We’re at war and need wartime institutions to keep our economy producing what’s necessary

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There can be no question about the nation’s current predicament. We are at war. We are faced with a public health crisis, yes, but the virus now ravaging our communities is a lethal invader taking American lives, threatening our way of life and destroying our productive capacity and economic health. 

We’re waging battle on the public health front with thousands of the most heroic and able health professionals on the planet, yet at the same time, it appears that despite Congress’ record $2 trillion relief bill we have no wartime strategy to get needed equipment where it is needed or to save our economy. We have no coordinated plan to mobilize workers, produce needed medical supplies, and distribute these to the facilities that need them.

We’ve faced down war on our people on our own shores before, so why not look to those occasions for clues as to how it is done? Many of the answers we’re looking for to respond to our current crisis and associated production shortfalls can be found in the measures taken by wartime presidents Franklin Roosevelt and, before him, Woodrow Wilson.

The key to keeping wartime production humming has always been public collaboration, with the public firmly in the driver’s seat, with private producers.

The U.S. took such measures when Pearl Harbor was bombed. President Roosevelt established a War Production Board (WPB) to coordinate the repurposing and expansion of factories; the re-routing of existing and opening of new distribution channels, and countless other tasks entailed by the productive and distributive ramp-up necessitated by the war. Before that, President Wilson established a War Industries Board (WIB) to achieve the same ends during the First World War mobilization. 

Roosevelt’s WPB worked in tandem with Herbert Hoover’s and his Reconstruction Finance Corporation (RFC), the already-existent financing arm of the New Deal. The RFC had been patterned after Wilson’s War Finance Corporation (WFC) of the preceding era, established to work with the WIB in overseeing and funding U.S. mobilization for the First World War. 

The WFC and the RFC directly financed mobilization, using a broad array of financing tools. They made direct grants, provided inexpensive credit or loan guarantees, and in many cases took equity stakes in individual businesses, thereby both recapitalizing them and taking internal governance rights to help guide production flexibly from the inside. 

Given the success of this model in our most “existentially” threatening earlier wars, why not update it now as we grapple with another lethal invader? 

I have been advocating, in some cases on my own and in some cases with others, a number of possible models for a contemporary RFC for some years now. The idea must be not just to address crises ad hoc after they have emerged, but to treat healthy and ongoing ‘reconstruction’ and national development proactively as an always-necessary, continuous process in need of an effective and democratically accountable coordinator. Think of it as a smart industrial policy tool for managing a permanent policy need in any world, such as ours, in which technical needs and technologies themselves constantly evolving. 

A National Investment Authority (NIA), for example, which I first floated with my colleague Professor Omarova early in 2015, would develop, coordinate, and oversee the financing and execution of a coherent strategy of perpetual, across-the-board national development, in collaboration with private sector agents whose industries are implicated by particular projects. 

My National Investment Council (NIC), introduced more recently, would collaborate more with already-existing federal agencies whose mandates are implicated by specific industrial and infrastructural projects, bringing them together as the Financial Stability Oversight Council (FSOC) does our multiple financial regulators. It would accordingly resemble not only the RFC but also the Board for National Investments (BNI) advocated by J.M. Keynes in the 1920s. 

Either model would include a direct investment arm, which would act both in primary and in secondary to ensure both public and private sector provision of critical public goods. What makes these models especially relevant today is that they are designed to be platforms of precisely the kind that we need to survive our pandemic. 

Right now, they would mobilize a coherent productive response to the COVID crisis. They would inject capital into businesses that need it, take direct equity stakes in them as necessary, and direct resources coherently toward the production of what must be produced both to keep our people healthy and our economy humming. 

In recent weeks, my friends James Galbraith and Michael Lind have proposed an ad hoc Health Finance Corporation (HFC) to address the COVID crisis. Like the NIA and NIC, it is inspired by and patterned in part after the RFC. I find much to admire in this proposal, as does presidential candidate Bernie Sanders (I-Vt.), who has proposed his own variant of it. I think we’ll do even better, however, to institute something more permanent.

Unless we’re all killed by the present pandemic, there will be others. And just as importantly, reconstruction and development — national self-renewal — are forever. 

Robert Hockett is the Edward Cornell professor of law at Cornell University, Visiting Professor of finance at Georgetown’s McDonough School of Business, and consulting counsel at Westwood Capital in New York City. Formerly with the Federal Reserve Bank of New York and the International Monetary Fund, he is a frequent advisor to legislators and regulators in Washington and New York.

Tags Bernie Sanders Coronavirus COVID-19 Federal government of the United States Government Mobilization New Deal Reconstruction Finance Corporation

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