Termination and that he allow an interim of at least 30 days before bringing those findings to the attention of Congress.

Senator MURRAY. I made that suggestion to the New York Association.

Mr. DREFS. Maybe that is where I heard of it. I think that is going in the right direction. If we have the compromise it might be

necessary.

All other provisions are helpful. Section 17, "Validating informal contracts," is necessary.

The permission to use microphotographs of records as provided by section 19 will enormously reduce file space.

Regarding severance pay to workers, it must be pointed out in this statement that it would be impossible to allocate severance pay to any particular contract and that it might tend to promote fraud. Therefore, we oppose inclusion of this subject in the bill.

We suggest that section 20 (a) of S. 1718 be stricken from the bill because apparently this section destroys all other provisions of the bill. There is grave danger of misinterpretation of this section.

Mr. GROSS. Mr. Drefs, you are referring, are you not, to the amendment in the George committee recommendation?

Mr. DREFS. That is right.

Senator MURRAY. That is not in the bill.

Mr. DREFS. That is in this draft of it.

Senator MURRAY. It is to go in.

Mr. DREFS. Yes; I think that should be closely scrutinized because that seems to me to say that-it says that the contracting agency shall have authority, notwithstanding any other provisions of law, first, to make any contract necessary and appropriate to carry out the provisions of this act; second, to amend by agreement any existing contract, either before or after notice of its termination on such terms and under such circumstances as it deems proper.

Now, I am not a lawyer, but it seems to me that that does something to this bill that ought to be corrected.

Mr. GROSS. It is open to the interpretation, is it not, that settlements may be negotiated upon such terms as each contracting agency wants without any reference to the Director of Contract Settlements. Mr. DREFS. That is right. I think that should be corrected. Senator MURRAY. We are glad to have your comments on it. Mr. DREFS. In conclusion, industry wants this bill passed promptly with such amendments as this statement suggests. Industry wants fair, prompt, final settlement of its claims, with the right of appeal. It wants prompt plant clearance so that it can reduce the time of reconversion to a minimum. It wants fraud cases reduced to a minimum by making the fraud penalties severe. Thanks very much for your attention, Senator, and your time.

Senator MURRAY. The hearing will now adjourn until tomorrow morning at 10:30, when we will expect to have Maury Maverick here. (Whereupon, at 12: 45, an adjournment until 10: 30 a. m., Thursday, April 20, 1944, was taken.)

(The following was submitted by Mr. Kefauver:)

STATEMENT OF HON. MAURY MAVERICK BEFORE WAR CONTRACTS SUBCOMMITTEE OF SENATE MILITARY AFFAIRS COMMITTEE

PROBLEMS OF MOBILIZATION AND DEMOBILIZATION

UNITED STATES SENATE,

WAR CONTRACTS SUBCOMMITTEE OF THE

COMMITTEE ON MILITARY AFFAIRS,

Washington, D. C., Thursday, April 20, 1944.

The subcommittee met at 10:30 a. m., pursuant to adjournment, in room 357, Senate Office Building, Senator James E. Murray (chairman) presiding.

Present: Senators Murray and Truman; and Representatives Kefauver and Gwynne, members, Committee on the Judiciary of the House of Representatives.

Senator MURRAY. The hearing will come to order.

We have with us again the members of the House Judiciary Committee, who will participate in these hearings during the balance of the hearings. I also anticipate some other members of the committee, of the Contracts Committee, will be here, but they may be a little late in arriving.

Today we are privileged in hearing from two groups which have a very profound interest in what may be done in the way of legislation in setting up of a top war mobilization and post-war adjustment program.

The first witness will be Mr. Maury Maverick, Chairman, Smaller War Plants Corporation.

Mr. Maverick.

STATEMENT OF MAURY MAVERICK, VICE CHAIRMAN, WAR PRODUCTION BOARD, AND CHAIRMAN, SMALLER WAR PLANTS CORPORATION

Mr. MAVERICK. Mr. Chairman and gentlemen of the committee, the small manufacturers and the small businesses of this country are in trouble. Under law enacted by Congress, the small plant is in actual fact represented by the Smaller War Plants Corporation. It is my honor to serve as the Chairman of this Corporation.

