West Coast Versus East: The Tug of Peace

by A. G. MEZERIK

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WESTERN America has a post-war plan. Simply stated, it is to wage war against the financial monopoly now held by the East. The goal is industrial self-determination.

Recently Governor Arthur B. Langlie of the State of Washington said, “Our colonial status as shippers of fruit, timber, and other raw materials to the industrial East will be overcome by facilities set up within our states to produce for vast new markets across the Pacific.” That statement is couched in polite language. Westerners feel anything but polite about the way they have been treated, and the opposite of acquiescent about putting up with it. They know that, by a variety of controls, the East has successfully kept them, along with the South, in the role of financial serfs all these years. Now they also know that they have the tools and the men with which to break that strangle hold.

It was by a freak that the aeroplane manufacturers set up shop in the West, and it was the war that gave Henry J. Kaiser, symbol and pacemaker of this Western industrial renaissance, his opportunity. The war has brought all the factors into focus. Immense plants now dot the West. Land transportation facilities have been completed and a new railroad route to Alaska surveyed. Ships have been built in West Coast ports in record numbers, and Western operators have learned to sail them in all the sea lanes. The war-accelerated expansion of aeroplane manufacturing has quickened the tempo of the development of air transportation, and greater air consciousness has brought with it the knowledge that the West, and not the East, sits at the crossroads of the world in the coming pattern of air travel across the Pole. Add to these war creations the fact that the West has the necessary minerals, cheap power, and — as important as any other item— the skilled management for industrial expansion.

The West is playing for a new empire — not only to supply the needs of its own five and one-half million people with manufactured articles, but, by utilizing Alaska and in alliance with the undeveloped Canadian Northwest, to become self-sufficient for almost all its raw materials. Then boldly it expects to ship finished products through the Panama Canal to undersell the East in the South and Southwest, and finally to hit the jack pot — the domination of the world’s greatest market, Asia. It will be a breath-taking fight that may change the pattern of our economy.

The most important necessity in forging the weapons in the fight for the West’s industrial freedom is steel. Without this basic material nothing could be accomplished. For generations the East has controlled steel by an ingenious device called the Basing Point System. The East has owned all the steel manufacturing facilities and refused to provide capital for the building of new plants. With this control of the country’s markets, it imposed on every pound of steel sold the amount of the freight from Pittsburgh or some other distant point, even though that steel was purchased by a buyer across the street from the plant in California where it was made. In the face of this tremendous load, the cost of manufacture of any fabricated product on the West Coast has obviously been prohibitive.

Now Henry Kaiser operates a steel plant at Fontana, California. True, it produces less than 700,000 ingot tons annually, which is only a fraction of the need; but true also, it is free of the Pittsburgh grip.

Western industrialists are mostly first-generation capitalists. They have a pioneering spirit and they are risk takers. Having moved so far at Fontana, they eye the prospects. Puget Sound, the logical spot for the location of the West’s steel industry, has harbors and lies comfortably close to the source of cheap power and raw materials. There is no obstacle to using neighboring Canadian deposits of iron ore, for iron ore is on the duty-free list. Coal, another essential, can be imported subject only to a very light duty. Coal deposits are plentiful too in our own Pacific Northwest; these can be brought in ships at low cost to the present Fontana mill, and at even lower costs to the prospective Puget Sound development.

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EVEN while the steel industry is being nurtured and expanded for the conflict, war momentum has carried the West a long way toward its objective on other fronts. The West has become a great producer of the light metals, magnesium and aluminum. It is virtually alone in producing the new fused plywood, strong as metal and lighter, and therefore highly desirable for use in the manufacture of any vehicle used on land, on sea, or in the air. Aeroplane and ship construction at record levels has given the West the ranking “know-how” in the use of all these light materials, and there is no dependence on the East for any part of their fabrication. Aeroplane construction has brought with it a skill in creating insulation materials and walls capable of withstanding high pressures and extreme temperatures. These new techniques the West proposes to use, as soon as the war has ended, to make cooking ranges insulated against heat loss and thermostatically controlled, refrigerators, air-conditioning units, and prefabricated housing.

