west-coast people will not put private capital into shipyards unless they have some assurance of a flow of work. So we can take care of that by saying, "We have 2 years' construction ahead."

We can do that very easily. The Navy construction can fill all the yards for a couple of years. And when the situation reaches that point, then the rest of the vessels can be built abroad, thus reducing the Government's bill.

The CHAIRMAN. Built by private capital, for the Government?
Mr. KENNEDY. That is right.

The CHAIRMAN. Do you know of any railroads that would be likely to do that?

Mr. KENNEDY. There are three or four possibilities. Even now, within the last few years there have been some eastern railroads who have interested themselves in the business: The New York Central, the Pennsylvania Railroad, the Baltimore & Ohio all in one way or another own interests in various shipping companies. Some own stock in the Baltimore Mail Line, for instance. It strikes me that we are just juggling balls in the air when we say that, although such a situation as that is all right, still we are not willing to let them participate in the construction of ships-for we might get them in on some basis that would make it attractive for them to take up part of this burden.

The CHAIRMAN. It was said that the Pennsylvania Railroad was interested in the Baltimore Mail Line, I believe.

Mr. KENNEDY. That is right.

The CHAIRMAN. I see. Are there any western railroads that are likely to avail themselves of that situation?

Mr. KENNEDY. The western railroads do have some money.

I rode on that new train of the Union Pacific; and it seems to me if there is any possibility of making some money, they are much more hustling than the people in the East. I went out on the "City of San Francisco." I sat up in the cab with the engineers, and they told me the cost of running the "San Francisco" was less than the cost of water to bring the Santa Fe train out there. It seems to me that people thinking that fast could find some way of helping on the shipping problem.

I am not thinking so much of breaking up any system; I am trying to think of something that will not do us any harm and yet might

save us some money.

The CHAIRMAN. I assume that so far as rates are concerned, you will have something to say, today, so that there will be some saving? Mr. KENNEDY. That is right.

The CHAIRMAN. Do you think, Senator Johnson, there will be serious objection on the part of the railroads?

Senator JOHNSON of California. I am not prepared to say. But, of course, you would run into the old situation of the railroad companies' owning shipping lines, and then rates would be a constant quarrel, I should imagine.

Mr. KENNEDY. As I say, that is merely thrown out as a suggestion; and I hold no brief for the merits or demerits of the case. It is just a suggestion for trying to save some money. We could go to the railroads and say, "On what basis would you be willing to build ships, and how much would you build, and what would you expect to get from it, if you did?"

Then we could bring that statement to the committee, and consider it, before making any public discussion. Perhaps we would find that would not be enough to make it worth while.

The CHAIRMAN. Mr. Kennedy, what is the use of the United States spending millions of dollars for its Navy, without having suitable auxiliaries?

Mr. KENNEDY. I do not think there is any sense in it. Of course, I only know what the Navy says. But basing my statement on what they say, there is no use in spending money for the Navy, unless there are auxiliaries.

The CHAIRMAN. There is no doubt, Admiral Land, that our Navy cannot be efficient unless we have auxiliaries?

Admiral LAND. Not a bit, Senator. This is not a new step; it has been taken up time and time again in the last 9 months, and others have been considering it and have taken it up before. We have tried to get it down to a definite, concrete program, as nearly as can be done, on the basis of an emergency.

The CHAIRMAN. Of course, so far as the American people are concerned, the people would have more interest in spending a half a billion dollars for merchant ships, than spending half a billion dollars for naval ships. Because then those merchant ships would not be like fire engines in reserve; they would be in actual daily use, for the benefit of the people.

Senator CLARK. How many of these ships would you need, Mr. Kennedy?

Mr. KENNEDY. Five hundred ships, making 12 knots, over a period of 10 years.

Now that you are here, Senator Clark, I can address myself to your problem, and that is the inland-waterways situation: If the Government does not take cognizance of the necessity for replacements, you will find inland-water transportation in the same deplorable condition that you find other water transportation in today. Senator CLARK. There is no question about that.

The CHAIRMAN. Mr. Kennedy, can you not bring in the Great Lakes? Are not they in the same situation?

