The Atlantic Report on the World Today: Washington

ON THE WORLD TODAY

WHILE the mighty Allied offensive goes forward on the fighting fronts, the Administration is fighting a losing battle to keep prices stable.

The War Labor Board has never been under such pressure to jack up wages as at present. In part the pressure comes from powerful unions that were bound to follow Mr. Lewis’s lead. But it should be remembered that much of the pressure originates with employers, not employees. Employers account for 85 per cent of the applications in the current docket. The reason is plain: since the supply of labor is lagging increasingly behind the demand for it, the employers wish to conserve their working force, and even to build it up.

Another factor behind the employers’ drive for higher wages is the compulsion felt by employers to justify the high prices they are charging under the war contracts (which, of course, govern most American business today) with padded costs for labor and materials. This whole system of war contracts will presumably undergo the scrutiny of Bernard Baruch, who has been appointed to supervise the termination of war contracts.

Contracts for war goods, which are let by the various procurement branches of the government, are of two kinds: lump-sum and cost-plus. By far the bulk are lump-sum contracts. Most of them are let by the War Department at prices which in general are arbitrary. In the early days of the war, few manufacturers had had any experience in costing the paraphernalia of war materials. Prices accordingly were accepted on the principle that adjustments could be made later.

Occasionally you read of manufacturers returning big sums of money as overcharge. But the practice has not been general. To be sure, the Renegotiation Law allows for the revision of contracts. But the yardstick is overall profits, not inflated prices. Thus the firm that is economical in operation is likely to be milked precisely because it is economical. Nor does the excess profits tax give the manufacturer any spur to be efficient. Our laws, in other words, encourage that inflation of costs which lies at the root of the inflation of prices.

The effect on business

This situation bothers many farsighted manufacturers. Some have been known to say they will no longer accept cost-plus contracts. They fear the effect of their inflated cost structures on their competitive position after the war, when Uncle Sam is no longer paying the bills. Costs will then have to be put through the wringer. And a bad practice once imbedded in a business is hard to exorcise.

Those who are responsible for demobilization are as worried as the businessmen. After all, the success of American business has been built upon a low unit cost arising from efficiency of performance. Yet in time of war a manufacturer simply cannot put his house in order when the entire country is bidding for both labor and materials in an insatiable market. His only hope lies in government action. If prices on war contracts were slashed by the government, then the contractors would all be compelled to submit cost analyses, and if these showed that the prices were not high enough, there could be renegotiation upward.

The war agencies see in the suggestion a relief of pressures against price ceilings throughout the entire economy. On Capitol Hill the scheme has an impact upon the tax problem. A slash in prices on war contracts would mean considerable budgetary saving and thus would lessen the need for more taxes.

Opposition to the tax program

But this idea is not what brought out the opposition to the Morgenthau ten-billion-dollar tax program. The trouble with that program was that it did not live up to the philosophy behind it. The idea was to remove the “greatest danger of inflationary pressure,” which, according to the Secretary, lay in the income bracket earning less than $5000. “We know where the bulk of the new money lies,” he said. “Four fifths of all the income of the nation is going to people earning less than $5000.”

But the proposed tax program was more a lien on savings than on inflationary incomes. Gift and inheritance taxes were to be marked up, while top incomes would have been taken altogether, with rates, coupled with state taxes, over 100 per cent. Moreover, between 9 and 11 million taxpayers would have been released from taxpaying by the abolition of the Victory Tax. Mr. Morgenthau thus exposed himself to the charge of inconsistency. Indeed, with 1944 just around the corner, the tax program was branded as politics. It does not have any chance at all in Congress.

What will come out of Congress is a much more modest measure mainly made up of boosts in excise and corporation taxes. Unfortunately, a general sales tax has little chance and that for purely political reasons. At first the tax authorities on the Hill were a little shamefaced over their modest notions. They are now less timid as a result of the scheme to seek economies on war contracts. The possibility of a harvest of savings is enough to persuade the Congressmen to let well enough alone in the matter of personal income taxes.

John L. Lewis and the WLB

John L. Lewis has sought to blacken the WLB in the eyes of his clientele. It seems that he is seeking to kill the WLB as he killed its predecessor mediation board. He calls it “a court packed against labor,” and its chairman, William H. Davis, “a rapacious, predatory, Park Avenue patent attorney.” This is a hot-tempered and most unfair statement.

Actually there is no more hard-working and conscientious war agency in Washington than the WLB. The members are overburdened and tired. One of the staff members has died under the terrific strain. It would be difficult to find better examples of publicspirited Americans than Wayne L. Morse and Almon P. Roth and Frank P. Graham.

