Question 6. What are the important steps that the Government and industry can take now to promote the rapid development of civilian aircraft production?

Answer. (a) Immediately permit the development of experimental aircraft models for cargo and passenger use.

(b) Government should plan to maintain certain plants throughout the country as the Army and Navy have done in the maintenance of arsenals. This would permit the Government to engage in necessary experimental functions and have, in the interest of national defense, sufficient facilities, and trained manpower to maintain the best potential air force in the world.

(c) Labor, management, and Goveremnnt should create a planning commission to study our national and international needs in the sphere of civilian aircraft transportation. This commission should be charged with the responsibility of formulating a program for the development of

1. Air lines and airfields, inclusive of State and municipal projects, to increase feeder-line services.

2. An air force in the interests of national military security. 3. An international policy on aircraft transportation.

4. International air bases, both military and commercial.

5. An estimation of the production needs for such a national and international aircraft program.

6. Special attention should be given to the South American market, as a customer both for our surplus and new aircraft in the development of commercial air lines to cover South America, which is in many respects, inaccessible to us through overland routes.

Question 7. What principles should be followed in handling Government-owned aircraft factories, aircraft, and airfields?

Anser. (a) The interests of American national defense should be foremost, which means, as I have already indicated, that the Government should plan to retain a number of aircraft factories and airfields for experimental and preparation purposes. In addition, the post-war location of plants should be based upon some concept of military security.

(b) Government-owned factories established during this war should be cut back before privately owned factories in any aircraft cut-back programs. However, these facilities should not be sold down the river at a small percentage of cost to any individual manufacturer. Sale of Government facilities should be made with definite stipulations as to the economic uses to which the plants will be put. We should be guided by our desire to prevent monopoly; prevent scarcity or excess surpluses on the market; deny the uses of these facilities to companies who wish to move industrial plants from present locations in order to avoid high wages and union conditions; and foster the sale of these facilities wherever it helps to achieve the objectives of a full employment program.

(c) Defense Plants Corporation should be surveying these facilities to determine how many can be used in a post-war civilian production program which will require production over and above the pre-war capacity limits of the original companies and factories. As the Department of Commerce has pointed out in one of their studies, Markets After the War, by S. Morris Livingston, it will be necessary to increase production almost 70 percent above 1940, the last pre-war

year. This means a constantly expanding production program, which, in turn, depends upon the future use of these facilities.

Question 8. What plans should be made for a post-war national defense program for the aircraft industry; through stand-by capacity; through other methods?

Answer. I think it is clear that my answers to the other seven questions cover the points raised in this last question. I think it is obvious, from experiences of the last 25 years, that our Government cannot permit the aircraft industry to go to seed. We cannot permit the security of the Nation to be jeopardized by any of the whims of commerical objectives or of any individual company. Nor can we gracefully bow out of the aircraft picture and hope to regain air supremacy at the eleventh hour, as we did during this war. The Government must retain a sufficient number of plant facilities, equipment, and trained personnel, and must also keep certain private contractors at its disposal in order to maintain a fully developed aircraft program which remains in advance of the rest of the world's developments. To accomplish these goals, the Government needs the support of aircraft manufacturers and workers. From labor's standpoint, this can best be done as follows:

(a) In the handling of aircraft cut-backs, the workers should be consulted through their representatives.

(b) The workers' needs as human beings and as producers should be given due and fair consideration-as to maintenance of high wages, proper relocation of migrant workers, a comprehensive unemployment compensation system, and so forth.

(c) The workers should be brought into the planning of the industry's future, especially in relation to the Government's national and international responsibilities.

(d) Planning the future of aircraft must be fully integrated with the planning of our future national and international economy. It is, therefore, more important than ever to have Congress immediately legislate in this direction so that whatever is done in aircraft can be integrated into our over-all planning efforts. This requires, as a first step, the creation of. an over-all national reconversion committee, composed of management, labor, farmer, and Government, to integrate the work of Government agencies, planning our post-war economy, and to secure wide democratic participation of the major groups of society in the program.