Mr. KENNEDY. Surely they are. Shipping in this country has been neglected for so long that we are really faced with a terrific problem, if we are to do anything.

Senator DONAHEY. I should like to ask Mr. Kennedy a question, please.

Mr. KENNEDY. Yes, sir.

Senator DONAHEY. If it should be the policy of the United States Congress to perfect a merchant marine and increase the expenditures for the Navy, and additional money for preparedness, as I see it, why should not this problem be planned carefully?

Mr. KENNEDY. You are quite right, Senator; it should be.

Seantor DONAHEY. And a tax levy made at the time, to pay for it, so the people of this country would know just what we are planning to do, and that we are going to pay for it as we do it. Isn't that sound?

Mr. KENNEDY. I do not know about the second part of it, Senator; because I have never heard of it until this minute. But the first part, I am with you 100 percent. Because there has never been any planning about this. But we can give you a plan; I will give you

the plan before leaving here, if you wish, because we have it readyand it will give consideration to the inland-waterway problem. The CHAIRMAN. And also the Great Lakes?

Mr. KENNEDY. You are quite right, Senator.

One of our troubles is this: Mr. Mallory, who is a pretty good operator here in the East-I had never met him until I came down. to the Maritime Commission-has done very well. He told me that, although he has been in the business for 25 years, not until the night he read our economic survey did he have any conception of what the subsidized merchant marine was, and that he had been completely confused in his ideas about the rest of it. After all, this fuss that we have been making is over the subsidized ships. And that is the American merchant marine that we have been spending $25,000,000 a year to keep going.

Senator McApoo. That is the American merchant marine in foreign service?

Mr. KENNEDY. Yes. We have never touched the other parts of the industry. I do not know whether we have even watched the other part of it going downhill. But it is going all the time. And in 2 or 3 years, when we look at what we have, people will get so discouraged that they will say, "That is such a nuisance that we just will not have anything to do with it," and they just will not be willing to do anything.

The trouble is that we have never given a thought to where we are going and what we are going to do with each particular phase of the proposition. The country ought to know what it is going to cost. It is going to cost a lot; and if the people do not want to spend it, you gentlemen should not have the responsibility for it.

But the country should know what is needed and what it is going to cost; otherwise someone is going to say, "My God, you have spent 3 or 4 billion dollars, and what have you done with it?" I have had more questions asked me in the last month about what goes on in the subsidized merchant marine because people generally just do not understand what the situation is. After this whole program is explained to them, then if they want to give it up; all right.

The CHAIRMAN. We have built five fast ships. Then how are we going to run them and get maritime labor to operate these ships properly?

Mr. KENNEDY. Well, I am perfectly willing to address myself to that point now.

The CHAIRMAN. As I understand, Mr. Kennedy is going to give us a program and tell us how many ships we need and how much they will cost.

Senator MALONEY. Mr. Chairman, before Mr. Kennedy gets to that, may I ask him whether or not that program contemplates Government operation?

Mr. KENNEDY. I think Government operation is definitely inevitable. To me it is silly to talk about spending this kind of money for naval auxiliaries and talk about private ownership-private ownership that does not have that kind of money. The Government must do it; there is no question about it.

My reason for going on with private ownership under the present act is that there are several private companies that show a willingness

32437--38-pt. 9--

to go along; and I think if you do not give them a chance you are not living up to the spirit of the act.

Senator CLARK. The theory of the act was to give the private operators a chance to operate with that Government subsidy?

Mr. KENNEDY. That is right. I believe the present amendments to the act will forever settle the question of whether they have it. If, under the present amendments, they cannot do it, then they should not be given any further chance. But they can say, if we do not give them that chance, "You are making it very tough for us," and they will go out and make a complaint. But I believe that if private owners, with these amendments, cannot deliver, then I think private ownership is gone in the maritime field.

The CHAIRMAN. What do you think of the Government-ownership situation?

