The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this report to your committee. DEAR MR. CHAIRMAN: This is in reply to your letter of November 1, 1963, acknowledged November 4, inviting our comment on S. 2274, a bill to establish a National Economic Conversion Commission to develop plans for economic adjustment to changes or reductions in our defense expenditures. You are advised that while we are in sympathy with the objective of the bill, to provide a means by which the Nation may prepare for economic transition incident to changing requirements of national security, the manner in which this should be accomplished is a matter of policy for determination by the Congress. However, we suggest that while the bill provides for a report of the Commission to the President and to the Congress within 1 year after its enactment, and that a National Conference on Industrial Conversion and Growth shall be convened within that year, the intended duration of the Commission is not clear. We suggest for your consideration, for the purpose of periodic review by Congress, that the life of the Commission be specifically limited to a period of 5 or perhaps 10 years. Also, we note that Senator McGovern, who introduced the bill, stated, "the bill provides that defense plants under contract to the Department of Defense, the Atomic Energy Commission, or the space agency shall have in their managements an operating conversion committee" (109 Congressional Record, p. 19723 Oct. 31, 1963). Yet section 5 of the bill, providing for such committees, does not include in its enumeration of agencies the National Aeronautics and Space Administration. We suggest the need for clarification as to whether the contracts or grants of that agency are to be included within the scope of section 5. We have no further comment to offer. JOSEPH CAMPBELL, Comptroller General of the United States. GENERAL SERVICES ADMINISTRATION, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: Your letter of November 1, 1963, requested the views of the General Services Administration on S. 1174, 88th Congress, a bill to establish a National Economic Conversion Commission, and for other purposes. The purpose of the bill is to establish a National Economic Conversion Commission to provide the means by which the United States can prepare for an economic conversion of the present cold war defense facilities to civilian purposes. The Commission charged with instituting a study and reporting to the President and Congress appropriate policies and programs to be carried out by agencies of the Federal Government to this end would consist of various heads of executive agencies of the Federal Government. The President, on December 21, 1963, provided for the formation of a Committee on the Economic Impact of Defense and Disarmament, to be composed of officials of interested Federal agencies and to publish results for the information of the Congress and of the general public. Inasmuch as we believe that the establishment of the President's Committee will accomplish the objectives of S. 2274, it is our view that the proposed legislation is unnecessary. Enactment of this measure would not affect the budgetary requirements of GSA. The Bureau of the Budget has advised that, from the standpoint of the administration's program, there is no objection to the submission of this report to your committee. Sincerely yours, BERNARD L. BOUTIN, Administrator. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: This replies further to your request for the comments of the National Aeronautics and Space Administration on S. 2274, a bill to establish a National Economic Conversion Commission, and for other purposes. The legislation, which would be known as the National Economic Conversion Act, would establish a national Economic Conversion Commission in the Executive Office of the President to minimize economic disturbances caused by a reduction or shift in defense expenditures. The Commission would be headed by the Secretary of Commerce and would include the Secretaries of Defense, Agriculture, Labor, and Interior, the Chairmen 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 Commission would make a study and report to the President and the Congress within 1 year from enactment of the legislation on the appropriate actions to be carried out by departments and agencies of the Federal Government to facilitate economic conversion. The report would include schedules of possible private and public investment patterns arising from various degrees of economic conversion and the anticipated effects upon income and employment. The Commission would convene a National Conference on Industrial Conversion and Growth to consider the problems arising from conversion to a civilian economy and to encourage appropriate study and programing for conversion by all sectors of the economy. The Commission would consult with the Governors of the States to encourage appropriate and timely preparation in support of economic conversion capability and promulgate regulations for the appropriate departments and agencies of the Federal Government specifying the character and duties of the industrial conversion committees established pursuant to the legislation. The legislation within the stated definition of "defense contract or grant" would provide that defense plants under contract to the Department of Defense or any of its military departments or the Atomic Energy Commission shall have in their organizations an industrial conversion committee to plan for the conversion to civilian work upon curtailment or termination of the defense work. Such committees would be required in all plants engaged in defense work for 1 year or more and whose personnel exceeds 25 percent of the total number of employees of the contractor. The Economic Conversion Commission would have the executive powers normally incident to such an administrative