The History of the Defense Production Act and What it Means for COVID-19

April 13, 2020
Photograph_of_President_Truman_with_his_some_of_his_top_advisers_upon_his_return_to_Washington_from_the_Wake_Island…_-_NARA_-_200236

Editor’s Note: This is the first of a two-part series on the Defense Production Act. The next article will be published later this week. 

 

Before it has run its course, the COVID-19 pandemic will likely claim at least 50,000 American lives, with the potential to kill as many as 140,000 in the space of a few months. The number of casualties may exceed the combined American wartime dead of World War I and the Korean War, conflicts that stretched over nearly six years of intense combat. The disease’s worldwide destruction of populations, societies, and national economies will likely never be accurately recorded.

Local, state, and national governments have struggled to control the disease’s spread, care for the sick, and bury the dead. Businesses are fighting to stay alive as the Federal Reserve and Congress have intervened to soften the blow of an economic implosion. With many confined to their homes, millions of Americans have lost their jobs and health insurance in just the past few weeks.

How could a tragedy on this scale have happened in a country as rich and as technologically advanced as the United States? What failed? What was not anticipated? Could any actions have been taken to mitigate the calamity’s impact?

While a number of failures led us to the current crisis, one that stands out is the U.S. government’s inability to effectively use the Defense Production Act (or “the Act”). The Act is a powerful tool that allows the government — during an emergency — to force companies to accept government orders and to place those orders at the head of the line. The Act also protects producers from legal liability in satisfying government orders first. Countless American lives could have been spared if the White House and its subordinate government departments and agencies had used the law’s powers to plan pandemic response and recovery, bolster the nation’s medical equipment stockpile, recruit and train healthcare industry executives to assist in emergencies, and support the nation’s medical equipment manufacturing and logistics supply chain.

 

 

Tragically, the Defense Production Act has been underutilized by the government during the COVID-19 pandemic — not primarily because of incompetence or malice, but because executive branch agencies were short-sighted and did not adequately prepare for the crisis we now face. However, there’s still time to act. In the immediate crisis, the White House should use the Defense Production Act to force production and distribution of necessary medical supplies and equipment and to expand the quantity in the national strategic stockpile. In the longer term, both Congress and the White House should pay greater attention to disaster preparedness in all realms (pandemic, biological and radiological emergencies, cyber attacks, natural disaster relief, etc.), enlist the support of America’s industry, create a reserve of production capacity in both government and private spheres, encourage industry collaboration, and protect the necessary domestic manufacturing base.

The History Behind the Defense Production Act

The Defense Production Act of 1950 was created and implemented by a generation of U.S. officials for whom two world wars were the defining, formative experiences of their lives. More specifically, they remembered how the nation was dangerously unprepared for both wars, and the toll that this took on the American people and economy for the country to eventually emerge victorious.

The sheer scale of the industrial effort required by America’s entry into World War I forced a radical, unprecedented mobilization. On April 6, 1917, Congress gave President Woodrow Wilson the authority “to employ the entire naval and military forces of the United States and the resources of the Government to carry on war against the Imperial German Government,” which he used to create a War Industries Board to set production priorities and coordinate shipping movements and a National War Labor Board to manage the workforce. The initiative wasn’t perfect, but it proved a good first effort at creating a viable war economy at this scale. Wilson’s authorities did not prevent competition between the War and Navy Departments for supplies and contracts, and as a result, the military-industrial management of production broke down. Wartime transportation of goods and supplies proved a shamble. Fortunately, American participation in the war lasted only 20 months, but the experience was jarring for those managing the war effort, and they learned invaluable lessons.

The Pearl Harbor attack on Dec. 7, 1941, galvanized a full national economic mobilization. Eleven days later, President Franklin Roosevelt signed into law the First War Powers Act of 1941, giving him virtually unlimited authority to reorganize the executive branch. A Second War Powers Act followed on March 27, 1942, which allowed him to prioritize delivery of military material, force acceptance of contracts, and allocate materials and facilities. Under these provisions, the president’s War Production Board directed the conversion of industries to war production, set aside scarce materials, instituted rationing, and prohibited the manufacture of nonessential consumer items.

