SMALL BUSINESS PARTICIPATION IN ECA PROGRAM MONDAY, JUNE 6, 1949 UNITED STATES SENATE, Washington, D. C. The committee met, pursuant to call, at 10:30 a. m. in room 301, Senate Office Building, Senator Burnet R. Maybank, presiding, Present: Senators Maybank (chairman), Taylor, Fulbright, Robertson, Sparkman, Freer, Capehart, Flanders, and Bricker. The CHAIRMAN. The committee will come to order. This meeting is called in order that the committee might hear Mr. Paul Hoffman, chairman of the Economic Cooperation Administration, with reference to plans of the ECA to assist small business enterprises in accordance with the wishes of Congress as expressed in section 7 (d) of Public Law 47, Eighty-first Congress. The pertinent provisions of this law are as follows: (d) Section 112 of such act is hereby further amended by adding at the end thereof the following new subsections: "(i) (1) Insofar as practicable and to the maximum extent consistent with the accomplishment of the purposes of this title, the Administrator shall assist American small business to participate equitably in the furnishing of commodities and services financed with funds authorized under this title by making available or causing to be made available to suppliers in the United States, and particularly to small independent enterprises, information, as far in advance as possible, with respect to purchases proposed to be financed with funds authorized under this title, and by making available or causing to be made available to prospective purchasers in the participating countries information as to commodities and services produced by small independent enterprises in the United States, and by otherwise helping to give small business an opportunity to participate in the furnishing of commodities and services financed with funds authorized under this title. “(2) The Administrator shall appoint a special assistant to advise and assist him in carrying out the foregoing paragraph (1). Each report transmitted to the Congress under section 123 shall include a report of all activities under this subsection. Will you proceed, Mr. Hoffman? STATEMENT OF PAUL HOFFMAN, CHAIRMAN, ECONOMIC COOPERATIVE ADMINISTRATION Mr. HOFFMAN. I will be very glad to open this with a few remarks. In the first place I would like to make my own personal attitude, if I may, clear, as far as smaller enterprises are concerned. That is, that I have a natural bias toward small business, because I have been in two small businesses myself, and as president of one corporation, most of my business life was spent in competing with bigger businesses. Therefore, whatever bias I admit to is a bias for smaller enterprises. 1 I think also that I do have some knowledge of this field because, when I was active in the Committee for Economic Development, working under Senator Flanders, who was then chairman of our research committee, one of our most important studies was a study of the special problems of smaller business. As a matter of fact, the chairman of that committee, which conducted that study for over 2 years, with the help of Professor Caplan of Brookings Institute, was Ambassador William C. Foster, who sits on my right, who just returned to America within the last 2 days. Out of that study all of us learned a good deal of the special problems of small enterprises. We recognize that if you are going to have a healthy America, you must have a healthy small business. That is a conviction and a very deep conviction on our part. As far as ECA is concerned, there are definite limitations on what it can do for smaller enterprises, or larger enterprises, for that matter. We are not a procurement agency. I have said that, I think, in every talk that I have made about ECA for the past 14 months. Yet, there still persists the idea that we buy things. We do not buy anything. I think it might be worth while taking not over 90 seconds to tell The CHAIRMAN. I wish you would take more than that, because it is an unfortunate situation with which I believe many Senators are faced. They can speak for themselves, but I know that in many instances it is believed that you are a procurement agency, whether it be for manufactured articles or anything else, and small business is always asking why they do not get some share of it. The same situation applies in the shipping industry. Representatives of the shipping industry want to know why everything goes through New York, for example, and why doesn't some of the shipping go through the port of Newark or Houston. Those questions come up all the time. Senator CAPEHART. Who does the procuring? Is that what you are going to develop? Mr. HOFFMAN. It proceeds, really, in a very simple fashion. I happen to think that the Foreign Assistance Act was one of the most well-thought-through acts ever passed by Congress. I think whatever success we may have had in administering it is due to this very wise provision which kept us out of the procurement business, and also the very wise provision that gave us the directive that, insofar as possible, we encourage the use of normal private trade channels. The CHAIRMAN. Can you encourage the normal private trade channels in the direction of small business, to any extent? If you can develop that, I think we would be very interested in hearing it. Mr. HOFFMAN. I