To the West the possibility of quick conversion to the manufacture of these articles is no dream of the wonderful world of the future. The aviation industry now employs two million people; most experts agree that with the end of the war this industry can utilize no more than two hundred thousand in aeroplane manufacture. The prospects for shipbuilding are no better, if as good. These stark facts mean that the program of the West for peacetime production must go into effect without lag.

Many hurdles remain. First comes the perfecting of the necessary collaboration with Canada on the governmental level. For this a joint AmericanCanadian planning body, called the North Pacific Planning Project, is now at work. Limited to the solution of economic problems, this can be classed as an offensive instrument. But bulwarks for defense must also be established. The West fears that, once the war in Europe is over, the East will lose interest in the Pacific war and go right ahead with its own post-war adjustments — with the consequence that the East will obtain a huge head start in post-war business. As evidence of this Eastern tendency, they cite the growing clamor for immediate partial retooling, already heard east of the Mississippi.

The West feels it must take measures against this danger, and at its insistence a subcommittee of the Senate’s Post-war Planning Committee has been appointed. Some months ago, the Western members of this committee started hearings at San Diego to register the demands and the fears of the West. These little-noticed developments in the West’s necessarily increasing participation in government are skirmishes preparatory to the fulldress battle.

Henry Wallace, who is probably a Westerner even more than a globalist, has already sounded the battle cry on two other fronts: the inequitable rate structure of the railroads, and the restrictions caused by patent pools. There can be no doubt that, in at least these two of his post-war aims, he is at one with the Western industrialists.

Until the patent pools, now dominated by the East, are broken or enlarged to include the West, many of the projected undertakings must remain in the blueprint stage. Western industrialists have three paths of action open: (1) they can try for inclusion in the pools by buying their way in; (2) they can use their political and economic power to force antitrust prosecutions; (3) they can conduct frontal attacks against monopoly by going right ahead and taking their chances. With characteristic vigor, they are doing all three. The first two have shown little result as yet, but the third, evidenced in Kaiser’s now famous institution of a prepayment medical plan right in the teeth of the professional monopoly of the American Medical Association, has scored a bull’s-eye.

While far-reaching, the opening up of the patent pools would not be sufficient without success in revising rail-rate structures. For the West cannot, on today’s rates, ship manufactured products east or south at anything comparable to the lower rates benefiting products originating in the East. Transport rates are naturally viewed in the West as most important, since the present system imposes a serious handicap to the national distribution of its products.

Distribution and merchandising, however, even without the rail-rate headache, are fraught with serious difficulty. Western manufacturers have never sold any great variety of products either to other industries or to the general public. Come peace, they will find themselves in direct competition with great Eastern companies, already well established and favorably known. More important, the Easterners are highly skilled merchandisers who, with a weather eye on the future, have held their merchandising organizations together all through the war. The West starts from scratch.

Advertising and good will must be created; wholesalers, dealers, salesmen have to be organized — an epoch-making job and one for which the West has little experience. This is, in part, the reason why Henry Kaiser’s executive offices are now in New York. It explains, too, the emergence of West Coast advertisers such as Joshua Hendy, Fleetwings, and the aeroplane companies, who seek, without anything to sell at present, to create an impression on the public which will last until their peacetime products are ready. Meanwhile, many Western industrialists are also surveying, with a view toward purchasing them, small companies which have built up, over a period of many years, consumer acceptance of their products and efficient distributing mechanisms, both of which can be expanded.

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WESTERNERS know that the transition to nationwide marketing of consumer goods will take time. Therefore they plan their entry through the sale of equipment used by industry. Competition is keen, but the market is a narrow one, in which concentrated effort provides large money sales. Turbines, steam and Diesel engines, gasoline motors, and all other equipment necessary to supply power are in this class. Since these are vital to Western selfsufficiency, their manufacture and sale will provide the West with a double advantage.

Motive and generating equipment is also high in the list of industrial merchandise which Asia will need as soon as the war is over. Western industrialists all agree that the development of the Asiatic market cannot be left until a national merchandising organization is perfected. It is on Asia that the West pins its hopes for liberation from the domination of the East; consequently the plans for selling Asia are well advanced. When the Japanese have been pushed back to their island, the breezy Westerners will be ready and waiting with, they expect, their swords beaten into all manner of transportation and industrial equipment. The plans for world-wide industrialization laid down by practical businessmen challenge the imagination.

