business share of this enormous portion of the market for manufactured goods has been dwindling steadily. We think that the procedures Congress has outlined to check this disastrous trend can and will prove effective, if we are given the time and money to put these policies into practical execution. The importance which we attach to the procurement program is indicated by the fact that over 60 percent of our total proposed budget is allocated to it.

FINANCIAL ASSISTANCE

Under

Now I want to turn to another very important branch of our activities. section 714 of the Defense Production Act, Congress also authorized the SDPA to recommend small-business loans to the Reconstruction Finance Corporation. Congress was aware that credit obstacles had been a major impediment to smallbusiness participation in defense production, and set up this authority to provide help for the small-business man of a type not available either privately or from other Government lending authorities. Under this authority a fund of $100,000,000 was created under which the RFC could make loans to small business concerns upon the recommendation of SDPA for a variety of defense or essential civilian purposes set forth in the statute.

It is apparent, from our experience during the 51⁄2 months that these new loan procedures have been in operation, that they are meeting a very deep and widespread need in the business community. Through June 18, 1952, we received 659 active applications, totaling nearly $271 million. We have acted upon 354 applications and have forwarded 143 favorable recommendations to the RFC, totaling approximately $18,500,000. The RFC, in turn, has approved 87 of these loan applications, totaling $11,743,640. Geographical distribution of the loan activity will be found in an appendix which I am submitting for the record. I think a few examples of the kinds of loans made under this program might be of interest. A small machinery plant in Florida was granted a loan of $750,000 so it can produce 75-millimeter shell cases for the military. A Baltimore, Md., firm was granted $69,500 loan to purchase and install equipment to produce crystals for electronic equipment needed by the Signal Corps. A small company in Los Angeles was loaned $50,000 of working capital to complete a dust chamber for testing machinery for the Atomic Energy Commission. An Illinois concern producing a certain type of gage badly needed by Army Ordnance was granted a $20,000 working capital loan. A small Ohio manufacturer of generators was granted $100,000 of working capital needed in order to continue furnishing his product to hospitals, fire and police departments, and other institutions. Α small Idaho processor of seed peas and beans was granted a loan of $20,000 of working capital. (A complete list of loans authorized is attached to this statement.)

V-LOAN REGULATIONS

Beyond its loan operations under section 714, SDPA, as spokesman for small business, has endeavored to eliminate any regulations in the field of finance which tend to obstruct the participation of small business in the defense program.

In this connection, loans guaranteed under section 301 of the Defense Production Act (commonly called V-loans) are of great importance to the effective utilization of the productive capacity of small concerns. It is abundantly clear in the legislative history that this authority was created in large part for the very purpose of making possible maximum participation by small business concerns in the Government's defense production program. Nevertheless, it was found that the V-loan regulations of certain guaranteeing agencies of the Government, notably the military, did not carry out this intention of Congress. This Administration, accordingly, urged upon these agencies that appropriate revisions be made. The Department of Commerce and the Atomic Energy Commission accepted our suggestions readily.

MATERIALS AND EQUIPMENT ASSISTANCE

Another important part of this Administration's program is directed at obtaining for small business concerns a fair share of critical materials and equipment. A significant accomplishment in this respect has been the establishment by NPA, in cooperation with SDPA, of a special reserve of steel, copper, and aluminum to take care of small business hardship cases. Approximately 500 small concerns located in 36 States have received critically needed assistance from this hardship reserve. In addition to participating in this special program to help small business, the intervention of SDPA on behalf of individual companies with materials problems

has been effective in many instances. For example, an air-conditioning firm in Houston, Tex., which had been unable to get steel and copper allocations for a particular job, and was consequently faced with failure, was given the material it needed after intervention by SDPA. A Kentucky firm producing aluminum siding was assisted at a critical moment; and similar help was given to a company in Indianapolis, Ind. A new and more favorable base period materials quota was obtained for a small Illinois manufacturer. Additional aluminum was obtained for a small firm in Phoenix, Ariz., as well as for a Cleveland fabricator of this metal. Many other small firms were similarly helped by SDPA.

