The German armoured pincers which encircled and crushed the Soviet armies in western Russia in June, July and August 1941 were instruments of military victory such as the world had never seen; but they were not instruments of total victory. Although they destroyed one of the Soviet Union’s principal means of making war, its mobilised front-line defences, they did not succeed in destroying its industrial resources in the European provinces. Even while the Panzers were on the march, an evacuation soviet, directed by the economic expert A. I. Mikoyan, was rapidly uprooting factories from their path, loading machinery, stocks and workforces on to the overstretched railways, and shipping them eastward to new locations beyond the Panzers’ reach. The strategic relocation of industry had begun long before the war, with the effort to make the output of the new industrial and raw-material zones beyond the Urals and elsewhere equal that of the traditional centres around Moscow, Leningrad and Kiev and in the Donetz basin. Between 1930 and 1940 new metallurgical plants were opened at Magnitogorsk, Kuznetsk and Novo-Tagil, industrial complexes at Chelyabinsk and Novosibirsk, aluminium works at Volkhov and Dnepropetrovsk, coalfields at Kuznetsk and Karaganda and a ‘second Baku’ oilfield in the Urals-Volga region, together with no less than thirty trans-Ural chemical plants. The pace of equalisation was slow; but by 1940, when the Donetz basin produced 94.3 million tons of coal, the Urals and Karaganda fields were producing 18.3 million.
However, Barbarossa stimulated nothing less than ‘a second industrial revolution in the Soviet Union’, in John Erickson’s words. In August to October 1941, 80 per cent of Russian war industry was on the move eastward. The German advance had overrun 300 Soviet war-production factories, and would eventually bring the whole immovable extractive resources of western Russia, particularly the rich coal and metal mines of the Donetz basin, into German hands; but it was not rapid enough to prevent the evacuation eastward of the greater part of Soviet engineering industry from Leningrad, Kiev and the regions west of Moscow. In the first three months of the war the Soviet railway system, while transporting two and a half million troops westward, brought back eastward the plant of 1523 factories for relocation in the Urals (455 factories), Western Siberia (210), the Volga region (200) and Kazakhstan and central Asia (more than 250). The effort was both extraordinary and perilous. On 29 September 1941 the Novo-Kramatorsk heavy-machine-tool works received orders to strip down its workshops; within five days all its machinery, including the only 10,000-ton presses in the Soviet Union, were loaded on to wagons under German bombing, while the 2500 technicians had to march on the last day to the nearest working railhead twenty miles away.
Ninety factories were evacuated from Leningrad, including the heavy tank works, the last shipments being made by barge across Lake Ladoga after the city was cut off by land from the rest of Russia. When similar German advances interrupted evacuations from the Donetz basin, all workable plant, including the gigantic Dnieper dam, was dynamited. In the teeth of this appalling industrial turbulence, Soviet economic managers succeeded in bringing the relocated plants back into production after an almost miraculously brief delay: according to Erickson, on 8 December ‘the Kharkov Tank Works turned out its first twenty-five T-34 tanks [at Chelyabinsk in the Urals], just short of ten weeks after the last engineers left Kharkov, trudging along the railway tracks.’
These beginnings of Russia’s ‘second industrial revolution’ were the worst of news for the Wehrmacht, even though it remained unaware of them for months to come. The worm in the apple of Hitler’s spectacular campaigns of 1939-41 was that they had been fought from an economic base too fragile to sustain a long war, but with effects on the will of his enemies which ensured that the war would inevitably lengthen into a do-or-die struggle unless he could quickly crown it with a swift and decisive victory. Hitler’s Germany, behind the panoply of the Nuremberg rallies and the massed ranks of the Wehrmacht, was a hollow vessel. As a producer of capital goods in 1939 she stood equal to Britain, with about 14 per cent of world output, compared to 5 per cent for France and 42 per cent for the United States, even in her still depressed condition. When British invisible earnings were added into her gross national product, however, Germany’s output declined to third place below the British and American (excluding the Soviet Union); and when allowance was made for access to essential raw materials, including non-ferrous metals but particularly oil, the size of the German economy appeared smaller still.
