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tends to give us competition, but finally some of them get together and the rest of us pay the charge.
Mr. BOLAND. The only thing presently which would indicate some concentration of anything in this regard is these hot plastic paints which are patented items. But the holder of the patent is on record with the Harden subcommittee that he will grant licenses to anybody who wants to manufacture for Navy procurement.
The CHAIRMAN. Do you know what the holder of that patent gets out of it in the way of royalties?
Mr. BOLAND. No, I do not.
Mr. WARD. We asked the General Accounting Office to make a detailed study of the history of the development of that patent and who holds it and all of the facts, but they have not reported yet.
The CHAIRMAN. And how long it runs?
The CHAIRMAN. Of course, that is the argument, or one of them. As you said, it is suggested that it is one of the principal arguments for the Government getting into these different forms of business. That is, that the private manufacturers have been overcharging, which is natural, I guess.
Mr. OSMERS. You get as much as you can, Mr. Chairman.
Mr. BOLAND. I do not know of any such charge with respect to paints.
The CHAIRMAN. You never heard of that with respect to paints? Mr. BOLAND. No, sir.
The CHAIRMAN. I have no more questions.
Mr. BOLAND. There is one item I would like to bring to your attention, Mr. Chairman, about progress. It dovetails into our support for 8832. That is, the paint industry as a result of what has been done is now being investigated under a directive of the Secretary of Defense. That report is due on the 8th of August, but we do not know what it is going to say.
We wanted to point out in the directive of the Secretary of Defense it provides that the Navy shall pass on the question as to whether or not they shall stay in business.
The CHAIRMAN. Whether they shall what?
Mr. BOLAND. Whether or not they shall stay in the paint manufacturing business. We think 8832 by moving it over into an impartial agency will get rid of any such question as that.
The CHAIRMAN. Thank you very much for appearing. Your statement will be made a part of the record.
(The prepared statement of Mr. Boland is as follows:) STATEMENT OF DANIEL L. BOLAND, GENERAL COUNSEL, NATIONAL PAINT,
VARNISH AND LACQUER ASSOCIATION, INC. My name is Daniel L. Boland, an attorney at law, of Washington, D. C. general counsel of the National Paint, Varnish and Lacquer Association, Inc., with headquarters at 1500 Rhode Island Avenue NW., Washington, D.' C., a voluntary, nonprofit, industrywide organization, originally established in 1888 and now comprising approximately 1,400 members, a large majority of whom are owners of small businesses. They are engaged in the manufacture and distribution of paint, varnish, lacquer and allied products, or of equipment and materials used in such manufacture. Collectively, they produce approximately 94 percent of the total national volume of all types of paints, varnishes, and lacquers.
First, I appreciate the privilege afforded the association and the industry to have a representative appear today before your committee. Secondly, each member of the paint, varnish, and lacquer industry appreciates that this committee is aware that the practice of any governmental agency that competes unwarrantedly with private enterprise weakens the basic foundation of our national economy. Furthermore, we are particularly grateful for your general report on Government in business (H. Rept. No. 1197, February 9, 1954) and your specific report on paint manufacturing (H. Rept. No. 1672, May 25, 1954).
I appear today to support H. R. 8832—entitled, a bill to terminate or limit those activities of the Government which are conducted in competition with private enterprise, to establish the Anti-Government Competition Board, and for other purposes, and introduced by Congressman Osmers. The paint manufacturing operations conducted by the Navy Department have been investigated by this committee, during the 82d Congress under the subcommittee chairmanship of Mr. Bonner of North Carolina, and the 83d Congress by your Subcommittee on Intergovernmental Relations with Mrs. Harden as chairman. The results are shown in the committee's report on paint manufacturing, a copy of which is attached for the use of each committee member.
Our experiences during and after those congressional investigations we submit furnish adequate reason for the early enactment of H. R. 8832.
Despite 2 specific directives from Congress, 1 in 1932—the second from this comm.ittee, following extensive and thorough hearings, we still find the Navy operating 2 paint plants. It is also noteworthy that an impartial study made in 1952 by the National Security Industrial Association Advisory Committee for Paints and Related Protective Coatings at the request of and for the Secretary of Navy also recommended his consideration of the advantages of paint manufacturing and the utilization of Navy paint facilities for other Navy yard activities. At present, the number of paint items manufactured by the Navy has been reduced, but we have no assurance of continuance of this situation. Once before, in 1946, the Navy curtailed its paint production to 24 items and it was not until this committee conducted its hearings in 1951 that it was disclosed that the Navy had since expanded its operations to 150 paint items.
