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struction materials into the building of a plant if the raw materials for production or the chemicals and fuel for the production processes cannot be spared from other more important uses. The obvious necessity for this coordination explains the assignment by the President of the central programing function to a single agency from which all the operating agencies receive guidance in the performance of their respective responsibilities.

With respect to the programing activities specified in Executive Order 10200, it may be helpful if I describe briefly our general objectives and the organizational structure through which this part of our job is directed. It is clear that the implementation of our defense production efforts requires consideration of the imbalances between supply and demand which are produced by this extra load on our supplies and facilities.

Our objective in the central programing operation is to set such standards and general levels of production in the various segments of the economy as will produce a balance between supply and the essential and permitted usage of materials or products which would otherwise be in short supply. In developing plans for bringing supply and demand into balance, it is, of course, necessary to assemble an initial statement of requirements for the various segments of the economy, for military production, for construction, public utilities, for other civilian activities, for export, and so forth, and compare the total of these requirements with the estimated supplies of the materials and products under review. With defense production and other abnormal demands superimposed upon the normal requirements of the civilian economy, the initial picture is almost inevitably one of imbalance. This has to be resolved by determining appropriate levels of production in the nonmilitary fields which will save enough material to bring the supply-and-demand picture into balance. A flat percentage cut in the nonmilitary fields would not ordinarily be an appropriate solution since within the various segments of the economy certain items need to be pushed ahead at or above historical levels. To the extent this is true, of course, other items must of necessity be reduced even more to achieve a balance.

The kinds of decisions involved in this central programing activity cut across a wide range of interests and are bound to have important repercussions. The gravity of these decisions calls for as comprehensive a review as can reasonably be had, and our present concept of the operation involves comprehensive interagency consideration.

In the first place, various executive and departmental agencies of the Government are asked to submit statements of required materials and products for designated areas of the economy. These requirements are then submitted to the organizational units of the National Production Authority or other appropriate agencies for review by the people most expert with respect to the supply situation in the field under consideration. These agencies are expected to invite all other interested agencies to collaborate in this review so as to insure a broad consideration of the various issues and problems which have to be resolved. Initial proposals for bringing supply and demand into balance are then subject to review by the Defense Production Administration, and it is again the general plan that this review include participation by an interagency group, the Program Adjust

ment Committee. A requirements committee made up of broad-gage representatives of the various segments of our industrial economy are also asked to advise the Director of Program and Requirements on the broader economic impacts of any general program. To the extent possible, the members of the requirements committee are expected to subordinate their interests in any special programs.

An important part of any determination of this sort involves, of course, the full consideration of possibilities of increasing the supply of the materials and products which is currently inadequate to meet all demands. Usually this is the sort of thing which cannot be arranged in time to affect the short-range picture but is an important element in the considerations. This is especially true if there is a quid pro quo involved, such as the reservation of steel to build more aluminum plants or the export of some material to facilitate the import of another material.

A natural corollary of the above balancing activities is of course the implementing procedures; and, while generally the DPA delegates the specific use of priority powers to the other defense agencies, the broad general policies necessary to insure that the priorities are not abused, are not issued in such amounts as to deflate their value, and that the general field of production which is not given preference ratings is protected, are of course properly reserved for central determination.

As I have already pointed out, Executive Order 10200 places on the DPA responsibility for procurement methods and procedures. In carrying out this responsibility the following has been accomplished:

1. Beginning last February a group of policy consultants to the Administrator met 2 days a week for 8 weeks to consider the most effective procurement policy in view of the partial mobilization program. In order that their deliberations would have the benefit of and provide immediate direction to the Department of Defense, representatives of the Office of the Vice Chairman of the Munitions Board for Supply Management sat with and assisted in the development of over-all recommendations. This group of consultants prepared two basic documents: Procurement Policy for Small Business, and Procurement Policy for Pricing, Negotiation, Redetermination, and Renegotiation. Copies have been made available to the committee.

