Mr. HORNER. It may be that within that department there are individuals who are exclusively on the commercial end, I do not know

this.

Senator PELL. I was also struck very much indeed by your statement that you are 39th amongst the 500 largest companies based on total sales, your profit position is 380 based on capital. What is your profit percentage on your invested capital?

Mr. HORNER. We are 6.7 percent on invested capital in 1961 and percent of sales was 0.5.

Senator CLARK. Per dollar of sale?

Mr. HORNER. Per dollar of sale. This compares with automobiles, 6.5; chemicals, 9.9; electrical equipment, 4.6, et cetera.

Senator PELL. In other words, for every $1 of gross sales you made you only made 0.5 percent of profit? For every dollar of gross sales you only got half a cent of profit?

Mr. HORNER. That is right, sir.

Senator PELL. That is very low.

Senator CLARK. I though he said he had 5 cents on every dollar of of sales.

Mr. HORNER. No, sir; 0.5.

Senator CLARK. It is almost as bad as the retail stores, is it not?

Mr. HORNER. We have a rather heavier capital investment.

Senator PELL. What is the reason for that? Is it because your contracts with the Government are based on-certainly they are not based on the fixed profit allowance?

Mr. HORNER. Most of our contracts are not cost-plus; most of our contracts are fixed price. We are just unable to negotiate a higher profit because primarily of the disallowances of many of our expenses which are business expenses that we do not feel we can avoid.

Senator PELL. Thank you very much.

Senator CLARK. Mr. Horner, what has been your profit record for the last 5 years? Is it going up or down? What has happened in your dividend rate?

Mr. HORNER. Our profits have taken a saucer shape; we are now going up gradually. We had earnings of $40 to $50 million about 5 years ago; we went down to about $10 million. Last year, I believe, it was about $18 million.

Senator CLARK. You are hoping this year will be better?

Mr. HORNER. This year, I think, will be up a little bit.
Senator CLARK. Are you paying dividends?

Mr. HORNER. Yes, sir; we were paying $3 and we cut it to $2, and we did not earn that dividend in 2 years.

Senator CLARK. Some hope of going back to $3?

Mr. HORNER. I certainly hope so, sir, but it is going to be some time; back in the first part of 1950 we had no bank department and had $20 million in Government securities and a comfortable cash position.

Today, we have a minimum of cash, no Government bonds, and a debt of some $125 million.

Senator CLARK. But you are encouraged by the fact that you have gotten some more Government contracts which makes the immediate future look brighter.

Mr. HORNER. Our commercial business is looking up, too, sir.

Senator CLARK. Now, your Government business, I gather, is intensively competitive?

Mr. HORNER. Very.

Senator CLARK. The staff has asked me to ask you this question: About three-quarters of the growth sector in our economy, that is the part which ups the gross national product-is related in one way or another to defense. As you know defense expenditures have gone up since President Kennedy was inaugurated. Does this indicate there are not the opportunities for rapid innovation in the domestic economy that could absorb our research and development capacity if the defense stimulus is withdrawn?

In other words, suppose you have a substantial cutback in defense. You have done a lot of research and development. Will that research and development be largely thrown out the window or can you convert it into a useful end product in the civilian economy?

Mr. HORNER. There can probably be some small measure of such conversion, but compared to the total volume it would be rather negligible in my opinion.

Senator CLARK. Thank you very much, sir, for your most helpful testimony. I am sorry it is so pessimistic, but so is a lot of the information we are getting from other witnesses.

Mr. HORNER. I do not intend to be pessimistic, sir.

Senator CLARK. Well, are you not, really?

Mr. HORNER. No, sir.

Senator CLARK. It seems to me that the overall impact of what you told us is we are faced with a very serious problem of almost certainly increasing unemployment over the next few years and that this, in your case, would be made ever more serious if we were to start to level off or cut back on our defense program. Do you not agree with that? Mr. HORNER. I was looking at it from the standpoint of my particular company, sir; not the unemployment problem.

