SMALL BUSINESS ACT WEDNESDAY, MAY 22, 1957 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10 a. m., Hon. Brent Spence (chairman) presiding. Present: Chairman Spence (presiding), Messrs. Brown, Rains, Multer, Addonizio, Mrs. Griffith, Messrs. Vanik, Anderson, Talle, Kilburn, Widnall, Betts, Seely-Brown, and Chamberlain. The CHAIRMAN. The committee will be in order. Our first witness this morning is Representative Frank Thompson, Jr. Mr. Thompson, if you have a prepared statement, you may present it to the committee. STATEMENT OF HON. FRANK THOMPSON, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY Mr. THOMPSON. On January 10, 1957, I introduced in the House of Representatives H. R. 2513, legislation to amend the Small Business Act of 1953 to abolish the Loan Policy Board of the Small Business Administration, to make the Small Business Administration a permanent agency of the Government, and for other purposes. I am glad that, after several months of indecisiveness, this administration also has decided that the Small Business Administration should be made a permanent agency. On April 4 Senator Edward J. Thye, Republican, Minnesota, introduced legislation for himself and a large number of Senators to carry out the administration's new-found resolve. In the House legislation to make the Small Business Administration permanent has been introduced by 12 of the 13 members of the Select Committee on Small Business. This bipartisan legislation is splendid, I believe, and is widely supported by many small-business men. The reasons for making the Small Business Administration permanent are many, and these reasons are indisputably valid. The Small Business Administration is now 4 years old and has proved its effectiveness in many respects. If made permanent, this Federal agency will be able to attract more competent personnel, banks will more willingly participate in loans to small business, and procurement activities of the Small Business Administration in behalf of small business will be expanded. These objectives are worthy objectives, and we can all support them with a clear conscience. The Subcommittee on the Select Committee on Small Business of the House of Representatives recommended elimination of the Loan Policy Board, and also declared the continuation of the Small Business Administration was a necessity. These recommendations were contained in House Report No. 1045, 84th Congress, 1st session. Members of the subcommittee were Representative Abraham J. Multer, chairman; Representative Joe L. Evins, and Representative R. Walter Riehlman. My bill, H. R. 2513, is designed to carry out the recommendations of the subcommittee. My bill will, if enacted into law, be clear indication to the more than 4 million small-business men of our country that the Congress is well aware of the plight they face when they are confronted with the need for financial assistance where such assistance is not presently available through private banking institutions. House Report No. 1045 of the Select Committee on Small Business points out that section 204 (a) of the act creating the Small Business Administration declares that— In order to carry out the policies of this title there is hereby created an agency under the name of Small Business Administration *** and it shall not be affiliated with or be within any other agency or department of the Federal Government. I have underscored this point. The subcommittee, in its report, declares unanimously: It is clear from the evidence adduced at the hearings that the Small Business Administration, in order to perform the function for which it was created, should be charged with the duty and responsibility of formulating loan policy. As an independent unaffiliated agency, the Administration should be responsible only to the President and to the Congress for its actions. The evidence indicates that the Loan Policy Board makes no substantial contribution in carrying out the intent of Congress with respect to providing assistance for small business. The report goes on to say this: The Board has met approximately once a month since its inception and, although it has issued a loan-policy statement, the record is clear that the determinations were always unanimous and the Board merely followed the recommendations of the Administrator of the Small Business Administration. Mr. Wendell B. Barnes, Administrator of the Small Business Administration, testified: "Sometimes the Loan Policy Board considers something for a month or two before we move into it." So it comes down to this, gentlemen, as the House Subcommittee on Government Procurement, Disposal, and Loan Activities of the Select Committee on Small Business points out: The procedure of the Loan Policy Board appears to delay important decisions and hampers efficient administration rather than serving to expedite the important lending functions of the act. In view of the foregoing experience, this subcommittee recommends that section 204 (d) of the act be repealed. The subcommittee feels that the responsibility and jurisdiction for the policies, as well as the operations, of the Small Business Administration should lie solely within the administration of the agency. It is clearly the intent of the Congress that the Administrator be responsible for the activities and functions of the agency and that the agency be wholly independent and unaffiliated as provided in section 204 (a) of the act. Our colleague, Representative Joe L. Evins, a subcommittee member, filed a statement of additional views declaring: I agree with my colleagues' recommendations for removing the Secretaries of Commerce and the Treasury from the SMA Loan Policy Board. As for the Secretary of Commerce, Congress considered the question of making SBA a part of the Department of Commerce at the time its basic law was passed. And Congress considered this question earlier when the Small Defense Plants Administration, SBA's predecessor agency, was created. On both