The sustaining of the job level in aircraft factories, through this means, would greatly enhance the strength of the industry-they will take care of the growth and development of civil aviation.

Some Government-owned aircraft plants will be needed for excess military airplane storage depots. I think most all of the modification centers can eventually be fully utilized by the air lines for operational bases.

There is not a great deal of doubt about the continuing need for air defense after the war. Some sections of the air frame and engine plants must inevitably be retained for research and development, and, this being surely necessary, the portion of the cost to Government for research and development will decline in the measure that the industry is made strong by other means.

The Army, Navy, and Maritime Commission have been good to our small west coast plants, and we appreciate it and hope that they will continue to be equally considerate. Our small plants are going to need every possible type of help if they are going to fully play their part in job opportunity in the future.

Senator MURRAY. I thank you for your statement, Mr. Burtch. This, of course, will be supplemented and improved upon, I suppose, when you get back to the coast?

Mr. BURTCH. Perhaps.

Senator MURRAY. You will go into it more in detail?

Mr. BURTCH. That is right.

Senator MURRAY. I am very glad to have it now in connection with our present hearing. It is very helpful to us, and I thank you. (The supplement to Mr. Burtch's statement is as follows:)

(1) Are any war plants on the Pacific coast now out of work as a result of terminations or inability to secure new contracts because of being located in critical labor areas?

A very considerable number of small plants on the Pacific coast are either out of work or have increased open capacity directly attributable to terminations and/or cutbacks. The curtailment of allocations of new procurements to the west coast is making it increasingly difficult for the concerns situated in No. 1 critical labor areas to secure new production items.

(2) Is there labor available for these plants that are shut down or plants having open capacity? Where do they obtain their labor?

In nearly every case of the plants closed down or with open capacity, particularly the smaller ones, an ample supply of labor is available, principally because most of the smaller plants are in the category of neighborhood plants. That is, they obtain their labor directly in the neighborhood in which they are situated, and generally remotely so, so far as principal industrial plants are concerned. There is a great deal of labor which will not work outside of its own immediate neighborhood, particularly so because of the difficulty with and the time consumed in transportation.

(3) Are plants with less than full capacity increasing in number?

The number of plants with less than full capacity continue to increase in number. On November 1, 1943, plants with less than 500 employees used 46 percent of the industrial power load of metropolitan Los Angeles. On May 30, 1944, plants with less than 500 employees were using 26 percent of the industrial power load. The power load over-all showed some increase between these dates. Hence, the idleness and lack of power consumption appears to be altogether within plants of less than 500 employees.

(4) Do these plants with idle facilities and available labor desire to return to essential civilian production?

Plants having idle facilities and available labor are anxious to return to civilian production. The question refers to essential civilian production. The answer explicitly states civilian production. A further answer is that these plants want to return to production, whether essential civilian, civilian, or production for war. (5) What becomes of the labor employed by small plants when these plants are cut back or terminated?

Much has been said about the evaporation of labor. In many cases, it is alleged that as employment declines in small plants the labor evaporates. Factually, the workers, no longer needed, in a majority of cases, simply stay home. Always they think the plant in which they worked will have need for them again, and habitually most of them were occasional workers only. This type of worker will not go to the United States Employment Service and request referral. He knows that in all likelihood he will receive a referral to one of the large plants, and that he will have transportation problems which are distasteful to him and burdensome, because he has been accustomed in his lifetime to interruptions in work. He would prefer to stay home a month or 2 or 3, in the hope that his original plant will reopen, rather than seek work elsewhere. Typically, he probably has more money in his pocket than he ever had before in his experience. (6) What is the financial position of these plants?

Of the more than 6,000 plants in southern California, in excess of 2,500 were originated since Pearl Harbor. Perhaps 80 percent of the others have expanded, some many times. Except for the very large concerns with wise and prudent management, most of the plants originated since Pearl Harbor and expanded, and those which existed before Pearl Harbor and have since expanded have done so solely on capital contributed by the stockholders or proprietors, with the exception that nearly every one of them which has expanded has plowed some of the income from sales into new facilities. They have done this with little realistic comprehension of the impact of renegotiation and taxes. The result is that most of them have paid renegotiation refunds and taxes out of earnings for the year subsequent to that in which the renegotiation and taxes were levied. The result is extremely frequent impairment of working capital, and few, if any, cases exist where reserves for taxes and renegotiations were adequate to pay the bill. The over-all picture of small plants is that they are dangerously short of current working capital, and typically, ratios between current assets and current liabilities are unfavorable.

