ALUMINUM INDUSTRY

TUESDAY, MAY 17, 1955

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE No. 3 OF THE SELECT COMMITTEE

TO CONDUCT A STUDY AND INVESTIGATION

OF THE PROBLEMS OF SMALL BUSINESS,

Washington, D. C.

The subcommittee met, pursuant to notice, at 10: 10 a. m., in room 362, House Office Building, Washington, D. C., Hon. Sidney R. Yates (chairman of the subcommittee) presiding.

Present: Representatives Yates, Steed, and Sheehan.

Also present: George L. Arnold, Irving Maness, subcommittee counsel; Katherine C. Blackburn, Clarence D. Everett, staff members; and Victor P. Dalmas, assistant to minority members.

Mr. YATES. The hearings will come to order. These are hearings conducted by Subcommittee No. 3 of the House Select Committee on Small Business.

Subcommittee No. 3 of the House Select Committee on Small Business of which the Honorable Tom Steed, of Oklahoma, the Honorable Timothy P. Sheehan, of Illinois, and myself as chairman, are members, has been given the responsibility of studying and investigating the problems of small business in the field of minerals and raw materials.

We are holding these hearings because of the complaints received from small-business men in the aluminum industry that they cannot obtain the raw materials needed for fabricating. They protest against the unfair action of the primary producers of aluminum in retaining their product for their own use after satisfying the requirements of the stockpile.

Whether the complaints are justified we do not yet know. We do know, however, that the problem posed is one of the most important in our free enterprise economy today-the problem of competition by the small independent business with the fully integrated company which almost completely dominates its industry from the production of raw material to its final sale as an end product to the consumer. It appears that in the aluminum industry the primary producers are engaged also in fabricating aluminum products. Small independent fabricators with whom they are in competition, are dependent upon them for their supply of the raw material they need for fabricating purposes.

The demands of national security and the cold war appear to have aggravated this problem severely. On one hand, defense set-asides and the stockpile take a vast amount of strategic aluminum. On the

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other, the exports of scrap aluminum to non-Communist countries have increased enormously.

In this respect, nonintegrated users assert that they are required to bear a disproportionate share of the defense burden because the producers who control the supply of raw material can and do satisfy their own competitive wants first from the inadequate supply remaining after meeting defense requirements. Some of the complainants state that unless they obtain immediate relief they will be forced to close their plants.

Over the years, aluminum production has lagged behind actual and potential demand. In 1937 the Department of Justice filed an antitrust action against Alcoa for the purpose of eliminating monopolistic practices in the aluminum industry and to promote conditions which would protect both small-business men and consumers from undue exploitation.

For the same purpose, the war surplus aluminum plants were disposed of to Reynolds and Kaiser in 1946 in order to add additional competitors to the field and to assure an adequate supply of raw material being furnished to independent fabricators. The Korean war provoked the so-called first and second rounds of expansion in the aluminum industry which were designed to assure a sufficient quantity of the vital metal to American industry. Despite these actions, there are many who question whether the aluminum industry can presently be termed truly competitive and geared to furnish the Nation's aluminum requirements.

Initially our hearings will be primarily concerned with the nature, extent, and reasons for the present aluminum shortage, and the adequacy or inadequacy of steps taken by the Department of Commerce, the Office of Defense Mobilization, and the General Services Administration to assure that nonintegrated users of aluminum receive adequate raw material at a fair price.

Questions with which the subcommittee will be concerned in the course of the hearings are:

(1) Whether a new expansion program should be encouraged to provide adequate aluminum for nonintegrated users and to bring new primary producers into the industry;

(2) Whether it should be recommended to the Department of Justice that the United States district court be moved to continue to retain its jurisdiction over Alcoa, which would otherwise expire in January 1956;

(3) Whether there can be a more vigorous enforcement of the contractual rights on behalf of small business by the Government under the Government's expansion contracts with the present primary producers;

(4) Whether the executive departments of the Government, such as BDSA, the Office of Export Supply, both of the Department of Commerce, and ODM follow policies which penalize and retard small business while advancing the interests and position of big business in the field of raw materials such as aluminum;

(5) Steps necessary to give immediate relief to non-integrated

users.

The first part of our hearings will be concluded on May 24, 1955, when the subcommittee will recess to receive and analyze statistics and

other materials from the primary producers and the Government. The hearings will then be reconvened at a date which we estimate to be approximately the middle of June.

The first witness to appear before our committee will be the Honorable Donald L. O'Toole, who is the director of commerce and industry of the State of New York.

Mr. O'Toole, we will be glad to receive any statement that you have to offer.