It is our experience and conclusion that the Navy has continually changed its excuses for retaining the paint plants. The matter of cost came up during the hearings of the Subcommittee on Intergovernmental Relations. Navy cost figures were questioned by subcommittee members as to their completeness as compared with private industry's cost systems. At the insistence of the Harden subcommittee, the Navy requested bids from a selected list of manufacturers for a limited quantity of antifouling paints. The gallonage involved was not sufficient to warrant the installation of certain necessary equipment. At this time only one manufacturer had been licensed by the patent holder to make these types of paints, but no royalties are payable on these patents for any paint produced for the Navy. Nevertheless, several paint manufacturers have stated that they would install the required equipment if the Navy would continue to buy on bids from private industry.. No such assurance has been given. Furthermore, a new type of ship-bottom paint, known as vinyl type, will replace these antifouling paints. The new paints are being developed by the Navy in cooperation with a private company, It is significant that these new formulas were originated by private enterprise. We have long contended that research will develop better products and believe the scientific and research facilities of private industry should be utilized along with the Navy research facilities, but that production facilities be wholly private. In this manner only can we be assured of industrial expansion in an emergency:
The manner in which the paint, varnish and lacquer industry, a segment of private enterprise, met the challenges of production was amply demonstrated during World Wars I and II and the Korean hostilities.
The Navy maintains its manufacturing of these antifouling paints on the basis that they can produce at less cost and that they are of special formulation requiring their own control. Both premises are unsupportable. The contract for these special paints was awarded to a paint manufacturer at a price very close to what the Navy had presented as its cost. It has been shown that our industry can produce these special types of paints.
The Navy's major argument to retain its paint manufacturing facilities is quality control, although your committee's report (H. Rept. No. 1197) condemned such contention. The Navy's excuses for manufacturing paints if applied to all naval supply items, would mean that private industry could not produce ships, machinery, airplanes, or radar equipment—all requiring more intricate operations and control of quality than the manufacture of paint.
We have always cooperated closely and fully with the Navy and will continue to do so. The paint, varnish and lacquer industry has always supported an adequate defense force. Therefore, our foremost interest lies in the maintenance of the best equipped and most efficient Army, Navy and Air Force in this troubled world.
It has been proposed that a Joint Navy-Industry Committee be appointed to study Navy paint requirements, quality controls, inspection methods, procurement methods, improving specifications, and other matters. This would place at the disposal of the Navy the technical ability and know-how of the paint industry. It would mean a better understanding and working, arrangement between Navy and the members of the paint, varnish and lacquer industry.
We have offered to place the personnel from discontinued Navy paint plants in comparable positions in the paint industry, and assist in disposal of the machinery, equipment and raw materials in an orderly manner so as not to disrupt anyone concerned.
The Navy contends its present paintmaking operations are a negligible factor and represent only one-half of 1 percent of the total volume of the paint, varnish, and lacquer industry. The data on private enterprise and Navy production is found on page 10 of your committee's report of May 25, 1954. However, the small percentage figure is misleading. While the Navy production of about 3 million gallons in 1954 is a small percentage of the total volume of our industry, it represents approximately 22 percent of the total gallonage of marine-type paints made by private concerns.
From information in this committee's report, the number of Government employees in Navy paint plants is shown as 198 employees. We are advised that the Chief of the Bureau
of Ships has written Senator George that the employees are 100. Personnel in Washington and other cities engaged full or part time in paint operations are not included.
The capital investment in equipment only at Mare Island is $348,776 and at Norfolk, $137,155. These figures were submitted by Admiral Manseau to this committee. We have no information as to the total value of the Government investment. Because the Navy paint plants operate out of a revolving fund and not out of appropriated funds, details on such operations are secured only through hearings such as this.
Instructions issued by the Secretary of Defense concerning the "continuance in operation or the establishment of commercial and industrial-type facilities” by the military, state the Secretaries of the military departments will “be responsible for the analyses and determinations pertaining to military, commercial and industrial facilities and similar privately owned and operated facilities” (Department of Defense Directive 4100.16). Under this policy, the Navy will act as prosecutor and defender, judge and jury of its paint and other facilities and pass on its own report.