Senator MURRAY. Thank you very much for your statement, Mr. Brown. I congratulate you on its conciseness and on its being right to the point.

Mr. BROWN. I thank you.

Senator MURRAY. Mr. Thomas Burtch.

STATEMENT OF THOMAS BURTCH, WESTERN REPRESENTATIVE, ARMY AIR FORCES BRANCH, SMALLER WAR PLANTS CORPORATION

Mr. BURTCH. Mr. Chairman, in offering my statement, I would like to express first the interest I have had in the statements that have been presented here this morning. It is gratifying to me to see the interest that is being taken in this very important subject.

May I please preface my remarks to your committee by saying to you that I was summoned from Los Angeles on Saturday, and that the

subject matter of this hearing was not known until my arrival yesterday. Because of this, the remarks I offer have not been coordinated with the Chairman of the Smaller War Plants Corporation, nor with anyone else; hence, they are offered as my individual opinions, for whatever they may be worth.

The war need for material continues, and I have no data upon which to appraise that need volumetrically. I know only that the need is very great and any remarks I make regarding cut-backs and terminations recognizes the priority of war needs, for so long as that need is permanent.

It is very obvious that supply requirements of the armed forces have changed and will continue to change in order to accommodate new items for war and to prevent excessive surpluses of items less acutely needed, or needed not at all.

On account of changes in requirement, many contracts will be, and have been, cut back or completely terminated, and the dollar volume of such cut-backs and terminations is increasing.

At some happy time all will be terminated. But before then, one problem predominates, and that problem is the administration of cutbacks and terminations in such a manner that all of our production facilities may continue to be useful, either for war, or for essential civilian supplies, as warranted.

Where I have been working, in the 11 Western States, but principally in southern California, there are very obvious reasons for concern over administration of cut-backs and terminations. There are over 6,000 plants in southern California predominantly engaged in the war effort.

Most of these are relatively small plants. Principally they service the large air-frame factories. A majority of them are admittedly new. Typically they have neither pre-war product experience and few, if any, of the Western plants have any pre-war cash reserves.

But to man the large air-frame plants and the smaller service plants, and to accommodate the needs of snip construction, immigrant workers by the hundreds of thousands have been employed, and no very great proportion of them intend to return from whence they came of their own volition.

We comprehend that we will win the war definitely, and that adjustments in the airplane and shipbuilding industries will be necessary. We realize that an acute situation will exist, and we are planning every way to lessen the impact.

For this reason, because the west coast must accommodate now, and for a time at least after the war, these very large accretions of people, war induced, there is real concern, principally about the criteria that will be the basis for determinations to terminate or cut back a single contractor, where the items made are the same as being made by other contractors.

The criterion is established by the Army that priority of retention of procurement will be given to plants not situated in group I and II labor areas. This is alarming, because so much of our industrial area, western industrial area, is classified in group I. Areawise, more of it is group I classification than in any other portion of the United States.

Our large and small plants are showing continuingly remarkable increases in efficiency. Our workers have upped their production per

man capacity, remarkably. Maybe it is too soon to say that many of our areas are entitled to be reclassified as less than critically acute, but it is now obvious that they will be entitled to reclassification before very long.

If we are going to receive the major share of cut-backs, because of this criterion, then, before very long, it is going to be difficult to sustain satisfactory employment levels, and even then few of our inmigrant workers will leave.

Before the issuance of the Baruch report, I prepared and submitted certain criteria, based upon the west coast point of view and these criteria were:

(a) No decision to terminate a contractor shall be based solely upon an allegation of an area manpower shortage, unless the specific contractor may agree that the termination will relieve a manpower situation in his own plant or those of his subcontractors.

(b) Attributing only slight, if any, weight to comparative prices. (c) Retention preferences for contractors whose sole usefulness is the continuation of production for war, as compared to contractors, ready, willing, and anxious to reconvert to peacetime production, and for which peacetime production there is available material.

