Federal Subsidies and the U.S. Shipbuilding Industry: A Few Remarks

While economists, and economic historians of orthodox ideas, are ever speaking of "free markets" and private "entrepreneurship" are the only way in which countries "succeed," with anything and everything else at best getting in the way, the actual historical record regarding industrialization is very different. When it comes to building up a large, high-capital, high-technology industry one invariably sees behind the businessmen to whom such give all the credit a robust industrial policy likely to entail massive monetary backing, including direct subsidy on a significant scale to those sectors whose development it deems important to the country's flourishing economically.

And when that policy and that monetary backing go, so does the success.

Certainly this was Britain's historical experience--that country ascending to the status of industrial-commercial superpower on the basis of rigorously mercantilist policies (the more formidable still when one considers the country's navally-centered military-industrial complex, which actually goes back far past the day of "Jackie" Fisher to the days of wooden sailing ships and iron cannonballs). And when those policies came to a halt the country's industrial supremacy turned to now notorious decline (underlined by how Margaret Thatcher's policies, which she had promised would rescue British manufacturing, dealt another massive blow to that manufacturing base, with her successors' faithfully following in her footsteps only increasing the damage).

Thus has it also gone in American history, with the neoliberal era from the late 1970s forward. That broad decline has been gradual, offset by success in a few areas (computers, for a while, and more enduringly, aerospace-defense, petroleum/coal products, chemicals--not incidentally those benefiting most from past and present defense outlays, and the shale boom). However, it has still been very much there, as reflected in the data on manufacturing output. Adjusted for inflation using the Consumer Price Index one finds that they have staggered in the aggregate, and fallen significantly in per capita terms, by about a fifth between the 1979 recession and the outbreak of the pandemic, with the heavy/Fordist-type industries--primary metals and fabricated metal goods, machinery, electrical equipment, autos--suffering a two-fifths drop.

While I did not treat it as a distinct category, it seems safe to say that the situation in regard to American shipping has been far worse, that sector disappearing--with the history behind it confirming, again, government backing's determining effect on its trajectory.

In contrast with other areas, like the railroads that did so much to integrate the economy of the east and enable the settlement of the west, the sea does not seem to have been a subject of great public interest in the nineteenth century (when American business was overwhelmingly preoccupied with the country's internal development), with the result, unsurprisingly, that the country's once-mighty merchant marine was an old memory at that point. But concern for having one revived with the "end of the frontier" in the 1890s and the outward turn of American business as the "next frontier," and the beginnings of a host of legislation intended to promote the development of an American merchant marine--and with it, the shipbuilding sector that would supply it with ships and support it with repair and rebuilding services. Thus the Military Cargo Preference Act 1904 reserved to available American merchant vessels the carriage of all U.S. military cargo. Later, after World War I (with its massive economic expansion, and general paving of the way for a more globally involved America, economically as in other ways), the provisions of the Merchant Marine Act 1920 (aka the Jones Act) gave American-owned, -flagged and -manned vessels a monopoly on port-to-port trade in the U.S., with this even extended to U.S. territories and possessions (which, as these included a significant number of islands in the Caribbean and western Pacific, necessarily encompassed a fair bit of oceangoing traffic).* Moreover, as the indirect subsidy constituted by these preferences was not quite enough to get America's shipbuilding where it was wanted, there followed the Merchant Marine Act 1936, and its significant direct subsidy for ship construction and operation. (Historian Gabriel Kolko reported that in 1947-1961 alone the value of the direct subsidy came to $1 billion, which translated into today's terms as a portion of Gross Domestic Product would work out to somewhere between $50 billion and $100 billion for those years alone.)

The U.S. shipbuilding sector, and the country's merchant marine (which as late as the outbreak of World War II ran a distant second to Britain's in spite of the U.S. having long overtaken Britain industrially), got further help from by the massive shipbuilding (and privatization of said ships) of the World War II period, and the increasing extent and significance of government preferences (with the U.S. now maintaining a massive, globally deployed military establishment with its heightened shipping demands, and the Cargo Preference Act 1954 extending the reservation to at least 50 percent of civilian cargo as well), became the world's strongest under this regime.**

Of course, it was also the case that after all the wartime construction, and the recovery and economic development ongoing elsewhere where many a rival had a local advantage (with Britain, for instance, positioned to meet European demand, with a Japan which had been a significant builder pre-war making rapid progress in this area), the American market was glutted and the world market very crowded indeed. Meanwhile the U.S. Navy's orders were in this period still vast (the post-Korean War defense boom seeing the U.S. Navy's active ship force nearly double from 634 vessels in 1950 to 1,122 in 1953, and remain at an elevated level through subsequent decades, averaging 895 ships in 1951-1968, and this increasingly consisting of larger and more capable vessels as the age of the guided missile and nuclear navy dawned, affording plenty of naval work for the yards).

