What Shall We Do With the Ships?
88th YEAR OF CONTINUOUS PUBLICATION
by LEWIS W. DOUGLAS
IN THE fall of 1939, the dry cargo merchant shipping tonnage under American registry represented only 17 per cent of the total tonnage of the present Allied nations. When the skies clear once more, the tonnage under the American flag will constitute more than half of all the dry cargo tonnage of the United Nations.
A discussion of this astounding change in world shipping must be set in its broad context. It must raise the question, in its many ramifications, of extending subsidies to American operators. It must cover the consequences of a large American merchant marine on trade — our trade and world trade. It must include considerations of national defense, and it cannot be divorced from the difficult task of re-establishing the market places of the world and a stable medium of international exchange.
Shipping touches the Allied maritime nations on their most sensitive spots, for it is the nerve center of their national life. Hence the disposition of our huge merchant marine is not exclusively an American problem. It is not in a technical sense a shipping problem. It is an essential part of the restoration of peace.
To endure, peace must have an international environment in which it can nourish itself, grow, and become the settled and accepted order of mankind. The task of establishing such an environment is a large one. The three major periods of peace that the world has enjoyed have all been characterized by unifying forces more powerful than the forces of separatism. Roman law, reinforced by the Roman legions, bound the civilized world together in a long period of comparative tranquillity. During the Middle Ages, canon law, supported by the power of the Church, knitted the Western world together in reasonable order. The period from Waterloo to the Marne was marked by relatively free trade carried on under the gold standard and enforced by the British fleet.
Law, religion, and the market place, therefore, within the limitations and definitions of their three different worlds, have provided the restraints on the exercise of sovereignty without which world order and enduring peace become unattainable objectives.
Governments take over trade
From the vantage point of today, we can gain a perspective of the divisive developments that began more than seventy-five years ago — in Europe under the national socialism of Bismarck and in the United States under the influence of a government dominated by the Northern mercantile interests. A steadily growing tendency toward autarchy — manifested first by tariffs, and after World War I by more tariffs, by subsidized exports, by quotas, by shipping subsidies, by monetary policies adopted by nation states and aimed at raising internal price levels, and by exchange restrictions — is now in retrospect clearly discernible.
Copyright 1945, by The Atlantic Monthly Company, Boston, Mass. All rights reserved.
Slowly — by a variety of acts, some ill-advised and some misguided — the dicta of governments began to replace the decisions of the market place. Governments became increasingly entangled in the affairs of business, finance, commerce, and agriculture; and the economic decisions they made, while thought to be purely internal in their effects, necessarily had profound consequences. They swept across national frontiers and impinged on the lives of millions of people inhabiting a large part of the world, within the borders of many different nations.
Long before World War II, these decisions cumulatively impaired the market place — the one modern international institution around which the peace of the nineteenth century was organized.
The lesson of the last three quarters of a century is that the more the state interferes with the market place, the more it as a sovereign comes into sharp conflict with other states as sovereigns; the more the state substitutes its own decisions for the decisions of the market place, the more certainly these conflicts will lead to war.
In this way nationalism becomes supreme and produces its natural offspring, the totalitarian state. Nations compete with nations. War, the final and ultimate manifestation — one might say the inevitable manifestation — of the totalitarian state, becomes first a threat, and finally a devastating fact.
Restoring the market places
Hence, when the war is over, it should be the central aim of peace-loving peoples and governments (at least in the Western world) to restore wisely and prudently the market places of the world, freed from the insecurity caused by government control or the authority of monopolies. It may be urged that just as canon law replaced Roman law, and the market place replaced both as the core of relatively peaceful world order in the past, so the market place will be replaced by some wholly new element. Whatever this may be, it is hoped that it will cut across national frontiers, restrain sovereignty, and provide the basis of a lasting peace.
In a world that has become so highly industrialized, and in which the division of labor has progressed necessarily to such an intricate state of delicate development, it seems improbable that any proposed substitute for the market place will prove to be effective as a healer of wounds and a binder of peace. Certainly, on the record of the last seventy-five years, the state is no effective substitute. In fact, it will — so the testimony of the years seems to indicate — be the source of ruinous and devastating tests of military might.