Mr. Lewis’s aims, of course, are only in part economic. He has a passionate desire to revenge himself on the President. That is the basic reason for his campaign to destroy the no-strike pledge, the stabilization formula, the War Labor Board, and the miners’ faith in their government as well as the White House. It is this obvious aspect of the Lewis campaign that has exasperated the country and the armed forces.

But the President himself has not helped the Board’s prestige by his interventions and reorganizations. The WLB should be the last court for wage appeals. It is now the first. Mr. Roosevelt has put between the WLB and himself the new stabilization machinery in charge of Fred M. Vinson, Director of Economic Stabilization, and James F. Byrnes, head of the Office of War Mobilization. They pass upon wage awards of the WLB, and that subtracts from the Board’s effectiveness. But the grossest ease of by-passing was the decision to allow Secretary Ickes to negotiate a contract with Lewis’s United Mine Workers outside the limits already defined by the WLB. This circumvention depreciates the WLB in the eyes of labor, though on no other board has labor the voice that it has on the WLB. This arises from its tripartite composition: employers, employees, public.

The OPA settles down

A stabilization agency which seems to be weathering the storms is the Office of Price Administration. The anxious-to-please Prentiss M. Brown has stepped down for the more tough-minded Chester Bowles as administrator. Bowles was fortunate in that he had already been given organizational guidance from Congress. Congress in an anti-academic outburst had insisted upon the displacement of “theorists” by “businessmen” on the OPA staff. A businessman himself, Bowles probably needed no such mandate. At any rate, he has changed virtually every department head at the headquarters in Washington. In addition, he has replaced every division head in the Price Department with men of long practical experience.

The new staff is busy simplifying rules and procedures in consultation with business. This is the most important need in policy, though the concurrent decentralization is a close second. Cooperation on the part of business and the consumer public is best assured by the realization that OPA administrators are living next door to the problems with which they are called upon to deal.

Moscow and the election

It is said that Mr. Roosevelt will be assured of a fourth term if the war is still on. The outlook now is that Germany at least will be licked before the conventions. Thus we shall be in a state of half war, half peace. It is a situation ready-made for Presidential aspirations. Naturally Mr. Roosevelt wishes to be at the helm of the Navy as it goes in for the kill against Japan. Likewise he wants to have a finger in the peacemaking. Already in the pacts of Moscow he has had a great say in what is going to happen during the transition period. The Moscow results have the Presidential imprint pronouncedly. He is entitled to his jubilation. Mr. Roosevelt has aligned the Soviet Union in a combination which removes most of the old misunderstandings.

The Russians here were appalled by the distrust of Moscow which they encountered everywhere in America. Of course, Mr. Litvinoff thought his mission to Washington a failure because he failed to persuade the Allies to establish a “second front.” He played the role of making things in Russia appear black in order to get action. But the distrust toward his country prevented Moscow from according our representatives any access to either visual knowledge of Russian conditions or believable data concerning them, and this promoted a mutuality of distrust. On Russia’s part there was the added fear that America would be anti-Russian after the war. Only when the Russians found out that, in spite of appearance to the contrary, this country was really up to the neck in warmaking, and when, further, they saw enough evidence that this country was bent upon a policy of collaboration in peace as in war, did the bars come down in Moscow.

We too have hidden much of our warmaking from Russian and other foreign correspondents. This has been a cardinal mistake. In part the fault belongs to the armed services, which are always reluctant to show off their doings to foreigners; in part the OWI is to blame. Elmer Davis has never been able to develop a policy toward the foreign correspondents here. He holds no regular press conferences, not even with the American press. Only by the spadework of Nicholas Roosevelt and Edward Weintal were the foreign correspondents allowed to visit naval installations. And this was only three months ago.

Roosevelt and Weintal have both resigned, and the foreign correspondents are left without their invaluable aid. The OWI seems to prefer to tell the story of America’s achievements through its own propaganda. But propaganda is not a tithe so effective as straight reporting by the foreign correspondents, and it is far more expensive. One example: the OWI sends 30,000 words a day to Britain alone.

THE MOOD OF THE CAPITAL

The mood of the Capital got its major boost from the Moscow Conference. This is felt to put Germany in danger of collapse. The Moscow parley has undone all the propaganda work that the War Department has been doing in Congress to tone down overoptimism. On the home front the urge is to be forehanded against der Tag. This means that demobilization plans must be expedited — and in comes Mr. Baruch. The suggestion that the Office of War Mobilization should regard itself also as the “Office of War Demobilization” shows the extent of the current optimism.