Both acts expired after the end of hostilities, but when North Korean troops flooded across the 38th parallel in June 1950, President Harry Truman saw the invasion as a threat to the nation, potentially as great as those posed in 1917 and 1941. While he declined to ask Congress for a declaration of war, he did seek to restore Roosevelt’s war mobilization powers. Congress began drafting legislation in early July. The House of Representatives passed the initial version of their bill (H.R. 9176), on Aug. 10 by a vote of 343–12. The Senate amended and passed the bill on Aug. 21 by a vote of 85 yeas, three nays, and eight senators not voting. A conference committee hammered out a compromise that passed both houses on Sept. 1 without recorded votes. The result was the Defense Production Act of 1950, which he signed on Sept. 8.

This original Defense Production Act contained seven separate sections (Titles I through VII) that mimicked the War Powers Acts and gave the president wide authority over the national economy. The Act would sunset, or expire, on June 30, 1951, unless Congress extended it. Congress did extend parts of the Act periodically over the ensuing decades. The president could demand priority for defense goods production, requisition materials and property, expand government and private manufacturing capacity, ration consumer goods, fix wages and prices, force settlement of labor disputes, control consumer credit and regulate credit and loans, extend anti-trust protections, and establish a voluntary reserve of private sector executives for emergency federal employment. Within a few years, Congress reconsidered the extent of control given the president and by late 1953 had allowed much of the DPA, particularly the titles concerning requisitioning, rationing, wage and price fixing, labor disputes, and credit controls, to lapse. Titles I, III, and VII of the original Act are the only ones that remain, and they still give the president significant authority that he can invoke at any time, so long as the Act remains in force. While a few of the authorities are permanent, most of the Act is currently scheduled to sunset at the end of September 2025.

What the Defense Production Act Allows the Government to Do

Title I of the Act allows for an emergency response to an immediate crisis, which is why its priorities and allocation authorities have been given so much attention recently. It allows the president to require that certain production and supply contracts or orders be given priority over all others. The president can force the acceptance of these contracts and orders on private companies and can allocate the materials, services, and facilities needed. The government can further prioritize contract performance between two private parties to ensure that the supply chain does not impede deliveries. It also allows the White House to control the distribution of materials, services, and facilities, as seen under the War Powers Acts of the 1940s.

As noted in a recent Congressional Research Service (CRS) report, the Department of Defense has routinely used Title I to prioritize many of its contracts with industry. Other departments and agencies have employed it less often, though it has proven useful on occasion. For example, the Department of Energy used Title I in 2001 to force the distribution of emergency supplies of natural gas to California utilities to mitigate electrical power blackouts.

The core of the Defense Production Act is Title III. Under Title III, the president is given tools to induce industry to establish, expand, and maintain the production and supply of items and materials needed in emergencies. For example, the White House can offer incentives such as loan guarantees and direct loans to private businesses and can make purchases of resources and critical technologies in excess of current needs, pay subsidies for domestically produced materials, and install equipment at government and private facilities to expand reserve production capacity. Thus, while Title I seeks to ensure that the government has access to goods already being produced, Title III can provide the wherewithal to produce essential goods when they are needed.

The final part of the Act, Title VII, is a collection of miscellaneous authorities related to the role of commerce in national defense that operate routinely, but quietly, in the background. For example, it directs special contract preference to small businesses and authorizes the president to obtain information, by subpoena if necessary, that could be essential to enforcement of the Act’s other provisions. Title VII also allows the president to approve “voluntary agreements and plans of action to help provide for the national defense” that would normally run afoul of anti-trust statutes and provides for a “Nucleus Executive Reserve” (or National Defense Executive Reserve) of volunteer industry executives who can be trained for emergency government employment.

Title VII also governs the Committee on Foreign Investment in the United States, or CFIUS. This interagency committee oversees the national security aspects of foreign investment. The committee reviews foreign investment transactions to determine whether they threaten national security, are being controlled by foreign governments, could affect homeland security, or would yield control of critical infrastructure to foreign interests. The president is empowered to block threatening transactions, such as when President Donald Trump did so by prohibiting the acquisition of a U.S. business in 2017 by Canyon Bridge Merger Sub, controlled by China Venture Capital Fund Corporation Limited.