The restoration of the market place and its necessary service, a stable international currency, should carry us far toward peace as our goal. But it will do so only if the United States is prepared to join with others in playing the role of policeman and enforcer of order, and only if we are alert to detect evidence of the resurgence of military power among our present enemies and, detecting it, take the steps necessary to stamp it out before it again brings us clattering down in ruins.
It is in this context that a discussion of the problem of American shipping takes on its real meaning and form.
The shipping position
At the beginning of the war, Great Britain had under her control approximately 17,500,000 gross tons of shipping. She had lost by the end of 1943, according to the British White Paper of November, 1944 (“Statistics Relating to the War Effort of the United Kingdom”), 11,643,000 gross tons. At the end of 1943 she had permanently under British registry approximately 12,500,000 gross tons.
That part of Norway’s fleet which escaped from German hands has been reduced by half through the ravages of war. The merchant tonnages of Holland and the other Allied maritime powers have sharply declined as a result of the war. What the nineteenthcentury historian J. A. Froude said of England is applicable to Norway, Holland, and other maritime seafaring powers today: —
Take away her merchant fleets; take away the navy that guards them: her empire will come to an end; her colonies will fall off, like leaves from a withered tree; and Britain will become once more an insignificant island in the North Sea, for the future students in Australian and New Zealand universities to discuss the fate of in their debating societies.
The life of these nations has been drawn from the seas. Their people exist in large measure on the commerce they carry across the waters. Their shipping has been one of the principal services they have sold to others. They are seafaring nations, and they operate their ships more cheaply than we operate ours.
The shipping losses that most of them have sustained during the war have not been replaced. Norway was occupied by the Nazis and had no yards in which she could build. The English and Scotch shipbuilding industry was preoccupied with the task of turning out British ships — mostly naval types — and hence was not available for the construction of Norwegian ships. Our own yards were jammed with vessels under construction. Hence Norway and Holland could not replace their losses, nor could the lesser maritime nations.
The position of Britain is somewhat different. Prior to our entry into the war, Britain had planned a stepped-up merchant ship construction program. After Pearl Harbor it was deemed wise — and so it proved — to arrange a division of labor between Britain and the United States. Each undertook to do what it was best equipped to do with the least strain on our combined resources of men, material, and shipping, in the least amount of time, and with the greatest benefit to both.
Individual national interests disappeared under the pressing emergency and in the face of the great common danger. We acted in union — we were in union. On this side of the water were yards, men, iron ore, rolling mill capacity, and a well-developed welding technique that enabled us to build ships more rapidly than was possible in England or Scotland. On this side also were the cargoes to be moved overseas to Britain and to the far corners of the world on journeys that frequently circled the globe.
It was clearly to our combined interest that we should become the merchant shipbuilder for the two of us. Britain sharply reduced her merchant ship construction program. We assumed the role of builder for us both. How successfully this division of labor served the prosecution of the war is one of the great stories of the period.
President Roosevelt, in a communication dated May 28, 1943, to the British Prime Minister, lucidly stated the case. It was because of this arrangement that Britain did not replace her wartime losses and will emerge from the war with a merchant fleet substantially smaller than that with which she started the war.
We, on the other hand, shall have a fleet perhaps six times larger than it was in December, 1941. We commenced the war with a bare 7,500,000 deadweight tons of dry cargo vessels. We shall end the war with at least 40,000,000 tons. And of this amount a very large proportion will be of the slow 10-knot tramp Liberty type.
The total dry cargo tonnage of the present Allied nations will be far greater than it was in the fall of 1939. At that time the tonnage under American registry was only 17 per cent of the total. By the end of 1945, approximately 57 per cent will be under the American flag. Thus, as a consequence of war, a violent revolution has taken place in the shipping community — a revolution not only in the quantity but also in the type of ships, and in their distribution among the Allied maritime nations.
The United States, whose economic life derives little nourishment from the carrying of overseas traffic, will emerge from the war with by all odds the largest tonnage. The Allied maritime nations (whose future in large measure depends on the services they perform on the high seas for themselves as well as for others) will have severely depleted merchant marines.
A subsidized American merchant fleet
It is urged by some that the United States in the future maintain a huge merchant marine. In support of this view many arguments are advanced. We need, it is said, a tremendous tonnage for reasons of national defense. We must have a very large tonnage of cargo vessels to carry our exports and imports.
