(The prepared statement of Mr. Anderson is as follows:) STATEMENT OF DEWEY ANDERSON, DIRECTOR, PUBLIC AFFAIRS INSTITUTE Why these hearings? THE ALUMINUM SHORTAGE It is my understanding that these hearings have been called because of complaints made to the committee by aluminum fabricators who have been adversely affected by the current aluminum shortage. They believe that in the recently announced deferral of 150 million pounds of metal for the stockpile the Government has a responsibility to insure its distribution among users in such a manner as will best serve the national interest. That so far as can be determined at this writing the method used in the distribution of this metal has not been made known. Because in effect this is "Government metal," its distribution should be fair to everyone concerned. It should be distributed so as to insure the utmost stability and growth in an industry whose present plight is in no small degree caused by the Government itself. For the current shortage is the result of the Government's establishment of the defense stockpile and expanding the use of aluminum for a wide variety of defense items. A first responsibility, therefore, is to get the facts and shape a directive for administrative action to distribute the 150 million pounds of metal now available-metal which otherwise would go into the defense stockpile during the first half of this calendar year. But there is a second objective of these hearings, inseparable from the first in my view. That is the inescapable responsibility of the Federal Government to face up to the necessity now of insuring the raw material needs for the foreseeable future both of national defense and of a stable, growing industry which is just now entering its great period of civilian expansion. Unfortunately this expansion is occurring at the same time as the Government faces a continuing need for vast amounts of aluminum for defense purposes. The right solution of the distribution problem now confronting this committee is only the immediate decision to be made. Tomorrow there follows the need to determine what is to be done for the two quarters after next June 30, 6 months in which the shortage problem is likely to become even more aggravated than it has been during these past 6 months. The nature of the aluminum industry is such that it is impossible to increase the supply of metal substantially without a great deal of time-consuming forward planning, both on the part of private industry and the Government. For even after all the kinks are taken out and the plans are blueprinted, it takes 2 years or more to get production of metal. For the making of aluminum requires large amounts of capital investment, years of planning and construction of plants, and the fitting together of mining and processing of raw materials largely obtained from foreign countries, a specialized transportation system, and substantial amounts of low-cost electric energy. Since that period of the infancy of the aluminum industry prior to World War II, no substantial increase in domestic productive capacity has occurred without the inducement coming from the Government. In World War II, the Government invested some $739 millions of taxpayers' money in plants that doubled the capacity of the alminum industry. But despite the unexpected good times following the war, because of the uneconomic character of many of the war-built plants, aluminum production fell off almost a fourth by 1950. Then, another defense crisis confronted us, and a new Government aluminum program was launched. How the Government has faced its responsibility Aluminum is strategic in defense. It makes fighter and transport planes possible. It is needed in the making of atomic weapons. It makes air, land, and sea forces faster, their striking power greater, their carrying capacity larger, their range wider, their maneuverability more flexible, their chances of saving lives through the shortening of the time of deadly conflicts and the defense of civilians much greater than was ever possible through the use of traditional war materials which aluminum replaces. Small wonder, then, that the Government was dismayed to learn that the adequate aluminum plant which it had built for World War II purposes was partially dismantled, and that the civilian demands for the metal had so expanded that any procurement for increased defense uses, and for stockpiling purposes, would disrupt the industry. Stuart Symington, then heard of the National Security Resources Board, announced in October 1950, a defense "target" of a million tons (2 billion pounds) additional aluminum capacity to meet the defense needs of the Nation. As I have written in my 1951 study Aluminum for Defense and Prosperity: "Symington's target still stands. *** Yet it was only natural that the three private producers of aluminum, Alcoa, Reynolds, and Kaiser should be greatly concerned over this proposal of the Government to more than double the aluminum making capacity of the country. It raised important questions. Who would own and operate the new plants; what effect would there be on private investments in the industry, etc. "If war occurred, that would probably justify Symington's expansion target. But what if no war happened and we built up such capacity; would it not be overbuilt in terms of civilian demand? The Big Three had only to look back to a business recession that for some months in 1948-49 piled up metal and causedcostly shutdowns of plants to shudder