mobility of our people and help them to meet and adapt to changes in the pattern of demand.

But it is neither socially desirable nor always efficient to attempt to solve all problems of change solely by the movement-geographical and otherwise of our resources. To some extent we can also try to tailor the nature and location of new demands to the nature and location of the resources made idle. To the extent that this can be done it permits us to reduce the capital losses which are incurred when we abandon a given activity. Much of defense production represents significant investment not merely in plant and equipment but more importantly in highly specialized training and experience, and in the creation of effective "teams" of skilled and talented people who have learned to work together. This is especially the case with respect to some of the research and development resources created by our major defense contractors.

It is clear that reliance solely on mobility might involve losing the advantage of some of these very effective specialized resources. It is surely possible thatthrough new Federal programs-we may be able at least in part to preserve in being some of these resources, redirecting their energies toward important nondefense requirements. I do not think we yet know enough to make positive and specific recommendations along this line, but I am hopeful that studies currently underway in various Federal agencies may develop some useful lines of approach.

There are also many cases in which it is economical to preserve the public and private investments made in housing and community facilities. It is often not only socially advantageous but also economically sound-when all' costs are considered-to encourage new activities to move into areas where labor and other resources have been released from defense work, even though on a narrower calculation of costs production would appear more efficient elsewhere. Of course, in other cases, movement is the only solution.

THE COMMITTEE ON THE ECONOMIC IMPACT OF DEFENSE AND DISARMAMENT

To deal effectively with the possibilities and the problems posed by changes in the pattern and level of defense demand we need first of all to improve our knowledge and understanding of the existing impact of that demand. We do not, for example, now have adequate statistical data permitting us to trace defense dollars much beyond the prime contractor. Before we can intelligently consider major modifications or additions to existing Federal and State programs and policies, we must have a firmer understanding of the impact of the present structure of defense spending, and a better method for forecasting the detailed impact of any planned changes in such spending.

For several years there has been increasing interest on the part of a number of Government agencies in developing more complete and precise information on the full economic effects of defense procurement. Conversations among these agencies led last summer to the formation of an informal interagency committee to survey the present state of our knowledge of the impact of defensespending, and to encourage the additional analytic studies and data collection that were needed. Because of the importance which President Johnson attached to the problems in this area, last December he gave the committee a more formal and public status, establishing it as the Committee on the Economic Impact of Defense and Disarmament.

I would like to use this opportunity to attempt to dispel some confusion which has arisen regarding the functions of this Committee. The Committee itself— as distinct from a number of the agencies represented on it-is not an operating agency and was not established to advise or assist with respect to specific situations created by changes in defense programs. The Office of Economic Adjustment and other offices of the Defense Department, the new Office of Economic Impact and Conversion of the AEC, various offices in the Departments of Commerce and Labor, and several other agencies all have operating responsibilities with respect to these local situations, which they are continuing to perform. I hope that the effectiveness of their coordination has already been enhanced by the fact that these agencies are working together in the President's Committee. But the Committee itself has neither the resources nor the assignment to attempt to solve immediate problems-nor, as I understand it, would this be the responsibility of the Conversion Commission which would be created by S. 2274. Rather, the Committee's major tasks are: first, to survey what we know and what we need to know about the economic impact of defense changes; second,

to encourage the appropriate Federal agencies to undertake the work necessary to close existing gaps in our knowledge and analytic capability; third, to survey and assess existing programs that can deal with the problems raised by defense changes; and, fourth, to make such recommendations as may seem appropriate for modifications and additions to administrative practices and policies, and, with the President's approval, for new legislation if needed.

Senator McGovern has expressed concern that the members of the President's Committee are all officials with other full-time responsibilities. That, of course, would also be true of the members of the National Conversion Commission established by S. 2274. Whatever the membership of the Committee, and whether or not it has a full-time staff of its own, the bulk of its research, analysis, and planning can best be done by the regular Government departments and agencies, some of which administer the existing programs and would have the responsibility for carrying out any new programs eventually adopted.