For many decades, the operations of American ships on the high seas have generally been more costly than those of maritime nations allied with us. If in the future the United States is to have a large merchant marine carrying 50 per cent or more of our foreign trade, that fleet must be supported by large sums from the country’s taxpayers. Such support will impose a heavy burden on the national production. If, for example, there is to be an American merchant fleet of 20,000,000 tons, — that is, a fleet only twie the size of our pre-war fleet, — the cost to the country in operating subsidies alone will range between $200,000,000 and $300,000,000 each year, depending on the way the subsidy is calculated and the form it takes.
Such a policy, however desirable it may be on the grounds of national defense, — and that is a matter to which we cannot be indifferent, — is entirely inconsistent with the proposition that a world order holding out any reasonable promise of preserving the peace must rest upon the market place as an international institution in which individuals rather than governments compete with their wares and their services. A fleet that is heavily subsidized by public funds, whether for construction or operation, or both, firmly links our government with trade and brings it into conflict with other governments.
Professor Gustav Cassel, the eminent Swedish economist, in an address delivered in London on May 10, 1934, under the auspices of the Cobden Memorial Association, emphasized this point when he said: —
Every protectionist step taken by one country immediately leads to defensive measures or aggressive retaliations from other countries, or at least to some form of subsidies to national interests considered to suffer from unfair foreign competition. This cumulative process has year after year been going on before our eyes on such a scale that everybody must be familiar with it. I need only quote the example of shipping subsidies on which a lot of countries have wasted fantastic sums with the consequence that even this country [Great Britain] runs the danger of being driven into some similar policy, very much against its own fundamental conceptions of sound competition.
A subsidized American fleet might not be too serious had we been historically a nation that derived much of its economic strength, its income, and its foreign exchange from the carriage of freight across the seas. But we have not historically and traditionally been a maritime nation in this sense since the days of the clipper ships. Britain, Norway, Holland, and other friendly countries have, on the other hand, been the traditional ocean transporters of the products of the world.
Hence a policy of subsidizing a huge American merchant marine, built as a product of the war itself, will inevitably be a violent blow to many of the nations associated with us in the greatest crisis of modern history. By itself it must create tensions between governments. It is another manifestation of that extreme type of nationalism that has so plagued us throughout the last quarter of a century. It is a policy which surely will erode the foundations of the future peace.
Other national interests
We have other national interests that make a large subsidized American fleet undesirable and unwise.
Our foreign trade depends on the power of foreign nationals to earn dollars. The shipping services they formerly rendered and can render are a hidden import and one of the sources from which they can build up a store of exchange with which they can buy our produce. The more we limit the services they can perform effectively and cheaply, the less they will be able to buy from us. Consequently our industry and commerce and agriculture will languish, and we shall experience all the attendant evils which such a condition brings in the form of depressed prices, shrinking production, and permanent unemployment.
A stable international currency is one of the bases of world peace. The more we restrict the capacity of the nationals of other countries to earn exchange, the more difficult it becomes to restore both the market place and its necessary service, a world medium of exchange. A policy of subsidizing a huge merchant marine would have precisely this undesirable effect.
The depreciation of foreign currencies, particularly the depreciation of the pound sterling against the dollar, has had profound consequences on our internal economy. We have but to recall what happened here in our own country when England was forced to abandon gold in September of 1931. Immediately the depression that up to then had been not unlike many other cyclical occurrences of the preceding century became “the Great Depression” — a period unique in modern history.
If prices and values had fallen before the autumn of 1931, they shot downwards thereafter. If unemployment had appeared before, it grew with alarming speed and frightening volume thereafter. If agriculture had been sinking before, it tumbled to the bottom of the well thereafter. The social and economic strains became so great that we resorted to experimental devices to restore values, prices, and employment.
That experimental techniques failed miserably to achieve their purposes is evident in the light of the testimony of events covering seven years — until at last war came and millions of men were withdrawn from industry into the armed services.
Surely this experience should guide us in the future and teach us, not necessarily to avoid mistakes, but at least not to repeat the same mistakes we committed such a short time ago. Surely this experience must punctuate for us the great significance to our own selfish interests of a stable international currency. Our ill-advised, exclusivist tariff policy has in the past interposed too many obstacles in the way of freer trade, greater exchange of goods, and the reconstruction of a stable medium of exchange. To supplement these obstacles by a shipping policy that further restricts trade, further limits the rendering of services, further impairs the chances of restoring monetary order, is the height of folly. It is hostile to our long-term national welfare. It is self-defeating.