Kaiser proposes to send to China, India, and even South America all our present heavy and uneconomical freight and passenger railroad equipment. This he hopes to see replaced with modern freight and passenger cars built of the more efficient light metals already being plentifully produced on the West Coast. That plan would give large employment to millions of Americans, place all the existing equipment on the West Coast on a basis of full peacetime operation, keep all our ships moving, and provide an up-to-the-minute rail system for America. The standard of living in Asia would begin its spiral upward with the coming of rails and would, it can well be believed, continue with the installation of modern industrial plants, the second step in the plan.

To most laymen, the plan may seem visionary. But, impractical or not, the plan is symptomatic of what is cooking beyond the Rockies. The plans of the West have been big all during the war — yet they have been carried through. The West is not married to any orthodox economy.

Take the matter of getting paid for all the equipment which the West firmly has decided to make for and sell to the Orient. Asia hasn’t the money to pay for it. But there is every possibility that she will have plenty of money it and when she is enabled to get out her own raw materials and to manufacture goods. Though the Western manufacturers are firm believers in free enterprise, they are not proposing the conventional private bond issue financing so well remembered from the reconstruction period after the last war.

The West wants a continuation of Lend-Lease. Wealthy Eastern fabricators do not. Post-war Lend-Lease is already a serious fight. It will get hotter. For the West must have that Asiatic market. Westerners know they will not be able to develop it with the help of Eastern financiers, and realistically they turn to government. Lend-Lease offers the quickest way of opening up the Asiatic market and getting the money for the products.

The same is true of subsidies. That may not sound right in the face of the fact that the agricultural interests of the West are leaders in the fight against subsidies for farm products. Wartime high prices for farmers, however, are not to be confused with the peacetime necessities of a new and burgeoning industry. Nearly everyone who has seen the huge Western aviation plants immediately visualizes the ease with which they could be converted into the building of prefabricated housing. Manufacturers see the very same glorious possibilities, and their eagerness is heightened by the insistence of many of our economists that our postwar prosperity rests on the cornerstone of a huge housing program.

Here the industrialists become extremely practical; they know that mass housing must be subsidized, and they are already plugging for government aid. They want subsidies for the manufacture of products to be sold inside the country, but even more urgently they want continuation, even an increase, of shipping subsidies. For the immediate post-war future, it is essential that the West be not in any way dependent on Eastern-owned ships or on ships of foreign registry. Until streamlined, economically operated ships, another Western dream, can be realized, the West must look to government for subsidies.

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LEND-LEASE and subsidies by no means complete the list of financial necessities for which the West must look to government. Consider the present ownership of the industries which form the backbone of the West’s present production. These were comparatively small prior to the war. Today they are tremendous. They are, however, owned by the government and not by their Western operators.

In the aircraft industry, 93 per cent of all expansion since June, 1940, has been accomplished with government funds; in shipbuilding the total is even larger —96 per cent; 90 per cent of all magnesium plants are government-owned. All the Western aluminum plants, with the exception of one operated by the Eastern-owned Aluminum Company of America, and another owned by the Reynolds Metals Company but financed by the Reconstruction Finance Corporation, are government-owned. The plants are there all right, but even these few statistics point up the question of what will happen to them at the end of the war.

That depends on government’s attitude. The West is working feverishly to see to it that there is no repetition of what happened after the last war when war-built facilities were, in most cases, abandoned or used by the Harding administration to repay political favors. For the West it is a matter of survival. Until this question of to whom and how the government will transfer the plants is settled, nothing else can matter much. Even if the government offered them for cash and comparatively cheap to their present operators, that would not solve the problem. For Western capital in the amounts required is nonexistent, and the great avenues to public subscription of stock and bond issues are controlled by Eastern banking interests, which are understandably not enthusiastic about underwriting the Western fight to emerge from colonial status. A direct approach to the public for stock purchase, in amounts from twenty-five dollars up, requires organization and confidence in post-war prospects, neither of which the West has yet established. Any way you look at it, government must stay in the picture.

Yet every Western top-flight industrialist is opposed to government ownership or operation of these plants. These men see themselves as ownercapitalists in a private enterprise system and not as part of any movement for the managerial revolution. Executive after executive, in discussing postwar possibilities, will challenge you to point to any competitive business which the government operates or can operate successfully. Yet they know all too well that they will need government help to acquire the plants they are operating — not only to take over the plants and the machinery but to provide working capital.

