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Mr. JOHANSEN. I wonder if you can cast any light on that 300percent figure?

Mr. WHITE. I did some guessing when I read his letter and my guess is that their average parcel is maybe 15 or 20 pounds. If you figure it out based on that large weight, the percentage of increase goes up. I have not figured it out completely, but that is my guess.

Mr. JOHANSEN. I had in mind the percentages you used earlier.

Mr. WHITE. Yes, sir. I noticed this and I thought about it, and I didn't know how they got their figure, but this is my guess.

Even in counties that have truck delivery service, there would be an estimated increase of about $1,000 since the audiovisual departments have to pay all postage on purchases of new materials and postage for preview materials. Also, we have an intercounty free loan system on films in which, for instance, any county in the San Joaquin Valley can borrow materials from any of the other counties and the only cost involved is postage. An increase in postage rates could make it practically impossible to continue this very effective type of cooperation.

From the standpoint of the State department of education and the State department of corrections where we both maintain distribution libraries to other state agencies, this item would increase our cooperative postage budget by well over $1,500. This again, of necessity, would restrict our services to the various State agencies in California since the tax dollar is very difficult to come by.

The demands on educational institutions within this State are increasing at a very high rate, especially in view of the fact that there is so much more to teach than we can ever hope to teach by the conventional methods. There fore, we are forced to use audiovisual materials to their greatest potential for instruction in order that our students will have the opportunity of learning about new developments when they happen instead of waiting for 5 years for a textbook to be published. Any increase in the cost of such a service would be to the detriment of maintaining an up-to-date educational instructional materials program within this State.

If there is anything that you can do to bring this to the attention of the committee, it will be appreciated by all educators in California, as well as throughout the United States.

Garland C. Bagley, director of the Audio-Visual Service, State Department of Education, Atlanta, Ga., has submitted the following statement for your record:

In Georgia we have been able to build the largest audiovisual program in the country by taking advantage of the present postal rates on library materials.

With everyone trying to do everything possible to prove the schools throughout the Nation, I am greatly alarmed at the prospect of the library rate on these materials being increased since it will greatly handicap expansion of the audiovisual program in Georgia. I understand that the increase will amount to 100 percent or more on an average 5-pound parcel, and that would, without doubt, more than double our present amount for postage and would naturally cut down on the number of films that we could buy and send to the public schools of the State.

We respectfully request that more than close consideration be given to any increase in postal rates that directly affect the libraries and the audiovisual services throughout the country that have to depend upon parcel post for transportation of materials. At the present time, we are spending approximately $28,000 to $30,000 each year for postage on film parcels sent to and returned by the schools of our State. With a fixed budget that is threatened to be cut in view of decreasing State revenues, an increase that would more than double the present amount of postage would greatly jeopardize Georgia's audiovisual pro gram. With this increase on library materials and educational materials affecting the field of education more than any other group, we would like to urge that no increase in postal rates for these materials be made any time in the near future.

We will greatly appreciate the careful consideration of any increase in these postal rates that primarily affect the educational system of our country.

My third letter is from Lee W. Cochran of the extension division, State University of Iowa, Iowa City. He writes:

It has come to my attention that the U.S. House of Representatives is considering a bill which would increase the rate of mailing educational Library materials and educational materials.

I am writing in defense of the present rate on mailing library materials and educational matetrials which allows shipment of educational motion pictures, filmstrips, slides, microfilms, sound recordings, and catalogs listings such educational materials.

The wide distribution of all types of projected materials for educational purposes in the classrooms of this country is of great importance to the educational progress of the future. This low-cost distribution of all materials coming under library materials at present greatly encourages the schools to use a wider variety of educational films and other audiovisual materials.

I have estimated that if the proposed increase made in the shipment of such educational materials is passed, schools in Iowa would be spending approximately $20,000 additional from their educational budgets to mail the films and visual materials used in this State alone. This would no doubt mean that the schools would be using less educational projected materials if this bill includes an increase in the cost of mailing such materials. As you can see, this would be especially harmful to the small schools who depend upon their projected materials from libraries in either State departments of public instruction, colleges, or universities.