think we can, sir. I think we can do even better. However, here is the best way to understand what takes place. Let us take a typical transaction, let us say the situation of an English foundry man wanting to modernize his plant. There is a special machine made in the United States that this English foundry man wants to buy. Now, he has to go to his British Government and convince them that the purchase of that particular machine will fit into the general recovery program and contribute to it. If his Government decides that that machine, if purchased, will contribute to recovery, then they can do two things for him: No. 1, they can give him an import license so that he can import that machine; No. 2, they provide exchange for him so that he can trade his English pounds for American dollars and get the American dollars to send to the American manufacturer. That is all that takes place, except this: That when the transaction is completed, the English pounds that he put up in exchange for those American dollars go into the recovery fund for Great Britain. The proceeds of that recovery fund can be spent only upon the joint approval of the Economic Cooperation Administration, with the advice and counsel of the then NAC, the National Advisory Council, and the Government of Great Britain. So that the transaction, as it finally develops, is a transaction between an English manufacturer who wants a foundry machine, and an American manufacturer who has a foundry machine to sell. We come into it only by providing dollars to the British Government, so that they can, in turn, give dollars to that manufacturer in exchange for pounds. Senator CAPEHART. The foundry man has dollars and an import license. How does he proceed from that point on? Mr. HOFFMAN. He proceeds in the normal way to buy that machine. Then under our blanket procurement authorization, giving approval, let us say, to a category of machine-tool items for Great Britain, the recovery program may include, let us say, $3,000,000 for such items. That will be broken down somewhat- The CHAIRMAN. How do the business firms know that you approve of that? Small business firms, I mean? Mr. HOFFMAN. I will come to that a little later, sir. Senator ROBERTSON. Before you leave this point, would not this be a good place to explain the lumber situation?' All of us from States which have any sawmills or lumber plants have had pressure put on us to put pressure on you to buy lumber from the United States rather than from some foreign country. I do not know whether you are getting lumber from foreign countries, as they say, I do not know where you are getting it. They claim that you are getting it from behind the iron curtain. I imagine you are getting it from Norway and Sweden, some country of that kind. However, I also know that we are consuming our lumber at the rate of 50 percent of our replenishment. Therefore, it would be helpful if you would explain your policy on lumber, each country buying its own supplies, the differential between price and freight or between buying lumber from Norway and shipping it into England, or from New England in the United States, to a foreign country? Mr. HOFFMAN. I will be happy to do that. I want to be sure that this process is understood first. I will be happy to take this on later, sir. Senator BRICKER. Your dealing is entirely with the governments? Mr. HOFFMAN. That is right. All we do is supply the dollars. The government to which we supply the dollars gets its equivalent or counterpart in their own country for every dollar that we supply, and that government jointly with ECA supervises that recovery fund. The proceeds from that fund are expended to promote recovery in the country. Generally speaking we have found a condition where there is either inflation or deflation threatening. If the forces are inflationary we use those proceeds to help combat inflation. That has been the problem in Norway, due to the great supply of currency put out by the Nazis when they were in occupation. Their problem is still inflation because they cannot supply enough goods to match a large supply of currency. What we have done there, in Norway, is to retire certain types of public debt and tend to cut down on inflationary forces. There is no unemployment in Norway. On the other hand, in Italy, where there is unemployment, where of course they have terrific war destruction, there the money is expended for public works of various kinds that both create employment and also will directly or indirectly increase production. So that we have there the process that we go through which is that the country itself suggests the use of those recovery funds. It is screened by our mission in their country. The recommendation goes to Paris, where Mr. Harriman, the Office of the Special Representative, passes on that. It comes back to America. As far as policy is concerned, we have to take matters to the National Advisory Council, which is a Cabinetlevel committee, we have to go to them for policy in determining the expenditure of these counterpart funds. Once that is determined, then we will proceed. In other words, if it is decided that the situation in Italy is one which calls for the use of recovery funds to fight inflation, as long as we are fighting inflation, we, ourselves, with that government, will