The home builders, when they read the regulation, believing that an oversight and an error had been made, immediately called it to the attention of the Commission. Despite the filing of a formal protest by a national builders organization, representing 25,000 home builders throughout the country, the Wage Stabilization Board has taken no action; and only recently, in the face of this pending legislation, has agreed to a conference with the home builders. The home builders are apprehensive lest this conference produce no satisfactory results. And on the premise that there can be nothing unstabilizing to our economy in paying construction workers in 1952 what they received prior to 1950, this bill has been introduced.

The purpose of the bill is clear. It will permit a home builder to pay the prevailing rate in his community or the union-negotiated contract rate. And in addition thereto, if prior to the stabilization program, he paid incentives and bonuses, he would be permitted to continue to pay those same incentives and those same bonuses.

I believe it was the intent of this Congress when it enacted the Defense Production Act, and the stabilization provisions therein, that nothing should be done to disturb existing business practices.

The act specifically says so. And if home builders were paying incentives and bonuses under a free economy and prior to the Korean war, certainly they should be permitted to continue to do so.

Further I believe it was the intent of this Congress, and again the act clearly says so, that the compensation of any worker should be permitted to continue to receive those incentives and bonuses. Furthermore, the whole intent and purpose of wage stabilization was to make possible price stabilization. And if these incentives and bonuses actually result in a home costing the buyer less, then obviously we would be frustrating the very purpose of the stabilization program by stifling these incentives and these bonuses.

I therefore earnestly urge this committee to recommend to the Congress the passage of this bill which will amend the Defense Production Act, and spell out in terms which anyone can understand that this Congress means to preserve the right of an American employer to award an American worker for his productivity and individual merit.

I might say that the general counsel for the builder is also here. I have stated the matter in just a few words and what I believe to the very issue before this committee. Are we going to have relief or not? Mr. BROWN. Mr. Dondero, would you care to comment on regulation X?

Mr. DONDERO. I can say this to you, in answer to your questionand that is a good question. I happen to come from an area in this country where the building of homes has been at a terrific rate, and I have had a number of letters from builders complaining that regulation "X" calls for so much of a down payment that people are not able to make it, and for that reason, the sale of a home is delayed, The builder has the house on his hands, and the home owner who desires a home cannot buy it, and it has interfered with their industry to a very great extent.

I think it ought to be relaxed. I believe that between the builder of the home, or the owner of the home, and the buyer of the home, that that degree of credit would be extended just about the same as a banker would extend credit to a proposed customer in the bank.

They are not going to run away with this thing. They are not going to permit people to buy with fifty dollars down or something else, and allow a considerable amount of trouble to come later.

I think the industry itself can regulate that and I hope the time is near at hand when it will be released so these people can proceed to sell their homes, and others buy them. That is my answer, Mr. Brown.

Mr. KILBURN. Mr. Dondero, as we all know, you are one of the great and outstanding Members of Congress in whose judgment we have a great deal of confidence. Of course, if we pass this law, all we can do is legislate. The rules are set up by OPS, and, of course, those are beyond our control unless we describe them in the bill.

Do you have any provision that you think should go into the bill to spell out, to OPS just what you want done?

Mr. DONDERO. Yes, sir, and the bill which I have introduced, and which is now pending before this committee, so provides.

Mr. COLE. How far does it go? Does it eliminate regulation 1 which I understand is the regulation under which they have prescribed this procedure?

Mr. DONDERO. I think it would have that effect.

Mr. COLE. I see.

Mr. DONDERO. What it does do is to simply continue a practice that has been long established and recognized.

Mr. COLE. Does it affect only the building industry or does it affect all manufacturing industry?

Mr. DONDERO. I could well imagine that it would apply further than this particular thing, yes, sir, if the same thing was done, by giving incentive pay to men.

Mr. COLE. We are getting into a very broad policy of labor-management. Your idea is that the Wage Stabilization Board should have no authority to tell management and labor that they can or cannot have incentive payments?

Mr. DONDERO. That would be the effect of the bill which I have introduced. It is a very short bill, only six or seven lines and with the chairman's persmission, I would like to read it.

The CHAIRMAN. You may do so.

