Model Example

06.16.12

Bill Knudsen’s Business Skills Saved the U.S. at the Dawn of World War II

Obama says a business executive’s skills aren’t sufficient to run the country, but historian Arthur Herman disagrees, pointing to FDR’s reliance on Bill Knudsen, a GM executive who retooled the country for the coming threat of world war.

Can a businessman-president turn this country around and save its economy? That’s the question people are asking about presumptive Republican nominee Mitt Romney. President Obama has answered firmly in the negative. “When you’re president,” he’s said, “your job is not simply to maximize profits” but to make sure “everybody in the country has a fair shot.” Others say yes–including, it seems, former president Bill Clinton, who has cited Romney’s “sterling” record at Bain Capital as firmly qualifying him for the White House.         

So can a businessman save America? Well, 70 years ago one did–ironically, under a Democratic president. Bill Knudsen was president of General Motors when President Franklin Roosevelt called him in May 1940 to help figure out how to arm America for the coming threat of war in Europe, and then the Pacific. What Knudsen set in motion over the next five years not only saved America but the free world. It’s also a great model for the Romney campaign of what real business experience brings to dealing with a national crisis.         

Standing six foot three and a former boxer, Big Bill Knudsen was a Danish immigrant who had worked his way up from the factory floor to become head of Chevrolet and then GM. He knew the natural productivity of American capitalism first hand. He also knew that unleashing that productive power would be the key to winning World War II–and to getting America out of its decade-long depression (unemployment in 1940 still stood at 16 percent).         

“I’m no soldier,” Knudsen told Roosevelt when he got to Washington that May, “But I know if we get into war, the winning of it will be purely a question of material production.” He persuaded FDR that three steps were needed to get America’s businesses and factories ready for getting back to work, and getting ready for war.         

The first was to rethink Roosevelt’s own anti-business instincts, and to bring industry leaders into the administration to deal with the production crisis.         

The second was to scrap many of the New Deal’s anti-business regulations and tax policies, in order to give businesses an incentive to switch to wartime production and hire workers, retool, and expand their plants.           

The third was to take control of the war mobilization process away from Washington bureaucrats and give it to America’s most innovative and productive companies.          

Together with his fellow business executives–the so-called dollar-a-year men from companies like AT&T, Sears, and US Steel who worked for an annual federal salary of one dollar–he organized a voluntary conversion of American industry from making refrigerators, cars, tractors, and typewriters to making tanks, machine guns, landing craft, and aircraft engines--sometimes on the basis of nothing more than a handshake or a phone call.         

Knudsen knew what Romney knows: that jobs are the result of productivity and profits, not the other way around.

Knudsen and his dollar-a-year men faced a hailstorm of criticism from an isolationist Congress, from hostile union officials, and from the Washington media. Yet the whole time, America’s factories were soon converting themselves into the “arsenal of democracy,” Knudsen called it (a phrase FDR borrowed and used in his famous December 1940 fireside chat).          

The results were as staggering. From a standing start, by the time of Pearl Harbor, America’s war production effort was approaching that of Hitler’s Germany. By the end of 1943 it was bigger than that of Germany, Britain, and the Soviet Union combined. By the end of the war, 70 percent of everything the Allies used to win World War II was made in an American factory.           

National GDP nearly doubled; unemployment plunged to barely 1 percent; half a million new businesses sprang up. The productive power Knudsen and his colleagues unleashed triggered a postwar boom that lasted nearly 30 years–the greatest expansion of the American standard of living in history.             

Some would argue Mitt Romney isn’t Big Bill Knudsen. The auto executive and his colleagues had made things, like cars and ships and steel. They didn’t just make money turning companies around, as Romney and Bain Capital did.            

In fact, Knudsen was a turnaround artist himself. In 1922, he came to Chevrolet when it was the worst performing division of GM. Knudsen had to fire people–mostly managers who had trapped Chevy in its money-losing mold–and restructure what was left. In less than two years, Chevrolet was showing a profit again, and selling more cars (and hiring more workers) than ever. In 1931, it surpassed Ford in total sales–and became the model for every other GM division.          

In the end, Knudsen knew what Romney knows: that jobs are the result of productivity and profits, not the other way around. “There is only one thing that will make this country go forward,” Knudsen used to say, “and that is being able to produce things at lower costs, so they will reach more people.” In Knudsen’s mind, that was real redistribution of wealth, not welfare.                      

Knudsen was also an optimist. “This is the only country in the world that is constantly being reborn,” he once wrote. “American energy, when sufficiently aroused, will always take care of whatever threat is directed against our government, our people, or our institutions”–even when that threat is the growth of government itself.           

No one expects Mitt Romney to save the world, as Knudsen did. But he can make it clear what kind of resume we need to turn this economy around, and what kind we’ve learned we don’t.