A RECOGNIZED PUBLIC-SERVICE FUNCTION

According to information which has been released by the Post Office Department, it is estimated that the revenue to the Post Office on books and other educational materials amounts to about 61 percent of the cost of handling this class of mail.

I would like to add to my printed testimony that that is for the educational materials rate. The library materials rate I believe recovers 24 percent of its cost.

Under the Postal Policy Act of 1958, Public Law 85–426, revenue deficiencies incurred by the Post Office Department under the educational materials and library materials rates shall be reimbursed from the general funds of the Treasury as a public-service appropriation. These reimbursements totaled $16 million in fiscal year 1960.

In addition, the President's 1961 budget proposed, and the House and Senate have already approved, in the Treasury-Post Office appropriation bill for 1961 a $19 million item for the same purpose. Therefore, in effect, the Post Office Department has already been guaranteed by the Congress the full cost of handling educational materials and library materials until June 30, 1961.

I should like to point out to your committee that if the proposed rate increases for these two categories were to be approved by the Congress, it would have no effect on the Post Office Department deficit for the 1961 fiscal year.

My whole point, Mr. Chairman, is that the proposed increases, particularly on the library materials rate, amount more to a change in the basic philosophy on the transmission of these materials than they do to a mere rate increase. If there is to be a general postal rate increase, it seems to me that educational and library materials should be considered in relation to other classes of mail which have an educational and informational function, such as the reading matter in magazines and newspapers under second-class mail.

According to the figures which the Post Office Department has presented to your committee, reading matter in second-class mail is

will agree

paying a much lower proportion of its cost than are educational materials.

I have here a set of booklets which explain the immense values of audiovisual education. With your permission, I would like to pass these out to the members of the committee. If you will look through them at your convenience I believe

you

with me that the continued inexpensive circulation of 16-mm. films and other audiovisual materials, along with all of the other types of necessary educational materials, is particularly important in view of the educational crisis which our country faces today.

I know your committee will want to think about the importance of our educational problem in considering the proposed increase. I know you will want to bear in mind that even if the presently proposed inequitable increases in the educational and library materials rates are enacted, the increase in revenue would be just about 1 percent of the estimated postal deficit of $554 million.

I believe that the effect of the increase on the wide transmission of educational and library materials throughout the United States will damage our educational system to a degree far out of proportion to the possible benefits in increased revenue which could be gained by the Post Office Department.

Mr. Chairman and members of the committee, I wish to thank you on behalf of the National Audio-Visual Association for the privilege of appearing before your committee. If you have any questions about the matters I have mentioned, I shall be very glad to do my best to answer them.

The CHAIRMAN. Are there any questions?

Mr. JOHANSEN. Mr. Chairman, I have just one comment. I am very interested to note that the tax dollar is very difficult to come by out in California. Maybe someday we will reach the point where we will recognize that it might be difficult to come by on the Federal level.

The CHAIRMAN. Thank you very much, sir.
Mr. WHITE. Thank you, sir.

The CHAIRMAN. That concludes the witnesses who have requested to be heard today.

I have a statement from Mr. J. M. George of the National Association of Direct Selling Companies of Winona, Minn. His statement will be included in the record at this point.

(The statement follows.)

STATEMENT OF NATIONAL ASSOCIATION OF DIRECT SELLING COMPANIES, WINONA,

MINN.

Mr. Chairman and members of the committee, my name is J. M. George, president and general counsel of the National Association of Direct Selling Companies, the office of which is located at 165 Center Street, Winona, Minn.

Approximately 10 percent of direct selling companies in this country are members of this association, although the proporation of business in this method of distribution done by members of this association is very much greater than 10 percent. We have a large number of the very largest companies, but in spite of that it may be said that 60 percent of the membership consists of small business concerns averaging down to our second largest group whose sales do not exceed $100,000 per year.

I have recently learned that there are Members of Congress who are not too familiar with the meaning of the expression “direct selling" and its use of thirdclass mail.

This class of mail is used primarily for recruiting, or in other words, obtaining salespersons.

Secondarily it is used for promoting the sales volume of these salespersons.