STATEMENT OF HON. DONALD L. O'TOOLE, DIRECTOR OF COMMERCE AND INDUSTRY, NEW YORK STATE

Mr. O'TOOLE. Mr. Chairman and members of the committee, we have no statement.

Mr. YATES. Let me state, speaking personally on my own behalf, and I am sure I speak for Mr. Steed and Mr. Sheehan, the pleasure that we have in again welcoming you back to Capitol Hill. We enjoyed very much our association with you during the previous Congress, and we are glad to see you back at this time as a witness.

Mr. O'TOOLE. I thank you for your gracious remarks.

The Department of Commerce and Industry of the State of New York is interested in the question before this committee, as a result of numerous telegrams, telephone calls, and other complaints that we have received from hundreds of our small industrialists in the State of New York.

Most people when they think of New York think in terms of magnitude, but truthfully in New York we have very small-large business. We have the General Electric and the Western Electric, but the economy of our State is founded princially on the efforts and the energy of hundreds and thousands of small-business men. Our smallbusiness men, as I said before, who find aluminum necessary for the progress of their business are protesting. I can cite one instance.

In the town of Ellenville, a city of less than 10,000 people, just a few years ago, 1948, several brothers got together and started what is known as Channel Master, Inc. Since 1948 they have built this business from nothing up to a point where they employed as many as 1,700 people.

The whole countryside and the town itself is dependent on the economic prosperity of that concern, but today Channel Master, together with hundreds of others of our manufacturers, find that they cannot continue. In the case of Channel Master, because of a lack of aluminum, it has been necessary to reduce the force to 750 people. If the situation continues, it will be necessary for them to close down and for many others to close down.

Our department is interested in business, whether it is big or small, but we must take things in New York as we find them. We must take cognizance of the fact that it is the small-business men and the small industrialists who are responsible for the prosperity of the State.

The Governor, the department of commerce, and myself, do not feel that the present system is a just or equitable one. We feel that the Big Three has entirely too much to say, not only in the distribution of aluminum, but they have too much to say, by their control of aluminum, in the success and the prosperity of these smaller men.

The Department of Commerce of the State of New York is cognizant of the many fine things that the Commitee on Small Business has done. We realize your intelligent approach has done much to create prosperity not only in New York, but in the other 47 States, and we are very, very happy that this subcommittee and the committee itself is taking cognizance of the plight in which these small independents find themselves.

We do think that there is a tendency today toward big business. We not not charge that it is political. We think it is something that came with the times. And it is our sincere hope that this committee, as a result of deliberations and findings, will take positive steps to alleviate the conditions that are existing in all of the States affecting these people who are in the aluminum busines.

I thank you.

Mr. YATES. Thank you for your statement, Mr. O'Toole. Do you have any questions?

Mr. STEED. The type of material that your small plants are unable to get, do you have any information as to the nature of it? At what stage of its processing do most of them use it?

Mr. O'TOOLE. Mr. Steed, we have at the present time a great number of concerns in the State of New York who have not been able to get anything for their third and fourth quarters to produce the articles that they are making.

We do not know what the solution is, but we, to use the old catch phrase, say that we do face it with alarm. We are concerned about it. I believe Mr. Flemming is holding hearings on the 20th.

I have not elaborated-I have not gone into the reasons for this shortage, because I think Senator Murray in the Record of May 3, on page 4625, elaborates at great length. I know that the entire committee has taken cognizance of this.

Mr. STEED. What I was getting at was this-I suppose you call it pig aluminum-is it the pig aluminum supply that is short, or whether at some stages of processing certain types of material, like bar and sheet aluminum, something of that sort is hard to get.

Do you have any information as to whether or not it is a general shortage, or is it in some specific field of processing?

Mr. O'TOOLE. We find, as far as our independents are concerned, the small men, there is a terrific shortage all over the State. It is a dangerous shortage. It is dangerous, also, as far as its political philosophy is concerned, because these small independents produce many things that are in direct competition with the Big Three, and the Big Three seem to have a hold on the entire production and how it shall be distributed, whether that control is direct or indirect.

We are finding-we have been advised-and when I say "we," I mean the small-business men-to go out and buy in foreign markets, but we find that the prices there are 4 and 5 cents a pound higher. And the competition is so keen that the small man cannot go into that market. He cannot go in because of the price differential. He cannot go in because he has not the credit, nor the facilities to engage in a foreign market.

Mr. STEED. Thank you. That is all.

Mr. YATES. Mr. Sheehan?

Mr. SHEEHAN. Mr. O'Toole, you state that the Big Three seem to have a hold on this situation. I understand that one of the main pur