at the prospect facing them of doubling the capacity to produce aluminum in completely modern plants built at some considerable Government subsidy. **"The conservative view prevailed, however. The target remained, but it was phased. *** The first phase, of half a million tons was to go forward. The second phase was to await developments on the world front. "Instead of the Government building and operating plants directly, * * * the plan this time was to induce private companies to expand and new companies to come in. The inducements took the form of (1) accelerated amortization so that the plants could be paid off in considerable part through tax relief; (2) firm long-term guaranties to purchase metal: (3) guaranteeing of loans required for expansion because it was apparent that this sudden great increase in aluminum capacity made private financing difficult, and (4) assistance and priorities in securing needed construction materials." As finally worked out, the Government established a dual policy respecting the new defense-built plants. It was apparent that if the Government was to grant such special inducements to prospective makers of metal, in turn these companies might be expected to insure a proportion of their output being placed at the disposal of the small and independent businesses which were completely dependent on these large aluminum makers for their raw material. The independents assumed that the contracts assured them a third of the total production of the Government-induced expansion, a third going to the defense stockpile, and a third being consumed directly by the Big Three in their fabricating facilities. The contracts under which these arrangements were to be effected have been subjected to various interpretations, and the actual distribution of the production from these new facilities might well be studied by this committee to ascertain what the real meaning and accomplishment has been of these guaranteed purchase contracts. In this connection I have read a letter sent April 1, 1955, to Arthur S. Flemming, Director of the Office of Defense Mobilization, by Senator James E. Murray of Montana, which presents certain data bearing on the production and distribution of metal from these new facilities, and raises certain questions that need answering if we are to obtain a clear picture of what has taken place. The letter is available to the committee as Senator Murray has caused it to be placed in the Congressional Record of May 3, 1955. While the new defense program got started rather slowly it developed that no new producers would qualify. The first phase was allotted to the Big Three; a second round was called for and for a time it appeared that a newcomer, Harvey, would get underway but the going got too rough and his allocation was taken over by Anaconda in Montana, whose new plant is scheduled to produce metal this summer. So, no new major competition was infused into the industry by the Government-induced expansion effort, and only one new producer appeared, who was motivated by his need for the metal as a part of his giant copper operations. It was apparent by the spring of 1952 that the expansion program was not going to reach the Symington target. Samuel Anderson, then in charge of the program for the Defense Production Administration, and later a distinguished Assistant Secretary of Commerce, valiantly tried to get the Government and the Congress to face up to the need of more aluminum both for defense and the expanding civilian economy. To that end he proposed in April 1952 an expansion program which would add another 140,000 tons capacity within the United States to come if possible from new producers, and a commitment from the Aluminum Company of Canada. This latter was to take the form of a firm offer on the part of the Canadian company to ship us not less than 300,000 tons of aluminum a year for the 5 years 1955-59, provided that if for any reason this metal could not be disposed of to American users the Government would be obligated to purchase up to not over half the total amount at the then current price. Mr. Anderson's attempt to establish this program was opposed in the Congress by a majority of the Joint Committee on Defense Production, which issued a progress report No. 20 on June 30, 1952, that questioned "whether the Alcan contract could ever be of any real benefit to us, and it is certain that it would be of little, if any, during the years 1952-54 which are the crucial ones with respect to the defense program. It is therefore desirable that the United States wait to see how the situation develops and should it prove necessary next year encourage the building of domestic plants" (p. 15). The congressional report just referred to aroused opposition in some important quarters. Congressman Emanuel Celler, chairman of the Judiciary Committee of the House of Representatives, whose committee had conducted prolonged hearings on the subject of aluminum for defense and civilian uses early in 1951, published an analysis of the report in a document titled "The Aluminum Program." He summarized, "If these conclusions (of the joint committee) are allowed to stand, if they are taken as a statement of policy to be followed by the defense agencies of this Government, it is my deep conviction that we will not have sufficient aluminum for full defense in time and provided under such conditions as will increase the area of healthy competition in the industry” (p. 4). Well, the conclusions were allowed