Mr. ULLMAN. We did not foresee the method which would be used, but we could see war coming.

Mr. GRANT. What do you see 7 years ahead of us today?

Mr. ULLMAN. Trouble.

Mr. GRANT. During all the 7 years?

Mr. ULLMAN. For somebody, always. We are looking upon these cases as problems of individual judgment and common sense and we do the best piece of guessing based upon the most facts that we can get. Mr. GRANT. I appreciate your answers on these questions, Mr. Ullman. I am serious about that. And I would like your judgment as to when you see the peak of this defense spending and the tapering off process ahead?

Mr. ULLMAN. Any guess would be rather fatuous but if I were to stick my neck out, I would say 21⁄2 or 3 years.

Mr. GRANT. When it would start to taper off?

Mr. ULLMAN. The changes may be so rapid and so unforeseen that it can be based only on what we see now.

Mr. GRANT. I appreciate that, but I would much rather have your judgment on that than many others. You mean by that, if you were to stick your neck out, as you put it, that that would be the time that we would reach the peak and start in the other direction?

Mr. ULLMAN. That is right.

Mr. GRANT. In your opinion, will the tapering off process be in the same degree as was our rise?

Mr. ULLMAN. It was not so in 1918 or 1919.

Mr. GRANT. You think it might be quite abrupt?

Mr. ULLMAN. It might be quite an abrupt process. It is of great concern to us as marketing men because we are definitely on the 'spot in advising a client to prepare for it, and when, and how. And after all, the only thing we can do is to use judgment, and we will not keep a client if we cannot serve him right. He is going to fire us quickly, so it is up to us to do the best job we can.

Mr. GRANT. Thank you, Mr. Ullman.

Mr. TALLE. To what extent do manufacturing people set up production schedules on the basis of orders taken in advance?

Mr. ULLMAN. That is as different almost as the number of manufacturers. Each one works individually. A great many of them do, and a great many of them even in normal times may buy raw materials on the basis of an indicated scale from market studies and forecasts.

Mr. TALLE. Of course, the cost of the salesmanship is a charge. which occurs before they have made the product and the amount of money so spent would depend on the prospects shown by the forecast? Mr. ULLMAN. Yes; and the nearer you can hit it, the more economical the distribution and the sales problem is, and the solution of it. Mr. ALLEN. Mr. Ullman, I would be very interested in just very briefly knowing something about the distribution of your clients. Where are the bulk of your clients?

Mr. ULLMAN. Most of them, about three-quarters of them, are in the Middle Atlantic States. But we have clients in Tennessee, Alabama, Georgia, South Carolina, North Carolina, and Virginia. Mr. ALLEN. You do not have any in Louisiana?

Mr. ULLMAN. No; I have kinfolk there.

Mr. ALLEN. You have kinfolks there?

Mr. ULLMAN. Yes.

The CHAIRMAN. You do not have any in Arkansas either?
Mr. ULLMAN. No.

Mr. ALLEN. Let me ask you this. Most of your accounts are big manufacturers or are they small fellows?

Mr. ULLMAN. Well, we have some that definitely would be classed as big, some medium, and some small. We have 2 clients now that employ, 1 client employs 5 people and the other client employs 6 people. On the other hand, we have 1 that the last I knew was employing 14,000. And another employing about 8,000. So we range through that. And I just cited the case of 1 formerly employed 60 but now employs about 500.

Mr. ALLEN. Mr. Ullman, if I may pursue just a little bit further the inquiry of the gentleman from Indiana, Mr. Grant, with reference to what you think is going to happen in the future, it may not be so relavent, but I wish, if you do not mind, that you would give this committee the benefit of your opinion as to what you think the business outlook for the future, or, say, for the next 10 years is. If you would rather not answer it, it will be all right. But if you are free to discuss it I would like to have your opinion.

Mr. GRANT. I am sure we would all be glad to hear it.

Mr. ULLMAN. The business outlook-I would say from present indications is not too promising. But there are a good many light spots. There are new industries. What the effect of the aviation industry will have on the country is difficult to foretell, but it will be a very profound effect. When you first create a manufacturing capacity that exceeds the automotive industry, then have educated and trained three or four more hundred thousand people to fly they will want to fly and there is going to be a demand for plane travel. So there are changes there.

Mr. ALLEN. Do you foresee the probability that the airplane industry will in the future outstrip the automotive industry in civilian life?