2. Upon the establishment of the Small Business Executive Committee under the chairmanship of DPA, its initial task was the implementation of the procurement policy for small business. After several meetings of this committee, general agreement has been reached on the recommendations of the Administrator of DPA. In a letter to General Harrison, dated April 30, 1951, General Marshall, Secretary of Defense, states the following:

I have requested the Munitions Board to prepare for my immediate approval a supplemental directive which will restate my objective with respect to the use of small business to the fullest possible extent and will add, for the guidance of procurement officers, additional policy instructions. These policy instructions will be based upon the very fine work which has been done by your organization. With the issuance of this supplemental directive, in my belief, the Department of Defense may properly be said to have accepted your policies as well as, in effective manner and in the spirit in which they are written, your implementing recommendations.

3. Under the chairmanship of DPA, a procurement-policy committee is undertaking in like manner the expression of the broad

policies laid down by the Administrator as a result of the work of his procurement-policy consultants. Here again representatives of the Office of the Vice Chairman of the Munitions Board for Supply Management sat with and assisted in the development of the basic policy statements. In this manner much of the thinking of the Defense Production Administration is already known to the Munitions Board, and implementation of the recommendations is being greatly facilitated.

4. In his testimony before the Joint Committee on Defense Production on April 12, the Administrator of DPA outlined a broad basic policy with respect to the cost of accelerated amortization appearing as a part of the cost of the product. A letter opposing its allowance generally as part of the cost of the product has been

forwarded to the Secretary of Defense with the recommendation that it be adopted as a directive to contracting officers.

5. The policy for the administration of applications for certificates of necessity for accelerated amortization indirectly influences procurement policy. Out of the total accelerated tax amortizations of $3,800,000,000 granted to May 4, only about 10 percent has been granted for facilities for finished products. Of this, $200 million applies to the aircraft program.

It is apparent therefore that facilities expansion for fabrication and assembly has been held to a minimum. This tends to direct military procurement to contractors with existing facilities and to prevent the building of unnecessary new facilities and thus affects the contract placement planning of procurement agencies.

6. In his statement at a meeting on April 27, 1951, of officials of the Department of Defense, Office of Defense Mobilization, Defense Production Administration, National Production Authority, and Bureau of the Budget, the President laid great stress on the establishment of procurement policy designed to accomplish deliveries of military equipment consistent with the actual time of need. This has the objective of preventing the sudden acquisition of the entire civilian supply of easy-to-procure items by the military just because funds are available. This objective has been part of the procurement policy recommendations of the Defense Production Administrator from the outset. Recognition of this need by the President will support its rapid implementation.

While the major attention of procurement policy has been directed toward the military departments, the Small Business and Procurement Policy Committees include representatives of other executive agencies. This assures that all major agencies having procurement responsibilities are guided by the same basic policies.

Only by central control of policy will it be possible to effect the required balance between the rate of defense spending and the necessities of a virile civilian economy.

We have been acutely conscious of the necessity for aid and assistance to the small-business segment of our economy to secure its participation in the defense effort and to protect its traditional position in the production of civilian goods. Section 701 gives wide latitude and expresses strong congressional intent concerning many special considerations for small business both as participants in the defense program and as producers of civilian goods.

An appraisal of the usual problems which beset smaller enterprises, as well as the special problems which have come to the attention of the Office of Small Business of NPA during the 8 months since the Defense Production Act was passed, indicates that ample authority exists to meet and solve the problems of small business which arise from the conditions of the defense program. The limiting factors in meeting the expressed needs of small business do not result from a lack of legislative authority or intent but rather from the supply and demand situation for materials and the character of the defense items being purchased by the armed services.

Title III contains a number of aids to production and expansion upon which great reliance has already been put and which will have increasing value as the program develops.

Section 301 in effect reestablishes the V-loan program of World War II, its principal purpose being to bring out private capital loans to defense contractors and others in the defense effort by providing for a system of Government guaranties.