In direct selling there is no solicitation of sales made directly to the consumer through the use of third-class mail. That is an entirely different method of marketing frequently referred to as direct mail. No merchandise sales are made in direct selling except by or through a personal solicitation of the consumer by a salsesperson.

A substantially high percentage of our third-class mail addressees receiving recruiting circulars are persons who have previously indicated an interest in this method of selling, and hence this method of selling is a matter of some interest to them.

In the secondary use of third-class mail, that is for volume promotional purposes, the addressee is a person having a known direct interest.

The success attendant upon the use of third-class mail for these purposes in direct selling and the facts just stated certainly disqualify the term "junk mail.” While we have no brief for any other type of marketing, we believe that no groups or categories of users would be using third-class mail unless it was a reasonably successful tool for the use to which it is put.

Since December 1948, third-class rates have been repeatedly increased. Another increase is already pending to become effective next year, and now the proposed increase in rates and changes in mailing conditions will be a smashing blow.

Direct selling consists of thousands of small transactions and contacts with thousands of persons. Recruiting cost is the major part of cost of operations, and with over 80 percent of all direct selling companies this means use of third-class mail.

A rate increase seems to be a small item. However, considering the amount of money spent on this class of mail, it becomes a large item. Amount of profit per each of these small transactions can largely or completely disappear by reason of a very small added cost. Small rate increases have caused many of the small companies to cut their appropriation for recruiting, and that is the beginning of the end.

I understand that other witnesses will talk to you about specific figures. Application of the proposed increases to last year's business might very well be revealing.

While direct selling represents a rather small percentage of distribution, its success is of great direct interest to many persons and of great value to the American economy. It is commonly said that one salesperson furnishes jobs for seven workers.

It is not known as a proven fact, but it is generally and reasonably believed that at least 1 million persons, men and women, make part or all of their living from selling in this field. These salespeople have families.

Thousands of manufacturers and supply houses sell their wares to direct selling companies.

A few years ago I caused to be made a survey covering Chicago and found that 20 of our companies had over 1,600 purchase accounts in that city.

The amount of printing used in direct selling is enormous in the production of Bibles, encyclopedias, and similar reference works. These suppliers and their employees have families.

The approximately 3,000 direct selling companies have office, production, and other employees as well as stockholders. These people have families.

Practically every salesperson and most employees have an automobile and buy gas and motor services used in direct selling.

Railway-freight and express-bus, and truck transportation is an important aid to our economy.

The spread between the rates on first- and third-class mail is gradually narrowing. This in spite of the fact that third-class mail is processed and handled largely on otherwise idle time, and consequently isn't sent out until some days after sending of first-class mail received at the same time.

This also without regard to the fact that third-class mailers perform 12 out of the 13 post office functions in the handling of this class of mail. Really thirdclass mail is a byproduct of the postal service like, for instance, fertilizer in a meatpacking plant.

There would be no third-class mail were it not for the fact that it is a slow time support of the primary functions of the Department.

It is not unlikely that the overall loss of revenue from income taxation re sulting from the effects of postal rate increases could far exceed the amount picked up from such rate increases.

The Congress, by requested rate increases, has frequently provided those increases on the theory that, if provided, revenue will reasonably meet postal costs.

This, however, is not the result. Added money from increased rates is spent to meet stiff increased expenses of the Post Office Department.

Isn't this rather conclusive proof of the fact that the Post Office Department is not operating a business?

A continually increasing rate policy discouraging the use of the service may become more costly than the amount of increased revenue from such policy.

The establishment of the proposed increases and changing of mailing conditions will naturally, in a situation where the postal user has a net income, at least substantially reduce the amount of that income; and no one knows better than us here that the revenue lost from a reduction of income comes off of the top bracket of that inconie.

This not only applies to income of companies affected but undoubtedly to the personal income of executives, stockholders, and others.

We are not looking for a subsidy. We are anxious to see rates kept to a level that the traffic can bear. For many of our companies the breaking point has been reached.

The CHAIRMAN. The hearings will be recessed until next Tuesday morning at 10 o'clock.

The committee will stand in recess.

(Whereupon, at 11:35 p.m., the committee recessed, to be reconvened at 10 a.m., May 24, 1960.)

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