Last March, the Committee set up several subcommittees or working groups, each dealing with a particular segment or aspect of the problem. Membership in these groups consists of high level technical personnel from a wide range of Government agencies. One working group-headed by Assistant Secretary of Commerce Richard Holton-is conducting a careful survey and evaluation of the existing policies and programs which are available to mitigate the impact on a local community of the closing of a military installation or the cancellation or termination of a defense contract. This includes both the programs of the Department of Defense, described in the testimony of Secretary Vance, and the programs of civilian agencies.

The second working group-headed by Deputy Assistant Secretary of Defense, Arthur Barber-focuses not on problems of communities but on the capabilities of defense resources. It is concerned with the prospects and possibilities of industrial conversion. Drawing on the experience of conversions which have occurred in the past and on a study of the nature of defense contractors, it is surveying and evaluating the various techniques and programs which have been suggested to encourage and facilitate conversion-with special attention given to the highly developed research and development resources.

Another working group-under the chairmanship of Assistant Director of the Bureau of the Budget Charles Schultze-is preparing an analysis of the overall fiscal policy adjustments which might be appropriate should there be significant changes in the level of defense outlays.

These three working groups are now preparing preliminary reports to the full committee, which plans to discuss them in the next 2 or 3 weeks.

In many respects the Committee is operating in much the same fashion as would the Commission which would be established by S. 2274. Through the work of the subcommittees we are drawing on the services of many specialists throughout the Government, and, in some cases, on resources outside the Government. I am happy to report that all agencies and individuals involved in this undertaking are giving us splendid cooperation. If it should later appear that the Committee's work would be facilitated by making it a Cabinet Committee, that can be done at any time by Presidential directive.

In the early stages of our work the Committee did not need any staff of its own. But at the stage we have now reached, the Committee determined that our work would be facilitated by the existence of a small staff assigned exclusively to the activities of the Committee. I am happy to report to you that our executive secretary, Dr. Murray L. Weidenbaum-on leave from the Stanford Research Institute is now on the job. Those of you who are familiar with this field know that Dr. Weidenbaum has taken a leading role in studying and writing about the economic impact of defense activities. I can think of no one in the country who is better qualified than he for this specific task. With his help, I am confident that over the next few months the Committee will be developing the basis upon which needed additions to Federal policies and programs can be intelligently proposed and evaluated.

Thus I feel that, at least for the present, the first of the purposes of the McGovern bill-that of the National Conversion Commission-can be met and is. being met through executive action.

The second major purpose of S. 2274 was the calling of a National Conversion Conference. It is quite possible that as its work develops, our Committee may wish to recommend the holding of one or more conferences of industrial and labor leaders, public officials, and community leaders-possibly in the various regions and localities most affected by changes in defense programs. Until our

work has progressed somewhat further we do not see that a useful purpose can be served by such conferences. But if, at a later stage in our work, this should appear useful, it can surely be done without legislation.

I am frank to say that I do not see the desirability of the remaining provision of S. 2274-that requiring the establishment of industrial conversion committees. Defense contractors are not prevented from establishing committees of this sort at the present time, or from organizing in whatever other way may be most effective to plan for that conversion to nondefense work. I am confident that many defense contractors are aware of the need to take strenuous and positive action to prepare themselves to adjust to shifts in defense procurement, and are already doing so. Unfortunately, there are some who are not doing so, for whatever real or presumed reasons. But I doubt that requiring them to set up conversion committees would mean that their preparations would become any more intense or effective. There are surely many things the Federal Government has done and can do to encourage and help defense contractors to plan for conversion. But requiring them to set up committees is not one of the more effective ones.

CONCLUDING CONTENTS

The notable recent surge of interest in the economic impact of defense spending, and, more particularly, in the impact of possible reductions in defense outlays, has clearly affected all parts of the Federal Establishment. A great deal of effort in a great many agencies is being directed toward the many facets and ramifications on this subject. The Committee which I chair is the only exposed tip of an "iceberg" of administration efforts in this area.

However, I urge that none of us expect too much, too soon. In the first place, as I have emphasized today, we suffer from serious gaps in our knowledge and understanding, and until we have better filled these gaps we must resist the temptation to take action just because we know the problem is important.

