The committee met, pursuant to notice, at 10:06 a.m., in room 5302, Dirksen Senate Office Building, Hon. William Proxmire (vice chairman of the committee) presiding.

Present: Senators Proxmire and Tower and Representative Mitchell.

Senator PROXMIRE. The committee will come to order. We expect to have Senator Tower here a little later. He is delayed, and when he comes in I am going to ask him to make a statement. He has a statement he would like to make at the beginning of the hearings, but because he is late and because we have a couple of witnesses, I think it is best for us to go ahead, and perhaps when you finish your statement Senator Tower can make his.

Today the Joint Committee begins 3 days of hearings on the defense industrial base. They are part of the committee's year-long review of plans and programs that affect our preparedness for wartime contingencies or other national crises. In this week's hearings, we will be examining the current condition of the defense industry, its costs, and its mobilization potential. Next week we will look at a new program for the strategic stockpiles of critical materials.

These are vital matters that have been neglected for some time. I am glad to say that this neglect appears to be ending. Over the last few months, studies have been completed on several aspects of the defense industrial base.

The Defense Science Board has recently completed its study of industrial preparedness plans and programs. On its own initiative, the Boeing Aerospace Co. has been examining the feasibility of hardening industrial facilities against nuclear attack, and they have been kind enough to provide the Joint Committee with the first results of their tests. [See appendix II, p. 55]. And we will have a witness from the Boeing Co. testifying a little later this morning.

This year the Defense Department finished its "Profit 76" study and promulgated a new investment-based profit policy, which will certainly influence the nature of defense industry. Also, the Federal Preparedness Agency has developed an entirely new method for managing the strategic stockpiles.

Now, these initiatives are timely. The committee has expressed its concern in the 94th Congress that our mobilization and industrial

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base programs have not kept pace with changes in military strateg and technology, or with changes in economic and political condition Most of the programs in the Defense Production Act are geared t preparing for lengthy wars, such as World War II or the Korean wa Yet most military planning today is for short conflicts.

We want to know what kinds of economic and industrial prepara tions we need to make for such conflicts and what the likely costs wil be. We want to know what policies we can adopt to enable the defens industry to produce more economically with as limited as possible burden on the civilian economy. We want to know whether the pre mium we pay for preparedness insurance is consistent with the risk and whether it is buying maximum protection for each dollar invested.

This morning we will hear first from Deputy Assistant Secretary o Defense Jacques Gansler about erosion in the industrial base and th recommendations of the Defense Science Board. He will be followed by Mr. T. K. Jones and two of his colleagues from Boeing who will present their findings on the feasibility and costs of protecting the industrial base from nuclear attack.

And Senator Tower, the ranking minority member of the committee is present, and he has a statement.

Senator TOWER. Thank you, Mr. Chairman.

The subject of today's hearing, industrial preparedness and war sur vival, deserves far more attention from the Congress than it has received.

The issues are complex and inextricably bind together our willingness to consider that our quality of life might not survive a nuclear attack unless we take some measures now, while at the same time, insuring the ability of American defense industry to provide material to support a more conventional war. Both of these problems may appear remote during the present time of peace.

But the peace we now enjoy will not be preserved for long if we allow this country to become so unprepared for a nuclear attack or more conventional conflict that a weakness exists which the Soviets can exploit.

Although it is probably beyond the scope of today's hearing or this committee, the Congress and the Executive should renew their examination of whether the reliance on the Soviet-United States ability to mutually assure the destruction of one another still retains the vitality that it once did.

This examination of this and other issues must proceed cautiously for fear of renewing the disconsolation that accompanied the shelter building of the early sixties. But as John Collins, in a recently released Congressional Research study, notes: "Speculation that the Soviets could soon survive a general nuclear war appears premature, but the balance is starting to shift." 1

It is this beginning of an imbalance that can bring us to the brink of world instability. We are now looking at a great void, a void caused by uncertainty in the days ahead and an ambiguity as to what American, Soviet, and Chinese relations might portend for the future.

1 Library of Congress, Congressional Research Service. "United States and Soviet City Defense Considerations for Congress." Senate Document 94-268, 94th Congress, 2nd Session, Washington, U.S. Govt. Off., September 30, 1976, p. 26.

With these thoughts in mind, let us put today's topic, industrial preparedness and war survival, in perspective.

Since the dawn of the atomic age increasingly infrequent attention has been given to the ability of this country's defense industries to mobilize in support of a conventional war. Whether this capability, often referred to as the defense industrial base, has dwindled to the point where we can say it is decaying is not clear. But a continuing watchfulness for any signs of erosion of the base deserves the priority that it has received in the Ford Administration.

