War surplus - History of Business in the U.S.
Definition: Real property and materials produced for military operations that are no longer needed by the federal government and are offered for public sale
Significance: The availability of supplies and equipment initially manufactured for armed conflict, and the designation of industrial facilities and military installations as no longer required by the government, has resulted in the development of a number of business opportunities for entrepreneurs and large corporations. Practices for disposal of surplus property have generated significant controversy after every major conflict.
Most Americans associate the term “military surplus” with items of personal clothing and equipment made for use by soldiers during wartime that have been obtained and sold to the public by retailers operating small specialty stores set up for that purpose. Personal gear actually makes up only a small portion of the military surplus that, for more than two hundred years, has been made available by the government as a means of disposing of unnecessary or outmoded assets. Included in the list of surplus items have been various forms of weaponry, industrial properties, and real estate, including entire military installations deemed no longer necessary. Although the federal government has passed along some of its military surplus to its allies, either as outright grants or through discount purchases, it has also made billions of dollars of surplus materials available to individuals and corporations, allowing for the establishment or enhancement of businesses that have been instrumental in the growth of the American economy.
Surplus materials were available after the Revolutionary War, the War of 1812, and the Mexican War. During the early years of the republic, the sale of war surplus materials provided much needed revenue to the national treasury. Because military clothing and personal equipment was not then radically different from items produced for use by the general populace, it was often easy for the government to obtain what it needed from civilian sources and to find buyers for surplus. After the U.S. Civil War, the government found it had large amounts of personal and organizational gear on hand when the massive Union and Confederate armies were demobilized. Various military bureaus within the uniformed services, as well as the secretaries of war, the Navy, and the Treasury, all had a hand in managing the sale or transfer of surplus materials. Both the government and the business community suffered from the absence of a coordinated system for disposing of surplus from the various branches of the armed forces.
Sales of Surpluses
As warfare became increasingly more complex, industrial mobilization and the consequent problems of disposing of surplus became more challenging. For example, during World War I, the United States undertook a hitherto unprecedented effort to place the nation’s economy on a wartime footing to supply its allies and mount its own expeditionary force to fight in Europe. When that conflict ended in November, 1918, the government found itself with some $4 billion in surplus equipment and supplies.
A concerted effort was made to coordinate sales of much of this material to the public, and as a consequence a new form of business sprang up across the country: the Army-Navy store. Entrepreneurs bought clothing and other personal gear from the government at bargain prices and then sold it to the general public, many of whom were already familiar with the quality of this merchandise. Stockpiles of materials such as copper, leather, and steel were sold off gradually, so as not to cause severe economic harm to businesses trading in those commodities. Sales of more expensive assets, such as plants built with government support to produce munitions, chemicals, and other materials for the war effort, were often sold off at a fraction of the cost of construction. Government officials were accused of giving preferential treatment to large corporations, which were able to obtain high-value assets with relatively minimal investment. There were thousands of complaints that the Woodrow Wilson administration mishandled sales of surplus property.
When European nations went to war in 1939, the administration of President Franklin D. Roosevelt realized it would be only a matter of time before the United States would be required to join in the hostilities. Determined to avoid some of the mistakes that had plagued theWilson administration in disposing of surplus after World War I, Roosevelt’s advisers as early as 1940 began drafting plans for a postwar industrial buildup. These plans incorporated a scheme for managing military surplus, including industrial plants built or modified for production of war materiel.
This military surplus store in Miami sold out its gas masks after the terrorist attacks on September 11, 2001. (AP/Wide World Photos)
Profiting from Surplus
Principles for using the war surplus as a means of rejuvenating the peacetime economy were incorporated into the Surplus Property Act of 1944, which specifically stated that small businesses were to be the chief beneficiaries of government efforts to return surplus property and equipment to the general economy. TheWar Assets Administration was established to handle sales of nearly $40 billion in surplus materiel. The rush to demobilize and the ability of larger corporations to outbid small enterprises for the most lucrative real estate, buildings, and expensive equipment left many small-business owners— including thousands of returning veterans—at a disadvantage.
One group that did manage to profit from the availability of surplus equipment being sold at pennies on the dollar was the owners of Army-Navy stores, who soon found themselves in possession of items such as clothing, bedding, dining ware, tools, and outdoor equipment that had proven useful during the war. A ready group of consumers was happy to purchase these items, and for nearly half a century, stores featuring military surplus did a booming business in virtually every region of the country. As materials became available after the Vietnam War during the 1970’s and the Persian Gulf War during the 1990’s, dealers were able to update their stock. During the 1990’s, however, it became increasingly more difficult for them to obtain surplus items from the government. Undaunted, these entrepreneurs began contracting with firms that made equipment for military use, obtaining directly from manufacturers items that had the look and feel of the gear being issued to soldiers, sailors, airmen, and marines.