The guaranteeing agencies are in general the Government procurement agencies and include the Departments of the Army, Navy, Air Force, Commerce, Agriculture, and Interior, and General Services Administration and the Atomic Energy Commission. Where private loans are guaranteed, these guaranteeing agencies employ the Federal Reserve System banks as fiscal agents. Where public financing institutions make the loans, such as the Reconstruction Finance Corporation or the Export-Import Bank, those agencies are guaranteed directly.

The Defense Production Administration does not participate in operations under this V-loan authority but is interested, of course, in the coordination of this program for expansion of productive capacity and supply with other programs for the same purposes provided for in title III of the Defense Production Act, including Government loans and guaranties under section 302, and purchase, installation of equipment, and exploration programs conducted under section 303.

In the main, the program to date has been carried out through utilization of private capital and by the use of the Federal Reserve System as fiscal agent. Some loans by the RFC have been guaranteed by the Department of Defense. The private loans guaranteed since the beginning of the program to April 15 total 288 for a total dollar amount of $347,684,000. As of the same date, 94 applications amounting to $116,485,000 were under consideration by the guaranteeing agencies.

Section 302 of title III of the act provides for loans to aid in carrying out Government contracts for the procurement of materials or the performance of services for the national defense. These loans are for the expansion of capacity, the development of technological processes, or the production of essential materials, including the exploration, development, and mining of strategic and critical metals and minerals. Under the terms of the statute, such loans may be made only to the extent that financial assistance is not otherwise available on reasonable terms.

It has been a fundamental policy of the administration of the defense program to date that the expansion of productive facilities and the expansion of production should to the maximum degree possible

be achieved by the utilization of private capital by private business. There are certain areas and operations, however, in which financial assistance over and above that available from private sources must be provided by the Government if the program is to go forward as rapidly as desired. The authority provided by section 302 makes it possible for the Defense Production Administration to supply funds on terms suitable to the need in aid of the defense program where that is deemed necessary.

Applications for defense loans are filed with Commerce, Interior, Agriculture, and the Defense Transport Administration in accordance with their respective responsibilities under the act. The applications are reviewed by the staffs of those agencies, assisted by the RFC, which, through its field offices, makes the necessary credit and field investigations. Under the procedures established by the loan regulations and appropriate Executive orders, the several agencies may deny loan applications on their own responsibility. If, however, approval of a loan is recommended, it is referred to the DPA as the certifying authority for the utilization of borrowing authority under section 304 of title II. The DPA reviews the recommendation from the point of view of consistency with the over-all program for the expansion of production and the necessity involved, and may certify the loan, in which event the RFC acts as the disbursing agent for the recommending agency. In many instances loans under the authority of section 302 are needed only for a portion of the financial needs of borrowers because other funds can be supplied by private banking institutions or the RFC acting under its regular lending authority. In other instances the entire amount of the funds required by a borrower to expand facilities or to finance some operation deemed essential to the defense effort is unavailable from other sources and is supplied by means of a section 302 loan. Every effort is made to coordinate this means of financial assistance in aid of the defense effort with other types of financial aids which may be available from other governmental sources.

As of April 30, 1951, applications for loans in the aggregate amount of $1,371,000,000 had been filed. As of the same date, loans had been approved in the amount of $59,800,000. Loan applications in the amount of $153,900,000 had been denied. These denials were based principally upon a lack of showing that the loans were necessary in the interest of the defense effort.

It is worthy of note that, of the loans so far approved, approximately three-quarters have been made to small-business apphcants having less than 500 employees. These loans have been in aid of increased production of such basic materials as pig iron, cement, metal shapes and forgings, and the production of finished products, including industrial equipment and components, military automotive equipment, electrical and electronic equipment for aircraft, and miscellaneous products manufactured by subcontractors.

Budgetary estimates are now in preparation as to the amounts which probably will be required for the loan program in 1952.

Section 303 has been employed successfully to effect the procurement of materials that are essential to the success of the defense program. To date, there have been 18 projects approved for borrowing authority totaling about $823,000,000, although actual undertakings

83762—51-pt. 1-13

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