DEPARTMENT OF AGRICULTURE, Washington, D.C., February 7, 1964. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your recent request for a report on S. 2274, a bill to establish a National Economic Conversion Commission, and for other purposes. The purpose of this bill is to provide a mechanism for effecting a transition to a period when less heavy military and economic commitments for defense might be required than at the present time. To carry out this objective, it is proposed to establish in the Executive Office of the President a National Economic Conversion Commission of nine members, one of which would be the Secretary of Agriculture. Among other things, the Commission would initiate studies relating to transition problems, and make necessary recommendations for action to the President and to the Congress. On December 21, 1963, the President formally established a Committee on the Economic Impact of Defense and Disarmament, with a member of the Council of Economic Advisers as Chairman and with representation from the concerned departments and agencies of the Federal Government. The objectives of this Committee are generally the same as those sought to be accomplished through S. 2274. We therefore question the need for additional legislation. The Bureau of the Budget advises that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, ORVILLE L. FREEMAN, Secretary. GENERAL COUNSEL OF THE Department OF DEFENSE, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate. DEAR MR. CHAIRMAN: Reference is made to your request for the views of the Department of Defense on S. 2274, 88th Congress, a bill to establish a National Economic Conversion Commission, and for other purposes. The bill provides for the establishment of a National Economic Conversion Commission which would be composed of the Secretaries of Defense, Agriculture, Commerce, Labor, and Interior, the Chairman of the Atomic Energy Commission and the Council of Economic Advisers, the Director of the U.S. Arms Control and Disarmament Agency, and the Administrator of the National Aeronautics and Space Administration. The Secretary of Commerce would serve as Chairman of the Commission. The Commission would study policies and programs which departments and agencies of the Federal Government appropriately could carry out in order to provide economic conversion capability. It would be required to submit a report to the President and the Congress within 1 year following enactment of the legislation. The Commission would be required further to convene a National Conference on Industrial Conversion and Growth and to consult with the Governors of the States in order to encourage appropriate planning to improve the Nation's economic conversion capability. Section 5 of the bill provides that each defense contract or grant entered into by the Department of Defense or by the Atomic Energy Commission shall contain a provision which requires the contractor or grantee to establish an industrial conversion committee. Such a committee would be required, under regulations prescribed by the proposed National Economic Conversion Commission, to plan for conversion to civilian work in the event the contract or grant was curtailed or terminated. Section 5 defines a defense contract or grant as one which: (i) involves the research, development, production, maintenance, or storage of any article, or the construction or repair of any building or structure where such construction or repair is certified by the Secretary of Defense or the Chairman of the Atomic Energy Commission, or their designees, to be necessary to the national defense; (ii) requires that the number of employees engaged thereunder, together with employees engaged under any other such contract or grant, to be in excess of 25 per centum of the total number of employees of the contractor or grantee; and (iii) requires at least one year to complete. The Committee on the Economic Impact of Defense and Disarmament which was established by the President on December 21, 1963, has much the same purpose and membership as that proposed by this bill. The Department of Defense recognizes that shifts in the patterns of defense expenditures can create for particular areas and particular industries special and sometimes severe adjustment problems. Accordingly, the Department concurs in the objective of S. 2274 which is to seek means of minimizing economic impacts which are caused by these shifts in defense expenditures. In this connection, however, a basic fact about the nature of defense expenditures should be noted. The greater part of the defense budget is spent for products and services which differ either not at all or not fundamentally from the products used in the civilian economy, or for products and services which, although clearly for military end use, employ technologies and skills which have ready applications in nondefense markets. Specifically, about $30 billion, out of an approximately $50 billion defense budget, is spent for things not markedly different from those found in ordinary nondefense markets. Approximately $20 billion of this $30 billion is spent on salaries and allowances to servicemen and civilian employees, a large proportion of whom could find positions at equivalent or better social and economic levels if they chose to seek nondefense employment. The remaining $10 billion is spent for military purchases of food, clothing, medicines, and other soft goods and services from producers who obviously face no significant conversion problems provided the civilian economy is healthy and growing. Only about $20 billion of the $50 billion is spent for uniquely military hard goods. Even in this category a large share, perhaps half or more, is spent for products whose manufacturers could, provided the economy was firm, readily convert to civilian markets, as was so successfully done following World War II and the Korean war. This includes not only items with commercial counterparts, such as trucks and transport planes, but also many components of missile, nuclear, and other weapons systems. A reasonable estimate might be $10 billion as the "hard core" military sector of the economy which would be difficult to change over to civilian uses, as against $40 billion which is either basically civilian in nature or reasonably convertible to nondefense uses. Consequently, if there is a general decline in the demand created by