(7) What problems will need to be met to accomplish conversion with the least interruption in employment?

Under the order of first things first, long-term credits must be avilable to the typical small plant if conversion is to be accomplished with minimum interruption. With impaired working capital conditions facing them, long-range planning is out of the question. Most conversion must relate to long-range planning. Conversion to short-range planning is generally a very temporary subterfuge and simply postpones, the principal matter of conversion. The second factor that tends to delay planning for reconversion and reconversion in fact, is the inability to schedule deliveries of machine tools and production equipment and to determine the approximate time that materials will be available for other than necessary war production. Two remedies are needed forthwith: First, available long-term credits based upon economically sound plans for long-range conversion; and second, some basis for a confident prediction as to dates of availability for machine tools, production items, and materials.

(8) You used the term "industrial credit insurance." Will you explain that further?

Appended hereto is a memorandum dated May 21, 1944, from Orville S. McPherson, Director, Readjustment and Contract Termination Staff, to Dr. H. P. Seidemann, special assistant to Maury Maverick, Chairman, Smaller War Plants Corporation, relating to the subject of loan insurance. This proposal by Mr. McPherson has been categorically examined as to feasibility and is regarded as an approach proposal from which could be developed a thorough workable plan to provide long term credits for small business.

MAY 21 1944.

HENRY P. SEIDEMANN,
ORVILLE S. MCPHERSON,

Loan insurance.

The following is the idea which I expressed to you briefly over the telephone on the subject of capital loan insurance by Smaller War Plants Corporation for small business concerns. I will be glad to discuss it more in detail with you if you wish. 1. Small business needs long term credits for the interval after the war and for reestablishment in peacetime production.

2. Banks may not lend their funds upon sufficiently long terms, nor upon the type of risks that are characteristic of small businesses.

3. The appropriately patterned loan for small business is apt to fall within the category of "capital loan," not favorably regarded by bankers.

4. If loan insurance could be offered banks the risk of small business loans could be reasonably apportioned between such an insurer and the banks.

5. Because of the diminished risk this class of loan might become desirable to banks and be declared eligible for Federal Reserve collateral, and be standardized to the degree that they would be fluid as between banks.

6. Because banks are best able to service such loans constructively, and because banks in the aggregate comprise a ready-made vehicle for channeling money into small businesses, the following suggestions have been contrived to provoke thought on the subject of insured small business loans.

7. It is proposed that Congress duly constitute Smaller War Plants Corporation as an insurer and appropriate $25,000,000 as a nucleous insurance reserve, untouchable except in the event of losses.

8. It is proposed that Smaller War Plants Corporation then proffer to Federal Deposit Insurance Corporation members insurance against losses on long-term loans to small businesses in an accumulative amount equal to 15 percent of the principal amount of each loan preexamined and declared eligible by Smaller War Plants Corporation, these accumulated percentages to become blanket insurance to each bank to protect it against all losses sustained from loans made in any one calendar year, the Smaller War Plants Corporation to have the right to limit the rate of interest charged and to exclude organization fees for such loans, and provided that the net accretion to the banks cumulative insurance should not exceed $15,000 on account of any one loan.

9. Insurance against losses to be paid by Smaller War Plants Corporation to be payable in 5-year debentures at 21⁄2 percent interest, warranted as to payment by the United States Treasury.

10. Smaller War Plants Corporation to be paid an insurance premium annually in advance equal to 1 percent of the unpaid amount of each insured loan, computed and due upon each anniversary of the loan.

11. It must be understood that only the reserve, initially acquired during one calendar year, shall be applicable to losses only upon those loans made during that same calendar year.

The next witness will be Mr. Cohu, of the Northrop Aircraft Corporation.

STATEMENT OF HENRY W. COHU, VICE PRESIDENT, NORTHROP AIRCRAFT CORPORATION

Mr. CoнU. I will not take up the time of the committee now except to submit a copy of the plan which we have in operation at Northrop at present. In substance, it is the cataloging or inventorying of the scales of the different people employed in the plant, with the location of the part of the country that they came from; and then we get in touch with the different industries which would need that type of individual in the post-war situation.

