The Army and Small Business
One of the most difficult and controversial tasks in the whole field of economic mobilization for World War II was that of properly harnessing small business in the military procurement program. The Army's experience with small business from 1940 to the war's end went through three distinguishable phases. The first phase extended from the summer of 1940 to the summer of 1942, when the problem of small business emerged and received nationwide attention. The second phase, from the summer of 1942 to the end of 1943, was a period of transition during which legislation, organizations, and procedures were developed to provide a systematic solution of the small plants problem. The final phase, from early 1944 to the end of the war, witnessed the operation of the small war plants program in high gear and the successful attainment of its basic objectives.
In attempting to build a huge new Army from scratch, procurement officials proceeded with a basic purpose in mind. This was to obtain the desperately needed munitions in adequate quantity and quality with a minimum of delay. Under the circumstances the Army's purchasing policy was comparable to that of a rational individual or private corporation: it concentrated on its major objectives and responsibilities, placing its procurement contracts with those firms which, all factors considered, appeared to be most capable of providing satisfactory delivery.
In the early months of the defense period this policy received little or no criticism. Many small firms received defense contracts, many more became subcontractors, and all sectors of business prospered under the stimulus of the rearmament program following ten years of depression. By the spring of 1941, however, two developments began to appear. First, the growing shortage of materials made it difficult or impossible for an increasing number of firms to continue operations. The chief sufferers were small firms without defense contracts and hence without benefit of priority status. Secondly, accumulating statistics on contract placement revealed a high concentration of prime contracts among the largest corporations. In July 1941, OPM released statistics indicating that prime contracts of the Army and Navy with fifty-six companies accounted for three fourths of the dollar value of all prime contracts; six corporations held over $3 billion, or 31.3 percent of the total; and Bethlehem Steel alone had contracts of $927 million out of $9.8 billion.1 This concentration, together____________________