Senator CLARK. I misunderstood you. Of course, I am happy that you are optimistic about the increasing profits in your own company, but that would have to be combined, would it not, with a feeling of overall pessimism about where we are going in terms of overall employment?

Mr. HORNER. Oh, yes, sir. I am concerned about that. I misunderstood you.

Senator CLARK. Thank you very much, sir.

Our next witness is Mr. Lawrence A. Hyland, vice president and general manager of the Hughes Aircraft Co. at Culver City, Calif. Mr. Hyland, I am happy to have you here and I want to thank you for coming down to give us the benefit of your thinking. We have read your statement which is both long and interesting, and we will have it placed in full in the record at this point.

(The prepared statement of Mr. Hyland follows:)

PREPARED STATEMENT OF LAWRENCE A. HYLAND, VICE PRESIDENT AND GENERAL MANAGER, HUGHES AIRCRAFT Co., CULVER CITY, CALIF.

The subcommittee has sensed correctly that there may be a severe employment problem should there be a material change in the size or structure of the defense effort. However, the subcommittee has foreseen the situation before such a change has taken place and with enough time for an orderly transition, provided that

(1) We truly recognize the nature of the problem.

(2) We take advantage of the peculiarly favorable circumstances which may allow us to solve the problem in a timely fashion.

(3) We accept the risks as philosophically and provide the funds as reasonably as has been done for our military and space programs. (4) We organize in accordance with the importance of the job.

THE NATURE OF THE PROBLEM

The problem is of two parts of almost equal importance: technical and political. The technical problem is not the capability of our scientists and engineers to develop new processes, products, or retraining methods, for we have that. Rather, it is the time and the funds required to be able to define the objectives and then pursue the tasks.

The political problem is to recognize the obligation of Government to acquaint the country with the need and costs, to resolve the geographical and industrial conflicts, to coordinate the remedial measures, and to provide the funds.

As a reminder, we have seen the effects upon people due to the transfer of textile plants from the New England States as well as the consequences resulting from the substitution of new fuels for the products of the Appalachian mines. These were far simpler problems, they were a long time developing and industry itself could not or did not prevent the tragedy. What we are looking at here is a more complex situation which results from Government-stimulated technology and manufacturing operations of great size which have been built to satisfy the defense requirements of recent years. With a change in the size or the structure of this defense activity we have the double question facing us: (a) technological capability and supporting plant possibly idled; and (b) semiskilled and unskilled workers displaced either as to geography or proficiency.

These questions cannot be evaded as small area problems or involving only a comparatively few workers. The amount of money involved may be $10 billion annually which means jobs for 2 million people and indirectly affects millions more. The area involved is not a few counties but a large part of the Nation. The measures to cope with a possible maximum change in size or structure of defense spending cannot be handled with a limited organization such as the DOD Office of Economic Adjustment. This Office has functioned well in cases such as Presque Isle or Wichita where the adjustments were local and in the face of a strongly rising economy, but either in size or organizationally is it suited to the job we are discussing.

The Federal Government having deliberately and necessarily stimulated the rate of defense spending cannot back away from its equally necessary mission and duty to the idled plants and displaced people to channel them into peaceful employment of their capabilities.

Retraining for

The problem isn't the mere recommendation for retraining. what? It will not be sufficient to urge long-range planning. Planning for what? It isn't enough to point out the vast numbers of needs to be fulfilled in our society. What specific needs should be concentrated on? Whose responsibility will it be to promote these activities outside of the defense area? Where will the money come from? These are the salient questions that delineate the problem.

Our crash programs on missile and space have had priority as to funds and manpower over many other areas of military activity. The attainment of a satisfactory position of strategic forces as between this country and the Soviets is in sight. We now have the time and the money to catch up in many military activities which have been slighted or which now arise from the evolving international environment.