Layoffs and shutdowns must take place on the day when war contracts are canceled, unless this question is answered quickly. The problem is dramatically pictured by the huge Consolidated Aircraft Corporation. Officials of this company state that its net working capital is equal to only two weeks of the present payroll. Kaiser posed it another way when he warned the Women’s National Press Club that unless “something is done now” he will be able to retain only “a maximum of 5 per cent” of the employees at his plants.

The first relief demanded by the Western industrialist is on renegotiation, the little-understood government instrument to recapture excessive war profits. The Westerners say that the present method, which figures all excess profits on a tax base indicated by average earnings from 1936 to 1938, redounds almost entirely to the benefit of Eastern manufacturers. They specify the high earnings of the automobile industry in those years as a case in point. The Westerners, just getting under way at that time and in the midst of their lean years, want a surplus set up for peacetime. That would help a lot, they maintain, but it is far from enough. They want government help in obtaining private capital with which to buy and work the plants.

Here again Kaiser has been active. He proposes post-war V loans, by which the government would guarantee the stock and bond issues floated by the company or its bankers to the public. The West wants the government to guarantee at least 50 per cent of the total issue and, if possible, much more. In this way, the financial strength of the government would be placed squarely behind the credit of the plant owner, and the greatest obstacle to immediate private financing would be removed.

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SHOT through the entire fabric of the West’s blueprint for its future is this pattern of help needed from government. From patent pool through financing and shipment of finished products to Asia, the helpful coöperation of government is essential. The tremendous war growth has occurred under a Democratic administration. If the Republican Party now comes to power, will it be inclined to extend subsidies, Lend-Lease, post-war V loans, and all the other aids required for the West to fight a victorious battle for self-determination? The answer may well depend on the most influential supporters of the Republican Party. These are certainly tied to the industrial-financial pattern of the East. Rationally, then, it would seem that the West could not, with all the attendant danger of breakage, put its eggs in the Republican Party basket.

The composite answer of Western industrialists to the direct question is far from explicit: “What is good for the West is good for the whole country.” And while they say it, they keep on trying to get more of their needs translated into governmental action now. It may well be that they will support the Republican candidate. But if that happens, there will be some novel and interesting planks in the platform of the Grand Old Party.

Victory is in the Westerners’ gun sights. Anyone who observes the vitality, resourcefulness, and imagination of these frontiersmen of industry can see that victory coming. They know the troubles which await them, but they are working out the answers on all fronts, secure in the knowledge that behind their battle plan stand the prime natural resources of the country. They see their objective much too clearly to stop now. That’s why, after a full-dress discussion of all these difficulties, they smile, point to Asia on the map, and say, “That’s our market. We’re elected.”

The South is more than a spectator in what happens here. Any one of the goals of the West could be cited as equally desirable by Southerners who have been smarting and protesting about the same set of conditions since the Civil War. They have not been benefited by the same set of fortuitous circumstances which now cheer the West, but they realize that the slogan for them must be, “As the West goes, so goes the South.” They feel that the first Western ship coming around the Panama Canal and into a Gulf port with goods for them will bring them succor to be compared only to that of an army relieving a beleaguered town. For with that ship will come the first signs of surcease from serfdom imposed by inequitable freight rates and Eastern financial and industrial domination.

The East-West fight and its outcome have much more than academic interest for all the population of the United States. It is certainly not a private fight between two groups of regional industrialists. To a country avidly talking full employment, what happens on the West Coast is important. Right now, in the State of Washington, 45 per cent of the number of people employed in 1940 are either in the armed forces or in war industry. California and Oregon have totals nearly as large. Unless these Western plants remain at work, there will be nearly fifteen job seekers for every ten pre-war jobs. Even with the rest of the country in good shape, that ratio of unemployment, regionally, might well depress the nation’s entire economy.

Considered from the global point of view, the project of industrializing Asia falls into line with the aims of those who, like Wendell Willkie, see the economy of the whole world as interdependent. Brought right down to national interest, the goods which the West proposes to make can help to supply the needs of everyone. That’s the way the determined, vigorous industrialists of the West see it — and the sidelines are already filling up with folk, progressive and conservative, eager to watch the industrial bottle of the century.