(d) Specific retention preference for communities in which war induced population shifts are apt to create the most acute burdens. Although this was last year's thinking, to me, these criteria still have considerable merit in determining preference retentions. Mr. Baruch, in his report, suggests:

Where there have been war expansions, far beyond any possible post-war future, it will be better to cancel war contracts earlier, and begin reducing the bloat, than to wait until it has to be done all at once.

With this we agree. We want to insist, however, that while we have many plants, commenced since the war began, that it cannot yet be said, with any degree of certainty, that there is not a possible post-war future for each of them.

We on the west coast believe in the future of aviation-passenger, cargo, and personal flying. We submit that each era of world prosperity has followed some advance in distribution methods, or routes, and we believe aviation is a new advance in distribution methods, or routes, and that it creates new trade routes, and we firmly envisage a vast aeroplane business after the war and a prosperity to support it. We cannot say, therefore, that the 2,500 plants that exclusively service the air-frame industry may be determined now to be bloat. Naturally we who believe in small plants like the criterion that extends retention preference to plants employing less than 500 people. That would be fine, for us, if our smaller plants were predominantly prime contractors, but they are not. We, therefore, urge in determining retention preference, a thorough examination of the subcontracting program of the prime contractor.

One air frame termination reacted adversely on four hundred subs and sub-subs, traced geographically to fourteen States. Suppose that two prime contractors were each making this plane, and that the determination to terminate one was based upon location in a group I area. Could this have been sound without first examining the subcontractors, and their locations? Candidly, the Army and Navy appear to be sympathetic to these considerations and I find much to gratify me in their wise considerations.

So much for retention preference. There are other matters, one or two, which I would like to call to your attention.

The first is financing. Mr. Baruch asserts that

the lending authority of the Smaller War Plants Corporation, at present restricted to purposes of war production, be extended to permit short-term loans to assist small business in the change-over from war to peace

and further

as a permanent source of credit for small and medium-sized enterprises, on a basis of broader risks than banks can be expected to assume, that the Federal Reserve System's authority to make industrial loans be expanded.

From a grass-roots study of many small west-coast plants, the suggestion that Smaller War Plants Corporation authority be extended to permit short-term loans appears inadequate to the evident needs. Small business, now engaged in war work and intending to convert, needs long-term credits, in which risk to the lender, and to the borrower, declines as the terms of repayment are made easier. Mr. Baruch specifically refers to "a basis of broader risk than banks can be expected to assume." Cannot we segregate this risk and take off the degree of risk that is regarded as excessive by creating a national system of industrial credit insurance that would permit S. W. P. C. to absorb the excessive degree of risk, and let the banks, who understand local conditions and are in a position to service, make these long term industrial loans, much as they made title I, F. H. A. loans? I have talked to some of the large west-coast banks who think industrial credit insurance could very well be the answer.

We are relying upon a wise coordination of all cut-backs and we think it may best be achieved by a concert of procurement agencyS. W. P. C., W. P. B., R. F. C. and W. M. P. C. action.

We have mentioned both negative and positive criteria, and discussed them, to be used in retention preferences.

Policy relative to advance notices should be calculated to stretch the notice interval as long as possible and should be discussed with the prime and principal subs in advance of notice, and consideration should be given to all other Government agencies whose activities may be effected thereby.

If the smaller plants are enabled to carry through to their peacetime destinies, they will care for many of residual aircraft employees and their skills and arts can be utilized. There will need be unemployment compensation and some retraining, but give the small plants financial backing and much of the need for population reshifting will be mitigated.

Many think and so do I, that production cut-backs in aircraft will occur, except for trainers, only near the end of the war, and it is not considered that occasion will arise to integrate aircraft production into other production for war. Some of the aircraft companies have peacetime items in contemplation and will execute the change-over, when the war pressure is past.

But the world needs air frames, and our production technique and design achievements are superior. If we have to rebuild many of our war-fatigued planes, then give them free to other nations, it would be worth while, from a long-range point of view, in that we would thus capture the airplane-servicing business of the world for many years to come, and the rebuilding operation would support employment levels during the slack period.