agency. The definition of "defense contract or grant," as contained in section 5 of the legislation, should probably be modified. The definition would require the establishment of an industrial conversion committee, even where the economic impact arising from conversion is limited to one person. It would appear to be desirable to alter the definition to contemplate only those situations in which the economic impact of conversion upon the community involved will be substantial. Additionally, the definition does not appear to cover subcontracts. In many instances the number of people involved therein will exceed those engaged in work under prime contracts. In connection with the regulatory authority set forth in subparagraph (4) of section 4 of the legislation, it would be beneficial to provide express limitations upon this rulemaking authority to preclude or reduce industry criticism of unnecessary interference with management prerogatives. 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 impact 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. In addition, the President stated that as work in this area produces results of interest to the Congress and the general public that it should be made available in appropriate form. The National Aeronautics and Space Administration favors the objectives of S. 2274; however, in view of the President's action it is believed that the proposed legislation is not required at this time, although the results of the studies by the interagency committee may point to the need for legislation in the future. 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 to the Congress. DEAR MR. CHAIRMAN: This is in reply to your request for a report on S. 2274, 88th Congress, a bill to establish a National Economic Conversion Commission, and for other purposes. We respectfully call to the attention of the Committee on Commerce that the work of Federal agencies relating to the economic impact of defense and disarmament has for some time been under review by an informal committee organized within the executive branch by the Honorable Walter W. Heller, Chairman, Council of Economic Advisers. This Committee has now been established by the President as a formal high-level Government Committee on the Economic Impact of Defense and Disarmament to coordinate the work of Federal agencies in appraising the economic impacts of disarmament and changes in defense spending. It is chaired by a member of the Council of Economic Advisers. It is composed of senior officials of the Departments of Defense, Commerce, and Labor, and of the following agencies: Atomic Energy Commission, National Aeronautics and Space Administration, U.S. Arms Control and Disarmament Agency, Office of Emergency Planning, and the Bureau of the Budget. Other agencies may also be represented on the Committee. The President is well aware that changes in the composition or total level of defense spending can significantly affect jobs and incomes in particular communities or in the Nation as a whole. The President has therefore given the Committee permanent status and has made it clear that the Committee shall keep him personally informed as its work progresses. The National Economic Conversion Commission proposed by S. 2274 would broadly cover the same subject matter, but if a legislative authorization for such activities is believed desirable the Office of Emergency Planning would have no objection to the enactment of the bill. From the standpoint of the administration's program, the Bureau of the Budget advises that it has no objection to the submission of this report. Sincerely, EDWARD A. MCDERMOTT. The CHAIRMAN. Our first witness this morning is the sponsor of the bill, the distinguished Senator from South Dakota, Senator McGovern. There are many other cosponsors on the bill, and I suspect, for the record, that there could have been probably 30 or 40 more Senators who would have been perfectly willing to cosponsor an effort to inquire into this problem. But in order to get the bill before the committee, we took it off the desk. So we would be glad to hear, starting the hearings, from Senator McGovern, of South Dakota. STATEMENT OF HON. GEORGE MCGOVERN, U.S. SENATOR FROM THE STATE OF SOUTH DAKOTA Senator MCGOVERN. Thank you, Mr. Chairman. Mr. Chairman, I want to say first of all that I have a rather lengthy statement that I would like to have included in full in the record together with some supporting memorandums, but I will not attempt to read all of the statement. I will read a part of it and then skip over other parts. The CHAIRMAN. We will put it in the record in full, and then you may highlight it as you wish. (The prepared statement of Senator McGovern, together with appendixes, follows:) STATEMENT OF SENATOR GEORGE MCGOVERN OF SOUTH DAKOTA Mr. Chairman and members of the committee, I wish to express my appreciation to you for scheduling these hearings. The demands of the civil rights debate make this less than an ideal time to begin exploration of such a complicated subject. Your sense of urgency, however, is well justified by events. The subject of our present inquiry can be stated succinctly: What steps should the Federal Government take to prevent economic distress and unemployment in the wake of shifts and cutbacks in defense spending? I believe the Federal Government has a clear obligation to those companies, communities, and individuals that have become dependent on our defense budget for their income, and that we must create the necessary governmental machinery to prevent changes in our Defense Establishment from resulting in avoidable loss of employment and income. For this reason I have introduced S. 2274, which would create a National Economic Conversion Commission to plan for the orderly transition from military to civilian production. By careful planning, we can prevent changes in our defense program or