The history of business and war: introduction

Whatever happens, we have got – The Maxim gun, and they have not

– Hilaire Belloc, The Modern Traveller, 1898

In historical research, war is perhaps one of the most widely covered fields. Nevertheless, the role of businesses in matters of war, with the exception of the defense industry, has, despite their importance to society, been the subject of relatively little research.

Businesses have been involved in military matters, offensive and defensive: as producers of armaments, supplies, in transportation or war finance. Wars have likewise affected companies as well as the populations of the countries involved. ‘Scientific and technological advances have dictated a revolution in weaponry – a revolution that has broken down the distinction between both the civilian and military worlds and the private and public economic functions’ (Koistinen, 1967). This calls for research on war from a business history perspective. As Friedenson (2007, p. 13) states, ‘Just as the French Prime Minister observed in the World War, that war is too serious to be left to generals, it is also too serious to be left to military historians’.

A significant part of the historical research on businesses in wartime has focused on companies as inventors or producers of game changing weaponry. However, even if such innovations – like the Maxim gun mentioned above – exist, the number of decisive individual products is limited (Ágoston, 2005; Parker, 1996). The belief in miracle weapons may be strong but their actual impacts less so. The role of businesses as producers may at the same time be underestimated. Koistinen (1967) claims that ‘Industrial production was as important, or more important, to military success as tactics or strategy’ (p. 389).

Friedenson (2007, p. 13) notes that there are some recurring themes among business historians in the field: the history of armaments firms, how military technologies become civilian, and the importance of the small arms industry in the use of interchangeable parts (see also Howard, 1978) and mass production, and the taxation of war profits.

The purpose of this special issue is to describe the extent of the field of war and business history and show how war affects businesses, and business warfare, in various ways. War often causes rapid changes: institutional, technical, and economic. These are therefore also very well suited to the study of general phenomena.

The field also has room for both quantitative and narrative contributions. Regarding the influence of war on institutions, institutional change, and its impact on businesses is perhaps the most significant topic in business history research. Yet war has not only affected companies but also the conditions for entrepreneurship. An early example is the emergence of the military fiscal state, which increased the extent of state power, which, from a corporate perspective, primarily meant larger government orders. During the 1900s, war also affected the role and scope of the state and its policies in a manner not necessarily beneficial to companies – sometimes, when companies were nationalised, they proved directly disastrous. The same applied in peacetime. Goldin (1980) writes that

The experience with wage and price controls during wartime seems to have prepared Americans to accept more willingly the same powers in peace time. The success of the government in operating the railroads during World War I, for example, must have broadened the base for public sympathy for nationalization in general (p. 951).

Krooss (1966) presents a similar view. War, he writes,

did more than anything else to add to government power, for in each major war, government clearly became the pre-eminent player on the economic stage, as the war was over, the government never completely reverted to the status of bit player (p. 486)¹.

The expansion of the size and scope of government was in many cases the result of modern warfare, which is hugely expensive. In America

Prior to World War I, wars were fought and financed on an ad hoc basis. The concept of centralized planning and mobilization was initiated with World War I, and this war, like all previous wars, led to an increase in government powers (Goldin, 1980, p. 944).

Here, the European and Scandinavian experience was slightly different. Britain introduced income taxes during the Napoleonic Wars (Yun-Casalilla, O’Brien, & Comín, 2012) and Sweden (and Finland) organised the ‘indelningsverket’ allocation system in the seventeenth century (Åberg, 1973). The system, introduced in 1620, required all parishes to pay and supply one soldier for every 10 eligible parishioners, thus removing this cost from the state budget (e.g. Parker, 1996, p. 52).² Gustavus Adolphus also introduced copper coinage (thereby leaving the silver standard for silver–copper bimetallism) in order to finance the army (Stryker, 2017).