German economic strategy, quite as much as its military one, was therefore geared to the concept of Blitzkrieg. The need was for a quick victory to spare German industry the pressure of producing weapons and munitions in quantity; once the war protracted, and Hitler decided upon the necessity of attacking Russia, German economic strategy changed. On the material front the drive was to lay hands on the extractive resources of the enemy, including those of the Balkans but particularly the coal, metal and (above all) oil-bearing regions of south Russia (together with the vast agricultural wealth of the Ukraine). On the industrial front the emphasis shifted in two different directions. Until 1942 Hitler had been adamant that the military effort should not depress civilian living standards or curtail the output of consumer goods; between January and May 1942, at the insistence of his Armaments Minister, Fritz Todt, and then (after Todt’s accidental death) Dr Albert Speer, he accepted that military output as a proportion of gross national product would have to rise. However, while Todt and Speer introduced centralised measures of economic control which did indeed begin to raise output at a spectacular rate (for example, armaments, as a proportion of industrial production, increased from 16 per cent in 1941 to 22 per cent in 1942, 31 per cent in 1943 and 40 per cent in 1944), they did not commit Germany to attempt to match the production of their enemies’ economies in quantitative terms. German war-economic philosophy rested on the concept that the country’s weapons output should and could outdo the enemy’s primarily in quality.
The ‘quality war’
This concept proved difficult to implement in aircraft production, where both types and individual models of propeller-driven aircraft fell progressively behind their British and American equivalents after 1942. The German aircraft industry never produced a satisfactory strategic bomber; as early as 1934 the Luftwaffe had decided not to make an effort to develop this type of aircraft. Its single-seat fighters had reached the limit of their development in 1943. Its heavy fighters were all failures. By contrast, its first jet-propelled fighter, the Me 262, was a spectacular success, and if Hitler had encouraged its early production in quantity it would have confronted the Allied strategic bombing campaign with a severe challenge. German tanks, designed for serial development from a basic model, were also of the first quality, as were German small arms. For example, the MP-40 sub-machine-gun, known to Allied soldiers as the Schmeisser, was both the best of its kind in use in any army and one of the simplest to produce. German design engineers had simplified its components so that almost all could be produced by repetitive stamping, only the bolt assembly and barrel having to be machined.
German ‘secret weapons’ were also a testimony to the success of the ‘quality’ philosophy. Though Germany’s electronics industry failed to match the achievements of the British, which consistently produced better radar equipment of every sort and supplied the scientific and technological basis for American industry’s advances in that field, and though its nuclear weapons programme was an abject failure, its success with pilotless weapons and advanced submarines was impressive. The perfection of the schnorkel air-breathing system for submarines, though it came too late in the war to revitalise the U-boat campaign, introduced a method of operation which all post-war navies adopted and used until the coming of the nuclear-powered boat; while the development of the hydrogen-peroxide propulsion system, allowing a submarine in theory to cruise submerged indefinitely, in a sense anticipated the principle of the nuclear-powered submarine. Its pilotless weapons, the V-1 ‘flying-bomb’ and the V-2 rocket, were respectively the first operational cruise and ballistic missiles. All modern equivalents of the two types descend from them, largely because their German designers emigrated to one or other of the superpower states.
Germany’s limited success in running a ‘quality’ war economy must, however, be balanced against other factors. In the first place, Hitler’s requirement that levels of civilian consumption should be maintained in the teeth of military output could not be observed by mid-1944. Thereafter the German standard of living fell sharply, both in absolute terms – as imports began to decline and the strategic bombing campaign bit deeper – and as a proportion of a declining gross national product. Gross national product, moreover, had risen only slowly during the war, from 129 billion to 150 billion Reichsmarks between 1939 and 1943, and then only as a result of emergency or extraordinary factors. Working hours were increased; imports of raw materials, goods or credit were exacted from the occupied territories by requisition or on terms of trade highly favourable to Germany; and the German labour force was swelled by an import of foreign labour – some induced, some conscripted, some enslaved – equivalent to a quarter of its pre-war size, or nearly 7 million people. Since Germany was not wholly self-supporting before the war, this workforce was at first fed by imported agricultural produce, but when food imports declined sharply after 1944 the swollen labour force became a charge on the war economy rather than a benefit to its structure.
The economic strangulation of Germany in the autumn of 1944, when the whole of its occupation area in the west and the remains of its conquests in the east were lost in the four months of June to September, manifested itself in a sharp and devastating fall in the index of war production. The general index (1941-2 = 100) fell from 330 to 310 between June and November, the index of ammunition production from 330 to 270, the index of explosive from 230 to 180. Oil, without which the army’s tanks could not move or the Luftwaffe’s aircraft fly, suffered an even more catastrophic decline in output from the synthetic-oil plants. In May, when imports made their last contribution to consumption, supply exceeded consumption for the first time in the war; by September, as a result of the Allied bombers’ ‘oil offensive’, production from the synthetic-oil plants was only 10,000 tons, one-sixth of consumption, which itself had been reduced by stringent economy from 195,000 tons in May. Only the onset of bad weather and disagreements between the bomber chiefs spared the oil plants from further sustained attack and so averted the total interruption of oil supply before Christmas 1944. Germany narrowly escaped defeat by economic effect alone in 1944; as it was, a revival of production at the main Pölitz synthetic refinery released enough oil for its armies to go down fighting on the Rhine and in Berlin the following spring.