SDPA has also been able in a number of cases to help obtain machine tools for small concerns. A tool needed by a Nashville, Tenn., company was located for them. Machines were found by SDPA for a producer of ball bearings in New Hampshire. A Richmond, Va., firm which urgently needed a boring mill, was assisted by SDPA in locating one through an importer. This machinery assistance program is being expanded rapidly by the agency through its field offices. There is hope that because of the "stretch out" in the military program, the overall materials situation will continue to improve and allocation controls may be progressively relaxed or removed. Even should this hope prove to be justified, it will be necessary to keep a weather eye out for small business. Since defense production will continue to have the right-of-way, producers of civilian goods both large and small will be competing for the balance of materials. Precisely such a scramble developed following decontrol after the last war. In such a period, small business may find it difficult to hold its own, and new problems will be presented to small business and to this agency.

Apart from the three major fields of activity which I have discussed-contracts, financing, and critical materials-we have followed the mandate of Congress to check the activities of agencies in order to insure that small business is receiving fair and equitable treatment.

TAX AMORTIZATION SET-ASIDE PROGRAM

In this connection for example, we have studied the accelerated tax-amortization program, and found that small business has not managed to keep pace with the growth of its larger competitors. Small manufacturing concerns have received only 10 percent of the value of tax amortization certificates, although such concerns account for approximately 42 percent of total employment in manufacturing. There is, therefore, an urgent need for planning the distribution of tax amortization certificates in the future, so that the competitive structure of American industry will not be undermined.

Accordingly, SDPA has secured the approval of DPA to a set-aside program for small-business expansion. Under this program, DPA informs SDPA of each proposed expansion goal. SDPA then makes a study of the particular industry affected and, in agreement with DPA, earmarks a specific minimum percentage of the tax-amortization certificates which will be granted to qualified small-business applicants. This percentage is based upon the pre-Korean position of small business in that particular industry. If there are not enough small-business applications on file with DPA to absorb the set-aside, we attempt to stimulate interest in such expansion. This program is now in operation and the first of these setasides is about to be issued. As this program gains momentum, we hope that it will help to reverse the trend toward further economic concentration which would have a permanent adverse effect on the competitive structure of our economy.

In addition, this Administration has been assisting individual small-business concerns which have applied for accelerated tax amortization. Several dozens of such requests have been handled, and in at least 75 percent of them, with our assistance the applications have been granted. It is particularly noteworthy that a large proportion of these applications had already been turned down, and we found it necessary to seek reconsideration. In such cases, we reviewed the entire record, determined what was lacking in the applicant's presentation, worked out ways of filling such gaps, and succeeded in convincing DPA of their merit.

WAGE AND SALARY CONTROLS

Wage and salary controls frequently work disproportionate hardship on small concerns who find that, because of their unfamiliarity with Government procedures and the consequent delays in obtaining adjustments in their wage and salary scales, they are losing key personnel to larger concerns which have been able to obtain adjustments more quickly. During World War II, concerns employing eight or fewer people were exempted from these controls, except in instances

of an actual drain of manpower from other concerns to them. Accordingly, SDPA has recommended a revival of this procedure to the Economic Stabilization Administrator, suggesting also that special arrangements be made in order to deal expeditiously with applications for relief by nonexempt small concerns. It is our understanding that a regulation substantially to this effect is under serious consideration.

In addition, this Administration has been in communication with the Salary Stabilization Board with respect to a plan, under consideration by that Board, for simplified compliance, reporting, and record-deeping requirements, for concerns with more than eight employees but still classifiable as small business.

KEVOLVING FUND

Mr. Chairman, I would now like to address myself to our budget request for a $5,000,000 revolving fund (pp. 100-104 of Budget Justification). Section 714 (a) (2) of the act authorizes an appropriation of not to exceed $50,000,000 to a revolving fund in the Treasury to be used for making advances to the Administration. So we are here asking for one-tenth of the amount authorized. Congress had not heretofore made any appropriation for this fund.

The primary purpose of this revolving fund is to enable the Administration itself to take prime contracts from Government agencies and to subcontract them to small concerns which would actually perform the work. The statute directs that we are to make and let contracts on a basis which will, to the fullest extent practicable, result in a recovery of direct costs incurred by the Administration. In short, the revolving fund is intended to be self-liquidating. I feel that the authority to take prime contracts could be of considerable assistance to our efforts on behalf of small business and, therefore, I am renewing our request that Congress appropriate funds to enable this aspect of our work to be carried on.

