BRIEFING ON THE DEFENSE PRODUCTION ACT OF 1950 WEDNESDAY, MARCH 2, 1983 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, Washington, D.C. The subcommittee met at 9:30 a.m., in room 2220 of the Rayburn House Office Building, Hon. John. J. LaFalce (chairman of the subcommittee) presiding. Present: Representatives LaFalce, Kaptur, Levin, Torres, Shumway, and Bethune Chairman LAFALCE. There are no other members here, but I think we are going to have to proceed anyway, especially since its come to my attention that subsequent to our scheduling of this meeting, the Housing Subcommittee scheduled a meeting of the Democratic members for 10 a.m. Since the Housing Subcommittee is so large, I am fearful that those Members who are here might want to take off at 10, or at least sometime thereafter. Housing caucuses usually don't start for half an hour after they are scheduled, so, maybe you can stay a little bit longer. It is up to you. This is a very informal get-together. I'm not even calling it a hearing. It's a meeting of the members of the Economic Stabilization Subcommittee in order to receive a briefing from experts about the Defense Production Act. Often we go into hearings that presume knowledge and so often we go into special areas of given legislation without having some historical knowledge of it and without understanding how the basic programs work rather than specific portions of it. I thought it would be a good idea, especially for the newer members, if we could have this briefing prior to the hearings which we will have in the future. We have three individuals-Dave Lockwood from CRS; John Brinkerhoff and Paul Krueger from FEMA-I think we'll start with Dave Lockwood. STATEMENT OF DAVID E. LOCKWOOD, SPECIALIST, U.S. FOREIGN POLICY AND NATIONAL DEFENSE, CONGRESSIONAL RESEARCH SERVICE Chairman LAFALCE. Mr. Lockwood, it's my understanding that you have been asked and intend to give a historical review of the Defense Production Act, how it came into being, what it consisted (1) of then, very briefly, and then what it consists of now will be taken up by Mr. Brinkerhoff and Mr. Krueger. Correct? Mr. LockwoOD. Correct. Chairman LAFALCE. Well, why don't we begin? Mr. LOCKWOOD. Thank you, Mr. Chairman, and other distinguished members of the subcommittee. I will direct my remarks primarily at a historical survey and overview of the Defense Production Act and its major provisions and leave it to Mr. Krueger to discuss the applications of the law in the current setting. I would like to just point out as an introduction to my—— Chairman LAFALCE. I don't think we have microphones, so if you could speak up. Mr. LOCKWOOD. As a form of introduction, let me just point out that discussion of the DPA needs to be considered in the context of current interest, and concern over the state of our defense industrial base and preparedness. During recent years, congressional hearings and reports of special Government-sponsored study groups have focused a spotlight on what is, reputedly, a deteriorating defense industrial base. We now have, also, an administration which is committed to increasing defense expenditures and there are many questions as to whether the defense industrial base is in a position, is strong and resilient enough, to absorb these additional expenditures in an efficient manner. This controversy over the absorptive capacity of defense industries has tended to focus attention on the Defense Production Act because it is the principal legislative basis and authority for defense industrial mobilization and preparedness. Now the DPA has been around for quite some time-32 going on 33 years. It was passed at the very early stages of the Korean war. Our country found itself at the outbreak of the Korean war in a position where it was very vulnerable. It did not have the industrial capacity at that time to respond effectively to the military requirements in Korea. After the Second World War there had been a demobilization, and industry had turned primarily toward the production of consumer items. So when the Korean war broke out, it was very necessary for measures to be taken to stimulate and to increase production on an emergency basis. President Truman submitted legislation to Congress in July 1950, and within a matter of 2 months, after a considerable amount of debating and compromising, the Defense Production Act was passed and signed into law on September 8, 1950. As passed, the Defense Production Act had seven principal titles. I have an exhibit which I think is on the desks or tables before you. It's my only visual aid for the morning. [The exhibit submitted by Mr. Lockwood follows:] DEFENSE PRODUCTION ACT ITLE PRIORITIES AND ALLOCATIONS TITLE II. AUTHORITY TO REQUISITION ITLE I TITLE IV. TITLE V. TITLE VI. EXPANSION OF PRODUCTIVE CAPACITY AND SUPPLY SETTLEMENT OF LABOR DISPUTES CONTROL OF CONSUMER AND REAL ESTATE CREDIT ITLE VIR GENERAL PROVISIONS Mr. LOCKWOOD. I have enclosed in boxes titles I, III, and VII to indicate that these are the titles which are currently intact or in force. The remaining titles, II, IV, V, and