Wars as drivers for government intervention was further emphasised through the twentieth century doctrines of total war, where nations put civil society, including the industry, on a war footing. Companies played an important role in this development which assumed in its modern form during World War I and came to accelerate during the twentieth century. World War I was the ‘beginning of a system for curtailing non-war construction and less essential civilian production, and substantial expansion of facilities for some munitions’ (Fainsod, Gordon, & Palamountain, 1959, p. 827). According to Howard E. Coffin of the Hudson Motor Company and one of the business executives who helped planning American war production in 1917 and 1918: ‘Twentieth century warfare demands that the blood of the soldier must be mingled with from three to five parts of the sweat of the man in the factories, mills, mines, and fields of the nation in arms’.³

War may also affect businesses by means of affecting market access or by war induced restrictions on international trade.

The trade barriers during the war of 1812 gave an impetus to American textile production, the Civil War spurred the pig iron industry. World War I aided chemicals, and World War II caused the expansion of the electronics and aircraft industries (Goldin, 1980, p. 947).

In the Scandinavian countries the European wars were beneficial, e.g. for the Swedish mining industry, where first copper and later iron became important export goods. Denmark and Norway also – e.g. during World War I – reaped the benefits of the increased demand and inflated prices for fish and agricultural products.

These spillovers from war are, as noted by Friedenson (2007) and Cuff (1986), debated and the benefits are under all circumstances unevenly distributed among businesses. Modern warfare usually forces the citizens of the warring countries to forego some consumption, both present and future. Businesses may also be forced to use plant and machinery more intensively, or to extract natural resources, e.g. from a mine or oil well, at a higher and less economical rate. This may also make the profits artificial. War will also often lead to the destruction of capital and to increased wages (Goldin, 1980, p. 952).⁴

Modern wars – as pointed out by Goldin (1980) – in contrast to historical ones where the conquest of territory may pay for the war – are hardly ever profitable on the whole. The same applies to countries like the United States, which, during World War II was – as opposed to the European and Asian participants – spared most material destruction. The war was still a huge loss. At the same time, it was probably beneficial to the aircraft and electronics industries as a result of the large contracts and related development budgets (Goldin, 1980).

The fact that wars historically (and in more recent times at least for some industries or companies), have been profitable, has given rise to a debate on whether companies might have wanted war to increase their own profits. As Trebilcock (1970) has shown, many such accusations have been nothing more than accusations, but the possibility exists and some historical wars have been fought over business interests, to protect trade routes, to open markets, or to protect or advance the interests of individual companies. Examples of companies that have interfered in other countries are not lacking (Langley & Schoonover, 1995).

War can also be harmful to economies by reducing capital accumulation which in turn may inhibit future growth. War finance may also directly affect companies and their profitability. Wars have often led to changes in monetary regimes. For example, many countries, not only those directly involved but also neutrals, left the gold standard at the outbreak of World War I. If wars are financed by expanding the money supply, which has often been the case, the ensuing inflation has further implications for the real economy. High inflation forces companies to constantly readjust prices, may be conducive to strategic behavior and hoarding, and will also distort investment calculations. Under hyperinflation, which many countries have experienced during wartime, whole economies may collapse.

Even in the absence of hyperinflation, changes in monetary regimes may have a significant impact on businesses. In this issue, Rongved discusses the dissolution of the Scandinavian currency union during World War I. Rongved shows that the war not only caused a monetary shock due to the Scandinavian countries’ suspension of gold convertibility in August 1914 but also changed the relative prices of the countries’ most important exports. The war led to increased prices for fish and agricultural products which benefited Norway and Denmark, and for iron ore, which benefited Sweden. These factors, in combination with inflation-financing of government expenditures, caused a strengthening of the Swedish, Danish, and Norwegian Krona – albeit not at the same rate – and an inflow of gold to the Scandinavian countries. However, the blockade, which also affected neutral countries, meant that the inflow of gold could not be used to pay for imports. This was highly unlikely to occur in peacetime and therefore was not anticipated. At the same time there was a need to ensure, for example, an adequate supply of food and fuel for the people of Sweden, Denmark, and Norway. Rongved’s conclusion is that the strains of the war and the blockade were something that the designers of the currency union had not taken into account.

Another perspective on the impact of war on the economy is in this issue provided by Delaney, who examines how World War I changed the international copper trade. War may change patterns of trade, sometimes as a result of blockades or trade restrictions, sometimes as a result of changes in demand. What makes Delaney’s contribution important is that he shows how war can make regulation as seen in different cartel legislation beneficial to one group of companies (here, companies outside the United States) in practice null and void.

