The basic decisions about conversion are going to be made and should be made by the individual business firm. But Government has an important role to play in enabling businessmen to make informed, intelligent decisions. And I think we can help create the conditions under which we can move from a position of economic dependence on Government spending back to the free play of the market.

Now, the complexity of the conversion process is increasingly apparent. We must look not only at the number of military installations, to which Senator McGovern has referred, the number of defense contractors and employees affected, but also at the multiplier effect on our economy as a whole.

Housing and service industries will be affected. They already have been. Local requirements for education and health needs must be rescaled. State unemployment compensation systems must be reexamined.

If we are going to attack this problem in a realistic way as we should, we need the involvement of every element in our society which can contribute experience, knowledge, and imagination.

But I think it is imperative that we act quickly. Even under the best of circumstances it requires about 2 years to change from one line of production to another. How much more difficult it is going to be for a firm which has never produced anything but military hardware. And we have several of these.

An assured customer such as Uncle Sam has precluded the development of promotional and marketing skills. Product differentiation has not been necessary. It is going to involve a good bit of time in redeveloping the kind of skills that some of the industries are going to need to get back into civilian markets and get into civilian markets for the first time.

There is no doubt that economic concentration on military production has had a number of beneficial results. It has upgraded the status of engineers and scientists. It has developed a large reserve of technological skill and imagination. And this has been brought about in large part through the cooperative efforts of industry, Government, and the academic community.

Just this last weekend I participated in ceremonies dedicating a new suburban campus at Northeastern University in Burlington, Mass. And, Mr. Chairman, this is the most dramatic example I have seen yet of what can be done in this problem of economic conversion.

I say that because the site of this campus was formerly a Nike site devoted exclusively to military purposes. Through the activities of the General Services Administration-and I concur entirely in what the chairman said in that regard as to the importance of bringing GSA into this act--it was made available to Northeastern University, and a suburban campus has been set up there.

It is an exciting example of the kind of things we should be doing and must do.

Northeastern University developed its plan for this new campus with the full cooperation of the industry in the area. It made a careful survey of the needs of the electronics and other firms along Route 128 in Massachusetts.

Industry is making it possible for its employees to participate in these programs through released time arrangements and reimbursement of tuition.

This very same kind of cooperation can be extended into the conversion field, and in this regard I would like to point out that even though the McGovern bill does indicate the need for regional conferences, something that I subscribe to entirely, although as I will point cut later I think the provisions should be strengthened, we in the Fifth District of Massachusetts are going forward with a conference on economic conversion, and this last weekend I arranged with the chairman of the board and the president of Northeastern University to hold the conference at this particular facility, this suburban campus, in the heart of the electronics complex in eastern Massachusetts.

Efforts are being made by industry and the Government, but I think none of the efforts has been satisfactory or sufficient to date.

The chairman pointed out the fact that the President has appointed an interdepartmental committee. As he pointed out also, the participants cannot devote full time to the program, but they must sandwich their responsibilities and activities there in between their other responsibilities.

I am pleased to note that Mr. Ackley is going to appear before the committee, because I think it will be discovered that beyond his control, due in part to the charter of the committee, they are not going to be able to do the job that must be done.

I think if we are going to lick this problem, if we are going to turn conversion to our advantage, we have got to act now.

The bill which is before this distinguished committee is a modest effort to enlist the kind of support and mobilize our resources in order to do the job.

Now, there are many changes I think that could be made in the bill, changes which I am sure that the distinguished sponsor, Senator McGovern, would agree with, to make it a stronger bill, to make it more responsive to our needs. And I am sure that this committee will come up with its own ideas for improvement.

As I said a little earlier, one provision that does need strengthening I think is the matter of the regional consultations which were suggested in section 4(a) (4) of the bill. I think this particular provision should be made more specific, and I think there should be a mandatory requirement that these conferences be held in the affected parts of the country.

Problems are going to differ from region to region. Certainly our problems in Massachusetts are going to be entirely different from the kinds of problems that are present in the State of Washington, for example, or the State of California.

I agree with Mr. McGovern in his proposal that the Small Business Administration should be made part of the Commission and also that the Treasury Department should be included.

As I pointed out, I think it is a notable suggestion to include the General Services Administration, as the chairman has proposed. I think, most importantly, the proposed Commission should be broadened to include representatives of industry, representatives of labor, and representatives of the academic community. I think that

Government alone cannot solve this problem, nor should it try to do so.

We certainly do not want to convert from one kind of economic dependence on the Federal Government to another kind.

Now, there are limitless possibilities for the application of our technological skills, for the modernization of plant and equipment in existing industries, for expanded research efforts in health and medical technology, for improved transportation systems and facilities, for meaningful control of air and water pollution, and for the development of new sources of power, to mention just a few.