In the second place, the Federal Government cannot do the whole job. There is no doubt that the Federal Government has an important role to play in facilitating the adjustment to changes in patterns of defense spending especially in using its fiscal policies to maintain a strong continuing overall demand for productive resources. But when we have all finished our study of the problem, we will almost surely conclude that a major part of the responsibility for defense conversion should properly remain entrusted to the ingenuity and initiative of private business and labor and to the actions and policies of State and local governments.

Third, many of the things that we will need to do to strengthen the economy's adjustment to defense changes will be things that we need to do anyway to improve the efficiency of the adjustment to other sources of economic dislocation-more and better training and retraining; better counseling and placement services; better measures to strengthen the economic base of depressed communities and areas, whatever the cause of their depression; an improved system of unemployment insurance; possible relocation allowances or assistance with moving expenses, along the lines pioneered in the Trade Expansion Act or in the experimental programs now authorized under MDTA; Federal assistance to civilian research and development; and so on. Similarly, many of the Federal expenditure programs that might be accelerated to cushion the effect of more rapid defense reductions will be exactly the programs that would be desirable— though expanded more slowly-in the absence of defense cutbacks.

Fourth, we cannot and should not fully blueprint in advance "canned" programs to be pulled off the shelf or out of the file when defense changes occur. We do not know in advance what the strength of private demand will be at the time. We can never know more than a very short time in advance what the specific configuration of changes in defense spending will be. Economical and efficient discharge of their responsibilities requires that the Secretary of Defense and his associates must be free to make quick decisions in response to changes in our strategic situation and weapons technology. And the administration must be ready to negotiate whatever types of disarmament agreements may at the time seem safe, appropriate, and feasible to obtain. Thus, the specific situation to which we must adjust will always contain a considerable element of surprise.

We can, of course, evaluate critically the various types of Federal projects which might be appropriate when cutbacks occur, and develop an inventory of partially detailed plans. In this way we can avoid being pushed into hastily

conceived measures when defense changes occur. But we must retain an emphasis on flexible adjustments, and on developing an analytic capability to assess quickly the probable impacts of pending changes.

Yet the fact that we must not expect too much does not mean that we must not do all that we possibly can, nor that there is not much that we can usefully do. If Congress were to pass S. 2274, the Conversion Commission it would establish would have a year to make its study and to report to the President and the Congress. I hope and expect that-without passage of this bill-in less than a year you and the President will have received several useful reports on the problem of conversion, and that as a result all of us will know a good deal more both about the difficulties and the opportunities which defense conversion presents.

Senator MONRONEY. The committee will stand in recess, subject to further call by the Chair.

Thank you very much for your appearance here, Mr. Ackley, Mr. Alexander, and Mr. Vance.

The committee will stand in recess.

(Whereupon, at 12:23 p.m., the subcommittee adjourned, subject to the call of the Chair.)

(The following statements were submitted for the record:)

STATEMENT OF SENATOR DANIEL B. BREWSTER ON S. 2274

A NATIONAL ECONOMIC CONSERVATION COMMISSION

Mr. BREWSTER. Mr. President, during my 4 years of service on the House Armed Services Committee, I became concerned with the economics of national security. The economy of my own State of Maryland is heavily dependent upon defense contracts. On Monday morning, the Committee on Commerce resumed hearings on S. 2274, introduced by Senator McGovern, to establish a National Economic Conversion Commission.

I have consistently supported programs and appropriations designed to maintain a ready and superior defense posture, But I have become convinced that we must continually reexamine defense programs and needs and must plan for gradual shifts in our economy.

Mr. President, since 1941, the United States has spent more than $900 billion in defense of our Nation during war and peace. None would deny the importance of our defense programs. During the past two decades, Congress has been more than favorably disposed to administration appeals for defense funds. Indeed, on several occasions, Congress has appropriated more money than requested. These vast expenditures over many years have had profound effects upon our economy. In 1963, approximately 10 percent of our gross national product derived from Federal defense expenditures. The Arms Control and Disarmament Agency has estimated that jobholders in defense industries account for about 9 percent of all U.S. employment. Expenditures for national security have become so much a part of our economy in recent years that every major shift in defense spending has had significant economic effects.