In the copper trade, the war came to benefit the American copper companies since it compelled the European cartel that previously acquired a significant part of the American copper industry to cease operations. The cessation of trade under the cartel’s umbrella also caused shortages in those countries that had previously relied on foreign trade (which had been organised by the cartel). At the same time, the war caused the demand for copper to skyrocket (among other applications copper was used in alloyed form to produce brass cases for artillery and small arms). The paper indirectly illustrates two additional factors that are central in the analysis of war and business history; how fast war may change established trade patterns and business models, and how hard it can be to predict these changes.⁵

The manufacture of small arms in sixteenth- and seventeenth-century Venice is the topic of Ongaro’s contribution to this special issue. Armaments differ from many other manufactured goods as they may also be turned against the producer (or its fellow countrymen). Therefore trade in armaments has usually been to some extent regulated. The article addresses this classical dilemma: to secure the supply of armaments to the state’s own troops, an armaments industry is needed. In order for this industry to be sustainable a market is required. If the demand from the local (i.e. the state’s/nation’s/chieftain’s) military forces is not large enough to sustain this market, other customers are needed. These customers, however, may become enemies in the future and use the armaments to conquer the producer’s city or nation. This is a timeless perspective. The Romans imposed restrictions on the sale of certain goods to barbarians, and trade in armaments and technologies that may be of military use is restricted today in many jurisdictions. The impact of export restrictions on trade, and the many ways to circumvent these (especially the CoCom restrictions during the Cold War), has also been a recurring topic in business history research (Bonin, 2007; Cain, 2005, 2013; Førland, 2009; Hanhimäki, 1995; Huang, 2012). Another related topic is the extent to which a nation can rely on imports in wartime (Moravcsik, 1991).

The question as to who should produce armaments and vital supplies is discussed in a more modern context by Wilson (2016), who covers the construction of state operated armaments factories versus the use of private companies to supply the army. A government choosing to buy armaments and supplies runs the risk of paying more than expected in peacetime. The one that choses to produce them using state-owned factories must ensure that these factories are there when they are needed, which usually means that they must also operate in peacetime, which does not necessarily lower the total cost. The government that waits until the war breaks out to organise its wartime production runs the risk of the war being over (even lost) before any armaments are produced. Wilson uses as example the decision by the US government to build its own powder factory during World War I to avoid being overcharged by Du Pont. That factory only became operational in 1919. This, in other words, is a business history application of Williamson’s ‘make or buy’ question (Williamson, 1979).

If a government chooses to source armaments from private companies it may also reap the benefits of the innovation and development work performed there. However, such a strategy may also lead to the capture of the military establishment by companies and the creation of military industrial complexes (Bernstein & Wilson, 2011; Cooling, 1981; Cuff, 1978; Gholz, 2011; Koistinen, 1967; Mrozek, 1974; Wills, 2011).

Connected to these topics is the role of businesses in the preparation for wars that may never come (Edgerton, 2005; Lundin, Stenlås, & Gribbe, 2010). Many companies manufacture and sell products that have both military and civilian use; this applies to those who manufacture trucks as well as those who manufacture foodstuffs. Others manufacture a combination of military and civilian products. Some companies have a production facility that can be converted from civilian to military production. In some cases, the production organisation itself was important for the war effort. Those with methods for the mass production of one product may sometimes find it relatively easily manufacture another. During World War II, the sewing machine manufacturer Singer, the jukebox manufacturer Rock-Ola, and office machinery manufacturer IBM retooled to manufacture small arms for the US Army. This was not because there were many similarities between products such as carbines and sewing machines or typewriters, but because they were produced by similar techniques and machinery.⁶

It is not even necessary for production methods to be similar. Competence in areas such as recruitment and personnel management can also make it possible for a company to switch easily to other fields of production in wartime.