Senator MURRAY. How long has that been in operation in your plant?

Mr. CoнỤ. That has been in operation about a month and a half. It may not be the answer, but it is a contribution.

Senator MURRAY. This will be incorporated in the record. (The plan referred to is as follows:)

NORTHROP'S PLAN FOR POST-WAR EMPLOYEE RE-LOCATION (By LaMotte T. Cohu, chairman of board and general manager, Northrop Aircraft, Inc.)

Relocation of employees whose services cannot be retained for peacetime operations presents the gravest problem now confronting aircraft manufacturers. It is a problem which will grow even more grave when Germany surrenders and war production begins to be tapered off.

Unless manufacturers set up machinery to help these employees find work, the job will be done by others, and probably in ways inconsistent with the principles that have made America great.

Northrop Aircraft believes so firmly in this view that it has already inaugurated a program, unique in the annals of American business, to find a solution to the problem. In effect, the Northrop plan is much like the company's hiring program in reverse. Instead of combing the Nation for personnel, the company's industrial relations department will be combing it for jobs in peacetime industry to which employees can transfer when their skills will no longer be needed to produce the Northrop P-61 Black Widow night fighter, one of the Army Air Forces' newest combat-class aircraft.

The Northrop company, like all others in the aircraft industry, fully expects its plane production to be curtailed as the war draws near an end. Post-war plans anticipate a production volume approximately 10 percent as large as the wartime peak. But, while production will undoubtedly be curtailed before the war ends, it is expected that the armed forces will demand a high rate of production right up to the time of the armistice. To meet schedules in conformance with these demands then, it will be necessary to prevent any general labor exodus from the aircraft industry when peace appears to be in sight.

If, before the war is won, any appreciable number of workers do quit their aircraft jobs to find peacetime employment, the ensuing production slump might easily prolong the war, needlessly cost the lives of thousands of American fighting men, and bring about widespread disruption of our economic system, all at a time when victory will be in the balance. Disastrous as such conditions could be, employees could not be blamed entirely for seeking to protect their futures by "jumping while the jumping is good" if we, as employers, fail to take the lead and do all within our power to bridge the gap between their present jobs and the future.

So exacting and all-encompassing have been the demands for warplanes few aircraft companies will have even the designs for post-war planes ready to go into immediate production for peacetime markets. Without designs, without distributors, dealers, or customers, and without reserves that might have been accumulated as "seed money" with which to launch peacetime production, it will be impossible for Northrop and others in the industry to continue employing many thousands of their present personnel. It would, of course, be easy to cut back our organizations to a size commensurate with the volume of business we will be able to secure after the war. But that does not answer the question of the individual worker who must find a place in productive work if American freedom is to survive. It seems to us that all industries-not alone the aircraft-should consider themselves obligated to seek jobs for those who cannot be employed, and just as energetically as the employees themselves were sought in the first place. We in the aircraft industry scoured the Nation for workers, convinced them it was their patriotic duty to help win the war by building warplanes; we now rely upon them to continue their work as long as our fighting men need their help. It is, therefore, our duty to get ready to assist them in relocating themselves when we have to release them to post-war employment.

The Northrop plan faces this problem realistically and, we believe, humanely. We are already preparing an inventory of skills and trades possessed by our em'ployees. Then when the time comes that other industries are seeking personnel, we will be able to bring these prospective employers and thousands of our employees together for their mutual benefit. We hope that, through our help, the transition for many will be but a week-end affair-that they will finish with us on a Saturday and start their new jobs the following Monday.

Studies made to date indicate that the employee relocation problem will not be as great as it might first appear, for employment applications and other company records provide most of the required information on the inaividual employee. Nor will locating jobs be as difficult as might first be thought. The Committee for Economic Development, for example, is gathering data on post-war employment and has already found that a surprisingly large number of the varied industries under study will have to increase their employment far beyond their pre-war requirements in order to meet post-war demands for consumer goods. Northrop subcontractors, too, will provide a large and widely varied group of contacts from, and through, whom personnel requests can be anticipated. Most of these organizations were in business prior to the war and took on subcontracts because the war had killed their former business. As a matter of fact, many present Northrop employees came from such organizations, and it is expected that as the subcontractors go back to peacetime production, the workers will go back to "the old stand."