What is the Defense Production Act and why should Trump use it?

James Nguyen, a fuel cell stack testing engineer, tests ventilator oxygen at Bloom Energy in Sunnyvale, Calif., March 28, 2020. Bloom Energy is a fuel cell generator company that has switched over to refurbishing ventilators as an increasing number of patients experience respiratory issues as a result of COVID-19. | Beth LaBerge / Pool Photo via AP

The COVID-19 crisis has led to a collapse of the “just-in-time” global supply chain, resulting in mass shortages of medical and consumer goods needed to fight and defend against the spread of the coronavirus.

In response, President Trump announced he would invoke the Defense Production Act, which was modeled after the war powers President Franklin D. Roosevelt was given during World War II and gives the government authority to order companies to produce specific goods on an emergency basis. The act hands Trump “a broad set of authorities to influence Domestic industry in the interest of national defense,” according to an updated Congressional Research Service report.

On March 18, Trump signed an Executive Order giving Health and Human Services authorization to use the act in response to the virus outbreak. However, the president faced opposition from the U.S. Chamber of Commerce and big business. On March 22, Trump said, “We’re not a country based on nationalizing our business,” though the act does not provide that authorization.

Trump has since come under mounting pressure to use the act as states scramble to shore up items like masks, gloves and ventilators. On March 27, Trump ordered General Motors to “accept, perform, and prioritize federal contracts for ventilators.”

Invoking the DPA means that if the government places an order with a private company for any medical equipment to assist with the coronavirus response, such as masks and ventilators, then that company would be required to fulfill the government’s order before anyone else’s.

But while it gives the government priority, invoking the Act does not do anything to increase the production of these items, which increasingly are in short supply. Some American manufacturers have expressed concerns that it is difficult to ramp up production of medical equipment without clear guidance from the federal government outlining what materials are needed—and where.

What’s in the law?

The act is divided into three main sections:

1. Priorities and Allocations,which allow the president to require corporations to accept and prioritize contracts for services and materials deemed necessary to aid U.S. national defense.
2. Expansion of Productive Capacity and Supply, which gives the president the authority to create incentives for industry to produce critical materials.
3. General Provisions, which broadly establishes government authority to strike agreements with private industry, to halt foreign corporate mergers that threaten national security, and to create a volunteer bloc of industry executives who could be called to government service.

History — Use of the DPA

The DPA was originally signed into law in 1950 by President Harry S. Truman in response to the military supply needs of the Korean War. It originally included wage and price controls that have since been rescinded.

The priorities piece of the DPA is regularly used by the Defense Department to “acquire critical military capabilities” and by the Department of Homeland Security for disaster response and preparedness. What hasn’t been used since the Cold War is the allocation provision.

The current pandemic is without precedent in so many ways, but modern American history does include a number of instances in which the federal government has invoked the Defense Production Act.

In 2001, for instance, the administrations of both President Bill Clinton and George W. Bush invoked it to ensure that electricity and natural gas shippers continued supplying California utilities to cope with an energy crisis there, according to a 2009 Congressional Research Service report.

It was used again during the Iraq War to prioritize the supply of certain military equipment to British forces serving there, the CRS report said.

More recently, it was used following the 2017 hurricane in Puerto Rico, when the Federal Emergency Management Agency sought to prioritize contracts for food, bottled water, manufactured housing units, and the restoration of electrical systems.

The coronavirus crisis is also not the first time the Trump White House has struggled with whether or how to use the DPA. In 2018, Energy Secretary Rick Perry presented a plan to Trump that would have used the act and other emergency laws to force utilities to buy coal from struggling U.S. miners.

But the plan ran aground at the White House due to opposition from members of the National Security Council and National Economic Council, who questioned the move’s legality. Some still question the legality of the DPA for non-war situations.

Limits and opportunities

There are still open questions as to whether the government could use the law to force a company to accept a new contract for a product that it does not already make.