the defense budget, it will, in large part, produce no basically different effect than a decline in civilian demand. By the same taken, if a decline in the cost of defense requirements is compensated for by increased demand in nondefense sectors, the bulk of the problems of defense impact will take care of itself, as occurred in the reconversion periods following World War II and the Korean war. For example, following the Korean war, although the overall size of the defense budget remained fairly constant, there was a drastic shift in the pattern of defense procurement which produced problems for many industries not unlike those which would have been faced had there been a major arms reduction. Production of tanks, conventional ordnance, and other Army and Navy hard goods dropped from $11 billion per year in 1953 to approximately $2 billion per year by 1957. That represented a reduction of about 85 percent in 4 years, and the result was a massive loss of defense business for the Middle West, where such production had been concentrated. The very fact that many people, to this day, remain wholly unaware of that vast shift reflects how smoothly many quite severe problems can be handled provided overall economic demand remains strong. The point of the above is to put the problem of the economic impact of defense expenditures in perspective, rather than to suggest that it does not merit serious concern. The Defense Department has been giving increasing attention to this problem. But it is very clear that the ability of communities and industries to adapt to shifts in defense spending depends much more heavily on the general health and general level of demand of the economy rather than on any special programs or planning that might be undertaken. In the context of strong demand in the economy, these special programs and plans can be helpful. The Department of Defense is anxious to do as much as it can do properly in this area, and to cooperate actively with industry, communities, and other Government agencies, including any interagency groups such as the Committee on the Economic Impact of Defense and Disarmament, as noted above, or the Commission which this bill would establish. The Department, however, is opposed to section 5 of H.R. 9005 which, under regulations promulgated by the proposed National Economic Conversion Commission, would require its contractors by a contract provision to establish within their organizations committees to plan for the conversion to civilian work in the event a contract is terminated or curtailed. The requirement if applied to "defense contracts" as defined in the bill would be far too broad in application. Moreover, it is extremely doubtful that such a requirement would be an effective device to accomplish the objective of the legislation, viz, to encourage company management to undertake effective conversion planning in those areas where such planning is desirable. If company management is convinced of the value of such an effort, it will surely undertake it as it would undertake any other planning project which is in the company interest. As a practical matter, only highly qualified personnel with access to top management of a company can be effective in such planning and there is no way to insure the utilization of this personnel unless management is convinced of the value of the effort, in which case no contractual requirement would appear necessary. The Bureau of the Budget advises that, from the standpoint of the administration's program, there is no objection to the presentation of this report for the consideration of the committee. Sincerely, JOHN T. MCNAUGHTON. DEPARTMENT OF THE INTERIOR, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C. DEAR SENATOR MAGNUSON: Your committee has requested our comments on S. 2274, a bill to establish a National Economic Conversion Commission, and for other purposes. S. 2274 provides for the establishment in the Office of the President of a National Economic Conversion Commission which is designed to facilitate the transition from a predominantly defense economy to a civilian economy. The Commission's responsibilities include a study and an annual report of the appropriate policies and programs to be carried out by Federal agencies for economic conversion capability; the convening of a National Conference on Industrial Conversion and Growth; consultation with State Governors for the purpose of encouraging coordinated efforts to improve our conversion capability; the promulgation of regulations regarding industrial conversion committees; and the making of recommendations to the President and Congress. In addition, the bill requires that each defense, military, or Atomic Energy Commission contract or grant contain provisions for the establishment by the contractors of industrial conversion committees designed to plan for a conversion to civilian work in the event of a cancellation or curtailment of such contract or grant. While we are in agreement with the purposes of this bill, we do not believe that legislation, such as this, is necessary to carry out these purposes. We believe that sufficient authority now exists in the executive branch. In this regard the President recently established within the executive branch a permanent Committee on the Economic Impact of Defense and Disarmament. In establishing this Committee, the President directed that: "The Committee will be responsible for the review and coordination of activities in the various departments and agencies designed to improve our understanding of the economic impact of defense expenditures and of changes either in the composition or in the total level of such expenditures. "Federal outlays for defense are of, such magnitude that they inevitably have major economic significance. In certain regions of the Nation and in certain communities they provide a significant share of total employment and income. It is, therefore, important that we improve our knowledge of the economic impacts of such spending, so that appropriate actions can be taken-in cooperation with State and local governments, private industry and labor-to minimize potential disturbances which may arise from changes in the level and pattern of defense outlays." While the President's directive does not specifically include all of the provisions of S. 2274, we are of the opinion that it is adequate at this time. One of the principal