“ONE WORLD” HITS A POTHOLE ON THE ROAD TO PROSPERITY: Why Wendell Willkie never saw the crash of 2008 coming

As the good citizens of the world pick their way through the smoldering rubble of the American and world financial markets in September 2008, wondering when and where the next blast will occur, and pondering how things got to this sad state of affairs, it may be helpful to look at why Wendell Willkie, the prophet of “globalization”, got his financial theory wrong. He and his contemporaries more or less got it right for a long time, but, in the end, there was a flaw in their assumptions and reasoning that finally caught up with them. And that was, for the most part, they were good and decent men with a noble goal; and so, it never occurred to them that they would be followed by craven scoundrels. Here is what and how it happened.

Today, Wendell Willkie is not exactly a household name but at one time it was because he was the Republican candidate for president in 1940. Willkie was a forty-eight year old lawyer from Indiana and a lifelong Democrat. Indeed, he had even given one of the nominating speeches for Franklin Roosevelt at the 1932 Democratic convention in Chicago. But, like some other Democrats, he became increasingly disillusioned with the New Deal, and by 1940 was ready to challenge it openly. In particular, Willkie had a bone to pick with the TVA, the Tennessee Valley Authority. He was, at the time, president of Commonwealth and Southern, a huge utility company, which was having a hard time competing with the TVA because the latter received generous federal benefits and subsidies while C&S did not. Somehow the logic of all this escaped Willkie.

In 1940, Republicans actually thought they had a chance to elect one of their own as president. Roosevelt was completing his second term, and no president had ever run for a third one, based a tradition going all the way back to George Washington. More than that, after eight years, the New Deal was looking a little tired and in need of a face lift while Roosevelt, himself, looked worn down and worn out. The most serious threat to the Democrats, however, was that many Americans were concerned, if not outright terrified, that Roosevelt would finagle them into another European war. Germany recently had defeated France and driven the British army from the continent; and while there was little serious support for Adolph Hitler and Nazi Germany, there was most certainly nothing like a consensus to join Great Britain in the war. And, of course, there were those who believed the real threat lay with Imperial Japan, an opinion strongly held on the west coast.

The Republicans finally nominated Wendell Willkie at their convention in Philadelphia after a series of bruising votes and backroom deals. At first, the New Dealers were not especially worried. After all, Roosevelt had easily defeated Hebert Hoover in 1932, Alfred Landon in 1936, and they expected Roosevelt would easily brush aside the Willkie challenge. They were in for a big surprise because Willkie proved to be a formidable opponent. He was a fiery and effective speaker, and a tireless campaigner, who apparently didn’t need much sleep. The aging Roosevelt clearly was caught off guard, and as the candidates battled throughout September and October, the specter of a Willkie upset began to haunt the Democrats.
When John L. Lewis, the powerful labor leader and president of the United Mine Workers and the CIO, endorsed Willkie, on October 23, because he feared Roosevelt would take the country into the European war, the New Dealers realized Roosevelt needed to do something dramatic to shore up his sagging support. On October 30, 1940, Roosevelt delivered a rousing speech at Boston Garden that was broadcast across the nation (some connoisseurs consider it his finest), in which he promised he would never send American boys to fight in a foreign war. Willkie, who was listening to the speech in his hotel suite in New York City, is said to have exploded in rage, and stormed around the room shouting, “That damned speech just cost me the election.” That much he got right. The speech closed the deal with the American people, and Roosevelt won the election, although it was a lot closer than anyone had expected back in the spring.

After the election, Willkie established a foundation he named Freedom House (believe it or not the co-founder was Eleanor Roosevelt) dedicated to the peaceful resolution of international disputes; although, somewhat surprisingly, its publications quickly took on a rather anti Nazi tone. On December 7, 1941, the Imperial Japanese navy attacked the American fleet at Pearl Harbor in Hawaii, quickly followed by other attacks throughout the Pacific (as the west coast had feared), and four days later Nazi Germany and Italy declared war on the United States. So war came to America after all; and by the summer of 1942, with the Axis powers rolling up one victory after another, the American people were in a grim and sullen mood. The ever politically astute Franklin Roosevelt decided he needed someone to travel around the world to assess the state of affairs, see if there were any good news, and report back to him. So whom did he pick? None other than Wendell Willkie.
On August 26, 1942, Willkie left Mitchell field in New York, on a Consolidated bomber converted for passenger use, accompanied by his publisher Gardner Cowles, and a well known foreign correspondent, Joseph Barnes, on a world wide trip, retuning to Minneapolis on October 14, 1942, and dutifully reported his findings to the president. On April 8, 1943 Simon and Shuster published the report. By this time, however, the mood of the American people had changed dramatically because it was now obvious that the Allies and the Russians were going to achieve an overwhelming victory over the Axis powers. It was also obvious that Nazi Germany and Imperial Japan were going to be ground to powder, and that a new world was being born. But what would this new world look like? As if to answer that question, Willkie titled his book One World. It rocketed to number one on the New York Times list of best selling non-fiction books where it remained for over four months. It would prove to be the best selling non-fiction book in American history up to that time, and even today makes for quite a read.

The first part of One World is bit of a travelogue in which Willkie describes the countries he visited and the leaders he met in a colorful and down home style. It is the second half of the book, however, that is truly astounding. In that section, Willkie describes what the new world that is being born will look like, and, incredibly, got it right because the world he described a lifetime ago is the world we live in today. Now, I have written such a lengthy article because to understand the current banking and financial meltdown we need to see how deep the roots go. And the roots go down all the way to the First World War, the Great Depression and their successor, the Second World War.

Wendell Willkie and his contemporaries were the generation that had lived through the carnage of two world wars, the poverty of a great world depression, and believed passionately, not just intellectually, that this had to stop, now; because, given the increasing devastation caused by modern weapons, mankind might not be able to withstand another such catastrophe of its own making. They believed that peace, in part, could be achieved by people becoming mutually dependent upon each other through the exchange of goods and ideas. What today we call “globalization”. But how to finance this trade, there’s the rub.

Debt was the answer. The world would finance the trade through debt; and, as long as wealth grew faster than the debt needed to finance it, the system worked. But in 2008, sixty-five years after the publication of One World it all came crashing down for one and only one reason, unbridled greed. Governments the world over encouraged their citizens and institutions to pile up mountains upon mountains of debt to finance the growth, particularly in the United States. Citizens, institutions, even governments themselves became willing participants in the illusion that one can borrow instead of work one’s way to prosperity. The men of finance were the worst of a bad lot, believing that vast sums of easy money could be made through the seemingly endless permutations of mind-numbingly complex financial instruments which became ends in themselves instead of instruments to help alleviate poverty and to help to build peace.

Wendell Willkie and his generation looked about at the wreckage and misery they were creating, and thought how can mankind sink lower than this? Now we know.