Therefore, I appear before you as their representative. In preparing this statement we have made extensive studies and have had many interviews. Thus, what I present is not merely a collection of my own personal views.

We all know the facts show that the small manufacturers of the country were discriminated against by force of circumstances as well as by the thoughtless actions of some procurement officials at the beginning of the war effort. All of us are anxious to see that no further discriminations occur and to adopt every possible practical measure

156

to protect the small concerns of the country during the termination and readjustment period. In preparing this statement I have tried to deal with concrete problems and to make practical suggestions.

LITTLE BUSINESS IN DANGER; SUBCONTRACTORS MUST BE PROTECTED Before entering upon this detailed statement, let me present a few general observations which may be helpful in clarifying the situation. First, I think it may fairly be said that the system of controls, restraints, and restrictions which have been made necessary by the pressures of war should be relaxed at the earliest possible opportunity consistent with orderly transition to peace.

Second, in the difficult and turbulent times ahead, unless we are extremely careful both in our legislation and administration, we are apt to visit the severest punishment upon the small business in this country.

The two or three thousand dominant units of industry will have very little difficulty in surviving the turbulent period ahead in post-war readjustment. But the severest punishment and the real difficulties will beset the tens of thousands of small concerns. That will be true whether it is contract termination, contract settlements, disposal of surpluses, reconversion to peacetime production, or preservation of their competitive positions.

Third, suggestions have been made that all surpluses be withheld from the market. I wish to condemn any such policy which tends to withhold such surpluses from the present hungry market and leave them hanging over the future. Small business can use much of these surpluses now, to the benefit of our economy.

Holding up small plants from reconversion opens invitation to disaster. The notion voiced by some people that small concerns should be barred from entering civilian production-even when people need the goods and the production is not harmful to the war effort-and all for fear that they will gain a competitive advantage over their bigger competitors, points the road to ruin of small business in this country. Carried to its logical conclusion, it means that small business must stagnate and mark time and the people do without, so the big producers can prepare to go into civilian production. Such a policy, in my judgment, would be an open invitation to economic disaster.

I urge upon your committee that a plant employing 5,000 people in any community, especially in a tight labor area, is apt to aggravate the labor situation if permitted to resume civilian production. Contrasted with that, a plant employing 50 or 100 people lends itself ideally to a flexible process of gradual conversion to peacetime production. If numbers of small businesses are thus permitted to resume, they will open a ready market for available surpluses. And we can literally save the business lives of many thousands of smaller plants. Senator MURRAY. I understand that there has been a recent directive issued by the Production Executive Committee, affecting what is known as labor I and labor II areas. It does not allow any increase in production of nonmilitary goods above the level of the first quarter of the

year.

In your opinion, will that affect the small business in these areas? Mr. MAVERICK. Have you got a copy of it there, Senator? Senator MURRAY. I have.

99189-44- -11

Mr. MAVERICK. Thank you, Senator. Let me read from it. This one that you have here is known as staff memorandum No. 42, issued by Mr. L. R. Boulware, Director of Operations of the War Production Board. I would like to quote from it. It says, under 1:

Producers located in a group I labor area shall under no conditions be authorized to produce items for civilian use at a rate greater than that authorized, or actually produced, whichever is lower, during the first quarter of 1944.

2. No producèr located in a group II labor area shall be authorized to produce such items at a rate greater than that authorized, or actually produced, whichever is lower, during the first quarter of 1944, unless specific exemption has been made by the operations vice chairman. Such an exception will be granted only under some unusual circumstances not now foreseen, and only then when it is clear that no interference with military production can possibly result.

Also:

The foregoing applies to the handling of appeals to all plants located in group I and II labor areas, regardless of size.

STAFF MEMO 42 STRIKES LITTLE BUSINESS DOWN; NO APPEAL

I would like to say here that this has a direct effect upon the small plant in America. It means that they have no right of appeal. I see no good reason why small plants should be expendable. They have no backlogs to amount to anything. Furthermore, cut-backs affect them primarily and substantially.

