Mr. STRONG. I don't believe we ever had the labor violence in Altoona. Senator FLANDERS. There was no violence, to my knowledge. Mr. CONNER. I was wondering where some of the depressed areas are developed are they from large companies that are stock companies, or from maybe what you call home-grown companies, meaning that they started 40 or 50 years ago, they have grown up, and now that there is no one left in the family that has much interest in it, they have dropped out. We have a case down in New Orleans of a Mr. Merriwether, who is brother to the late Dorothy Dix who used to write a column in the newspapers. He has a turpentine plant in New Orleans. He is up in his eighties now and knows he cannot keep on, so he called the employees in and said, "Gentlemen, I am going to have to shut down. I cannot go on any more. You can do this: I will leave what equity I have in this company as a stock company. You fellows get organized and set up and rejuvenate this a little bit. I will stay with you with my investment, but you fellows will have to do it. I cannot do it." The funny thing about it is that Merriwether had been carrying this business on in New Orleans, which is against the economy, because he gets his turpentine in northern Louisiana. The workmen said, “Sure, we will join in with you, but we will move the plant." The workmen said that themselves "We will move the plant. It is more economical. We understand it. We don't know why you kept it here all this time." Senator SPARKMAN. They moved with the plant in that case? Mr. CONNER. That is right. It was a condition of economy. When it was put to them as their problem, they were very interested in seeing that they could make money out of it, more than he did. The point is, how many depressed areas might be created by homeowned things, not stock companies. Any large company is a stock company. They are dealing with the future. I like to deal with them. They are looking toward things that go on after I go. Senator SPARKMAN. Senator Flanders? Senator FLANDERS. Mr. Chairman, I think it must be said that so far as the New England cotton industry was concerned, a large factor was nearness to the supply of cotton, as you have said. Another larger factor was low labor cost, but there was also another factor: The second and third generation mills were run by managers who went by the name of agents. The descendants of the owners were without technical or business knowledge. What they asked for was dividends, and the agents who would bring the dividends were the agents that they hired, and the agents in too many cases obtained the dividends by paying out the funds instead of for replacement of new machinery and improvement of equipment, so that the time came when the owners had an absolute obsolete mill, with no chance nor funds for reequipping it. Don't you agree, Mr. Neal, that that was a part of the problem? Mr. NEAL. As a matter of fact, if I could add to that, Senator Flanders, the textile industry in New England is singular, I think, in that until very recently there has been virtually no attempt at diversification of that industry. Things that are perfectly common in almost any other line of manufacturing that you can think of are still unheard of in the textile industry. The Federal Reserve Bank of Boston has commissioned a study of diversification possibilities for this industry because the going concern values of textile firms have simply been dissipated, poured down the drain, because they have not considered anything but making textiles. I think that for the part of the industry that we have left there is some hope that some of them, anyway, will do what the textile machinery makers are doing as fast as they can, and that is taking on additional lines which will keep them going, and use their capital and their management and their plant and location, despite the fact that their original line is no longer profitable or has had a reduced volume. Senator SPARKMAN. Any further comment? Mr. CONNER. May I ask Senator Flanders a question? He said awhile ago he would like to serve as chairman the first year but not afterward. I was thinking of the Small Business Administration office which we in Louisiana happen to have lost. Through their Dallas office, however, we, as a State agency, distribute information concerning their operations to our people in Louisiana. We used the Small Business Administration loan on a plant here awhile ago, a home-grown plant in a matter of expansion where the local banks originally committed themselves to join, and then all at once pulled out. If it had not been for the Dallas office, and my getting in touch with them and getting together with the small firm-it was a matter of $300,000-they would not have been able to do what they wanted to do, which was to expand. I think that in my mind the Small Business Administration has been very effective. It could be very effective, sir, in handling the connection between assisting small businesses, on Federal levels that is. Senator FLANDERS. I am glad to get that judgment from you. Of course, Dallas is quite a ways away. May I tell Wright Patman this story? Senator SPARKMAN. You have one in Boston. Mr. CONNER. At our industrial conference in Louisiana last week, 265 people from 62 communities in Louisiana were present, and Dallas had 3 of their representatives there to get acquainted with the problems. They are very much on their toes. Senator FLANDERS. Wright Patman lives in Texarkana, and his favorite story is about a Chicago business firm whose southern representative was in El Paso. They wired him that there was a good prospect in Texarkana, and asked him to look up the prospect. He wired back to Chicago and said: You are nearer Texarkana than I am. Go yourself. Senator SPARKMAN. Any further comments from anyone in the panel? Senator Flanders? Dr. Ensley? Mr. ENSLEY. My questions have been answered. Senator SPARKMAN. I may say that we invited Dr. Seymour Harris, chairman of the economic department of Harvard University, to submit a statement on this subject, and he has done so. That will be included in the record. 