Japan was even more vulnerable to economic strangulation than Germany, and in its last weeks of war-making it was brought almost to that point. Its shipping stock had by then been reduced by sinkings, largely the work of American submarines, to 12 per cent of the pre-war stock, a desperate state of affairs for a country which depended not only on food imports to survive but also on inter-island movement to operate as an organised state. Japan had, of course, largely been motivated to war, at least at the objective level, by economic calculation. Its home population (excluding that of Korea and Manchuria) of about 60 million was too large to be supported by domestic agriculture (which supplied only 80 per cent of consumption), and it was the lure of Chinese rice as much as anything else which tempted the army to open its general offensive into mainland China in 1937. After the effective defeat of Chiang Kai-shek in 1938, most Japanese military activity in China took the form of ‘rice offensives’, forays into the rural districts designed to capture supplies at harvest time, which continued until the institution of the major Ichi-Go operation in 1944. However, since Japan was a rapidly industrialising nation, it needed not only rice but also ferrous and non-ferrous metals (both ores and scrap), rubber, coal and, above all, oil. In 1940 the supply of iron ore from domestic resources was only 16.7 per cent of demand, of steel 62.2 per cent, of aluminium 40.6 per cent, of manganese 66 per cent, of copper 40 per cent. All supplies of nickel, rubber and oil were imported, and although Japan produced 90 per cent of its own coal it had no reserves of coking coal which is essential for steel production. The government might, of course, have resolved to pursue a policy of exchange through trade; but the world slump, and protectionist measures imposed by Western importing nations as a result, so reversed the terms of trade that progressively more militarist Japanese cabinets set their face against the reduction of domestic living standards that a merely commercial approach to the acquisition of essential resources would have entailed. When the United States began to impose embargoes on strategic exports to Japan during 1940, and encouraged the British and Dutch to do likewise, the army-dominated cabinet rapidly decided on making a surprise attack.
In practice the capture of the ‘southern area’ – Malaya, Burma and the East Indies – yielded a much lower economic return than the Tojo cabinet anticipated. Imports of raw rubber, for example, which stood at 68,000 metric tons in 1941, declined to 31,000 in 1942, reached 42,000 in 1943 but declined again to 31,000 in 1944, largely as a result of the American submarine campaign, which also progressively curtailed imports of coal, iron ore and bauxite. The effect on Japanese industrial production was direct and proportional; although the Japanese aircraft industry sustained a remarkable increase in output between 1941 (= 100) and 1944 (= 465), as did the naval ordnance factories (1941 = 100, 1944 = 512), the output of motor vehicles in the same period declined by two-thirds. There were significant increases in the launching of naval and merchant ships, which respectively doubled and quadrupled; but as sinkings exceeded launchings the effort was more than nullified. The Japanese gross national product overall grew by a quarter between 1940 and 1944; government war expenditure, however, increased fivefold during the same period and eventually represented 50 per cent of GNP, thus stifling non-military production and leading to a harsh curtailment of civilian consumption. The end result of the war effort was to leave Japan with a population on the brink of starvation, though with a significantly enlarged workforce of trained engineering operatives. In the era of post-war economic revival, that workforce would win for Japanese products the overseas markets the denial of which had provoked Japan to aggression in the first place.
Britain’s war effort
Britain, the other great island combatant, had also been threatened with economic strangulation by means of an enemy submarine force. It was even more dependent than Japan upon imports for food, since a century-old policy of utilising cheap shipments from America, Canada, Australasia and Argentina had depressed farming to a level where only half of consumption was met from domestic resources. It was wholly self-sufficient in coal and partially so in ferrous ores; but it depended upon foreign supply for all its oil and rubber and most non-ferrous metals. Moreover, though equal to Germany as the second greatest industrial power in the capitalist world, it imported certain vital products such as chemicals and machine-tools. The war effort it had imposed upon itself, moreover, particularly in 1940-1 when it bore the burden of confronting the Axis alone, could not be sustained out of domestic revenue. In order to pay for the fighters which won the Battle of Britain, the escorts which fought the Battle of the Atlantic and the merchant ships sunk in it, and the tanks which contested the issue with Rommel in the western desert, Britain was obliged to liquidate almost the whole of its overseas holdings of capital, an economic sacrifice which would require fifty years of effort to restore.