occasions Congress rejected this idea, and for reasons which are perhaps sounder today than they were on those occasions. It was decided to make the smallbusiness agency separate from the Department of Commerce for the reason that it was widely believed that the Department of Commerce is essentially a big business agency, formulating policies for the benefit of big business. The commercial interests of big business are not always in harmony with the commercial interests of small business. If it is sound policy to have a separate agency for small business, then I question the propriety of having the Secretary of Commerce making policy for the small-business agency. So much for the report of the Subcommittee of the House Select Small Business Committee. I think the subcommittee is to be commended for its splendid report. I am pleased to note that Subcommittee No. 2 of the House Small Business Committee unanimously agrees that the Loan Policy Board should be eliminated and the Small Business Administration made permanent. Twelve of the 13 members of the full Select Committee on Small Business have introduced legislation to effectuate these purposes as I mentioned earlier. Many of us are deeply concerned about what clearly appears to be big business domination of the Department of Commerce. Frederick H. Hueller, Assistant Secretary of the United States Department of Commerce, last month confirmed these suspicions. Mr. Mueller, a former president of the Mueller Furniture Co., of Grand Rapids, Mich., declared, in an interview with the press, that bad management was the real reason for most small business failures. Last year the big business-dominated United States Chamber of Commerce circulated a booklet which reached the same conclusions. George J. Burger, vice president of the National Federation of Independent Business with a membership of approximately 100,000 small-business men, indignantly wrote to President Eisenhower thatthe mounting opinion in the ranks of small business is that the Department of Commerce as a whole does not speak and act in the best interest of small busi ness and he recommended to the President that officials be appointed to head the Federal Department of Commerce who have an understanding of the problems of small business. In a letter to me under date of April 29, this year, Mr. Mueller pointed out that he represents— Secretary Weeks on the Cabinet Committee for Small Business and he reiterated his belief that small business failures are due to management failure. I also firmly believe wrote Mr. Mueller that most of those who quit business, voluntarily or involuntarily, do so because of lack of managerial ability in all of its manifestations. This answer is just a little too pat. For instance, in its final report the House Small Business Committee pointed out that the Defense Department is by far the biggest spender of Federal funds and it alone passes out about $1.5 billion of research money annually to private companies. A full 95 percent of these funds goes to companies employing more than 500 workers. In other words, it goes to big business. In the past 3 years, research contracts totaling $4.7 billion have been awarded. Of this vast sum $4.6 billion, or 98.1 percent, has gone to the 500 largest contractors. According to a recent report issued by the Office of the Assistant Secretary of Defense for Supply and Logistics, 95 percent of all business firms in the Nation received only 16.7 percent of more than $12 billion of defense contracts awarded during the first 8 months of fiscal 1957. This was down from 25.3 percent of defense contracts received by this group in 1954. This, then, is the reality of the situation which leading Department of Commerce officials are perfectly aware of when they talk about management failures. I am very proud of the fact that in a poll of its nationwide membership, the National Federation of Independent Business found that 83 percent of its membership of more than 100,000 small-business men favored my bill. I hope this committee will be as favorably inclined toward it. I think a great number of the Congressmen interested are in agreement the Loan Policy Board should be established and the Small Business Administration be made a permanent fixture of the Government, the advantages of which are obvious, and which I have tried to set forth in my statement. I think that it will suffice except to say I hope that either my legislation, or identical legislation from Mr. Multer from New York, or my distinguished friend from Connecticut, Mr. Seely-Brown, will be adopted in this session of the Congress, because it is increasingly obvious that small business throughout the United States must have relief, particularly in the field of research and development under Government contracts, 95 percent of which are now concentrated in big businesses. I thank you very much, Mr. Chairman. The CHAIRMAN. Mr. Multer. Mr. MULTER. Mr. Chairman, I have no questions, but I would like to indicate it has been a tremendous help both to the Congress and to small-business men generally to have Mr. Thompson's cooperation. He has been very diligent in his efforts to aid small business. I have had the opportunity to get a preview of his statement. I am very happy to see that he is in accord with practically everything that the Small Business Committee has recommended. The CHAIRMAN. We are glad to have your testimony, Mr. Thompson. We are considering the general subject, and I am sure your bill and your statement will be considered at the proper time. Mr. THOMPSON. Thank you, Mr. Chairman. The CHAIRMAN. The next witness is Mr. Coffin. I am informed Mr. Coffin is not here as yet. Does Mr. Multer want to proceed? Mr. MULTER. Yes, Mr. Chairman. The CHAIRMAN. You may proceed. STATEMENT OF HON. ABRAHAM J. MULTER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. MULTER. Mr. Chairman, for the record, I am Abraham J. Multer, Representative from the 13th District of New York. |