to stand, and the results are to unfold before this committee during its hearings on acutely felt shortages of aluminum, just 3 short years thereafter. Is the shortage of metal real-Will it continue? The aluminum industry is subject to the ups and downs characteristic of business generally, which means that while it has its own particular internal structure and relationships to the market, nonetheless, the prosperity and recession which manifest themselves in the general economy determine in large measure the demand for aluminum and its products. Thus, during the early part of 1954 a combination of circumstances resulted in less demand for metal than was currently produced, and it was at this time that wary businessmen drew down on their inventories, while major producers, needing cash, sold more than usual to the defense stockpile. This was a contributing factor helping to create the present shortage. Even as late as 2 months ago, a major producer was avowing that the shortage really didn't exist, that the real demand of his customers could be taken care of. The assumption behind this was that real demand is the genuine need for metal, rather than speculative or inventory buying. Looking at the recent past, primary domestic production for the 9 months ending last January dipped below 250 million pounds in only 3 months, with January hitting an all-time high of 256 million pounds. Scrap recovery added 50 million, and imports another 40 million-a total of 340 million pounds on the average. Yet despite the all-time high production of 2.9 billion pounds of primary aluminum last year, the amount of primary used exceeded production in each of the last 5 months of 1954 by from a low of 5 percent to a high of 17 percent. No one has the figures to show how much of this metal went into real demand, or how much went into inventories. But if this last half year trend continues, and even if we take the lowest figure of excess of use over production of 5 percent, the stocks of primary aluminum at reduction plants will be completely wiped out within a few months, and deliveries will be on a current production basis entirely. That is a hand-to-mouth condition that spells turmoil and hardship in an industry of the size and complexity of the aluminum industry. Arthur S. Flemming, Director of the Office of Defense Mobilization, has written the Committee on Ways and Means of the House of Representatives on April 14, 1955, on this subject, as follows: "As you know, the national defense demand for aluminum, including the requirements of the stockpile, is very high. Largely because of that fact it is expected that aluminum supply over the next several years will be short of demand." In the following table are presented the figures from the Bureau of Mines on aluminum available for United States users in recent years: TABLE I.-Estimate of total United States use 1 Bureau of Mines printed report, Aluminum 1950, p. 1. This set of figures has the value of showing the metal available for our use. Reading vertically, you will note that once the defense effort got underway total metal used increased, with a notable rise in 1953. While much of this expansion is induced by Government defense and stockpile needs, it must be remembered that this period represents a generally prosperous economic era. I have made a projection of several factors which are at work in the economy in an effort to ascertain what the prospective aluminum situation is likely to be. This took into account the changes assumed for the future in gross national product based on 1953 dollars and the index of industrial production. It appears that by 1960 aluminum shipments should rise from the 1954 level of 1,349,000 tons--this is net shipments of producers of aluminum and includes some amount of defense end uses-to a probable 2,221,000 tons. This gain of 872,000 tons of metal in the next 5 years sets some significant directions to our thinking, for it says that strictly in terms of present patterns of usage, as reflected by the measures of economic progress-gross national product and the index of industrial production-we can expect to see the amount of aluminum used increase sharply. What about expansion prospects in the industry during these next several years? I am not privy to the precise plans of the several companies, but common knowledge in the industry offers no indication that any such total expansion of tonnage is either in sight or on any drafting boards. That unless drastic changes occur in the making of aluminum there is no such supply of low-cost electricity yet to be made available within the United States to produce anything like this tonnage of metal. For, as is commonly known, aluminum is in considerable measure stored electricity, it taking about 10 kilowatt-hours for every pound of metal produced. This statistical measure may well fall far short of the aluminum actually required during the next 5 years if the stockpile take continues for new bulk uses of the metal are only now coming into being. I cite, in passing, housing, roads and bridges, airfields, containers and packaging, wire and fencing, irrigation systems, electrical appliances-and possibly a drastic redesigning of the automobile, which could revolutionize the demand for aluminum during the next several years. But the pressure now being exerted on our supply is the defense stockpile, to which I now turn my attention. Why the stockpile; what is it; how is it managed; what are its effects? In discussing