In addition to these individual store owners, other groups of businesspeople have benefited greatly from the government’s efforts to dispose of unneeded equipment and real estate. At the end of both World War I and World War II, aircraft, vehicles, and heavy equipment were returned to manufacturers for a fraction of their original cost, or auctioned to firms who wished to convert them for civilian use or simply turn them into scrap metal, a commodity with substantial commercial value. Additionally, beginning in 1945, the government sold off more than a thousand industrial facilities to businesses wishing to continue manufacturing products for which these plants had been designed, or to companies wishing to convert them to produce other goods. Large corporations involved in chemical, textile, aviation, or automotive manufacturing were able to increase their assets by purchasing specialized facilities for a fraction of what it had cost the government to construct them. At the same time, the government benefited by seeing some return on its investment, and millions of individuals, especially veterans, benefited because jobs were created in these facilities.
The DLA Supervises
When the Defense Logistics Agency (DLA) was created in 1961 to bring better organization to all military supply operations, the new agency was assigned as one of its missions the sale of surplus property. Initially, the agency worked closely with businesses and individuals to conduct auctions at which surplus items not designated for use by other government agencies or U.S. allies were offered to the public. What the government and the business community soon learned was that it was not necessary for there to be a war to have a surplus of war products available. The constant changes in the size and composition of the fighting force and its support services, and the rapid pace of technological advances, made much military gear—personal items, transportation and engineering equipment, and weapons systems—obsolete much more quickly than in the past.
To manage disposal of surplus property, the Defense Logistics Agency established the Defense Reutilization and Management Service (DRMS), which in turn opened offices at various locations throughout the country to manage the cataloging, storage, and sale of millions of items valued at billions of dollars. The advent of the Internet as a tool of commerce also had an impact on the ability of the public to obtain surplus military equipment and supplies. In 2001, the Defense Reutilization and Management Service entered into a partnership with a private firmthat took over responsibility for storage and sales of surplus. That firm established aWeb site and began conducting online auctions.
Under Defense Logistic Agency supervision, detailed procedures were established for determining not only which items might be sold but also the condition in which they would be released from the government to private buyers. Because many items declared surplus by the military still had potential for use as weaponry or for intelligence purposes, the services were directed to develop a process to identify sensitive items so that these could be “demilitarized” before sale. Despite these precautions, poor supervision and a confusing bureaucracy often resulted in private citizens and businesses being able to purchase high-dollar, militarily sensitive equipment such as radar systems, weapons, and delivery systems. As a result, a lucrative business in arms trading sprang up during the 1970’s and extended well beyond the close of the twentieth century.
From time to time, businesses and local communities have benefited from the government’s decision to cease operating an entire military installation. A number of forts, air bases, and naval stations passed to states, counties, or private organizations in this fashion. Beginning in 1989, under the terms of a law passed by Congress to assure fair assessment of an installation’s value for continuing use, the Base Realignment and Closure (BRAC) Commission conducted hearings and designated installations to be closed, with real estate assets being transferred to other entities. Some were sold to commercial developers, who in turn have converted existing facilities or demolished them to transformthese sites for private or community use. Thriving business parks and new residential communities were created on sites of former military installations in nearly every region of the country, often providing handsome profits for those willing to invest in these redevelopment efforts.
Brandes, Stuart D.Warhogs: A History ofWar Profits in America. Lexington: University Press of Kentucky, 1997. Briefly describes government efforts to dispose of surplus property after the world wars. Also examines the larger issue of the government’s relationship with the business community from the eighteenth through the twentieth centuries.
Cain, Louis, and George Neumann. “Planning for Peace: The Surplus Property Act of 1944.” Journal of Economic History 41, no. 1 (March, 1981): 129-135. Examines the federal government’s efforts to maximize benefits and limit ill effects caused by the disposal of war surplus after World War II. Outlines objectives of the law passed to control production and eventual disposal of property.
Cary, Peter, et al. “Weapons Bazaar.” U.S. News and World Report 121, no. 23 (December 9, 1996): 26- 37. Describes problems of controlling sales of weapons to U.S. citizens, foreign nationals, and foreign governments. Outlines the elaborate process the Defense Logistics Agency established to classify and dispose of surplus arms, missiles, aircraft, and ammunition.
Chiles, James R. “How the Great War on War Surplus Got Won—or Lost.” Smithsonian 26, no. 9 (December, 1995): 52-61. Details the quantities and varieties of war surplus that the government needed to dispose of at the end of World War II, methods used to transfer usable property to various businesses and individuals, and the ill-feeling caused by what the public perceived as haphazard and unfair allocation of resources.
Koistinen, Paul. Planning War, Pursuing Peace: The Political Economy of American Warfare, 1920-1939. Lawrence: University Press of Kansas, 1998. Includes a discussion of efforts of the Wilson Administration to dispose of surplus materiel after World War I; reports on results of federal commissions charged with overseeing government operations during and after hostilities.
Wyld, David C. “Government Liquidation: How Online Auctions Will Replace Bob’s Army-Navy Store.” Journal of Internet Commerce 4, no. 4 (March, 2006): 41-58. Describes efforts at the Department of Defense to take advantage of electronic methods of advertising and selling surplus materials, and explains officials’ efforts to subcontract the process to a private firm to manage online sales and store surplus equipment and supplies for the government.
See also: Government spending; Iraq wars; military-industrial complex.