69848-55-42 THE EXISTENCE OF CHRONICALLY DEPRESSED INDUSTRIAL AREAS DURING PERIODS OF FULL EMPLOYMENT, WITH SPECIAL FOCUS ON INTERREGIONAL PROBLEMS ARISING FROM CURRENT TRENDS OF INDUSTRIAL MIGRATION Statement of Seymour E. Harris, chairman of the economics department, Harvard University 1. GENERAL VERSUS SPECIAL MEASURES The above is the subject I was asked to discuss. I believe the major factor to be stressed is that full employment is related to the large volume of public expenditures (approaching $100 billion), and any substantial decline from this high level of employment is treated by general measures-e. g., fiscal and monetary policy. But these general measures are inadequate for treating spot situations. In fact, a vast rise in deficits and monetary expansion might reduce the 20 percent of unemployment in Lawrence, Mass.; but it would be at the expense of a great inflation. Looking at the problem in a somewhat different way, I would say that the expansionist programs associated with large Government spending, tax reduction (1954), and even Government deficits have contributed toward an improvement in areas of spot unemployment. Obviously, the situation would be much more serious if there were 10 to 20 percent of unemployment in the country generally instead of a minimum amount of a few percent. The vulnerable areas would suffer disproportionately from any decline of activity. 2. WHY SURPLUS LABOR AREAS Surplus labor areas predominate in textile, shoe, and coal-mining regions. The explanation in no small part is the slow rate of growth in these industries. In textiles, the competition of synthetics (a transfer of activity to the chemical industry), great technological advances, the fierce competition of the South, the increased competition of other consumers' goods, a tendency to wear less clothing, the effects of some Federal policies and (related) the slow overall growth of the industry-these largely explain unemployment in textile towns and especially in the Northeast. The importance of the rate of growth is suggested by the figures below. It will be noted that textiles, apparels, and shoes account only for two-thirds as much employment in manufacturing relatively as in 1899; and chemicals, petroleum, and rubber, a rise of two-thirds. From 1947 to 1955 (first quarter) the decline in textile employment in New England was 129,000, or a drop of 43 percent.' This drop largely explained a loss of 141,000 manufacturing jobs in New England. In only 2 census industries were there substantial gains of manufacturing jobs to offset these losses (transportation equipment, 34,000, and electrical machinery, 12,500). Percentage of employment Source: United States Census of Manufactures, 1947, II, various pages; and 1951 Annual Survey of Manufactures; advance report, series MAS 5/24, Mar. 11, 1953, p. 7. In coal the problems are somewhat different. The competition of oil is of firstrate significance. Wage policy which tends further to weaken the competition of coal and to result in uneconomic allocation of mining, is another factor of importance. That the industry is heavily concentrated in a few States, and particularly the large concentration in West Virginia, is especially unfortunate. For it becomes very difficult indeed for the State to introduce corrective measures when the State's employment and income is so dependent on one industry. In general, there are limitations on how much a local or State government can do. From 1948 to 1954, nonagricultural employment in West Virginia dropped from v Labor Review, June 1955, p. 645. 544,000 to 473,000. In this kind of situation, despite great needs the pressure is to reduce public spending." 3. THE PROBLEM OF FINDING SUBSTITUTE EMPLOYMENTS What is especially puzzling is why replacements are not found for the declining industries. Indeed, to some extent substitute employment is found. The depressed areas try to diversify; and they subsidize incoming industries in various ways. But the high taxes accompanying closing of plants and migration, the residue of bad capital-labor relations, and the gloomy appearance of ancient plants now in darkness discourage new enterprises. Nor is the outward migration adequate. Employment opportunities elsewhere are not too well known. The large number of women and concentration of racial stocks discourage outward migration. People do not like to leave their homes. That this is so, is suggested by variations of as much as 3 to 1 in per capita incomes among States. One explanation for the difficulties in finding substitute industries lies in the limited range of employments that are competitive. 4. LIMITED RANGE OF COMPETITIVE EMPLOYMENT Elsewhere I have discussed this problem more fully. Here I present several paragraphs from this study. The major conclusion to be drawn is that losses can be recouped only out of a limited area of economic activity.3 "The major competition faced by American industry is interregional, not international. For example, exports out of the country are but 4 to 5 percent of the gross national product. Obviously, most sales are at home. In fact, a large part of all sales are within the region or even city of production. This is perhaps even more true of services than of movable goods. A large part of our services are almost exclusively free of interregional competition-medical, local, and State government, public utilities, domestic service, local transport, public education, etc. Here competition outside the city or region is distinctly limited. This point is of importance because it underlines the limited area within whch adjustments in response to losses in interregional competitive position