VII, have been deleted. They were terminated in the period between April and June 1953. The four titles that were deleted were titles that provided sweeping emergency powers to the President. They included title II, which gave the President authority to requisition property, material, and facilities for use in the war effort. It was required that the Government provide appropriate compensation for these requisitions. Title IV empowered the President to initiate price and wage stabilization measures such as placing ceilings on wages and prices; voluntarily, hopefully, but if that was not possible and the need was determined to be serious enough, he could apply mandatory ceilings. It was required, however, that price and wage ceilings be applied together. He could not place a ceiling on prices and not on wages, or vice versa. Title V had to do with the settlement of labor disputes that might otherwise have interfered with the war effort. And then, finally, title VI empowered the President to control consumer and real estate credit. He could insist on larger downpayments on the purchases of automobiles and homes and place ceilings on interest rates. There was a reluctance on the part of Congress to give the President these sweeping powers. And when they did, they did it for only short periods of time-9 months-and then it would be renewed after that. The question may be raised-were these emergency authorities and powers utilized? Yes, they were. By the end of 1950, the war situation in Korea had reached a critical point; it was clear that it was going to last a long time. It was not going to be over quickly. And it was going to require a major mobilization effort on the part of American industry. At the same time, it was clear that certain economic stabilization measures would need to be imposed, such as wage and price ceilings and control of consumer and real estate credit. I might back up and explain that the seven titles of the Defense Production Act can be grouped into two categories. There are those measures or those titles which were aimed at supporting industrial mobilization, at stimulating and increasing production on an emergency basis. The problem is that when you do that, you are taking initiatives that may have potentially damaging impact on the economy. Through an overheating of the economy, you can end up with some serious problems-the primary concern being inflation. And by the end of 1950, inflation was beginning to be felt, prices were rising very sharply in this country. So that there were two titles-the titles IV and VI-which were stabilization measures aimed at controlling or minimizing the adverse impact of the mobilization effort on the economy as a whole. Those two titles then constituted the second group or category. In any event, after 2 years, in the spring of 1953, the war crisis in Korea was diminishing and, at that point, Congress moved to terminate the emergency provisions contained in titles II, IV, V, and VI. It was done simply by not extending them and, therefore, letting them lapse. As a matter of interest, I would like to note that 2 years ago the Federal Emergency Management Agency drafted an emergency bill incorporating these sweeping authorities, as well as some others, with the idea that this draft, "Defense Resources Act," as it was called, would be kept on the shelf and available if a crisis should arise. It could then be submitted to Congress for its consideration and possible action. Let me turn now to a discussion of the DPA titles currently in force. Titles I and III, these titles that are currently in force are aimed not only as standing legislation in the event of war, but are used to maintain a constant state of preparedness or readiness in time of peace. The object is to make sure that we would not be caught in a situation, as we were at the outbreak of the Korean war, unprepared to respond to sharply increased demand for military goods and materials. Mr. Krueger is going to describe title I, the priorities and allocations program, in much more detail than I. Let me just simply say that the basic purpose of the priorities and allocations title is to allow the Government to have its defense-related orders and contracts handled on a priority basis by industry. The allocations aspect of the title is that if, for some reason, industry has a problem meeting a schedule of a defense-related contract, it can turn to the Government and ask for assistance in overcoming bottlenecks in materials that might be delaying the production of the particular item, and the Government will provide assistance in acquiring the material or getting the blockage removed. I would like to point out that energy projects were included for the first time under title I of the DPA as a result of the Energy Policy and Conservation Act of 1975. Overall, the reactions to implementation of title I have been mixed. There is a general feeling that title I has succeeded in keeping current defense contracts on schedule. And if there have been delays, it has at least tended to minimize the delay. |