Convincing companies to set up new facilities from scratch may be particularly difficult. Industry executives said it could take months for factories to obtain the necessary equipment to begin production. Much of the equipment used in American factories are now made offshore, and the global shipping industry is in disarray.

We shouldn’t expect the use of the DPA in response to the current crisis to quickly solve the medical and consumer supply problems in this COVID-19 crisis.

Other options

In a capitalist system, a law like the DPA can be used to require the production of certain goods. However, when the government requires big business to manufacture something specific, it is seen by the owner class as too much government, and it smells like socialism. We can expect capitalists, libertarians, and laisse fair economists to oppose such measures.

However, in a crisis like the current pandemic and the fast-shrinking economy, the DPA provides an important and necessary tool to require the production of needed products.

We should acknowledge that the DPA is not a common response in peacetime. Let’s also recognize that it leaves in place the profit motive and private-sector ownership and that it provides lucrative government contracts to big business.

There are limits under capitalism. The use of this of the DPA will be limited and temporary. It is used reluctantly by the ruling class during unusual and crisis circumstances.

But the “invisible hand” spoken of admirably by Adam Smith isn’t so invisible in a situation like this, and the inherent limitations of capitalism to respond in a crisis become even more exposed.

Nationalization—A less costly and more efficient solution

Nationalization is the process of transferring private assets into public assets by bringing them under public ownership. Nationalization is distinguished from property redistribution in that the government retains control of nationalized property.

When industries are nationalized, they become state-owned, and the government is responsible for meeting any debts. If the industry is profitable, the profit is used to finance other state services, such as social programs and government research, which can help lower the tax burden.

Nationalization by itself, is not always a progressive solution. Non-democratic states have nationalized industries to support unjust wars or to ‘make the trains run on time’, for example.

In 1962, the United Nations General Assembly adopted Resolution 1803, “Permanent Sovereignty over National Resources,” which states that in the event of nationalization, the owner “shall be paid appropriate compensation in accordance with international law.”

In the United States, the “Takings Clause”, the last clause of the Fifth Amendment, limits the power of eminent domain by requiring “just compensation” to be paid if private property is taken for public use.

State-run industries have no for-profit motive and can be less costly and, theoretically, more efficient at producing goods and providing services that are aligned with national priorities. This becomes most most evident in a crisis.

For example — the ability of the socialist Chinese government to utilize all of their economic resources quickly in response to COVID-19 allowed the country to meet scientific, medical, consumer, and economic demands quickly and cost-effectively. The U.S. capitalist system, however, demonstrated a systemic failure in its response to the crisis.

DPA now, nationalization later

The use of the Defense Production Act is necessary in times of crisis when the capitalist ‘free market’ system cannot meet the demands of the crisis and when the political conditions for nationalization are not an immediate option.

Many have publically called for President Trump to use the full authority of the DPA in response to the current COVID-19 crisis. That is the right demand for this unique moment in America.

The most important consideration at this time is the production and fair, effective distribution of critical supplies to those most in need. We have a very real, very serious health and economic crisis that requires immediate and bold action.

Trump’s bungled response and leadership failure is also real and very dangerous, but to blame only Trump is to deny the limits of the capitalist system itself to meet the needs of everyday Americans.

We have better long-term options, like nationalization, but the balance of class and political forces is not yet present to make that a reality. Using the DPA will not immediately increase production, it will not prevent the making of private profit from the pain and suffering of sick and dying people.

What it would do is allow a legal means of direct government intervention and investment in a time of crisis to provide critical goods and services to our medical professionals and millions of people in need.

For all of these reasons and more, Trump should immediately use the DPA and the full economic power of the government to address the critical needs of the people.

This column originally appeared at The Political Plus.

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CONTRIBUTOR

Mike Gold

Mike Gold is a public policy expert, political analyst, and media/cultural critic. His writings can be found at Left Political Monitor.