It is our opinion that such decisions, which so strongly affect our national economy, should be made by an impartial group and in the manner suggested by H. R. 8832.
We support this bill because we believe there should be an administrative agency created in the executive department to consider and recommend action on questions of Government facilities in competition with private industry when presented by the public, private enterprise, Jabor, or any private citizen. The policy of free enterprise has been clearly stated by the President and the Secretary of Defense. It has been supported by this committee and by Congress. Now it is the job of Congress to implement this policy, to bring action, to prevent delay, to permit recommendations, so that a report to the President will have ample evidence to take proper action. Enactment of H. R. 8832 will permit this to be done.
This committee has already patiently weighed the evidence on Government competition and has arrived at a general policy of agreement that such competition is a deterent to the free-enterprise system.
Two reports have been issued and they represent an accurate appraisal of the existing unfair situation. We know the authority to eliminate such competition rests with the Chief Executive of the Nation. Therefore, we suggest that the President be advised of your recommendations and that the chairman request he issue a directive to cease all activities in competition with private enterprise. This should be done promptly for each industry surveyed, and report issued.
This important subject of Government competition with private enterprise has taken much time of the Members of Congress every year as long as I can remember. The story has been told and retold. This committee has concurred. Government competition with paint and other manufacturers has been declared contrary to national policy. It is now time for positive Executive action. We, therefore,
urge your committee to report H. R. 8832 with a favorable and unanimous recommendation.
The CHAIRMAN. Call the next witness.
STATEMENT OF WILLIAM F. BLOCHER, PRESIDENT, INTERNATIONAL ASSOCIATION OF BLUE PRINT AND ALLIED INDUSTRIES
Mr. BLOCHER. Thank you very much. My name is William Blocher. I am engaged in the blueprint and related allied industries business, and I am presently the president of the International Association of Blue Print and Allied Industries, with headquarters in Chicago, Ill.
The CHAIRMAN. Off the record. (Discussion off the record.)
The CHAIRMAN. Mr. Blocher, your statement will be included in the record at this point.
(The prepared statement of Mr. Blocher is as follows:) STATEMENT OF WILLIAM F. BLOCHER, PRESIDENT, INTERNATIONAL AssociATION
OF BLUE PRINT AND ALLIED INDUSTRIES My name is William F. Blocher. I am executive vice president of a bluprint company and I am president of the International Association of Blue Print and Allied Industries, which maintains headquarters in Chicago, Ill., and represents blueprinters, photocopy shop operators, and those allied to these industries in all of the 48 States. There are some 2,000 companies in this field throughout the Nation and its Territories.
In the name of my association, which has adopted by virtual unanimous vote several resolutions relating to Federal competition with private, taxpaying business, I wish to endorse the principles of the legislation you are now consideringH. R. 8832, which is designed to terminate or limit those activities of the Federal Government which are conducted in competition with private enterprise.
Speaking both as an individual businessman and as president of a national association of private, taxpaying businessmen, I should like to say that we endorse the general objectives and purposes also of the constitutional amendment recently introduced by Representative Ralph W. Gwinn (Republican, New York), of legislation introduced by Representative Fred Busbey (Republican, Illinois), and of H. R. 9157, which was introduced by your chairman, the Honorable Clare E. Hoffman, which is designed specifically to get the Federal Government out of competition with the private blueprint and photocopy industry, insofar as this can be done without disrupting the various defense programs, the atomicenergy program, or interfering in any way with the legal work of the Department of Justice.
As a private businessman and as a spokesman on this occasion for thousands of small-business men, I sincerely urge you gentlemen of the Congress to move as swiftly as possible to force the various agencies of this huge Government to divest themselves of equipment, machinery, and other capital goods which have been acquired and can and do represent a threat not only to our industry but to many different kinds of industries that should not be so threatened with subsidized, Federal competition.
Referring to our industry—the blueprint and photocopy industry-because it is the one with which I am most familiar, let me illustrate how the competition works to our disadvantage and to the disadvantage of the long-suffering fellow we know as the American taxpayer.
