coast, and one or two in New England. We had one recently in New Jersey, but it takes a lot of preparation to do a good job at those meetings, and we only have a staff of about seven in our office here in Washington who are able to participate in a meeting of this kind.

Mr. HOFFMAN. I think I would just like to comment, that we all agree, Senator, that this list should be expanded as rapidly as possible and the great value it will have to the smaller communities. But it does take time to get a region organized and get these counselors trained to where they can offer advice that is sound. I would hate to give a small-business man unsound advice.

Senator BENTON. It isn't that your talk with the bankers reminds me of the Republicans, Mr. Hoffman, it reminds me of money.

In addition to the who, what and when that you put so well here, as what the small-business man wants to know, a lot of them want to know, "Do I have the money to finance myself in handling any business that I may be able to get?" In line with your goal and Senator Sparkman's goal of developing more prime contractors, this would be one of the big problems.

I was terribly interested in the testimony of the man representing the RFC-what was his name?

The CHAIRMAN. Mr. Gunderson.

Senator BENTON. Mr. Gunderson, and he doesn't regard a Government contract in any way as an asset. He quite properly points out that the man may handle it improperly and lose money on it and may even go bankrupt handling this contract. On the other hand you and I know that out of 100 men who finally get a Government contract, go through all they have to go through to get it, to at least 95 of those fellows they think they have an asset or they wouldn't take the contract.

I am wondering how much this problem of money or financing may hold back the fostering of a higher percentage of business with the small independent producers; how much your percentages would have been still more favorable if it had not been for this problem of working capital and financing.

I ask you your judgement here, looking toward possible legislation, on which hearings start tomorrow before the Banking and Currency Committee, in which the Congress may take an active interest in the development of new financial techniques, such as the capital bank idea advanced by Mr. Kaplan in his book, to enable the small independent man to get more ready access to working capital, so that we can get more prime contractors and a bigger percentage of Government procurement in the hands of the smaller fellows.

I have asked you a whole bundle of questions in this one statement, but it is something on which we would very much like your view. Mr. HOFFMAN. Well, in the first place I have no informed opinion. I do know that in order to get war production going they found it necessary that is, the Government found it necessary to give the banks a guaranty on these contracts. I have forgotten what the procedure was exactly, but I do know that the move made at that time-

Senator BENTON. Are you familiar with the President's proposal to insure the small business up to $25,000, to underwrite the banks on an insurance program?

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Mr. HOFFMAN. I think it would be very well if we just look into the experience with the guaranties offered by the Government on Government contracts during the war, because my impression is that there was very little lost under those contracts.

Do you know, Mr. Foster?

Mr. FOSTER. I am not informed in detail, but there was very little lost. Without these loans we could have not brought into the war production effort the thousands of smaller companies we had.

Senator BENTON. The contracts were assets to the little fellows, then?

Mr. FOSTER. I would like to just make a comment here. It is my personal viewpoint, as a small-business man, I consider a Government contract an asset, because you have guaranteed credit.

Senator BENTON. May I say I concur with that comment, which is an observation, however, that it is not in line with the RFC attitude. On the other hand, the RFC attitude is a traditional attitude, I think, of the traditional banker. I am not challenging it or questioning it, in line with their responsibilities.

Mr. HOFFMAN. I was at the Federal Reserve bank in ChicagoSenator BENTON. It is just in conflict with what we are trying to do. Mr. HOFFMAN (continuing): During the war. It is a little vague in my memory, but as I recollected it was those loans that were guaranteed by the Government on the basis of Government contracts that started the great flow of war production, and I would think that the experience under those guaranties would be readily available and might be an instrument of great usefulness in promoting more interest on the part of our manufacturers, because in the case of contracts of this kind there are generally financial problems.

Senator BENTON. And developing more prime contractors in line with the chairman's goal.

Mr. HOFFMAN. That is right.