Whether by design or as a product of its evolution, the three remaining titles of the Defense Production Act are constructed to work as an integrated strategy of national preparedness. Titles III and VII provide for the creation of a robust industrial and commercial capacity to meet national crises. Title I furnishes the president with tools to immediately implement the preparations made under the other two sections of the law. Therefore, the Act’s real strength lies in the long-term groundwork that must be laid before an effective emergency response is possible. The World War II example illustrates how difficult and time-consuming mobilization can be. Even with expanded governmental powers and virtually unlimited funding, Roosevelt’s “arsenal of democracy” required years of frantic effort and could not fully satisfy military needs until 1944.

How the Government Underutilized the Defense Production Act During COVID-19

In preparing for and responding to the COVID-19 pandemic, the government should have utilized the Defense Production Act by planning and exercising a viable pandemic response plan, protecting and bolstering a domestic medical supply stockpile and manufacturing base, and using its priorities and allocation authorities to place federal orders for medical goods at the front of manufacturers’ order queues.

Previous administrations have recognized the importance of being prepared for pandemics. In 2005, President George W. Bush read The Great Influenza, a history of the 1918 Spanish flu pandemic. Bush subsequently charged his homeland security advisor, Frances “Fran” Townsend, with devising a national strategy for dealing with a potential similar outbreak. Over the remaining years of the Bush administration, Townsend orchestrated the creation of the most comprehensive pandemic response plan the government had known, although it did stress the key role of state and local governments. The timing was right — senior political appointees and civil servants alike had managed federal responses to the 9/11 attacks and Hurricane Katrina, so unlikely-but-powerful contingencies could focus their attention. The sustained personal interest of the president lent the effort additional weight within the bureaucracy. Townsend recounts that it resulted in “a playbook that included diagrams for a global early-warning system, funding to develop new, rapid vaccine technology, and a robust national stockpile of critical supplies, such as face masks and ventilators.”

In a November 2005 speech given at the National Institutes of Health, Bush told scientists and medical professionals that “our country must have a surge capacity” ready to create new vaccines and provide necessary supplies in case disaster struck. The Obama administration faced an actual, not hypothetical, pandemic threat in the 2014 Ebola outbreak in West Africa. Ron Klain, the man whom the president appointed to coordinate the interagency response, led the administration’s response to cut off the spread of the disease as quickly and as close to the source as possible. The effort was successful, but because it did not spread as rapidly or as extensively as COVID-19, the Act did not play a highly visible role in its mitigation. Subsequent attempts to fund increases in national stockpiles of medical supplies have failed either in Congress or the White House. Reserve capability and stockpile maintenance are precisely the kind of intellectual and physical capacity that Title III was designed to create, and the consequence of the Bush administration exercise can be seen on the Center for Disease Control (CDC) website.

However, as time passed, newer and more immediate crises arose, such as the 2008 economic recession, that took some of the attention away from pandemic preparedness. It became more and more difficult to invest the funding, staff time, and other resources needed to sustain the effort.

The proof of planning lies in execution, which is where Title I priorities and allocations come into play. A Washington Post article on April 4, 2020 outlined the evolution of the Trump administration’s response to the current pandemic. As portrayed in the article, the president first responded to the pandemic by not reacting at all and only later initiating a series of ad hoc, improvised moves that appeared to many as too feeble and too late to be effective. The lead federal responsibility for health resources — as established in the Obama executive order and in two orders issued by President Donald Trump on March 18 and March 23, 2020 — is vested in the Department of Health and Human Services. However, public reporting has indicated that the federal pandemic response has at times been led by Health and Human Services, by the National Security Council, by the vice president, or by senior presidential advisor Jared Kushner. A total of $8 billion in funding for the effort was enacted in early March, but by then, the federal government was competing on a world medical equipment market with other nations and even with hard-hit U.S. states like New York. Tests, vaccines, supplies, and equipment were all needed immediately, but little in the way of resources was available.

How Washington Should Use the Defense Production Act Now

Currently, the immediate need is for supplies and equipment. The Act empowers the White House to force production contracts and prioritize them for action. It can also use the crisis to champion the formation of voluntary agreements between industries that can be used when a similar crisis emerges in the future. Finally, Congress can consider incorporating a “reverse Committee on Foreign Investment in the United States” that would subject future disinvestment in U.S. manufacturing capabilities to national security review.

A cursory examination of publicly available information reveals several avenues by which the various strengths of the DPA could be used, or, if they already have, be used more effectively in the current pandemic.

