bulk of the naval shipbuilding and ship repairing required under such circumstances, as the naval shipyards cannot possibly handle the volume of work necessary under such conditions.

It obviously follows that the industry, as a vital element of the mobilization potential, must, in peacetime, have adequate work to assure the maintenance of its extensive facilities and an adequate nucleus of skilled manpower for wartime utilization, as well as to assure competency to undertake naval shipbuilding and naval ship repairing under stress of war. Competency to perform a specialized task during a war can only be gained through the performance of such work in time of peace. In addition, the volume of commercial shipbuilding and shiprepair work presently is not sufficient to maintain the facilities and the manpower considered adequate as a mobilization potential and hence must be supplemented by naval shipbuilding and ship repairing.

At present there has been a complete lack of orders for seagoing merchant vessels since November 1952, resulting in an extremely critical situation in the shipbuilding yards, on the one hand, and on the other a substantial decrease in the volume of commercial repair work, due to progressive reduction in the number of vessels of the American merchant marine in active operation, to such an extent that the ship-repair yards likewise face a critical situation.

It is evident from the record that while the naval shipyards necessarily expanded their employment during World War II, as did the private shipbuilding and shiprepairing yards, they have not been demobilized to the same extent as the private yards. The demobilization of the naval shipyards was within the control of the Navy, but that of the private shipyards was the result of the inexorable pressure of economic necessity.

It is interesting and instructive to note the relative employment in the naval shipyards as compared with the private yards over the years. There is attached hereto as exhibit A a chart showing that relative employment from 1923 to date. It will be noted that the pattern of relative employment in the naval shipyards prewar averaged approximately 50 percent of that in the private yards, whereas postwar it was greater than that in the private yards and even now is approximately equal to that in the private yards. If the employment in the private yards continues to dwindle as it presently is doing, the employment in the naval shipyards soon will again exceed that in the private yards.

The capital investment by the Government in the naval shipyards is a heavy one, but is not available to the council. It would have to be obtained directly from the Navy. Likewise, there are no statistics available as a basis for estimating the capital investment in private-shipbuilding and ship-repairing facilities, but it also is a heavy one. In the case of the private yards, however, it is necessary for their earnings to be sufficient to maintain the facilities and absorb the costs incident to the operation of a private enterprise. The naval shipyards are under no such compulsion. There is no financial incentive involved. The maintenance is taken care of by the appropriation of Government funds acquired by the taxes paid in by the individuals and industries of the country. That maintenance continues, whatever the level of operation, and there is no deterioration of facilities as a result of a low level of operation. A naval shipyard could be maintained on a standby status. In a private enterprise, however, there is a minimum level of operation below which the facilities cannot be maintained or an adequate nucleus of skilled manpower retained.

Let us now consider the present policy of the Navy with respect to the operation of the naval shipyards and the utilization by the Navy of the private shipbuilding and ship-repairing facilities of the country.

With regard to shipbuilding, the cooperation of the Navy in recent years has been excellent. The Navy has recognized the critical situation with respect to private shipbuilding and has allocated naval construction contracts to shipbuilding yards to the extent possible under a limited naval construction program as a means of helping to maintain at least part of such yards at a reasonable level of operation. It is in the Navy's own interest to take this action, as it necessarily must rely upon the mobilization potential of the private yards in any war shipbuilding program, covering both naval combatant ships and various types of naval auxiliaries.

As a

With respect to naval repair work, the situation is somewhat different although here again the Navy during the past year has cooperated in the allocation of naval repair work to the private ship repair yards, not to the extent or at the rate that the private industry would like to see done, but to an appreciable extent. result of representations made early last year to the present Secretary of the Navy when he was Under Secretary of the Navy, a policy was inaugurated by Mr. Thomas to divert a greater proportion of naval ship repair work to the

At that time

private ship repair yards than had been the practice theretofore. it was pointed out that the relative employment in the naval shipyards was out of all proportion to the prewar pattern and that it should be radically readjusted. A reduction in force in the naval shipyards would not necessarily mean less total employment in overall ship repairing activities, which is the impression created by representatives of the naval shipyard unions and others interested in maintaining a high level of employment in the naval shipyards, as, assuming the same total volume of work, any reduction in the employment at a naval shipyard, as a result of diversion of work to private yards, would necessarily involve a substantially equivalent and compensatory increase in employment in the private yards in that particular competitive area.