Senator BENTON. I think the financial side, you will agree, is one of the major deterrents

Mr. HOFFMAN. The same thing is true of getting imports into this country. Probably financing is one of the major problems that must be solved, to get expansion of imports or exports.

Do you have any comment you would like to make, Mr. Richards? Mr. RICHARDS. I would like to say that I don't think the question of financing on ECA direct business is a serious problem at all, as we point out in a small pamphlet that is just now on the press-of which I have a typewritten copy. All of the shipments made under ECA, if the seller wants them, and that is the great bulk, is covered by a letter of credit, and if he follows these instructions he will make no commitments until he gets his letter of credit, and that letter of credit will give him an ECA procurement number. With that he knows he can get cash if he presents the documents as stipulated in the letter of credit.

Senator BENTON. The financing is not a problem in ECA as it is in Government procurement through the Defense Department?

Mr. RICHARDS. I don't think so, and if it was, he could get a back to-back letter of credit which would enable him to go to someone and make a subcontract himself if he wasn't able to supply everything under the contract that he got. I wouldn't think the problem of financing with ECA

Mr. FOSTER. It isn't the same as a war production problem.

Senator BENTON. He doesn't get his money before he delivers his goods; does he?

Mr. RICHARDS. No; he gets the money when he delivers the shipping papers to the bank, as specified in the letter of credit.

Senator BENTON. Well, he could have a problem there.

Mr. HOFFMAN. I think there are two distinct phases to that, and while I think this solves the problem of payment of goods after they are manufactured, it does not solve the problem of providing capital for the manufacturing of those goods, and in many cases that is a problem.

Senator BENTON. Yes; that is a problem.

Mr. HOFFMAN. So I think that the matter of the question of guaranties is pertinent; wouldn't you think so, Mr. Richards? Mr. RICHARDS. Yes; I think so.

The CHAIRMAN. When is that letter of credit issued? After he has made the goods and they start moving?

Mr. RICHARDS. No, sir; that is what several manufacturers have done mistakenly and have gotten in hot water for doing. Then they come to us and appeal to us. If they will do what we say in this little brochure they will not make any commitments until they have that letter of credit. Then they go ahead and start work.

Senator BENTON. Before they buy their inventory or raw materials? Mr. RICHARDS. Yes, sir.

The CHAIRMAN. Before they commit themselves on the manufacture of that product?

Mr. RICHARDS. Yes, sir.

The CHAIRMAN. Then the next point I want to ask is this: Can the letter of credit be used as collateral for the procurement of a loan? Mr. RICHARDS. I do not know. I could not answer that.

Mr. FOSTER. Mr. Chairman, I should think the letter of credit would be one of the factors which would influence the banker in making the loan.

Senator BENTON. The letter of credit puts him in the same position as the fellow who has a contract with the Defense Department. It guarantees his credit, but it doesn't fix his working capital. It wouldn't influence the RFC, according to Mr. Gunderson's testimony.

Mr. HOFFMAN. Well, you get a letter of commitment and that shows that after you produce the goods you are going to get paid for them, if they meet the specifications.

Senator BENTON. You don't have to set up a bad debt reserve.

Mr. HOFFMAN. Then you are going to get paid; that you are sure of. But if you haven't the capital to produce those goods, you still have a financial problem.

Senator BENTON. You still have the problem of working capital. The CHAIRMAN. Of course, I suppose we should say in fairness to the RFC and other Government agencies, that so long as they are required to take satisfactory collateral they cannot be properly blamed for the attitude they take with reference to the government order. In other words, we simply have not given them that right.

Senator BENTON. I wholly agree with that, Mr. Chairman. I wasn't being critical of Mr. Gunderson.

The CHAIRMAN. I understood that, but I wanted the record to show clearly we are not criticizing the thing that they do, but perhaps we ought to do a little self-examining as to whether or not we ought to

give them additional powers. That is what we did during the war We did give the power and the right.