Mr. DONDERO (reading):

That the first sentence of section 402 of the Defense Production Act of 1950 is amended by inserting immediately before the period, at the end thereof, a semicolon, and the following: "and in stabilizing and adjusting wages, salaries, and other compensation in the construction industry, incentives and bonuses and other compensation, as well as hourly rates, shall not be stabilized at less than that paid by the individual employer, or earned by the individual employee, during such period."

It does confine it to the construction industry.

Mr. KILBURN. Well, I am not clear about it. Do you want us to consider your bill or do you want us to put that in as an amendment?

Mr. DONDERO. I want you to consider this bill as a part of the bill now pending before this committee, to relieve, and bring relief to the industry, which is now told that they are in violation of the law and subject to fine and imprisonment.

Mr. COLE. In other words, you are not asking that they change, or lower, or add to, wage rates which are now permitted. You only want them to recognize the practice that is now in existence in your

area.

Mr. DONDERO. Exactly that. We do not ask for any lowering of the wage at all, but simply

Mr. COLE. I do not see how that has any impact upon stabilization. In other words, to put it this way, I do not see how regulation 1, as it applies to procedures now in practice, has anything to do with the stabilization of wages.

The CHAIRMAN. You may insert the bill in the record. (The bill referred to is as follows:)

[H. R. 7342, 82d Cong., 2d sess.]

A BILL To amend the Defense Production Act of 1950, so as to provide that incentive pay in the construction industry shall not be stabilized at less than that paid by the individual employer or earned by the individual employee in such industry during the period beginning May 24, 1950, and ending June 24, 1950 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first sentence of section 402 (d) (2) of the Defense Production Act of 1950 (50 App. U. S. C., sec. 2102 (d) (2)) is amended by inserting immediately before the period at the end thereof a semicolon and the following: and in stabilizing and adjusting wages, salaries, and other compensation in the construction industry incentive bonuses and other compensation as well as hourly rates shall not be stabilized at less than that paid by the individual employer or earned by the individual employee during such period".

Mr. DONDERO. Now if the chairman would grant just a minute or two, the president is here, and has come a long way, and perhaps you might hear him very briefly.

The CHAIRMAN. We have a program this morning, which we would like to get through with, but we will be glad to hear him.

Mr. HARRISON. My name is John D. Harrison, president of the Michigan Association of Home Builders.

The CHAIRMAN. You may proceed, Mr. Harrison.

Mr. HARRISON. The position that we take, Mr. Chairman, is that the position of the home builder in the industry should not be any different under the stabilization program than it was prior to the date established in the regulation to be the effective date of the program. The fact that we have been able to build houses at a lower cost, percentagewise, even with all the spirals of inflation on other commodities, and pay, in addition to the rates prescribed under the normal terms of negotiation, certain incentives, that in itself is proof that the home builders have been doing a good job, and we feel that to prevent the payment of these incentives will increase the cost of homes and, therefore, will have exactly a hundred percent different effect than the original intent of the regulation, which was to stabilize the cost of the end product, as well as to stabilize the cost of the wages and other costs that enter into the over-all production cost of that product.

Mr. COLE. What is the attitude of the unions, in connection with the incentive payments, in your industry, and in your area?

Mr. HARRISON. Well, we have never had any direct antagonism on the part of the unions.

Mr. COLE. You have not had any antagonism, you say?

Mr. HARRISON. We have not had any direct antagonism on the part of the unions in connection with payment of incentives as such. They are more favorable towards the payment of more normal hourly rates without incentives, as a general policy.

Mr. COLE. I know that.

Mr. HARRISON. But as a matter of actual practice, through the years, we have not had any direct antagonism from them on that

score.

Mr. COLE. In other words, it has been operating there for many years without any great difficulty with the unions involved?

Mr. HARRISON. That is right. I personally have been in the building business for 32 years, and we have been negotiating with the unions in our area since 1941, and the prevailing practices are no different now than they were all during that period of years. Mr. COLE. That is all.

Mr. BROWN. Mr. Dondero, I want to ask you a question. Did you bring your bill to the attention of the Senate Banking and Currency Committee?

Mr. DONDERO. I think not of the Senate. Just of this committee and the House.

I want to thank you, Mr. Chairman, for your generosity in permitting us to be heard at this time.

The CHAIRMAN. We are always glad to have your views, Mr. Dondero.