reduced defense spending from causing economic distress and unemployment. It has long been thought that a cutback in defense spending depended on an enforcible disarmament agreement with the Soviet Union. Actually, even in the absence of that elusive agreement the changes and reduction in defense spending have already begun. On April 23, a little over a month ago, Secretary of Defense McNamara announced the scheduled closing and consolidation of 54 defense installations in 29 States. Some months previously, the Defense Department had revealed plans for shutting down over 100 other installations in 35 States. More such announcements are almost certain to follow. Secretary McNamara has warned that no military installation in this country ought to be considering anything other than temporary. As a result of more efficient management, American taxpayers are being saved hundred of millions of dollars that would otherwise be spent on unneeded or obsolete military facilities. Secretary McNamara deserves strong praise for his forthright and sensible action. At the same time, we must recognize that thousands of jobs and the economic support of entire communities are being threatened by the phaseout of surplus military bases and the termination of defense contracts. Hardly a State will escape the loss of at least one defense installation, and the resulting anxiety and distress will be translated into political pressures that may not be in the national interest. I ask that a list of these closings and consolidations be printed as an appendix to my testimony (app. A). Not only are unneeded military facilities being scheduled for phasing out, but many defense contracts will not be renewed. The Department of Defense, at my request, drew up a list of major military procurement programs not funded beyond the end of fiscal year 1963, and those not funded beyond the first 6 months of fiscal 1964. The list reveals that in this brief period over 50 major suppliers were affected in 20 States. Because of the concentration of defense industry in the United States, fewer areas are affected by contract cutbacks than by the base closings, but the impact on those areas is that much greater. I ask that this list be included as an appendix to my testimony (app. B). It is difficult to trace the employment losses occasioned by contract cutbacks, since such a great proportion of the work is subcontracted. A sampling study made by Prof. Seymour Melman of Columbia University shows that in 19 large firms in 6 States some 67,000 jobs have been lost or are about to be lost because of a decline in defense spending. This does not include the impact on subcontracting firms. I would like to ask that this list also be included at the conclusion of my testimony (app. C). We do know that the modest cutbacks now taking place have already caused major unemployment problems in defense-oriented areas in California, Massachusetts, New Jersey, Maryland, and the State of Washington. The outlook is for still sharper cutbacks in the years ahead. The proposed budget for fiscal year 1965 contains $1.3 billion less for defense activities than the 1964 budget. Some estimates, including one by former Deputy Secretary of Defense Roswell Gilpatric, predict a decline in defense spending of up to 25 percent by 1970. These cutbacks in no sense represent disarmament. They do not come about as the result of any agreement with the Soviet Union. They will not result in any weakening of this Nation's military defenses. They reflect only on American power so great that we reach the point of diminishing returns when we add to it. Congressman Carl Vinson, the respected chairman of the House Armed Services Committee, explained this new development in our defense planning to the House of Representatives during presentation of next year's scaled-down defense budget in these words: "Simply stated, we are reaching a point in several areas, principally missiles, where we are coming up pretty close to our total needs. And we simply do not need to buy as many of the items as we did before. As a matter of fact, we are stronger in our defense today than we have ever been in any peacetime period before." The correctness of Mr. Vinson's observation must be obvious to all who understand the power of modern nuclear weapons. On August 2 last year, I suggested to the Senate that we should examine our need for additional nuclear weapons. I said on that occasion: "I think we need to take another careful look at our enormous arms budget, asking ourselves: What part of this budget represents additions to an already surplus overkill capacity? What alternative uses can be made of surplus military funds for strengthening the economic and political foundations of our society?" This Nation began an intensive buildup of our defensive capability after the outbreak of the Korean war. We set out to build a massive military system so formidable as to discourage aggression by all but the most foolhardy. We have now largely achieved our goal. Since there has been no war, we have not had to use any of our strategic weapons. They remain available for action on a moment's notice. Because much of our defense is dependent on missiles, which remain ready for use, our replacement needs are slight. We must continue maintenance and modification as improvements are made, but we will not need to make as heavy defense expenditures in the future as we have had to make in the past. We will need, instead, to provide new opportunities for manpower and resources no longer required for our defense. THE FEDERAL RESPONSIBILITY What is the Federal Government's responsibility in meeting this need? Speaking before the House Armed Services Committee earlier this year, Secretary McNamara said: "The Defense Department cannot and should not assume responsibility for creating a level of demand adequate to keep the economy healthy and growing. |