determine the projects for which it is used. If the situation should reverse itself, and we are constantly checking that, then we go before the NAC and say, “We believe the situation in Italy now calls for a change in policy." Senator BRICKER. But, how would you use the currency of a country to prevent a deflationary tendency? Mr. HOFFMAN. If you retire a public debt, that draws currency away from the people. Senator BRICKER. Oh, I understand. Mr. HOFFMAN. Then, you have less currency pressing on prices. This is one area, at least, where there has never been any criticism, as far as I know, an area which in itself invites criticism. On the whole, however, I think the expenditure of counterpart funds in the various countries has been very wisely bandled. If that explains your question, we can go to the next one, Senator Robertson. We, of course, have taken the position in ECA that the American taxpayer should not be called upon to expend a single dollar for Europe until the European countries have made the fullest use of their own resources. This is how that is determined: We take the import schedule that they submit to us. That is a schedule of everything that they expect to import, not just things financed by ECĂ. The first thing that we do is shake out of that schedule any items which upon further examination might be produced or manufactured within their country, or a substitute produced or manufactured. If, for example, it calls for wheat, and they grow rye, we say, “That is too bad, grow some more rye." If it is an item under the hard currency from America, we say, "You can use this item which you can manufacture yourself from local materials." So the first shaking is a shaking of items which can be produced or of which substitutes can be produced within the country itself. Then, the next shaking is one that everybody agrees with in principle. That is, we try and find for those items which must come from America and hard-currency areas, other sources within Europe. In other words, we want to make sure that those items that they require cannot be purchased with soft currency and with their own currency. In other words, we will put this very specifically. Let us say that the Netherlands needs some trucks, trucks being a very logical part of their recovery program. The first thing we do is see if Holland doesn't have some pounds. Then if Holland has some pounds we say, "Sorry, we cannot permit you to include in your import schedule any American trucks, because if you do, the dollars for those trucks must come from the American taxpayers. You have pounds, use them over in England." That is a very sound program in principle, everyone will agree with it. If we did not pursue that policy rigorously we could not possibly carry out this program at a figure that could be supported by the American taxpayers. The CHAIRMAN. You made the statement, which we are familiar with, namely, that you were not a buying agency. Now, we are holding this meeting here today for the purpose, as you know, of seeing how we can help small business. You say that these purchases are made by the various countries who are participating. Who, in the various countries, makes those purchases and how can we put the small-business man in touch with the person who makes those purchases in the various participating countries? Because, under the law that was passed, you set up a small-business section and you have been working, your small-business section has been working, very diligently with the staff of this committee. What I really want to find out is, How can we get these small-business people, small-business people in lumber, in cotton, in soybeans, for example, in contact with the buyers of these foreign nations who have had approved by you these various things that you say they cannot buy in soft currencies, but must buy in our currency? That is what we want to know. You have, for example, appointed a gentleman in charge of that section in the State Department. I have had the pleasure of conferring with him. I thought that we would not discuss the matter in too great detail with him but that we should preferably get together around this table and talk with you first. We are not interested, naturally, in any one particular item, logs, lumber, or soybeans, but rather how this small-business section in the State Department under the law, working with the staff of this committee, can aid in devising a method whereby small-business people in this country can be put in direct contact with the various purchasing individuals in the participating countries to sell them those things which they are authorized to buy? Mr. HOFFMAN. May I conclude with Senator Robertson's question first? As I was saying, we shake this out in that way. Then we get down to those things that have to be purchased for dollars. If any European country, taking as an example, the lumber situation, can buy lumber for their own currency, we want them to do that, because that is the only way we can keep down the cost. Any lumber that has to be bought with dollars, we insist that the American producers have a chance to compete on. There are reasons why Great Britain might prefer to secure its lumber from Canada. However, we say that cannot be done. We have a directive which requires that if there is |