the aluminum question away back in April 1952, the man in charge of the aluminum defense program hazarded some guesses concerning the need for aluminum for war purposes should such an unhappy circumstance strike us again. He presumed that we would need for war and bare essential civilian uses between 2 million ad 2,500,000 tons of aluminum a year. That such a demand might not be felt for a year or so after the war got underway. But this gives us some indication of the forward planning it would be desirable to have done to meet such a catastrophe. Even with all our present expanded capacity, we do not have the ability to meet this level. But back in 1952 we not only had considerably less capacity to produce metal than today, we likewise had no stockpile of metal for defense use. Then it was thought that through some expansion in capacity and because of the expectation that the then existing production might exceed demand for civilian use for a while, we could accumulate a defense stockpile without unduly hampering the stability and growth of the civilian industry. It is important to understand the nature of a stockpile of aluminum. Aluminum represents stored electricity. In case of war one of the most serious bottlenecks in its successful prosecution becomes a shortage of electric energy. So any accumulation of kilowatts in the form of nondeteriorating aluminum in the stockpile is just so much to our advantage. Also because of our dependence on foreign countries for most of the bauxite from which aluminum is made, stockpiling it in peacetime means that no matter if the sea lanes are clogged, the first essential military items made of aluminum can come off the assembly line. Another principal reason advanced for the accumulation of a stockpile is that by so doing great dislocation in the civilian aluminum industry can be avoided and a transition period provided during which adjustment can be made. For all these reasons, once it was established that we must be prepared for any unforeseen aggression, the entire aluminum industry agreed that the Government should have a stockpile of metal. The disputes then arose as to the method of obtaining the metal, how big the stockpile should be, how it should be managed and for how long would the Government take metal into the stockpile. These questions are still unanswered. Consequently, the stockpile hangs like an ominous cloud over the aluminum industry. At this time, when because the entire economy is expanding rapidly, and because of new uses aluminum products are in such demand, with several thousand independent fabricators and end-product makers anxious to grow with the country, the stockpile prevents their growth. This is not true of any other major industry in the Nation. In my judgment, had different policies been adopted 3 years ago when offered by the Defense Production Administration, there would have been metal available, both for stockpiling purposes and for normal growth in the civilian part of the industry. I point this out not to cry over spilt milk, nor to seek any culprit guilty of such costly bad judgment, but because we now stand at the threshold of the future. Unless we answer the yet unanswered original questions and make certain that the stockpile will be properly managed now, it can continue to do much harm to the industry. For, without seeking to invade any defense secrets, I am certain that there is a very large amount of metal in the stockpile already, and it is being accumulated at a substantial tonnage every quarter. It would not surprise me if the stockpile take had an impact that would be represented by some such figure as a fourth or more of the total tonnage currently being produced. When the aluminum defense chief speculated on the subject of an adequate stockpile back in 1952, he talked in terms of about a 2-year emergency amount of aluminum for certain uses, or some 21⁄2 million tons of metal. I hazard the guess that we have not as yet reached that goal by a considerable amount, and that if this still remains an approximate goal we are scheduled to face the problem of Government accumulation of aluminum for several years to come. But the stockpile must not be regarded as a Government-operated commodity bank, as is apt to be the case if continued pressure exterted on the Government is successful in causing deferrals of the stockpile take if and when shortages of supply become acute in the civilian sector of the economy. For if this happens repeatedly it will not be long before the Government will become a buffer in the industry, and along with such a role will come some type of controls over the actions of the industry which will have to be established to insure fair treatment for everybody concerned. Such controls in peacetime are abhorrent to every free enterpriser. It may be timely to reconsider at the topmost level the size and rate of accumulation of the aluminum stockpile as the world political situation is reconsidered. For much has happened since the stockpile was started. It could be that a longer period of time would be safe, and that a lesser amount of metal could be taken regularly by the Government, thereby allowing a larger amount to enter the civilian economy. Such a decision, if possible and proper, is far preferable to the spasmodic, emergency treatment the industry is undergoing now. But should this happen, the obligation rests on the Government to insure the right policies of distribution and a proper policing of these policies. |