Not long ago, a Federal agency wanted a large number of blueprints. The agency, as is customary when it gives out orders to private shops, called three different blueprint companies and asked for spot bids. The low bid from the private shops on this work was 272 cents a square foot. When none of the shops received the work, an investigation was made. We learned that the agency had been advised that the order was so large it would have to get sealed bids from numerous shops to be legal and correct about the matter. This, the agency executives said, would require several weeks. Instead, the agency decided to utilize its own equipment for blueprint work, and therefore employed workers to work
extra shifts. Even so, it required the agency from 4 to 6 weeks to do this work. Any one of the private blueprint shops could have given the agency 15-day delivery on the complete order. This was the amount of time in which the agency said delivery was needed.
Now, note that the agency because it has its own equipment, still will not get the completed order, from its own shop, in anything like the time it could get the order from a private, taxpaying blue printer. Yes, you might say, but look how much the Government saves. Actually, the agency must spend at least 3 cents a square foot, according to its own calculations of cost, to do this work for itself, when it could have contracted for the work to be done at 222 cents a square foot. The truth is, the various agencies which maintain their own blueprint and photocopy facilities actually do not know how much it reallly costs them to do their own work. In some agencies, they estimate the cost is 9 cents a square foot. In others, as noted, the estimate is 3 cents a square foot. But in no case do the agencies take into account all the costs—including the cost of interest on Uncle Sam's investment in equipment and machinery, cost of labor, cost of rent for the space use, allowance for taxes, etc. In short, even by the agencies' methods of computing costs, which are theoretical as every businessman knows, the work still costs Uncle Sam more than if he contracted for it to be done with private companies in this field.
This is only one concrete example. It happens to be in the blueprint and photocopy field, but I am sure that business representatives of other industries could tell you the same story day after day.
We of the international blueprint and photocopy industry are not striving, through our endorsement of this legislation and similar legislation, and particularly H. R. 9157, to hurt these people who are engaged in work in the executive branch of the Government. We believe-we know—that if the Federal Government cannot do work that competes with private industry, there will be plenty of jobs open for those engaged in these industries today in the executive branch. We sincerely believe that it is uneconomical, unfair, and works to promote socialism by degrees to allow Uncle Sam to go on and on in various business, encroaching a little here and a little there.
The apparent result to anyone who studies this problem-either in our industry or any of the hundred different industries-is that the taxpayer is saddled with continuing costs to operate the Federal facilities. Naturally, the people who work in these facilities want to increase their prestige and to assure their continuity of service. So, day by day, they think up good reasons why the equipment ought to be used. New vistas open to them for new work of other kinds. The natural tendency of any federally operated facility is to grow. Certainly, if the past decade has taught us anything, it has taught us that the executive branch will not voluntarily divest itself of power and of employees and can always think of reasons for adding to its powers and its personnel. The Federal establishment today has 2.3 million employees, which is some 200,000 more than it had in April 1950, before the Korean war began. Even with the consolidations and efficiencies that have been put into effect in the past 18 months or so, the Federal establishment still is much larger than it ever has been in peacetime during our lifetime.
If Congress truly wants to cut back the taxpayer's burden, to cut down the Federal establishment, then, gentlemen, you have a wonderful opportunity right here to help accomplish this worthwhile goal. The fields are ripe for the harvest. While there has been much talk in the executive branch about stopping Federal competition with private business, and many studies have been inaugurated, the sad truth is that there has been very little real action-certainly not enough for anyone to write home about. We naturally applaud the plodding work of the so-called Hoover Commission, which is making a monumental study of the Federal establishment with a view to giving the Congress concrete recommendations next year. We applaud, in fact, every study that every agency has made, is making, or will make.
Yet it is our belief, based on long observation of the Federal Establishment and certainly not disputed by any evidence which we have seen, that the only way truly to assure businessmen that they will not be discriminated against by Federal competition is for Congress to act. There is a question as to exactly what is the best thing for Congress to do, but we sincerely hope that you gentlemen will not hesitate to act merely because several roads beckon ahead. Some say that a constitutional amendment will solve the problem, but that seems like a long, arduous trail to take. Others say that a continuing commission should be set up to keep an eye on all Federal businesses and designate which ones should be shut down, and when. Some, such as the noted author of this present legislation, would have an Anti-Government Competition Board do the job. We have endorsed and will work for H. R. 9157 because we know it is explicit and that it actually would be