The result was that American shipbuilders produced only a relatively small number of commercial vessels in these years. However, the government continued to take an interest in specifically commercial shipbuilding, with the U.S. Maritime Administration's "Mariner" program contracting shipyards to produce cargo ships of new designs and taking on itself the responsibility for selling them, and the Merchant Marine Act 1970 modifying the earlier program to include tankers and dry bulk carriers. The latter in particular left the American shipbuilding industry "as healthy as it had been at any time since the war," American shipyards having their hands so full with "commercial work that for several years at the end of this period, the Navy could not find enough interested shipbuilders to build all the ships for which funds had been appropriated."

As is oft-noted the boost that the 1970 Act was supposed to provide was greatly diminished by a collapse in demand just a few years down the road, with the most-cited single factor the energy crisis' effect on demand for oil and therefore the tankers that hauled them, and the weaker economic outlook generally as the post-war boom turned to bust. (One might add that the '70s was also a period of naval contraction, with all that implied for relief from that direction--the U.S. Navy shrinking from 933 to 743 vessels in 1968-1970, and 530 in 1980, while its combatant tonnage tumbled from 9.4 million tons in 1960 to 7.6 million tons in 1970 and just 4.2 million tons in 1980.)

Still, as with so much else the real turn in policy came in the Reagan era. Much of the aforementioned legislation stayed on the books (the Jones Act, for example, still around, witness neoliberal publications and "think tanks"' ceaseless condemnation of the law today in line with their hatred of all "protectionism"), but the direct subsidies vanished. In line with Reagan's tendency to present a more moderate face with regard to neoliberal reform, when on the campaign trail in 1980 he promised to protect the sector, but then in office set about revising the Merchant Marine Act 1936 in exactly the opposite fashion--actually making U.S. ship operators eligible for subsidies when getting ships from foreign yards (a provision buried in the 1981 Omnibus Budget Reconcilation Act), and eventually doing away with Titles V, VI and XI of the Act altogether (the subsidies for the construction and operation of the vessels, and the mortgage insurance component of the legislation, respectively). There was, of course, an expansion of naval ship-building as part of the rearmament of the "Second Cold War," but, reflecting the changes in naval technology (and particularly the fact that more and more of the outlay has gone to high-tech electronic systems rather than ship construction per se), more a matter of a small number of very advanced (and expensive) vessels rather than colossal orders for craft, and amid the extreme competition for that handful of jobs "the number of active shipyards . . . [fell] by 40 percent" in the following five years.*** And afterward the naval contracts started drying up too (as the defense boom gave way to tighter budgets again), and the world once again tipped into a historic recession.

In short, left to sink or swim the industry sank--as usually happens, with, of course, succeeding presidential administrations not reversing course. The idea of a broad, robust, explicit industrial policy was discussed only tepidly amid the limited debate over the country's economic course seen in the late '80s and early '90s, became that much less plausible after the election of 1992 (when from virtually the start it was clear that neoliberalism remained the order of the day under Bill Clinton).

Still, four decades on, amid undeniable and massive anti-neoliberal backlash from below, the supply disruptions of the pandemic and after, and the spread of an increasingly militarized view of the relations between the great powers, not only is the matter of America's commercial shipbuilding sector being discussed again, but even in mainstream fora one sometimes finds something other than neoliberal denunciations of any and all action that might plausibly redress the situation.

Of course, per usual there is far more talk than action; while I have my doubts that shipbuilding will rise anywhere near so high on the agenda as action on microchips. Nevertheless, that the subject is being talked about at all does seem another sign of the times, in which, if governments and the commentariat remain committed to neoliberal policies, they are still more willing to make pragmatic adjustments to satisfy the demands of a more complicated situation than prevailed in the vacation from reality that was the late '90s for such types.

* Section 27 of the text reads that "No merchandise . . . shall be transported by water, or by land and water . . . between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States . . ." with any ship previously under a foreign flag or rebuilt elsewhere ineligible.
** It is worth acknowledging that not all the beneficiaries of the post-war sell-off of wartime shipping were American--under the Merchant Ship Sales Act 1946 numerous foreign buyers acquiring large numbers of vessels (such vessels playing an important role in, for example, Aristotle Onassis' building of his fortune).
*** The U.S. Navy's ship count, from trough to peak, went from 521 in 1981 to 594 in 1987, while the Navy in 1990 had even less combatant tonnage than it had in 1980 (down from 4.19 million to 4.04 million tons).