The production employees in the naval shipyards totaled 108,000 as of March 1953. By March 1954, a year later, as a result of the new policy, there had been a reduction of 16,400 men, or approximately 15 percent of the March 1953 total. This reduction is substantial but not impressive. The industry is hopeful that during the fiscal year 1955, the rate of reduction will be accelerated and is relying upon Secretary of the Navy Thomas to accomplish that objective. The ultimate hope is that eventually the prewar pattern or its substantial equivalent will have been restored.

There is another phase of naval shipyard activity which causes trouble for the private shipyards. It is the practice of the Navy from time to time to make wage surveys of the industrial areas in which naval shipyards are located for the purpose of adjusting the wage rates paid civilian employees in the naval shipyards and other naval industrial activities to the general average wage level in such areas. The Navy does not limit itself in determining wage levels for naval shipyards to those of private shipyards in the area involved, but takes in many other types of industrial activity in which, in many cases, the wages are higher than in the shipyards. As a result, when a new average wage determination is made applicable to a naval shipyard, it sets a wage pattern higher than the existing one in the private yards which has been agreed upon as a result of collective bargaining. Thus the wage pattern of the naval shipyards usually leads that of the private yards with unfortunate results. It makes it difficult for the private yards to compete with the naval shipyards for skilled labor, it provides an incentive for union representatives in the private yards to make new demands for increased wages and other fringe benefits, thus creating a situation wherein industrial relations are disturbed and uneasy even when an existing collective bargaining agreement has some time to run. That situation tends eventually to increase shipyard costs, already almost priced out of a competitive market, and it gives impetus to a continuing spiral of increasing wage rates, because a Navy increase stimulates a private increase which, if granted, provides a basis for a new Navy survey and a further adjustment of Navy rates, and so on ad infinitum. It is not practical to place a value on the Government product produced in the naval shipyards, consisting of both shipbuilding and ship repairing, as requested by you. The only possible source of such information would be the Department of the Navy itself.

As for taxes lost, it likewise is not practical to even estimate any such loss. It should be self-evident, however, that to the extent naval ship construction and repair work is placed in private shipyards, the total income on a greater volume of work in those same shipyards is increased, as a result of which greater income taxes will be due the Government. A private enterprise operating at a low level pays little in the way of income taxes, while one operating at a loss ceases to be a source of tax revenue.

The question of competition of the naval shipyards with the private industry is not a new one. As long ago as 1932, this organization submitted a statement to the special committee appointed pursuant to House Resolution 235, adopted May 31, 1932, to investigate the Government's competition with private industry. Also, in 1937, the council issued a brochure on commercial shipyards and the Navy in connection with recommendations made by the Nye committee.

On January 12, 1953, the council submitted to Congressman Coudert a report on Government competition with the shipbuilding and ship-repairing industry, in connection with House Resolutions 12 and 15 introduced by him on January 3, 1953, copy of which is attached hereto for the information of this committee.

Likewise on June 17, 1953, the council submitted a letter to Congresswoman Harden, chairman of the Subcommittee on Intergovernmental Relations of this committee, copy of which is also attached hereto for the information of this committee.

In conclusion, it may be said with respect to the competition of naval shipyards with the private shipbuilding and ship repairing industry that, insofar as ship

building is concerned, the present cooperation of the Navy in awarding private contracts for naval shipbuilding is excellent. Insofar as ship repairing is concerned, the present policy has produced results and it is anticipated that the coming year will see an acceleration of those results with an ultimate hope, which the industry trusts will not be too long in being realized, that there will be a division of work between the naval shipyards and the private ship repair yards on such a basis as will assure an adequate mobilization potential of the industry. As for the naval shipyard wage problem, the methods and procedures for determining Government civilian wage levels are scheduled to be discussed by the industry with the staff of the Assistant Secretary of Defense for manpower and personnel in the near future.

I appreciate the opportunity to present this statement to this committee and trust that it will be of some help even though sufficient time was not available to permit more careful preparation.

Mr. OSMERS. Mr. Sanford was unable to be with us this afternoon, and I told him if any of the members of the committee had any questions arising from the statement which he has submitted that we would send those questions to him in writing. So, if any of the members of the committee have any statements arising from Mr. Sanford's statement, we would be happy to send them to him for his reply. Mr. Cerin, will you proceed?

STATEMENT OF ELMER CERIN, REPRESENTING E. P. HINKEL & CO., INC.