Had Germany deployed at the outset of the war the force of 300 U-boats which Dönitz had advised Hitler was necessary to win the Battle of the Atlantic, Britain would surely have collapsed as a combatant long before events in the Pacific brought about the United States’ entry. Fortunately Dönitz did not achieve the deployment of that number until 1943, when the balance of forces between the Axis and its enemies had already altered to Hitler’s fatal disadvantage. In the interim, as the result of the most ruthless imposition of centralised direction attempted by any country other than the Soviet Union, British industry had achieved a remarkable surge in output of war material. For example, the number of tanks produced increased from 969 in 1939 to 8611 in 1942, the number of bombers from 758 in 1939 to 7903 in 1943 and the number of bombs from 51,903 in 1940 to 309,366 in 1944.
Britain also achieved remarkable advances in quality as well as quantity of equipment. Its inventiveness in the field of electronic warfare was unequalled in the world, while its pioneering development of jet-propulsion systems for aircraft led to the deployment of a jet fighter, the Gloster Meteor, to two front-line squadrons in Europe in the closing weeks of the war (although they did not engage their German equivalent, the Me 262). British aero-engine designers produced the power plant which transformed the P-51 Mustang into the most potent long-range fighter of the war. The de Havilland Mosquito proved one of the most elegant and versatile combat aircraft of the war, performing with distinction as a bomber, day and night fighter and in its reconnaissance and intruder roles. The Avro Lancaster night bomber, although approaching obsolescence by 1945, was the supreme instrument of the RAF’s strategic bombing campaign. There is little doubt, however, that the heavy emphasis placed on strategic bombing led to a pronounced structural imbalance in the British war economy, absorbing as much as one-third of the nation’s war effort and the cream of its high technology. The sheer weight of British industrial effort committed to the bombing offensive meant that Britain had to turn to the United States for all its transport aircraft, many of its landing craft, vast quantities of ammunition and a large proportion of its tanks. Though British industry had produced the first tank in the First World War, British tanks in 1939-45 were notably inferior not only to their German but also their American equivalents; by 1944 all British armoured divisions were equipped with the American Sherman.
The British economy increased in size by over 60 per cent during the war; but civilian consumption declined by only 21 per cent between 1939 and 1943, about the peak of British war production, when military expenditures were consuming 50 per cent of the gross national product. The home population felt the shortfall, notably in the disappearance of all luxuries from the market and the reduction of many essentials such as fats and proteins from the rationed foodstuff allocations, together with a severe shortage of clothing. The effect of the shortfall was nevertheless disguised. Had Britain attempted to sustain its military outlay from domestic resources, its economy would have been broken. The same was true for the Soviet Union. Despite all the sacrifices made, in the extension of working hours, the liquidation of foreign and domestic capital, the reduction of living standards, the utilisation of marginal farming land, the substitution of ersatz for accustomed commodities, the conscription of women to the workforce (and in Britain also to the armed forces, where they formed a higher proportion than in those of any other combatant country) and a dozen other emergency measures, neither the British nor the Soviet economy could have borne the strains of war without external assistance. That outside help came from the United States.
Early in the course of his invasion of Russia, Hitler expressed regret to General Guderian that he had not heeded his warnings of the extent to which Russian exceeded German tank production. ‘Had I known they had as many tanks as that,’ he conceded, ‘I would have thought twice before invading.’ Russian tank production, 29,000 in 1944 when German tank production reached its peak at 17,800, was but one index of the degree to which the Allied war economy exceeded Germany’s in scale. It was ultimately the United States which dwarfed Germany as an industrial power, at every level, and in each category of available natural resource and manufactured product. The shortfall in British war production had been offset since March 1941 by American provisions under the Lend-Lease legislation, which allowed the recipient to acquire war material against the promise to pay after the war was over. Lend-Lease helped Britain provide military aid to the Soviet Union between June and December 1941. As soon as Germany declared war on the United States, on 11 December 1941, Lend-Lease shipments began to flow to Russia directly from America, via Vladivostok, Murmansk and the Persian Gulf.