The question of this Nation's ability to survive a nuclear attack also bears continuing watchfulness. The evidence, although not conclusive, shows that the Soviets are at least giving greater attention and devoting substantial resources to improving their ability not only to withstand a retaliatory nuclear attack but have their people and industry survive it. The concern here should not be with just the event of an unthinkable nuclear exchange, but, rather the strategic and diplomatic leverage that the Soviets might enjoy by having such an advantage over the United States.

We are then once again at the crossroads of peace and continued world stabilization. Hollow defenses and unpreparedness will not deter any enemy which has proven time and time again that it will exploit every weakness.

It is my hope that the next administration will give both our war survival and industrial preparedness a priority which will steer us from the brink of uncertainty and carry on and expand the concern that I have discussed here today. No less than the continuation of the American quality of life is at stake.

Thank you, Mr. Chairman.

Senator PROXMIRE. Thank you, Senator Tower.

Mr. Gansler, welcome back to the committee. It has been, I think, 18 months since you told us about the defense priority system.

If you would briefly summarize-well, as a matter of fact, your written statement is very concise. If you want to read your written statement, you may do so. So handle it anyway you wish and then we will ask you questions.

Mr. GANSLER. I would like to read the statement.
Senator PROXMIRE. Fine.

STATEMENT OF THE HONORABLE JACQUES S. GANSLER, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MATERIEL ACQUISITION

Mr. GANSLER. Senator Proxmire, members of the committee, I appreciate this opportunity to appear before you and to participate in your continuing review of the Federal preparedness effort. I consider this series of hearings to be particularly timely and important to the interests of national defense. My comments this morning will address the defense industrial base and its viability to supply military needs. in both peacetime and during a variety of potential conflicts.

When we speak of the defense industrial base, we refer to that industrial capacity, both in the private and public sector, necessary to produce and support the military materiel required for our defense forces. Under the Defense Production Act of 1950, the Secretary of

Defense is tasked to insure the existence of a viable defense indus trial base. The Defense Industrial Reserve Act of 1973 further stip ulates that, to the extent possible, maximum reliance will be placed on the private sector of the base to support our defense needs. The ac further charges the Secretary of Defense with the responsibility to maintain an essential nucleus of government-owned plants and equip ment to support defense needs in a national emergency. Thus, the defense industrial base considerations encompass both the public and private sectors, and mixtures thereof. The incentives and the degree of control exercised by the Defense Department over the base varies, of course, for each of the sectors. Since the greatest share of the base is represented by the private sector, we must look to profit and long-term business stability as the primary incentives for a viable base. Unfortunately, defense procurement programs do not always offer these incentives. The long-term growth of the commercial market when compared with the long-term cyclical nature of defense business, and more recently, the post-Vietnam era of decreasing defense procurement expenditures has made defense business unattractive to many suppliers. Additionally, the myriad of government procurement policies, and the restrictions of government procurement practices, act as disincentives to many potential suppliers.

About 2 years ago, we began to perceive problems developing in the industrial base. Difficulties were being encountered by prime contractors and the Government in obtaining adequate competition for parts and components. Subcontractors were declining to bid on defense business and, to keep their share of the defense market, some large prime contractors, through acquisitions and expansion, began entering the subcontract field. As a result, competition decreased and, in some cases, inordinately high prices were being paid for parts and components of defense systems. Also, at the prime contractor level, indications of extra capacity were becoming evident, for example, in the aircraft sector because of decreasing commercial and defense business. In the shipbuilding sector, the DOD was finding it increasingly difficult to obtain contractor interest in Navy ship construction programs. We also observed an aging of plants and equipment with little investment being made to increase productivity. Innovations in engineering and particularly, manufacturing technology appeared to be sagging because of the lack of business. We became concerned that our needs for a viable defense industrial base, capable of responding to emergency demands, were becoming threatened.

With these indicators of potential problems, we began a reassessment of the defense industrial base, using as our guidelines the following five peacetime and wartime objectives:

First: To obtain the maximum deterrent and defense capability from the base for each dollar allocated.

Second: To ensure maximum economic efficiency for both the long and short term, within our given resources of money, manpower, plant, and equipment.

Third: To provide for a rapid transition from peacetime production to meet the military requirements of a surge or a mobilization situation.

Fourth: To encourage the maximum technological advancement for military advancement.