Title VII and Title III constitute the most strategic, and hence most fundamental, of the tools made available by the Act. Title VII protects the creation of voluntary agreements and plans of action between private entities against legal liability. It is easy to see that preexisting arrangements between medical device manufacturers and other companies with greater production capacity could have made available sources of rapid supply of the medical supplies now so sorely needed. Similar arrangements between manufacturers and transportation suppliers could have smoothed deliveries of supplies once they became available. Currently, the only Defense Production Act voluntary agreements in existence relate to military sealift as administered by the Maritime Administration in the Department of Transportation.

Another Title VII authority that lies unused is the National Defense Executive Reserve. Experienced healthcare industry executives brought in to the program, trained in government operations, and assigned emergency positions commensurate with their experience could have been activated early on and lent their expertise to organizing an effective response. Though each federal agency can create, recruit for, and train an National Defense Executive Reserve unit, none is now active.

The Act also offers the potential to establish, expand, and maintain production, create reserve capacity, and promote innovation in industries supporting the national defense (writ large). The president, and those to whom he delegates his authority, can use loans, purchases, loan guarantees, subsidies, and even government-furnished equipment to keep alive a domestic supply of what could prove to be critical assets, even when they are not commercially viable. However, predicting which industries and capabilities will prove crucial in times of emergency requires extensive planning and through knowledge of potential threats. This is inevitably resource-intensive and wholly unglamorous, which means that it must have strong and unwavering support from the most senior leadership if it is to be effective, as demonstrated by the Bush administration example noted earlier.

One authority that does not yet exist, but which could prove useful, might be considered a “reverse Committee in the United States.” While the current process is designed to prevent the degradation of national security by foreign investment, a reverse Committee on Foreign Investment in the United States can be imagined where domestic investment in foreign industry — the process by which domestic manufacturing and technological development is moved offshore — could be reviewed to prevent the loss of defense capacity at home.

Finally, there is the employment of Title I and its power to assign priorities and allocate resources. While federal agencies must by now be using the priorities and allocations authorities given to them by the Defense Production Act, the very public competition for medical supplies, between agencies, between the states and the federal government, and between nations on the global market, indicates that their application has not been entirely effective.

One small example sheds light on an instance where enforcement of Title I might be called for. ProPublica reported on a 2015 $13.8 million contract between Health and Human Services and a Pennsylvania subsidiary of Dutch manufacturer Royal Philips N.V. for the development of a low-cost, portable ventilator that could be added to the national stockpile for emergency deployment. This past September, as reported, the department signed a production contract for 10,000 of these Trilogy Evo Universal ventilators at a unit cost of $3,280 to be delivered by September 2022. However, as of the end of March, no Evo ventilators have been added to the stockpile, while they are available on the commercial market at a cost of upwards of four times the government price. The article notes that Philips has no plans to begin manufacturing Evo Universal during 2020. In the meantime, the article states that “Philips is negotiating with a White House team led by … Jared Kushner to build 43,000 more complex and expensive hospital ventilators for Americans.”

The Defense Production Act and the Next Crisis

The Defense Production Act has the potential to be an effective tool in the federal government’s arsenal of disaster mitigation resources, but like all preparation tools, it needs dedicated leadership, professional expertise in planning, forceful management in its execution, and reliable and adequate funding. For the nation, the necessary investments are well worth it.

National disasters come in many forms — attacks by enemies, plagues, earthquakes, hurricanes, rising sea levels, and nuclear mishaps are but a few of the forms they might take. These episodes are easy to ignore and very difficult to prepare for. The Defense Production Act provides one set — a potentially very powerful set — of tools to the federal government to anticipate disaster and mitigate the impact when disaster occurs.

As of this writing, more than 16,000 Americans have lost their lives to COVID-19, the economy is effectively shuttered, and the eventual costs of remediation and recovery is being measured in the trillions of dollars. Getting prepared for the next crisis will be tough and expensive work, but it is work that Americans must do unless they are willing to pay this price yet again.

 

 

Dan Else holds a PhD in political science from the George Washington University. He retired after 21 years of active military service in the United States Navy and subsequently devoted 17 years as a defense policy analyst in the Congressional Research Service at the Library of Congress. Dan is currently preparing to write a book on the wartime Office of Scientific Research and Development.

Image: Wikicommons (Harry S. Truman Library)