Mr. ULLMAN. I would not say that it will in my time. But I think it has a fair chance to outstrip it, if it is given enough years. No one can forecast or foretell that. That is just a little too far away. But there are many new industries. There is the plastic industry which is in its infancy. There are new products of research all the time. And research is a matter not only of product, but of markets, because every time you have a new product you have new markets.

Mr. ALLEN. What industry would you consider the most promising within the next 10 years?

Mr. ULLMAN. For what? I am trying to get the point of view of your question?

Mr. ALLEN. For financial return?

Mr. GRANT. For investment.

Mr. ULLMAN. Investment, in the final analysis, goes with management and the qualities of management. So that I would not stick my neck out on that one at all.

Mr. ALLEN. Thank you very much, Mr. Ullman.

Mr. HARRIS. Let me ask you this question with respect to the further inquiry of Mr. Grant regarding Industrial Marketing. I received the same letter, I am sure, as the one he received. What is your connection with the publication, Industrial Marketing?

Mr. ULLMAN. My connection is as subscriber and reader and occasionally a contributor.

Mr. HARRIS. You are not affiliated with it at all?

Mr. ULLMAN. No; I have nothing to do with it.

Mr. HARRIS. What is the name of your corporation?

Mr. ULLMAN. The Roland G. E. Ullman Organization.

The CHAIRMAN. Thank you, Mr. Ullman. The next witness on the schedule is Mr. L. R. Garretson, of the Leeds & Northrop Co., of Philadelphia.

Mr. ULLMAN. Unfortunately, he was tied up with defense work. The CHAIRMAN. He is not here?

Mr. ULLMAN. He got tied up last night and he will be tied up until next week.

The CHAIRMAN. Then we will call Mr. Roy B. Prescott.

STATEMENT OF ROY B. PRESCOTT, DIRECTOR OF RESEARCH FOR SALES MANAGEMENT MAGAZINE OF NEW YORK

The CHAIRMAN. Mr. Prescott, you may proceed to tell the committee your name and connections.

Mr. PRESCOTT. My name is Roy B. Prescott. I am sales manager of a magazine that goes to sales executives in New York. I am director of research. I have been in the research field for 25 years, both in the manufacturing end and in the distribution end. I have not had a chance, Mr. Chairman, to prepare notes. I only learned of this affair. And I have no notes. I am talking from my years of experience.

I think there are two problems in this bill. One is your distribution problem, which is the dominant factor in industry today, and the other is manufacturing. Our economic development from the eighties was not a question of what the manufacturer could sell but a question of what he could produce. We were growing at the rate at that time of about 10 or 15 percent every year in the consuming public and the manufacturers had trouble producing what they could sell in a year. In the early twenties the whole thing changed and became a distribution problem, one in which it is fundamentally necessary for the manufacturer to know how much he can sell, what proportion of the market is going to be his and not what he can just arbitrarily set up and produce.

In the early days the motor industry with which I am very familiar used to call the board of directors together the first year and they would say, "Now fellows, we are going to produce 100,000 cars. Last year they produced 50,000. They had no reason for doing it. They just arbitrarily set that figure up. They had doubled it year after year and they just thought they could go on indefinitely. And as a consequence, they oftentimes found themselves the end of the year with one-third of their products in the warehouses and in the hands of the dealers. That is also true of other industries where they had to build up huge inventories because most of you gentlemen remember in 1921 one of the basic problems of distribution was the accumulation of huge inventories in many of the big industries. So your problem of distribution has become one now of primary importance, and I believe that if we had this census every 5 years, both for the manufacturers and for your consuming public, within each of the other years a sampling process and then you could keep all of the data primarily up

to date for all practical purposes and every 5 years have basic landmarks to which you could tie everything to. You see, when you are flying you have to have key points to come to and start from and then you have points along the line that you can always tie into in an intermediary way.

My feeling is, if a census is set up, say if it is current every 5 years, both business and manufacturing, then you have the fundamental basis for a real job.

Mr. TALLE. May I break in at this point?

Mr. PRESCOTT. Yes.

Mr. TALLE. Is it true that the automobile manufacturers solved their problem in 1922 by making a closed car.