As we know from past experience, defense outlays vary in response to the state of international affairs. In fiscal year 1945, defense spending reached a wartime high of $79.8 billion; by fiscal year 1948, it had fallen to $11.1 billion; and in fiscal year 1953, it was back to $43.7 billion. Since that time, national security expenditures have fallen and risen again.

Recent developments have injected new hope for a détente in the cold war. A lessening of world tensions could mean significant reductions in our defense spending.

Naturally, we long for the fruition of our efforts at achieving a measure of genuine world peace-not only because lasting peace would obviate the necessity for currently large defense budgets, but also because it would be, I believe, the only real national security for us all.

Former Deputy Secretary of Defense Roswell Gilpatric has said: "Unless some currently unforeseen change takes place in the nature of military threats which the Nation faces, we do not see the need * * * for a recurrence of the rapid increase in defense spending that has been necessary in the last 3 years. Instead, we anticipate a relatively stable overall budget.

but with conditions which would create economic problems for certain industries that would then have to find alternative, nondefense, uses for their resources." Because of the hopeful but as yet uncertain nature of the world situation, we must face the question of conversion to nondefense production in many industries.

Accordingly. I am pleased to cosponsor Senator McGovern's proposal to establish a National Economic Conversion Commission.

As I see it, our enormous defense expenditures have had three general effects on our economy.

First. The high level of taxes necessary to support these defense programs has depressed investment by and within the private and business sectors of our economy.

Second. Valuable manpower, training, talent, and skill, which could have been more usefully employed in other areas, have been devoted to research and development in defense industries.

Third. The fluctuations in defense investment caused by the constantly changing world situation have created economic uncertainty which has contributed to postwar recessions in 1949, 1954, and 1958.

It is my feeling that controlled reduction of defense spending would encourage private investment, would redirect valuable manpower and brainpower to more useful work, and would restore stability to our economic growth.

I emphasize that reduction of our defense expenditures must be carefully planned. It seems to me that savings in defense cutbacks could either be spent by the Government or returned to our citizens in the form of tax reduction.

If retained by the Federal Government, defense funds could be reallocated for expanded Federal programs to attack poverty, combat disease, and raise our standard of living.

If returned to the taxpayers in reduced taxes-and in general I favor this alternative these funds would stimulate consumer spending, would increase private investment, and would lead to more leisure time and a shorter workweek.

In short, Government and private business must be relied upon to absorb labor and productive capacities displaced by conversion from defense production. The readjustment accompanying economic conversion will involve three major problems:

First. Many firms-especially smaller ones-now engaged in defense work will not be able to diversify sufficiently to convert to nondefense production. Wherever possible, such firms should be assisted in retooling; but we must be prepared for the loss of perhaps many companies unable to effect the necessary changes. Second. Many hundreds of thousands of workers now employed in the defense industries will have to be retrained for new positions. In addition, the closing out of many onetime defense firms will dump more thousands of workers into technological unemployment. Federal aid should be planned to assist retraining for these workers.

Third. In many such cases relocation of plants, equipment, and labor will be required. Federal involvement in related programs of housing, school, and hospital construction and urban renewal, is certain to follow.

While readjustment never is easy, thoughtful planning can make it smoother. This would be the purpose of a national conversion commission,

Within recent months, and in my own State, Baltimore has become the first major city to establish its own economic conversion commission. The authorization for the commission calls for the study of "various ways and means of facing this basic and essential shift in our economy without suffering severe economic dislocations."

I urge the creation of similar commissions in all major industrial areas where defense contracts are important to local economic welfare. But the Federal Government-which after all is responsible for the dilemma-must be willing to assist local efforts.

The National Economic Conversion Commission proposed by Senator McGovern would be authorized only to report to the President and to the Congress on our conversion capabilities, to convene a National Conference on Industrial Conversion and Growth, and to consult with State and local officials in a coordinated effort to improve our conversion competence.

It seems to me that we can do no less in planning to meet the inevitable problems which conversion will surely present. To accept these problems now as challenges and opportunities may spare us from succumbing to them later as the consequences of our own myopia and inaction.