R. & D. is, after all, the planned, organized approach by professionals to the solving of certain sorts of problems, and to a large extent conversion involves putting our resources to solution of a different set of problems.

I am hopeful that, and confident that, we can do it. But my optimism is dependent in a large part on the concentrated effort by Government, in exercising the Federal responsibility that I see here, as well as by the private sector to ease the impact of what I think is the inevitable transition before us.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Congressman.

Off the record.

(Discussion off the record.)

The CHAIRMAN. We will recess until June 4, which will be next week, and we will have everyone here.

I thank you, Congressman.

(Whereupon, at 11:22 a.m., the committee recessed.)

NATIONAL ECONOMIC CONVERSION COMMISSION

MONDAY, JUNE 22, 1964

U.S. SENATE, COMMITTEE ON COMMERCE, Washington, D.C.

The committee met, pursuant to recess, at 9:50 a.m., in room 5110, New Senate Office Building, Senator Warren G. Magnuson, chairman of the committee, presiding.

The CHAIRMAN. The committee will come to order.

And we will resume hearings on S. 2274, which is a bill to establish a National Economic Conversion Commission, and for other purposes. We have some very important witnesses here today on this very important subject, and we have been delayed for obvious reasons in our hearings. We expected to be further along than we are now. And today many of the Senators are not available, but, because of the importance of the matter and the time we may or may not have left in the Congress this session, we will proceed anyway. Some of the Senators will be along here in a few minutes.

Our first witness is the Deputy Secretary of Defense, Cyrus Vance. And the Secretary has a prepared statement which we would be glad to hear from you at this time.

STATEMENT OF HON. CYRUS R. VANCE, DEPUTY SECRETARY OF DEFENSE; ACCOMPANIED BY THOMAS D. MORRIS, ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS)

Mr. VANCE. Thank you, Mr. Chairman.

Mr. Chairman, I appreciate the opportunity to appear before you this morning to discuss S. 2274 and the problems of economic conversion.

We in the Defense Department are vitally concerned with the economic impact of the defense program on our economy, and most importantly on the communities and individuals affected. We believe that we should do everything we properly can to minimize the disruptive effects of changes in defense spending and to assist, insofar as we are able and the law permits, those who are adversely affected by these changes.

It is essential, however, that the limitations of the Defense Department in this area be recognized, both as a matter of law and as a matter of sound policy. The Department of Defense administers approximately one-half of our national budget and has responsibility for maintaining military strength to support the foreign policy of this country. Our policy is to buy what we need, when we need it, and at the lowest cost to the Government.

The Department of Defense cannot and should not assume responsibility for creating a level of demand sufficient to keep the economy of the country healthy and growing. The Congress of the United States has recognized this by regularly including in our Appropriation Act since 1954 a provision stating that "no funds herein appropriated shall be used for the payment of a price differential on contracts hereafter made for the purpose of relieving economic dislocations."

There are, however, many things we can do and have done to minimize the economic problems of employees and communities, especially those resulting from changes in defense programs.

First-we can give assistance and certain limited procurement preferences to chronically depressed and surplus labor market areas, and we can and have taken steps to insure an equitable opportunity to participate in the defense dollar by small business and labor surplus areas. Like other agencies of the Government, we have vigorous programs in both of these fields.

Second-in 1961 we created the Office of Economic Adjustment to alleviate adverse economic impacts resulting from changes in defense programs on communities, industries, and individuals. The role of this Office essentially is to provide advice, assistance, and guidance to aid a community, at its request, in its effort to develop alternative, nondefense economic activities to overcome the loss of defense contracts or installations. The men in this Office confer with community leaders to define the impacts; to assist in assessing the goals, the assets, and the opportunities for economic growth; and to stimulate the organization of a plan and action program tailored to the wishes of the community.

Since May of that year, the Office has worked with 55 communities in 29 States. Of these, 29 were related to installation closures; 2 to advance planning; 5 to contract changes; 14 were devoted exclusively to Federal personnel problems, and 5 to general matters.

The efforts of the Office of Economic Adjustment have been particularly successful in helping communities affected by base closures. Through the Select Advisory Committee to the Secretary of Defense, this Office is able to mobilize the resources of many other Government departments such as Commerce, Labor, Agriculture, and Health, Education, and Welfare. We are also encouraged by the work of this Office with communities which have initiated action to prepare long-range plans for diversification to reduce their reliance on military spending. For example, at the request of the city of Roswell, N. Mex., the Office worked with that community on a program there to diversify the economy as a precautionary measure to prepare in advance for the possibility that Walker Air Force Base might be closed at some unknown time in the future.

As more communities discover the help that can be obtained from this Office, they have increased their requests for its assistance. In recognition of the increasing workload and importance of this Office, we have increased the number of its personnel.

Third—we can encourage large defense contractors to do the necessary long-range planning to anticipate changes in military procure