By no rule of logic and through no conclusion based on observation of fact can there be the slightest justification for such a policy. For it is a policy which, in addition to costing the country directly some $200,000,000 to $300,000,000 a year, increases the risk of laying on it incalculable and intolerable additional burdens in the form of languishing domestic industry, unprofitable agriculture, and unemployment.
These considerations — considerations of peace, considerations of purely national economic welfare — lead to the conclusion that we should shun the policy of subsidizing a huge merchant marine.
Conflict of purposes
It is argued, however, that we need a large fleet of merchant ships for reasons of national defense. Thus there appears to be, with shipping as with many other issues, a conflict of purpose and of interest. There is the purpose, in so far as the question of shipping bears on it, of restoring an environment in which peace stands a chance of enduring, and the purpose of providing for our defense in the event that war comes again.
These purposes are not necessarily irreconcilable. There are trades in which we have traditionally operated. There are routes over which American ships can run profitably even though some are in protected areas. We carried before the war about 20 per cent of our foreign trade. The tonnage required to serve our coastwise trade and to carry approximately the same percentage of our overseas freight that we carried before the war has been estimated as some 10,000,000 deadweight tons.
This tonnage should be disposed of by the government on favorable terms to American ship operators. And it should be of the kind best adapted to the needs of each operator. Much of it will need no subsidy at all. And if the terms are sufficiently favorable to the operator, it is probable that no annual operating subsidy will be necessary. The monopolistic practices that have been established under the administration of the Merchant Marine Act of 1936 and enjoyed by certain overseas operators should be eliminated.
Besides this tonnage, there is of course the amount necessary to serve as a fleet train for our peacetime navy. But this tonnage would not be operating in commercial trades and would be used purely on military duty.
Finally, it would be reasonable to select one or two shipbuilding concerns, not for the purpose of building a large tonnage, but merely to determine how designs can be improved, operations reduced in cost, and construction itself accelerated. Such a plan would further our national defense. The future of peace is uncertain, no matter how firm may be our resolve to prevent war. Our policies are still undetermined. It is not yet clear that as a nation we, together with others, will slowly and wisely divest ourselves of nationalism. Accordingly, we should take out insurance against our own folly and the folly of others.
The balance of our tonnage should be sold on time or distributed on irrevocable leases to other nations for operation by their nationals. The terms should be so attractive that even the Liberty ships can be put to use. Aside from the monetary considerations of the sale or lease, we should require the purchaser to carry our overseas trade without prejudice to our nationals as to rates, routes, ports, or any other matter affecting the movement of overseas trade. Moreover, the terms should provide — at least in so far as the British are concerned — that in the event of war the tonnage so sold at nominal prices or so leased irrevocably at nominal rentals should be made available to us in the conduct of any war in which we might become engaged.
This policy we should put into effect forthwith. To do so now will at once increase the capacity of our allies to earn exchange and so reduce the volume of post-war credits and Lend-Lease. It will ease the strain on our manpower and reduce, if not eliminate, the costly process of training more seamen who will never under any circumstances be employed as seamen when the war at last comes to an end.
Lest there be any misunderstanding on this point, it should be made unmistakably clear that neither Germany nor Japan should be permitted to have either a merchant marine or a shipbuilding industry. This course would entail a commitment on the part of the maritime nations to carry for them their overseas trade. Such a commitment would enhance the ability of the Allied maritime nations to earn exchange and, besides, would increase the useful services to which our surplus tonnage could be put. Accordingly, the amount of shipping we could dispose of to our allies would be increased by many millions of tons of the Liberty-type vessel and go far toward disposing of any unusable surplus. The matter of dry cargo vessels only has been the subject of this article. But substantially the same principles covering this type of vessel should apply to passenger types and tankers.
The program I have outlined will reconcile what at first appeared to be irreconcilable purposes. It will, so far as shipping is concerned, remove international tensions. It will tend to restore the market place as an international institution and will therefore improve the chances of re-establishing in due course a stable international medium of exchange. And it envisages ample provision for our national defense.
It will be the key to the future. The United States has become the greatest power in the Western world. Power begets responsibility. This program will convincingly show that we are prepared to accept that responsibility and will play our part in fashioning a world in which men may go about their daily peaceful pursuits unhampered by the fear of impending wars.