base programs have not kept pace with changes in military strategy and technology, or with changes in economic and political conditions. Most of the programs in the Defense Production Act are geared to preparing for lengthy wars, such as World War II or the Korean war. Yet most military planning today is for short conflicts.

We want to know what kinds of economic and industrial preparations we need to make for such conflicts and what the likely costs will be. We want to know what policies we can adopt to enable the defense industry to produce more economically with as limited as possible a burden on the civilian economy. We want to know whether the premium we pay for preparedness insurance is consistent with the risk and whether it is buying maximum protection for each dollar invested.

This morning we will hear first from Deputy Assistant Secretary of Defense Jacques Gansler about erosion in the industrial base and the recommendations of the Defense Science Board. He will be followed by Mr. T. K. Jones and two of his colleagues from Boeing who will present their findings on the feasibility and costs of protecting the industrial base from nuclear attack.

And Senator Tower, the ranking minority member of the committee is present, and he has a statement.

Senator TOWER. Thank you, Mr. Chairman.

The subject of today's hearing, industrial preparedness and war survival, deserves far more attention from the Congress than it has received.

The issues are complex and inextricably bind together our willingness to consider that our quality of life might not survive a nuclear attack unless we take some measures now, while at the same time, insuring the ability of American defense industry to provide material to support a more conventional war. Both of these problems may appear remote during the present time of peace.

But the peace we now enjoy will not be preserved for long if we allow this country to become so unprepared for a nuclear attack or more conventional conflict that a weakness exists which the Soviets can exploit.

Although it is probably beyond the scope of today's hearing or this committee, the Congress and the Executive should renew their examination of whether the reliance on the Soviet-United States ability to mutually assure the destruction of one another still retains the vitality that it once did.

This examination of this and other issues must proceed cautiously for fear of renewing the disconsolation that accompanied the shelter building of the early sixties. But as John Collins, in a recently released Congressional Research study, notes: "Speculation that the Soviets could soon survive a general nuclear war appears premature, but the balance is starting to shift." 1

It is this beginning of an imbalance that can bring us to the brink of world instability. We are now looking at a great void, a void caused by uncertainty in the days ahead and an ambiguity as to what American, Soviet, and Chinese relations might portend for the future.

1 Library of Congress, Congressional Research Service. "United States and Soviet City Defense Considerations for Congress." Senate Document 94-268, 94th Congress, 2nd Session, Washington, U.S. Govt. Off., September 30, 1976, p. 26.

With these thoughts in mind, let us put today's topic, industrial preparedness and war survival, in perspective.

Since the dawn of the atomic age increasingly infrequent attention has been given to the ability of this country's defense industries to mobilize in support of a conventional war. Whether this capability, often referred to as the defense industrial base, has dwindled to the point where we can say it is decaying is not clear. But a continuing watchfulness for any signs of erosion of the base deserves the priority that it has received in the Ford Administration.

The question of this Nation's ability to survive a nuclear attack also bears continuing watchfulness. The evidence, although not conclusive, shows that the Soviets are at least giving greater attention and devoting substantial resources to improving their ability not only to withstand a retaliatory nuclear attack but have their people and industry survive it. The concern here should not be with just the event of an unthinkable nuclear exchange, but, rather the strategic and diplomatic leverage that the Soviets might enjoy by having such an advantage over the United States.

We are then once again at the crossroads of peace and continued world stabilization. Hollow defenses and unpreparedness will not deter any enemy which has proven time and time again that it will exploit every weakness.

It is my hope that the next administration will give both our war survival and industrial preparedness a priority which will steer us from the brink of uncertainty and carry on and expand the concern that I have discussed here today. No less than the continuation of the American quality of life is at stake.

Thank you, Mr. Chairman.

Senator PROXMIRE, Thank you, Senator Tower.

Mr. Gansler, welcome back to the committee. It has been, I think, 18 months since you told us about the defense priority system.

If you would briefly summarize-well, as a matter of fact, your written statement is very concise. If you want to read your written statement, you may do so. So handle it anyway you wish and then we will ask you questions.