I find that, according to our official records, the orders in small plants, the total of unfilled orders, have decreased 36 percent between September 1943 and February 1944. This is due to a very large extent to the prime contractors pulling in contracts from the little ones. is also due to the tendency of the armed forces to concentrate their orders even further in a few large producers, as the pressure to use all available facilities declines.

It

Senator MURRAY. In other words, they undertake to do the work themselves which formerly they contracted out.

Mr. MAVERICK. Which formerly they contracted out, and cut-backs are mass cut-backs on a big scale, and it affects the little ones first of all. It hits them right square in the eye.

I want to say, if no nonmilitary production is allowed, and this staff order in effect does so-well, it makes it so that if they are cut back, in effect, they can have no production at all, since they have little hope of getting military orders.

NONMILITARY PRODUCTION ALSO ELIMINATED; BANKRUPTCY LIKELY Senator MURRAY. No civilian production.

Mr. MAVERICK. Well, nonmilitary production. I will explain that later on. It cuts back even what was formerly important nonmilitary production. The heading of the memorandum reads: "Labor area restrictions applicable to approved programs covering resumed or increased production of nonmilitary items." If we have no production, military or nonmilitary, in small plants, it is obviously going to force widespread bankruptcies over the country.

It will, in effect, dry up those hundreds and thousands of small plants. That is because when a plant is taken out the people go away and the management disperses-the whole plant just dries up. In my opinion, it is detrimental to the military effort of this country.

It doesn't represent a careful use of judgment applied to the problem. The problem should be dealt with on the basis of specific plants in specific areas. Instead of looking into the effects of an increase in nonmilitary production in specific plants and areas-which duty the W. P. B. and W. M. C. should assume if war production really is imperiled by a lack of labor-the W. P. B. issues a one-page rule which doesn't apply, and won't work. Actually the W. P. B. should investigate those plants which have been authorized to increase their nonmilitary production, and apply this order only to those particular plants where such an increase would hurt war production. Otherwise the W. P. B. is penalizing and needlessly injuring the plants where increased nonmilitary output would not hurt the war effort.

Not so long ago steel was awfully tight. But did anybody suggest that no steel at all should go to nonmilitary programs? Of course not; neither the Army nor the Navy ever made such a suggestion. Everyone recognized that a certain amount had to go to nonmilitary programs for the success of the war effort.

Now that they say labor is tight, they adopt a type of procedure which no one ever suggested when materials were tight.

The real difference is this: The materials problem was worked out in a detailed program-by-program, plant-by-plant basis, involving a lot of work. Now that labor is supposed to be tight, they merely issue an ill-digested 1-page rule which is impossible of administration, and which cuts little plants down like they were attacked with a national prairie fire-it burns them down and scatters the ashes.

In other words, suppose the Army wants them to go back into some of these plants. But no; the plant has been cut back and closed and the people are gone from producing useful goods. It is going to be very difficult to get them back. So it is, in my opinion, a bad thing, bad for the Army and Navy.

MEMO 42 NULLIFIES WILL OF CONGRESS

I believe also that memorandum No. 42 nullified the will of Congress that the facilities of small plants should be mobilized. Operations Memo 42 is not carefully worked out; it is too drastic, and is harmful to the economy of the country and war production itself.

It will interest you to know, however, that I talked with Mr. Donald Nelson, Chairman of the War Production Board, yesterday and he said it is going to be amended, that something is going to be done about it. As you know, this was done in his absence.

It has been found that when plants close down, a considerable proportion of the workers affected simply "evaporate." They do not all go to war jobs by any means. The war jobs are often miles away, and the transportation and housing facilities are often inadequate, to say the least. Women go back to their homes. Many of the displaced workers take jobs in services or trades which are much less essential than the authorized nonmilitary programs which are curtailed by this order. They drift into occupations like beauty-parlor operators and waitresses, and such as that. You take a small plant that is cut back, its workers often have their homes nearby. They may have a little money saved up and some War bonds, perhaps. They have heard about the "pools of unemployment" and cut-backs and so on around the war plants. So sometimes they wait around the little plant hoping it will start up again, or they go into these less essential