must be made. "It is well to remember that manufacturing income in 1952 accounted for but 31 percent of all income. The major adjustments in the competitive position of a region have to be concentrated to a considerable extent on this part of the economy. Hence, large losses in interregional competition, say, in textiles and shoes, if they are to be made good in substitute exports, must largely be made good in improvements in manufacturing 'export' industries. Agriculture, forestry, fisheries, and mining account for but 9 percent of the national income. Here competition is relevant but the limits of adaptability are determined largely by the resources available. "An estimate of approximately 40 items included in service employments and accounting for 60 percent of all income suggests that only about 10 percent of all income and corresponding employments included here are largely subject to interregional competition. Thus for retail trade, public utilities, transportation, telephone services, most services (education, religion, cinema, private households), local and State government, and a large part of Federal Government, the location of activities for the most part is determined by the present distribution of population and income. Only as population and income are redistributed will the services be redistributed. They are determinates, not determinants. Substantial parts of wholesale trade and of insurance are examples of services subject to interregional competition. (See Survey of Current Business, July 1953, p. 16.) "An indication of the areas of competition is given by the distribution of various types of incomes by regions. *** We compare for each region the percentage of incomes earned by different employments relative to the region's share of the Nation's income. Thus in the 7 regions of the country, for 1952, the average percentage of trade and service income to the region's total income 2 Cf. hearings on the January 1955 Economic Report of the President, especially, pp. 193-197; and James M. Henderson, A Short-Run Model for the Coal Industry, Review of Economics and Statistics, November 1955, pp. 336-346. 3 S. E. Harris, Interregional Competition: With Particular Reference to North-South Competition, Proceedings of the American Economic Association, 1954, pp. 370–372. payments varied only from 24.1 to 28 percent (the United States average was 25.6). In construction, the range was from 3.4 percent (New England) to 5 percent (Southeast). Here the differences are explained largely by the slow advance of New England and the rapid industrial growth of the South-not by the South selling construction services to other regions. Where the percentage of income accruing to particular employments does not vary much from region to region, it may be assumed that competition is distinctly limited. In some instances, where percentage of employment varies generally, e. g., transportation, the explanation may well be that differences reflect geography rather than interregional competition. Heavy concentration of population explains a low proportion of employment in transportation in New England and Central States, and large distances explain high relative employment in transportation in the South, Northwest, and Far West. Differences in the proportion of service income may also reflect variations in spending patterns in part: the rich Northeast spends more on services than the poor South. "For agriculture, government, and manufacturing, the minimum and maximum figures (taken from the Survey of Current Business, August 1953, p. 9) were as shown in the following table: "If a manufacturing region loses heavily in exports, its losses must be recouped largely in manufactures, with some help from services. Yet even in manufactures there are segments where adjustments are not easily made. For example, in 1951, the distribution of manufacturing employment was as follows: "1. Seven industries with location predominantly determined by access to raw materials (and to some extent to proximity to markets) accounted for 35 percent of the value added in 1951. "2. The location of 7 industries accounting for 46 percent of the value added was determined to a substantial degree by the need of being near the markets. "3. The other 5 industries (textiles, apparel and related, printing and publishing, leather and leather products, instruments and related products) accounting for 19 percent of value added were industries which might be located largely independently of the proximity to the sources of the raw materials. "The last group would especially be subject to pressures for any adjustments that have to be made." 5. ADJUSTMENTS THROUGH MONEY, PRICE, AND WAGE MOVEMENTS Ordinarily it is assumed that when a region or industry loses ground, it loses cash, with resultant fall of prices and pressure on wages. The fact is that this kind of pressure is exerted, and the movement of wages reflects the pressure. New England, once a high-wage region, now experiences wages below the national average in all but three of the industries listed in the manufacturing censuses. The differential between North and South in textiles has been reduced by some 80 percent over a period of 50 years. Textile wages also tend to fall relative to other wages. Thus, from 1947 to 1954, the hourly rate in textiles declined from 84 percent of the average manufacturing rate to 75 percent. In recent years the pressure of industrialization in the South has tended to narrow wage differentials further. Thus, from 1947 to 1953, the rise of hourly wages in manufacturing was 41 percent in both New England and the Middle Atlantic States and 49.5, 53.7 and 57.3 percent in three southern regions. In part this greater rise for the South is undoubtedly related to the relatively large growth in high-wage industries.* ed from Census of Manufactures, 1947, and 1953 Annual Survey of Manu |