Mr. GANSLER. I would like to read the statement.
Senator PROXMIRE. Fine.

STATEMENT OF THE HONORABLE JACQUES S. GANSLER, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MATERIEL ACQUISITION

Mr. GANSLER. Senator Proxmire, members of the committee, I appreciate this opportunity to appear before you and to participate in your continuing review of the Federal preparedness effort. I consider this series of hearings to be particularly timely and important to the interests of national defense. My comments this morning will address the defense industrial base and its viability to supply military needs in both peacetime and during a variety of potential conflicts.

When we speak of the defense industrial base, we refer to that industrial capacity, both in the private and public sector, necessary to produce and support the military materiel required for our defense. forces. Under the Defense Production Act of 1950, the Secretary of

Defense is tasked to insure the existence of a viable defense industrial base. The Defense Industrial Reserve Act of 1973 further stipulates that, to the extent possible, maximum reliance will be placed on the private sector of the base to support our defense needs. The act further charges the Secretary of Defense with the responsibility to maintain an essential nucleus of government-owned plants and equipment to support defense needs in a national emergency. Thus, the defense industrial base considerations encompass both the public and private sectors, and mixtures thereof. The incentives and the degree of control exercised by the Defense Department over the base varies, of course, for each of the sectors. Since the greatest share of the base is represented by the private sector, we must look to profit and long-term business stability as the primary incentives for a viable base. Unfortunately, defense procurement programs do not always offer these incentives. The long-term growth of the commercial market when compared with the long-term cyclical nature of defense business, and more recently, the post-Vietnam era of decreasing defense procurement expenditures has made defense business unattractive to many suppliers. Additionally, the myriad of government procurement policies, and the restrictions of government procurement practices, act as disincentives to many potential suppliers.

About 2 years ago, we began to perceive problems developing in the industrial base. Difficulties were being encountered by prime contractors and the Government in obtaining adequate competition for parts and components. Subcontractors were declining to bid on defense business and, to keep their share of the defense market, some large prime contractors, through acquisitions and expansion, began entering the subcontract field. As a result, competition decreased and, in some cases, inordinately high prices were being paid for parts and components of defense systems. Also, at the prime contractor level, indications of extra capacity were becoming evident, for example, in the aircraft sector because of decreasing commercial and defense business. In the shipbuilding sector, the DOD was finding it increasingly difficult to obtain contractor interest in Navy ship construction programs. We also observed an aging of plants and equipment with little investment being made to increase productivity. Innovations in engineering and particularly, manufacturing technology appeared to be sagging because of the lack of business. We became concerned that our needs for a viable defense industrial base, capable of responding to emergency demands, were becoming threatened.

With these indicators of potential problems, we began a reassessment of the defense industrial base, using as our guidelines the following five peacetime and wartime objectives:

First: To obtain the maximum deterrent and defense capability from the base for each dollar allocated.

Second: To ensure maximum economic efficiency for both the long and short term, within our given resources of money, manpower, plant, and equipment.

Third: To provide for a rapid transition from peacetime production to meet the military requirements of a surge or a mobilization situation.

Fourth: To encourage the maximum technological advancement for military advancement.

Fifth: To create a minimum of social and political impact. We initiated a series of studies about a year ago to determine whether problems in fact did exist, and if so, what caused them, and what impact were they having upon the economic efficiency of the base and also upon its ability to surge to meet an emergency or mobilization situation. For those problems identified, we are seeking implementable solutions consistent with our peacetime and wartime objectives.

For example, sectoral studies of the aircraft and shipbuilding industries are being conducted to ascertain the degree of capacity utilization of the plants in these industries and what actions may be required to adjust the overall capacity in response to the military and commercial markets. Closely related to these sectoral studies is the question of the optimum mix of Government-owned and industrially-owned facilities for defense production. Additionally, we are studying the lower tier subcontractor and supplier segments of the industrial base to determine whether the critical support to the prime contractors has in any way deteriorated and, if so, to what degree. As each is completed, actions will be recommended, and, if the impact of the actions is assessed as positive, they will then be implemented.