Is there anything else.

Senator BENTON. I think this testimony, Mr. Chairman, together with that yesterday from General Services, is terribly encouraging in its bearing on the goal for which this committee was established. I think Mr. Hoffman and his associates are to be congratulated on the leadership they have taken here, from which I hope other Government departments will also benefit, if given enough time.

The CHAIRMAN. Anything further, Senator Thye?

Senator THYE. No.

The CHAIRMAN. We appreciate your coming before us. We do feel that you have given us a very fine and helpful report.

Mr. HOFFMAN. Thank you very much, sir.

The CHAIRMAN. We would be glad to read the material that you referred to.

For the time being these hearings will be suspended because beginning tomorrow we are going to start hearings in the Banking and Currency Committee on the legislative program of small business. By the way, I am authorized by the chairman of the committee to extend an invitation to any and all members of the Small Business Committee to attend and sit in on any of those hearings that you might like. We do hope later to hear from the Treasury Department and from some of the other departments and agencies, but those dates will have to be agreed on at a later time. So for the time being these hearings will be suspended.

(Whereupon, at 11:35 a. m., the committee recessed.)

APPENDIX

SMALL BUSINESS CIRCULAR No. 119

WASHINGTON, D. C., June 2.-ECA's Office of Small Business announced today that studies indicate small business enterprises in the United States are not only participating directly in ECA-financed shipments but in many cases-involving large projects-small firms acquire business without knowing that it is ECAfinanced.

Figures published by ECA in its Twenty-first Report to the Public Advisory Board show that $44,000,000 or 20.2 percent of the $218,100,000 of ECA-financed business received directly by American manufacturing firms during the 4-month period, May-June and November-December 1949 went to small firms. The definition of a small firm is one with less than 500 employees.

This percentage applies only to direct payments to manufacturing concerns. If figures on subcontracts plus business done through exporters and other middlemen were available they would indicate that the percentage of ECA-financed procurement going to small manufacturing firms-both directly and indirectly— was considerably higher than that mentioned in the Public Advisory Board Report. Of the $44,000,000 paid to manufacturers with less than 500 employees $8,900,000 went to firms with less than 50 employees, $8,400,000 to those with 50 to 99 employees, and $26,700,000 to companies with 100 to 499 employees.

The Office of Small Business recently examined the case of a manufacturer of steel mill processing equipment located in the Middle West who received an ECAfinanced contract of approximately $2,000,000, requiring some 2 years to complete. The prime contractor retained for himself work amounting to about $670,000. The balance of $1,330,000 was subcontracted as follows:

68 small business firms received approximately.

33 large business firms received approximately.

101 firms received....

$850,000 480, 000 1, 330, 000

Of the 68 small firms that were first-tier subcontractors 43 had less than 200 employees and 25 had between 201 and 500.

Below the first-tier subcontractors were 40 second-tier subcontractors who received in turn approximately $300,000 worth of business. No data were available on the extent to which firms in this latter group were small or large enterprises. While this case undoubtedly involves a higher percentage of subcontracting than is usually found it illustrates the indirect participation in ECA-financed procurement by small-business firms which may not have realized that they were filling Marshall plan orders.

SMALL BUSINESS CIRCULAR No. 120

WASHINGTON, D. C., June 2.-ECA's Office of Small Business released today additional information on 10 industrial projects approved on April 27, 19501 for Austria, 8 for France, and 1 for Italy. Initial information on the eight French projects was given in ECA Press Release 1448, issued May 3, 1950. Details on each of the approved projects follow:

AUSTRIA

ECA project No. VII.-Rail and structural mill at Donawitz. This project covers a new rail and structural mill for Oesterreichisch-Alpine Montangesellschaft whose address is Friedrichstrasse 4, Vienna I. The mill will be able to handle 150,000 tons of finished steel production per year. Items which will be rolled include standard and grooved rails, sleepers and superstructures, medium and

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