The power to enter into prime contracts would be used in those cases where the commodity being purchased is of a nature which can be produced by small plants, but because of the size of the contrcat or othercharacteristics, it would not be placed directly with individual small concerns by the procuring agency. In such an event SDPA could step in and take the contract. SDPA will not of course perform the contract itself but in turn farm it out to a number of small concerns which will do the work. SDPA would serve as a conduit through which the contract would be channeled, broken down in small lots and placed with a number of plants. The operation would be rather similar to that of a production pool where many small plants band together in order to handle large and more complex procurements. SDPA will in effect be serving as the manager-the "mother hen"of such a pool in handling a prime contract. The operation would be precisely the same as that carried out by any private prime contractor who is engaged in subcontracting.

Difficulties encountered by small-business production pools in themselves obtaining prime contracts suggest another field in which the authority of SDPA to take prime contracts could be effectively used. Because of the customary lack of financial resources in the pool itself, obstacles arise when a pool seeks to obtain a large contract for which it will have to obtain working capital. The individual firms in the pool are willing to give guarantees concerning their own satisfactory performance but they are normally unwilling to undertake any liability concerning the adequacy of performance by other members of the pool. It is difficult for the pool, in such circumstance, to obtain a contract from the procurement agency and, if it does, to obtain the necessary financing to perform it. With the revolving fund, however, SDPA could obviate these difficulties by taking the contract in its own name and subcontracting it either to the pool or to individual concerns within it, retaining the right to substitute other subcontractors should any of those originally designated fall down. SDPA as the prime contractor would retain the necessary control and supervision to insure timely and satisfactory performance.

During the last war the Smaller War Plants Corporation found a number of prime contract opportunities. SWPC took 12 prime contracts totaling $29,081,479, of which $26,774,274 was let out to 281 small-business subcontractors. These contracts involved the manufacture of furniture, experimental wood barges, life rafts, reamers and arbors, paint, portable steel and wood barracks, machine gun mounts, copper wire, bomb hoists and practice bombs. The difference between dollar amount of prime contracts and subcontracts represents contractual adjustments and terminations.

Quite apart from the actual taking of prime contracts, I regard the revolving fund as of considerable importance. If it is available and we are in a position to

take prime contracts to place with small business, we have a very real lever for persuading the procurement agencies to place the contract with small concerns directly rather than indirectly through us. Thus, while SWPC took only $29 millions of prime contracts, the share of procurement going directly to small concerns rose substantially during the period of its operations and the difference was attributed in large measure to the existence of its prime contracting power. An additional purpose for which the revolving fund would be used would be that of providing technical and managerial assistance to small concerns on a reimbursable basis. While we are rendering considerable assistance of this sort, it has not been of such a character as to call for reimbursement and is charged to our operating budget. The assistance to be financed out of the revolving fund we regard as intended to take care of highly specialized, individual technical problems which require a substantial amount of time for their solution. In such cases it is appropriate that SDPA be reimbursed and the proceeds would thus be returned to the revolving fund.

In conclusion, I chiefly want to underline the necessity of the agency's obtaining adequate financial support in order that its program and activities may prove effective and beneficial on a broad scale.

As the committee knows, the SDPA has, for the greater part of its existence, been working on the basis of a very small interim appropriation, intended by Congress for the initial establishment of the agency and the development of procedures to carry out the congressional program. The Third Supplemental Appropriation Act appropriated the sum of $825,000 for the SDPA, which was intended to permit the agency to expand its operations substantially during the last quarter of the fiscal year. However, due to the delay in final approval of the act, our recruiting program was sharply curtailed. We have done our honest best to achieve practical results, while working out plans for the future, with the means at hand. The contracts which we have helped small business to secure, by the issuance of certificates or otherwise, the loans which have been made on our recommendation, the additional allocations of materials which we have helped to secure for small business, and the other practical steps which we have taken have not gone unappreciated. Nevertheless, our activities have been necessarily restricted within rather narrow limits by the means at our disposal, and the major benefits to small business, which the congressional program was intended to and can bring about, have not yet been realized.

Mr. Chairman, we believe we have developed sound economical methods for putting the small-business program of Congress into effect. The program is in operation and gathering momentum. With the support of Congress, I am sure it will be a success and of major benefit to small business and the national economy as a whole.