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War Economy

What is to be Learned from Experience?

What is to be Learned from Experience?

To sum up the problems facing those who were responsible to get war work done in the most difficult years:


The volume of work to be done was quite unprecedented.


Urgency was paramount for a time.


Productive capacity was saturated.


Much of the work was new—there was insufficient experience to provide a basis for forward estimates.

It must be conceded by critics of the looser system of contracting that the normal peacetime system of competitive tendering had page 364 broken down over a large portion of the economy. Possibly the abandonment of this tendering system was hastened when contracting firms realised that they were likely to make higher profits under more loosely drawn wartime contracts. However, with such a high pressure of demand on the private enterprise economy, competitive tendering could not have been expected to be really effective in protecting the Government against excessive charging. In other words, the Government was probably going to have to face excessive charging in any case, unless Departments were able to have all the work done under their own direct control by their own staff.

Direct Government supervision of work does not always produce results superior to the system of contracting with private enterprise, although there are some notable instances where it does. In any case, the Government was just as short of good supervising staff as was private enterprise. Recruitment of over a quarter of the labour force for the armed services had had its effect. In fact, the excessive costs of some wartime contracts arose as much from poor supervision on the job as from muddlement or dishonesty by contractors.

On the whole, it was preferable to work in partnership with private enterprise firms rather than to take them over, but this, in wartime, needed to be accompanied by much more self-discipline on the private enterprise side. As it was, the profit motive seems to have been left with too much liberty altogether, having regard to restrictions put on other sections of the community. The profit motive cannot be condemned out of hand, but one example of the profit motive on the rampage was the refusal of some firms to accept any type of contract which required efficient working as a prerequisite for extra profit.

It is an interesting contrast that, while the Government made full use of its powers to direct men into firms doing essential work, it was reluctant to use its powers to control labour, materials and production as a means to persuade firms to carry out essential jobs under watertight contract arrangements.1 Without some measure of coercion the Government was dependent on voluntary acceptance of war contracts, with the result that, when war needs started to strain resources, some firms could virtually dictate contract terms. Any form of coercion to get work done would have had to be accompanied by close supervision, especially if precision work was required. There is, therefore, considerable doubt whether work

1 However, see footnote 2 on p. 468.

page 365 would have been done satisfactorily had firms been coerced into undertaking contracts which they did not want. However, it does seem that the looser forms of contract were too freely available.

Had the Government been in a position to work out suitable systems of wartime contracting in advance of the event, and had it had the firmness to stand by those arrangements and insist that they apply to all jobs, work might well have been done more efficiently and more speedily. In the event, many private contractors got the bit between their teeth.

In cases where forward estimates of job content were impracticable, for instance in some types of ship repair work, there were almost insuperable difficulties in the way of providing a profit incentive for efficiency and speed of work. But, is it possible that, given a little more forethought, a much larger proportion of contracts could have been drawn up in a way which would have allowed efficiency and speed to be matched by extra profits? Could the cost-plus type of contract, which put a premium on inefficiency, have been largely avoided?

It was not unreasonable to expect the Government, in a time of excess demand on industry, to provide extra profits to get work done faster and more efficiently.1 The criticism of most war contracts was that the Government paid too much extra for an inadequate improvement in efficiency and speed. Sometimes indeed it paid much more while accepting contract systems which tended to yield poorer results.

What of the future? One point which emerges clearly is that the Government should never again contemplate extensive use of cost-plus or similar types of contract, unless contractors are prepared to disclose all their relevant records, not just those relating to Government contracts. Wartime experiences point to the need for New Zealand Government departments to have on hand clear plans for special types of contracts which can cope with any situation where high levels of demand and urgency of work may destroy the competitive tendering system. Man seldom learns from history, but perhaps this may be an exception. The abuses revealed in this chapter provide a most explicit lesson on the pitfalls of loosely drawn contracts. There would really be no excuse at all if, in the early years of another national emergency, New Zealand again experienced all the muddlement and uncertainty to which these special types of contract gave rise during World War II.

1 Though even this conflicted with the initial Labour Party view that in wartime there should be ‘no profiteering of any kind whatever’ (Walter Nash in September 1939, NZPD, Vol. 256, p. 249).