Mr. PRESCOTT. Let me answer that to you here. There was a transition there. I started in the automobile industry in 1905. I was a kid out of high school. I went through the whole mill from a grease monkey in a garage to assistant to the president. And in addition, Mr. Congressman, to the use of the closed car that came about by the development of a process which enabled them to make steel bodies at a cost that was commensurate with the selling price. Prior to that and also at that time at the inception of time payments in the early days of the car you had to put the money on the barrel head to get the car. Neither the bank nor a friend would lend you the money if you wanted a car. If it was $1,000, or just whatever the case was, you put it in his lap and then you might have your car. Well, in the twenties they began the time payments up to one-third down and the balance over a period of 12 months. That enabled you to pick up that closed car.

Mr. TALLE. And they got another shot in the arm when the fourwheel brakes became popular in 1924.

Mr. PRESCOTT. Absolutely. I remember when Walter Chrysler came back from Europe, and said, "I have a car now that when you put on the brakes it will slow down in a straight line instead of all over the streets."

It was a big thing, and he was very enthusiastic about it at that time. Well, I feel, gentlemen, that Mr. Ullman who spoke just ahead of me, is selling stuff to manufacturers, just producer goods. In other words, on your sampling process, take the motors industry for example, 8 or 10 counties cover all your car manufacturers. Probably 20 or 30 counties cover most of the parts manufacturers. I think that most of the big basic industries that consume most of the producer goods have a similar set-up. I understand cigarettes are covered in few counties and the steel industry in a few counties.

In other words, you have many industries in which your sampling process can cover 60 or 75 percent of your industries and be covered in comparatively few counties, so that your sampling process every year keeps the data relatively current and up to date. Then with your lines on every 5 years you make a line and get your bearings and go on to another 5 years. And that is the point of the whole bill as I see it after 25 years in this field.

Mr. GRANT. Do I understand you to say that with the 5-year census of manufacturers and of business as proposed by this bill that we are considering, if it were properly kept up to date by the sampling process that it would sufficiently meet the needs of business and of manufacturers?

Mr. PRESCOTT. I believe so. I am fully convinced that it would. In Management every year early in the spring we publish the national income by States and by cities and by counties.

Mr. GRANT. I believe you stated your magazine goes to

Mr. PRESCOTT. About 10,000 sales executives and sales promotion men and advertising men.

Mr. GRANT. Are they men representing what you term "big business"?

Mr. PRESCOTT. They are all through all business.

Mr. GRANT. And might they cover to a considerable extent the same group of the 1,700?

Mr. PRESCOTT. Very probably they might.

Mr. GRANT. Of the National Advertisers Association?

Mr. PRESCOTT. Of businessmen. Sometimes your small businessman thinks he knows the whole story. I have been in places where you go in to talk to a man and you cannot tell him a thing. You have had national experience and he has had a little local experience, but he knows all the answers and you cannot tell him a thing. There is nothing you can do for him.

Mr. GRANT. How long have you had experience in this field?
Mr. PRESCOTT. Twenty-five years.

Mr. GRANT. You feel, on the basis of that experience, that this bill, as proposed, if kept up to date by the sampling process, will do the job? Mr. PRESCOTT. Yes, sir. Very definitely so.

Mr. GRANT. Thank you.

Mr. ALLEN. Would you rather have this situation in this bill, than to have the regular 10-year census of business in general and the 2-year census of manufacturers?

Mr. PRESCOTT. The 2-year census of manufacturers I believe, has been fine. But it is no longer to my mind of primary importance as it used to be when manufacturing was the keynote. Distribution is the keynote today. And after this mess is over in Europe distribution is going to become a more important factor than ever before.

You see, our costs, the manufacturing costs, have been reduced year after year, but the distribution costs in this country have not gone down in proportion and some of our primary costs of what we are paying for goods today, take some of the farm stuff, for instance, the farmer gets his 6 cents and your wife pays 15 or 18 cents for the same commodity. There is a world of a spread in distribution costs and it is not all railroad. It is the broker and other people.

Mr. GRANT. The farmer gets as much for a gallon of milk as the housewife pays for a quart.

Mr. PRESCOTT. Right. The distribution costs is a primary factor. The only way you can break that up is to have the heavy distribution costs cut and the only way you can do that is to have the factors and the information available to do it.

Mr. ALLEN. Let me ask you this. The census of manufacturers which is taken every 2 years enables the man who is producing commodities and the manufacturer of articles to restrict his output and this keeps down competition and thus keeps up the price. Is that true? Mr. PRESCOTT. I think there is an element of that in it.

Mr. ALLEN. Now, if the manufacturing census has that effect, the effect of restricting the output and holding up the price and preventing competition, it would appear that it is to the interest of the ultimate consumer to have as few of these taken as possible.