“Who won [the] Cold War?” Hofstra University management professor John Ullman asked in a 1990 New York Times letter to the editor. “West Germany and Japan,” he argued, “simply by not wasting the resources of creative, industrious societies on the treadmills of the arms race and occasional ‘small’ wars.”
The letter suggested that while the United States and the Soviet Union were singularly focused on building the largest and most powerful militaries in history, West Germany and Japan concentrated their industrial policy far more on economic development.
As a result, both of those countries achieved record growth and productivity rates in the 1970s and 80s as the U.S.S.R. began its implosion and the U.S. economy lumbered through stagflation and low productivity.
Ullman’s observation underscores a key tension in national economic management and industrial policy that Canada is about to confront as the Carney government massively increases defence spending to meet NATO targets: How to balance this with economic prosperity?
Lessons from the U.S. defence economy of the 1950s
For the answer, let’s look at the 1950s when the United States sustained high levels of military spending (eight to 10 per cent of its annual GDP), maintained impressive increases in productivity rates (three to four per cent annually) and built the largest and richest middle class in history by having workers both share, and have a stake in, its success.
To replicate that kind of success, Canada must now rebuild its defence industrial base with dual-use military-civilian equipment, technology and production processes, as the Americans did. But broader economic growth and prosperity can be realized only if Canadian workers share now in the fruits of this historic planned federal investment, as their U.S. counterparts did decades ago.
Some of the reasons the U.S. achieved such impressive economic gains in the 1950s were specific to the time and circumstances. Nevertheless, Canada can still learn from the U.S. post-Second World War experience but must adapt this model to today’s technologies and workforce.
Canada’s Jeep and jet engine
In the 1950s, the United States’ defence industrial policy supported a diverse range of companies that could simultaneously meet the country’s civilian and military needs, with General Motors being one of the most important. Indeed, GM became one of America’s largest defence contractors partly because of the Jeeps it produced for the U.S. Army.
The manufacturing process for a Jeep was nearly identical to any other auto, which meant that assembly lines could easily switch to civilian vehicles if the military contracts dried up. Or as eventually happened, Jeeps could be marketed directly to the civilian population.
The effects of this policy reached beyond the United States. Despite some Americans’ reverence for the Japanese model, part of what made Tokyo’s economic miracle of the 1950s was U.S. defence contracts for the Korean War. Chief among those was an order from the U.S. Army for Toyota to build the Jeep BJ, which eventually became the civilian Land Cruiser.
Aside from basic equipment, U.S. defence industrial policy of the 1950s also effectively adapted the latest technology for civilian purposes. The key example here is the aerospace industry.
Aircraft manufacturers such as Boeing and Douglas pioneered jet technology for the military, with Boeing designing and building the B-52 nuclear bomber (still in service) and Douglas supplying the Navy with F4D Skyray fighter jets. In 1958, both companies helped usher in the civilian Jet Age when they introduced the Boeing 707 and the DC-8.
With that in mind, we must ask: What is Canada’s version of the Jeep and the jet engine in the 21st century?
The dual military and civilian applications of an expanded defence industrial base are particularly important for Canada because of our smaller size.
Even if the Carney government fulfils its new NATO pledge to spend five per cent of annual GDP on defence, will this create a market large enough for our defence companies to be profitable? Broad civilian applications will be necessary if Canada hopes to translate an increase in defence spending into sustained prosperity.
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But it’s not enough to simply produce dual-use technologies and equipment for the military and civilian markets. We have to make sure there is a civilian market. In other words, Canadian consumers must have enough buying power to create sufficient demand. As a result, any new investment in our defence industrial base must ensure workers receive their fair share.
Sharing the gains fairly
This was a key strength of U.S. defence industrial policy during the 1950s, albeit with an important limitation. In May 1950, after five years of costly and intense labour conflict, General Motors and the United Auto Workers reached a historic agreement. Hailed as the Treaty of Detroit by Fortune magazine, the agreement laid the groundwork for industrial peace that lasted a generation.
GM provided job security, high wages and pensions for its workers. In exchange, the company received relatively stable and predictable labour relations. As Daniel Bell wrote in Fortune at the time, while “G.M. may have paid a billion for peace. It got a bargain.”
This deal served as a model for other industries and workforces (whether unionized or not) until it became the norm throughout the broader economy. These agreements were crucial in helping create the prosperity and stability of the 1950s by effectively incorporating a significant portion of American workers into the middle and consuming classes.
But where this model fell short was its uneven application among the American workforce. While white workers were able to achieve the American Dream, legalized segregation and prevailing prejudice from government, management and organized labour excluded Black workers. Aside from the inherent injustice, such exclusion and segregation eventually broke the tranquility and stability of the 1950s and led to the turmoil of the 60s.
In a more interconnected world where hostile powers can sow discord and resentment from far beyond our borders, a country as diverse as Canada cannot afford to exclude anyone from sharing in the kind of historic investment now envisaged by the federal government. Workers and consumers in Canada must share in the rewards to be generated by high defence spending.