That Rock-Ola or Singer became small arms manufacturers during World War II was nothing that they had planned for prior to the war. In other countries (e.g. the Soviet Union and Sweden during the Cold War) extensive plans and preparations were made in peacetime to enable factories to convert to wartime production. In these cases, the demands of war were given priority over peacetime efficiency. Companies may also prepare for war by choosing certain locations (those less likely to be overrun or hit by air strikes) or by investing in fortified protection, e.g. underground factories or storage facilities. Such investments may be costly; underground factories are more expensive to build than normal, above ground factories, and it may in addition be harder to recruit workers for an underground facility. Private companies cannot be expected to construct such facilities without government incentives or directives. In Sweden, where the practice was part of the ‘total defense’ doctrine during the Cold War, companies might be partially compensated for the extra costs of fortification. In other cases, the presence of such factories might have been an explicit or implicit prerequisite for obtaining government contracts. Fortified factories in caverns were built by industries of strategic importance NOHAB (aircraft engines), Saab (aircraft), SKF (ball bearings) and Bofors (armaments) among others.⁷ The same doctrine existed in other countries including the Soviet Union. The Soviet industry was to a great extent organised for the event of war with dual use factories, e.g. to produce tractors in peacetime and tanks in wartime. This is an area where further business history research may be needed.

If some of the topics covered in this article are as old as the firm, others are of a more recent nature. An area that in recent years has attracted increasing interest among business history researchers is the involvement of companies in information activities. Even though propaganda, both that aimed at the enemy and at the citizens, is likely to have occurred in some form as long as wars have been fought, modern mass media and advertising have fundamentally changed this and made companies an integral part of the business (Clampin, 2014; Lykins, 2003; Pressey, Tadajewski, Kerrigan, Piacentini, & Stole, 2013; Stole, 2012). In many cases, the initiative also came from the industry. By helping with information activities, companies were able to avoid taxes or other restrictions (Clampin, 2014; Fox, 1975; Lykins, 2003).

A special field of war and business history research addresses the direct participation of commercial entities in fighting. This was historically very common in the form of mercenaries. Although many acted as private individuals, there are many historical examples of how organisations, in modern parlance firms, offered their services in the form of whole companies or battalions of soldiers (Parrott, 2012). A related field is when the firms themselves fight wars. This has occurred historically, for example, among the various East India companies (Keay, 1991; Wills, 1974; also Parker, 1966, p. 132), as well as in modern times in the form of private military companies (Singer, 2003). Private military companies, however, have only been a subject of limited business history research.

Wuokko provides a further perspective on the impact of war (or risk of war) on companies, i.e. how companies tried to influence the government (and the public) during the Cold War. The Finnish case is particularly interesting as a result of the importance of exports to the Soviet Union for Finnish Industry, which amounted to about one-fifth of Finland’s total exports. The same firms and organisations that spent significant resources on information in order to prevent a socialist takeover in Finland simultaneously tried to avoid damaging relations with the Soviet Union, Finland’s enemy in two recent wars. This also connects Wuokko’s article about the post-war period of the twentieth century to Ongaro’s contribution on sixteenth- and seventeenth-century Venice.

Hopefully this special issue will give the reader an overview of the wide scope of research within war and business history and also provide inspiration for further research. Such research is especially needed in the new fields highlighted.

Acknowledgements

I would like to thank Anders Perlinge and Jari Ojala for valuable comments and suggestions. Thanks also to the participants of the 1st Cold War Business History Symposium in Stockholm 2016. All remaining errors are of course my own responsibility.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Krooss (1966) cited in Porter (1980, p. 948).

2 The cost to the parishes might be very heavy during prolonged fighting as few soldiers fighting on the continent returned (Lindegren, 1980; 1985).

3 Cited in Koistinen (1967, p. 382).

4 If conscription is used some of the costs of war are born by the soldiers, at the same time companies are affected as the labor markets may be distorted (Kreidberg & Henry, 1955; Poutvaara & Wagener, 2007).

5 On war and trade, see also e.g. Eloranta (2002) or Fritz (1975).

6 Traditional armaments companies have also diversified by entering civilian markets, e.g. Husqvarna and Birmingham Small Arms (BSA) are both known for their motorcycles. See also Irving (1975).

7 On the storage of strategic resources, see e.g. Siösteen (1979).