functions of the Commission will be "to evaluate and to coordinate *** existing [agency] efforts, and, * * *to recommend additional studies." Such recommended studies could conceivably include such items as the convening of a National Conference on Industrial Conversion and Growth and more, if needed. We therefore recommend against the enactment of S. 2274. The Bureau of the Budget has advised that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, Hon. WARREN G. MAGNUSON, Washington, D.C. STEWART L. UDALL, U.S. DEPARTMENT OF JUSTICE, DEAR SENATOR: This is in response to your request for the views of this Department on S. 2274, a bill to establish a National Economic Conversion Commission, and for other purposes. This proposal would establish a National Economic Conversion Commission within the Executive Office of the President consisting of the Secretaries of Commerce, Defense, Agriculture, Labor, and Interior as well as the Chairman of the Atomic Energy Commission and the Council of Economic Advisers, the Director of Arms Control and Disarmament Agency, and the Administrator of the National Aeronautics and Space Administration. The Commission would have the responsibility for drafting a blueprint for the conversion of industry from defense to civilian production. The bill is designed to help minimize the problems arising when defense-oriented industries fail to obtain further defense contracts resulting in layoffs of employees, serious business losses, and local economic depression. The President has already established a Committee on the Economic Impact of Defense and Disarmament under the auspices of the Council of Economic Advisers to find a solution to the conversion problem. This Committee is still in its preliminary stages of deliberation and it may well be that legislation will later be needed to implement its findings. It is the view of the Department that any legislation at this time might be premature. The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely yours, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, NICHOLAS DEB. KATZENBACH, Washington, D.C. DEAR MR. CHAIRMAN: This is in further response to your request for comments on S. 2274, a bill to establish a National Economic Conversion Commission, and for other purposes. We approve the objective of this bill, to develop plans for economic adjustments necessitated by changes or reductions in our defense expenditures. However, since the introduction of this proposal the President has established a Committee on the Economic Impact of Defense and Disarmament. This Committee is charged with the general responsibility of dealing with the problem of economic conversion planning required by shifts in defense emphasis or disarmament. Under such circumstances, we believe that the purposes of this proposal are being carried out administratively, and there is no need for its enactment. The Bureau of the Budget advises that there is no objection to the submission of this report from the standpoint of the administration program. Yours sincerely, W. WILLARD WIRTZ, DEPARTMENT OF STATE, Washington, February 7, 1964. Hon. WARREN G. MAGNUSON, DEAR MR. CHAIRMAN: Thank you for your communication of November 1 in which you requested comments from the Department on S. 2274, a bill concerned with the possible problems of industrial conversion which might come about through disarmament. In view of the recent pronouncements by the President on this subject and his formation on December 21 of a Committee on the Economic Impact of Disarmament, the Department believes that there may no longer be a need to consider special legislation on this subject. The Department would prefer, however, to leave to those agencies which have been designated to participate on the President's Committee, the question of whether S. 2274 as proposed is essential. The Department appreciates the opportunity afforded it by the committee to comment on proposed legislation. The Bureau of the Budget advises that from the standpoint of the administration's program, there is no objection to the submission of this report. Sincerely yours, FREDERICK G. DUTTON, Assistant Secretary (For the Secretary of State). Hon. WARREN G. MAGNUSON, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 2274, to establish a National Economic Conversion Commission, and for other purposes. The proposed legislation would establish in the Executive Office of the President a National Economic Conversion Commission which would be composed of the heads of certain departments and agencies in the executive branch. It would be the duty of the Commission to study the problems of, and recommend appropriate policies and programs for, the conversion of defense industries to the production of civilian goods. The bill would also require that certain defense contracts or grants contain provisions for planning, by the contractor, for conversion to civilian work arising from possible curtailment of such contract or grant. On December 21, 1963, the President announced the formation of an interagency Committee on the Economic Impact of Defense and Disarmament. It is the responsibility of the Committee to review and coordinate the activities in the various departments and agencies to improve our understanding of the economic impact of defense expenditures and of changes either in the composition or in the total level of such expenditures. The President stated in his memorandum establishing the Committee that it is important that we improve our knowledge of the economic impacts of defense spending, so that appropriate actions can be taken-in cooperation with State and local governments, private industry, and labor-to minimize potential disturbances which may arise from changes in the level and pattern of defense outlays. He further stated that he did not expect the Committee to undertake studies of its own, but rather to evaluate and coordinate existing efforts, and if it seemed desirable, to recommend additional studies-subject, of course, to appropriate review and authorization through established channels. In addition, the President stated that as work in this area produces results of interest to the Congress and the general public, they should be made available in appropriate form. In view of the foregoing, the Department recommends that consideration of S. 2274 be deferred pending the evaluation to be made by the President's Committee. |