities to defense production effort per se. Finally, in 1958, ODM died a merciful death when it merged with the Federal Civil and Defense Administration into the Office of Civil and Defense Mobilization (OCDM), which was more focused on building bomb shelters and civil defense in case of nuclear war. Director Gray went on to become Ike’s National Security Advisor.
Several name changes later, OCDM finally vanished from the federal register in 1973. Still, many of its original powers reside with today’s Federal Emergency Management Agency (FEMA), which was set up by executive order in 1979 to take over from OCDM and its successors.
But the damage the ODM era had done remained, especially for how the government approached defense procurement and acquisition. The vision of a strictly controlled and centralized government office overseeing every aspect of the defense production process, from planning to final execution, became DoD gospel. It set the stage for McNamara’s so-called reforms in the early 1960’s, including the Pentagon budget system we still have today. Arguably, it even set the table for the Last Supper in 1993, when the Pentagon felt free to tell the defense industry it had to shrink in order to match a shrinking defense budget—instead of encouraging competition to lower overall costs, on the principle that the more players, the better.
Meanwhile, the diaspora of defense manufacturing across the Sun Belt and Deep South meant traditional industrial centers like Detroit, Pittsburgh, Chicago, Cleveland, and Buffalo played less and less of a role in helping America arm itself or to develop the next generation of weapons systems. In fact, this shift accelerated deindustrialization and the emergence of the Rust Belt—the very place where, ironically, American defense mobilization first cut its teeth.12
And so, for more than 70 years we were stuck with the idea that, when it came to defense procurement, government knows best who should make what, when, and where.
Only now, with the growing Chinese threat and equipment shortfalls like the ones exposed by the war in Ukraine are we realizing this top-down, centralized approach is wrong for America—and that we need radical changes in order to move closer to the original World War II model. Until those changes happen, the ghosts of Electric Charlie and Harry Truman will continue to haunt the corridors of the Pentagon—as will the sad saga of ODM.
Peter Rodman, Presidential Command, 17.
Michael Hogan, A Cross of Iron: Harry S. Truman and the Origins of the National Security State, 1945-1954, 210–211.
Arthur Herman, Douglas MacArthur: American Warrior, 779-81.
Paul Pierpaoli, “Truman’s Other War: The Battle for the American Homefront, 1950-1953,” Magazine of History, Spring 2000.
GM’s Wilson (“Engine Charlie”) would later become Ike’s Secretary of Defense. He would be immortalized by his congressional testimony that “what’s good for General Motors is good for America.” That phrase is a misquote. What Wilson actually said was “what’s good for our country was good for General Motors, and vice versa”.
Hogan, esp. 353-355, 344.
Ann Markusen, Peter Hall, Scott Campbell, & Sabina Deitrick, The Rise of the Gunbelt: The Military Remapping of Industrial America.
James Pauff, “Korean War’s impact on US business.”
Amity Shlaes, The Forgotten Man: A New History of the Great Depression, 150-151.
Garland Tucker, 1924: Coolidge, Davis, and the High Tide of American Conservatism.
The issue of deindustrialization is explored further in my forthcoming book, Founder’s Fire: From 1776 to the Age of Trump.
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