Most of our studies are still in process. Preliminary data indicate that problems do, in fact, exist in some areas and actions need to be initiated to resolve them. For example, we have found that our weapons system acquisition management policies and practices are generally oriented toward the large prime contractors and may need to be modified for the smaller suppliers and subcontractors. In response to this problem we are providing for more flexibility in our military specifications and we are encouraging greater use of commercial parts as well as multiple sources of supply in our subcontract procurement practices. These initiatives will help to broaden our competitive base, to reduce our procurement costs and improve our surge capability at this "bottleneck" level of the base. Additionally, we are encouraging increased use of the multiyear contracting technique as an approach to provide stability to our procurement programs. Finally, we are actively pursuing our manufacturing technology program as a combined government and industry effort to diffuse our advanced technology throughout the industrial base and to achieve real success in cost cutting.

During the period that we began perceiving problems in the industrial base, we recognized that an assist was being received from the foreign military sales program. This assist, coming as it did during the period of decreased defense expenditures, helped to maintain the viability of the declining base, reduced procurement costs to the Defense Department, and improved our international balance of payments. Although we welcomed the benefits of foreign military sales in maintaining the base, we became seriously concerned about certain long-term implications of the program. The present tendency toward engineering and manufacturing technology transfer, exporting of turnkey factories and providing training for foreign production operations raises concern about the long-term economic and strategic effects of such practices. Competition from foreign production sources in the defense market is becoming increasingly significant. We welcome this increase in competition to secure more economies in our peacetime procurements. However, we recognize the danger of becoming solely dependent

upon foreign production sources, particularly with regard to meeting Defense requirements in an emergency situation.

In addition to the series of studies initiated to explore the problems in our peacetime industrial base, we asked the Defense Science Board to assess our industrial readiness plans and programs for the transition of the industrial base from a peacetime to a wartime environment. The key to conceptualizing this transition period is in identifying the contributions of a responsive industrial base to alternative forms of conflict, principally defined in terms of the duration of the conflict and the degree of interference with the peacetime civil production base.

The objectives of our industrial readiness plans and programs of the future must be based on our continuing perceptions of the most likely forms of conflict. For the short, high-intensity war, we must be prepared to rely on prestocked war materiel reserves to sustain the inbeing forces for some initial period of time. This obviously requires a significant production investment through our peacetime budgets. Then, for longer duration conflicts or periods of increased world tensions, we will rely on increases in production output from existing production lines during the first year, to support our military effort. This production increase would permit us to meet two prime. objectives:

First: Ensure that U.S. production output can support the wartime materiel requirements by the time the prestocked war reserves are exhausted.

Second: Ensure that U.S. production capability for such systems as aircraft, tanks, helicopters, and tactical missiles is adequate to make a significant contribution to the military effort during the transition from peacetime to full mobilization, or during a continuing peacetime "guns and butter" mode-as has been the case over the last 30 years.

The ability to meet these two objectives has been defined as a surge production capability. We feel implementation of this planning concept will provide a credible element in support of our national defense policy of deterrence.

Of critical importance to this surge response is the preplanning and the resolve necessary for its success. Here we are looking at reduced production lead times through the prestocking of long-lead time parts and components, the elimination of manufacturing bottlenecks and the modernization of plant and equipment. As an element of assuring success in this endeavor, we are considering holding each defense system program manager responsible for incorporating surge production planning into his individual program.

Our industrial readiness plans and programs, having been oriented toward the full mobilization concept of war, are not sufficiently inclusive to react to the concepts of a short war or a surge situation. Therefore, we are taking steps to update our plans and programs to cover the full spectrum of potential conflicts while continuing to provide for an extended duration conflict. It is in the latter case that the national stockpile of strategic and critical materials is of key importance.

În summary, we believe that we have identified some significant issues which, if not acted upon, could become serious problems in our