Mr. CERIN. My name is Elmer Cerin, and I reside in Washington, D. C. I am appearing before this committee as the representative of the E. P. Hinkel & Co., Inc., a small-business enterprise located in Washington, D. C. I had previously been a career Government servant for 20 years, primarily working in or with the military departments.

After a careful study of H. R. 8832 as well as the hearings and reports of the Harden Subcommittee on Intergovernmental Relations, I earnestly and unreservedly endorse the principles enunciated in the pending legislation.

The termination of industrial and commercial activities being performed by military and other Government agencies and the transfer of such activities to private business, capable and willing to perform at the lowest competitive price, fulfill the basic objectives of our freeenterprise system.

For the past 10 months I have been engaged in an intensive program to demonstrate to the military departments that millions of dollars annually are being needlessly wasted because the repair shops are not capable of properly repairing and reclaiming canvas end items.

In my visits to military supply depots, purchasing offices, repair shops, and other military installations, I have been repeatedly informed that the military departments are adequately equipped to reclaim all types of canvas end items; yet, a review of the huge amounts of canvas being sold as scrap at a few cents per pound would disclose that a high percentage of such canvas is properly and economically reclaimable. We have so demonstrated to the Ordnance Corps by accepting two pilot contracts for processing truck canvas and reclaiming 70 percent of the items which the classification officers had designated as not being economically reclaimable. Moreover, we saved the Federal Government over $135,000 on this test program.

In November 1952 the Office of Defense Mobilization recognized the advantages of our plan to reclaim canvas and, after careful evaluation, issued a certificate of necessity to the E. P. Hinkel & Co., Inc., in the amount of $180,000, but the military departments were not interested in developing privately owned canvas repair shops in competition with the military repair shops and have since exerted pressure to have the expansion goal for canvas reclamation facilities closed. In the meantime, the military canvas repair shops, using antiquated canvas-reclamation methods, improperly staffed and equipped, and geared to low output, continue to cull out a small quantity of the easily repairable items and relegate the bulk of the canvas to the scrap heap.

On no known economic basis can the continuance of these inefficient canvas repair shops be supported: The unit cost is high; the volume. processed low; the quantity recovered small, and the processed item far inferior to that reclaimed by private facilities.

My purpose in pinpointing the canvas repair activities of the military departments is merely to present an example of an operation, of which I happen to possess some knowledge, as indicative of the difficulty of removing this cancerous growth from our economic system. There is a natural tendency by the officials in charge to protect an activity that has been in existence for some time; some benefits can always be advanced.

But if we are ever to challenge successfully the industrial and commercial enterprises which permeate the entire Federal Government, and especially the military departments, there must be a willingnesss on the part of the Government agencies to scrutinize their activities and to terminate as soon as possible those activities which can and should be performed by private business. There has been some voluntary policing but the process has been very slow. In addition, in important areas where large and well-established facilities exist, the opposition by Government officials continues to be intense and the facts upon which to base an unbiased decision meager or beclouded. It is for this reason that I favor the establishment of the proposed Anti-Government Competition Board of Cabinet rank in order to effectuate the declared policy of the Congress with respect to the Federal Government being engaged in business-type competition with privately owned facilities.

Mr. Chairman, that is the end of my prepared statement, and I am open for questions.

Mr. OSMERS. Thank you very much for that statement, Mr. Cerin. Do we have any questions from the committee?

You feel, of course, Mr. Cerin, we should set up an instrumentality in the executive department to review these operations?

Mr. CERIN. As a longtime former Government employee, knowing what Government is and how it operates, I would think the provisions under H. R. 8832 is a step in the right direction of having an independent Government establishment passing upon the information submitted to them by the various Government agencies concerned.

Mr. OSMERS. Don't you feel it would be in the public interest, Mr. Cerin, to have an annual report from the President to the Congress and, of course, to the people of the United States on the progress being made in eliminating Government competition?

Mr. CERIN. Absolutely, sir.

Mr. FOUNTAIN. Mr. Chairman, I might say if we required that, and made it mandatory, we might eliminate the necessity of all the other provisions of the act.

Mr. OSMERS. Probably so, Mr. Fountain.

Are there any other questions of Mr. Cerin?

Thank you very much.

Mr. CERIN. Thank you very much, Mr. Chairman.

Mr. OSMERS. The committee will stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 4:40 p. m., the hearing was recessed until 10 a. m., Friday, July 16, 1954.)