Those are all the witnesses we have this morning. The committee will recess to reconvene at 2:30.

(Whereupon, at 11:15 a. m., the committee was recessed, to reconvene at 2:30 p. m., the same day.)

AFTERNOON SESSION

(The committee met, pursuant to its recess, at 2:30 p. m.)

Present: Chairman Spence (presiding), Messrs. Brown, Patman, Rains, Addonizio, Dollinger, Bolling, Burton, Fugate, Barrett, Wolcott, Gamble, Kilburn, Cole, Hull, Scott, Nicholson, McDonough and Betts.

The CHAIRMAN. The committee will be in order.

Our witness this afternoon will be Mr. Telford Taylor, Administrator of the Small Defense Plants Administration.

You may proceed, Mr. Taylor.
Mr. TAYLOR. Thank you.

STATEMENT OF TELFORD TAYLOR, ADMINISTRATOR, SMALL DEFENSE PLANTS ADMINISTRATION, ACCOMPANIED BY JAMES M. MCHANEY, GENERAL COUNSEL, SMALL DEFENSE PLANTS ADMINISTRATION

Mr. TAYLOR. Mr. Chairman and gentlemen, my name is Telford Taylor, and I am the Administrator of the Small Defense Plants Administration.

I am very glad to respond to the committee's invitation to be here this afternoon.

This gentleman sitting with me is Mr. James M. McHaney, general counsel of the Small Defense Plants Administration.

Mr. Chairman, I have a prepared statement which I would like to present for the record.

The SPDA was established under the amendments adopted last year to the Defense Production Act of 1950. The provisions of law under which the SDPA is constituted are contained in section 714 of

the Defense Production Act. As enacted last year by the Congress, that section provides that the SDPA

shall not have succession beyond June 30, 1952 * extended beyond such date pursuant to an Act of Congress.

unless its life is

Section 105 (a) of H. R. 6546, now pending before this committee, extends the life of SDPA from June 30, 1952, to June 30, 1954. I shall confine my observations to this section of the bill, and shall not undertake to comment upon its other provisions, which relate to matters outside the purview of the SDPA.

Based on our experience during the 7 months that the SDPA has been in existence, we strongly support extending the life of the agency for 2 years, in line with the provisions of H. R. 6546. Economic developments during that period have abundantly confirmed the need for the small-business policies enacted by Congress in establishing the SDPA. The dislocating factors intrinsic to a large rearmament program, which tend to pinch out the small manufacturer, are still operative. There has been no reversal of the trend toward concentration of Government prime contracts in the hands of large concerns; on the contrary, the percentage of such contracts awarded to small business concerns has so far decreased in each successive fiscal year. Cut-backs in the allocation of critical metals for civilian use have threatened numerous small manufacturers with extinction. The need for financial assistance to small business concerns, both for defense production and essential civilian purposes, has been abundantly demonstrated by the volume of applications received by the Administration. All these factors underline the urgency of carrying into effect the statutory provision pursuant to which this Administration was created.

One of the most important responsibilities which Congress has placed in the SDPA is to take action to spread defense contracts more widely, and to insure that small business receives a fair proportion of defense contracts. Past experience and future prospects leave no room for question concerning the necessity of continuing this activity. As the Secretary of Defense, the Honorable Robert A. Lovett, stated before the Senate Banking and Currency Committee, while testifying in support of the companion bill to extend the Defense Production Act, the Department of Defense has become "the largest single purchaser in our economy."

According to Secretary Lovett's statement, the Department of Defense expended nearly $20 billion in the fiscal year 1951, and over $17 billion during the first half of the fiscal year 1952. He estimated the total expenditures for the fiscal year 1952 would approximate $40 billion. Whatever the future may hold with respect to the availability of critical metals, such as copper and aluminum, for civilian production, there is no question but that the defense production program will continue at a high level during the next 2 years. Through the placing of defense contracts to build up our armed strength, the Government will continue to be not only the largest single purchaser in our economy, but a purchaser of such overwhelming proportions that it is a matter of the most vital concern to all of us that these defense orders be placed wisely and in accordance with careful planning. So far as small business is concerned, the manner in which defense contracts have been placed during the last 2%1⁄2 years is alarming. The proportion of military prime contracts placed with small concerns has