Mr. KENNEDY. There are several private companies operating today, and doing very well, that should be encouraged to go along. But there is not anybody who is going to come along and give us any help at all for the construction of these new types of auxiliary vessels and these various auxiliary ships. You may find it necessary to take a ship here and there and add it as a supplemental ship to a private line, and that should be encouraged. For instance, I do not know where you could get operators as good as the Grace Line operators. I should like to let my money ride on them, because if there is any money to be gotten they will get it.

Senator THOMAS. Mr. Kennedy, would a material increase in the subsidy, and also assistance in construction and operation, tend to obviate in any way the need for Government ownership?

Mr. KENNEDY. Of course, up to a certain point the more subsidy you allow the easier you make it. But I have never been able to get a satisfactory answer to a question that Senator Clark asked me, when he came into my office the first day I was there and said, “I should like to have you tell me why it is we should put up most of the money, and then let somebody else run the ships." I am still looking for an answer.

I believe that when we grant a subsidy now the public is more likely to believe it is a fair deal, but once you have started and when the private operators do not give anything but administration, and that administration is not "tops," then we have gone beyond where we can get any public support for private ownership.

Senator THOMAS of Utah. Have you any suggestion regarding how to put private ownership on a basis where it can operate them?

Mr. KENNEDY. After all, private ownership cannot be successful unless it can interest private capital. And I do not think private capital will go into companies largely dependent on a governmental body to keep them alive. In other words, if you increase the present subsidies and get to the point where you are earning a substantial amount of money on the common stock-say, up to the 10 percent allowed-and suddenly you have a changed Commission or a Congress that decides your judgments on subsidies have been too generous, a change downward is inevitable. As a result, you might change that percentage from 10 percent to virtually nothing, and immediately put a company into financial decadence. And we probably will have a chance to witness that, too.

The CHAIRMAN. We have witnessed it; it is a matter of history. Mr. KENNEDY. Now we are trying to save these people.

In justice to the question of Government ownership, I must say that most of the criticism levied at this merchant marine program and at the terrific waste of money, has not taken into consideration a proper analysis as to what percentage of it Government ownership is responsible for. You are quite likely to say, "There has been 4 billion dollars spent on the American merchant marine, most of which has been wasted," because today you do not have much to show for it. But that is not properly so, because a large part of that money went into the gigantic construction costs which had to be met during the war.

Do not misunderstand me; I am saying this in an effort to make a fair judgment of the thing. I do not want to see it; I am perfectly willing to go on record, any time, against it. I cannot see any sense to it unless you can get a much better type of men, like the experts that W. R. Grace & Co. can hire. The problem we have to give more attention to is that of getting the manpower.

Senator McADOO. May I say just a word at this point? The large part of this 4 billion dollars which we have lost in the American merchant marine, and which you say the public says we have very little to represent, is due to the fact that the American people have not heretofore had what you say is required, because we did not have a single thing in the way of auxiliaries to support the Navy, at the time of the last war, and therefore we had to spend millions of dollars in an attempt to hastily build ships to cross the Atlantic.

The CHAIRMAN. They were just submarine fodder; if they ever made a single trip, that was understood as justification for their cost. of construction.

Senator MCADOo. Nevertheless, we would never have spent all that money if we had maintained that kind of merchant marine that you are now advocating. And I am heartily in favor of it, and think we should wake up and realize the fact.

I just want to say, Mr. Chairman, that when the gentlemen get through, I should like to ask a few questions about the situation.

Senator JOHNSON of California. You speak of the possibility of solving a part of this problem, by the construction abroad of the ships required?

Mr. KENNEDY. Yes, sir.

Senator JOHNSON of California. Do you think that is feasible? Mr. KENNEDY. Construction abroad?

Senator JOHNSON of California. Yes.

Mr. KENNEDY. Yes, sir; very definitely. And we have a provision in this bill that permits it.

Senator JOHNSON of California. Do you think labor would agree to it?

Mr. KENNEDY. I understand labor is definitely against the amendment proposed. But it seems to me we are offering a very great protection now. I think you should determine whether the Government should pay a greater amount than that, to benefit labor. I went into this phase of the question on my first appearance before this committee on December 8, 1937.

Senator VANDENBERG. Do I understand that the Navy takes the position that its present and immediate building program is rela