These shipments were on an enormous scale. The Soviet Union became the beneficiary of an outpouring of aid; some of the donations, such as tanks, it did not need; some, such as aircraft, were needed – for Soviet aircraft were not of the first quality – but were not properly utilised. Although the Soviet forces preferred their own weapons, the other donations provided the Soviet Union with a high proportion not only of its war-industrial requirements but also of its means to fight. ‘Just imagine’, Nikita Khrushchev later remarked, ‘how we would have advanced from Stalingrad to Berlin without [American transport]’; at the end of the war, the Soviet forces held 665,000 motor vehicles, of which 427,000 were Western, most of them American and a high proportion the magnificent 2½-ton Dodge trucks, which effectively carried everything the Red Army needed in the field. American industry also supplied 13 million Soviet soldiers with their winter boots, American agriculture 5 million tons of food, sufficient to provide each Soviet soldier with half a pound of concentrated rations every day of the war. The American railroad industry supplied 2000 locomotives, 11,000 freight carriages and 540,000 tons of rails, with which the Russians laid a greater length of line than they had built between 1928 and 1939. American supplies of high-grade petroleum were essential to Russian production of aviation fuel, while three-quarters of Soviet consumption of copper in 1941-4 came from American sources.
Wartime Russia survived and fought on American aid. So too did wartime Britain. While British convoys were shipping eastward some £77 million-worth of equipment and raw material (equivalent, at current prices, to the annual defence budget for 1989), other British convoys, which included an increasing proportion of American ships, were bringing from across the Atlantic the means both to sustain the British civil population and armed forces and to equip the American expeditionary armies preparing to invade Hitler’s Europe. The percentage of military equipment supplied to the British armed forces from American sources in 1941 was 11.5, in 1942 16.9, in 1943 26.9 and in 1944 28.7; and the percentage of American-supplied food consumed in Britain in 1941 was 29.1, a proportion which continued at that level throughout the war.
This outpouring of aid, combined with the equipment and maintenance of armed forces which increased in size thirtyfold between 1939 and 1945, was achieved at no damage to the United States economy at all. On the contrary: though annual Federal expenditure rose from 13 billion dollars in 1939 to 71 billion in 1944, inflation was easily contained by tax increases and successful war-loan campaigns. The gross national product more than doubled during the same period, and industrial production also nearly doubled.
This achievement had a simple cause. The United States economy had been depressed since the slump and bank collapse of 1929-31, and, despite the application of Roosevelt’s New Deal policies of state-financed reflation, it had not recovered to anything like the same extent as the economies of Germany, where Hitler had run a full-blown Keynesian credit programme, or Britain, where more orthodox budgetary policies had nevertheless encouraged a mild boom during the 1930s. As a result, the American economy was both relatively and absolutely still in a depressed state in 1939. There were 8.9 million registered unemployed and the average utilisation of plant was forty hours a week. By 1944 the average utilisation of plant was ninety hours a week, there were 18.7 million more people in work than in 1939 (the 10 million excess over inducted surplus largely representing women), and the value of industrial output represented 38 per cent of national income compared to 29 per cent in 1939.
In absolute terms these figures represented an extraordinary economic surge. Relatively they spelt doom to Germany and Japan, where productivity per man-hour was respectively half and one-fifth of that in the United States. The American economy was, in short, not only much larger than that of either of its enemies. It was also greatly more efficient. As a result, from having been a negligible source of military equipment in 1939, by 1944 it was producing 40 per cent of the world’s armaments. In specific categories, output of tanks had increased from 346 in 1940 to 17,565 in 1944, of shipping from 1.5 million tons in 1940 to 16.3 million tons in 1944 and of aircraft – the most spectacular of all America’s wartime industrial achievements – from 2141 in 1940 to 96,318 in 1944.
In 1945 the United States was to find itself not only the richest state in the world, as in 1939, but the richest there had ever been, with an economy almost equal in productivity to that of the rest of the world put together. Her people too had benefited. The pathetic ‘Okies’ described in John Steinbeck’s famous novel of protest, The Grapes of Wrath, were by 1944 enjoying a middle-class standard of living from their earnings in the aircraft factories of California, whence they had emigrated from their worn-out farms in the dustbowl. Neighbours who had stuck out the depression on better land had also received their reward. If it was American factories which made the weapons which beat Hitler, it was American farmers who grew the crops to feed his enemies. Paul Edwards, before the war a New Deal worker, recalled: ‘The war was a hell of a good time. Farmers in South Dakota that I administered relief to, and gave them four dollars a week and bully beef to feed their families, when I came home they were worth a quarter of a million dollars. . . . What was true there was true all over the United States. . . . And the rest of the world was bleeding and in pain. But it’s forgotten now. World War Two? It’s a war I would still go to.’
In the final enumeration of Hitler’s mistakes in waging the Second World War, his decision to contest the issue with the power of the American economy may well come to stand first.