Because of the remaining urgent military requirements, some of which have techniques directly applicable to civil uses, there is at present a unique opportunity to accomplish the transition from one state of defense spending to another not only with a minimum disturbance of the economy but actually with an improved national social stability and purpose. Let me group under three headings the requirements as I see them during the transition period:

I. Outstanding Needs of the Defense Establishment.

II. Advanced Technical Systems Needed for Both Defense and Other
Applications.

III. Technical Systems and Research To Fill Public and Industrial Needs.

98-961-64-pt. 9- -8

1. OUTSTANDING NEEDS OF THE DEFENSE ESTABLISHMENT

A. Antisubmarine warfare

Investment in the cat-and-mouse game of hiding a vehicle by submersion and finding a submerged vehicle must continue. We need a large effort, not only to insure our ability to find and keep track of foreign submarines throughout the world's oceans and to destroy them in war, but also to understand the capabilities of potential enemies who themselves are trying to keep track of of our submarines.

The Thresher disaster has made it public knowledge that there are circumstances in which it is very hard to find a submarine. We must not subside in the face of this problem and allow others to solve it first.

B. Antiballistic missile

The cornerstone of our national deterrence strategy is the presumed impossibility, at present, of intercepting with high confidence the reentry vehicles of ballistic missiles. At one time, years ago, it was thought to be impractical even to detect their approach, a problem that has since been solved. The detection of ballistic missiles in flight required radar installations of a power and size larger by a factor of 10 than anything previously considered reasonable.

The antiballistic missile defense problem remains inadequately solved, although valuable strides have been made in one direction. We should increase attention to this problem lest our potential enemies solve it first and destroy the cornerstone of the U.S. security strategy. Recently the Soviets have displayed an antiballistic missile and claimed that the ABM problem is solved. The claim may or may not be premature, but it does establish their intense concentration on the problem and suggests that they are following a systematic approach.

C. Limited war

We need a large effort for the application of operational ingenuity and modern technology to many of the problems in, and surrounding, limited war conflict, and more specifically, counterinsurgency and guerrilla conflict. Here are some devices that would be useful:

Man-to-man identification-friend or foe.

"Moving man" indicator which would tell a sentry in the black of night if anything within some hundreds of yards of his post were moving. Ambush detector.

Man-to-man microminiaturized secure radio communications for information and command transmission. It may surprise many to know an efficient system of this kind does not exist. Dick Tracy may have had a twoway wrist radio for a quarter century or so, but we haven't.

Very high resolution sensors for viewing at night from aircraft, from land vehicles, and over the bead of a rifle. The technology exists to enable a man to see in the dark, but it hasn't been developed.

Silent-firing, no-flash hand-held rifle.

Effective, man-portable, all-weather air defense.

Electrical land mines which can be safely overdriven by friendly vehicles, but not by enemy vehicles.

Reconnaissance systems for the detection of change and movement of items as small as the individual fighting man.

All-weather, miniaturized attack and surveillance systems for vertical takeoff fighters.

This list could be lengthened extensively. Research is in process on some of these problems and not on the others. Useful equipment for every one of these items could be developed.

II. ADVANCED TECHNICAL SYSTEMS NEEDED FOR BOTH DEFENSE AND OTHER
APPLICATIONS

The technology for the systems in this group is directly applicable to both defense needs and the needs of sectors in government and commerce. Thus, there is a double incentive to pursue the developments, but problems arise in management of the development objectives and in the financing.

A. Worldwide detailed inspection and surveillance

We cannot adequately insure the security of the Western nations by the simple accumulation of machinery for the destruction of potential enemies and the accumulation of devices for our own defense which perform imperfectly. We need to know, in fine-scale detail, what the external world is doing. We know a great deal now, but not nearly enough. This matter is the heart of military preparedness, arms control, and commercial market analysis. (If the general would give his right arm to know what he does not know now about a potential enemy's activities abroad, wouldn't the sales manager like to have comparable information about the activities of his foreign competitors?)

If we had means to collect economic, political, industrial, and military information of the detail necessary to keep tabs on the rest of the world—to verify their keeping of agreements, to discern their imminent activities, to analyze their actions we would have in our hands quantities of data so massive as to be beyond comprehension. We need, in addition to a capability for collecting data in magnitudes greater than we have now, very fast and automatic techniques for processing and interpreting the data and comparing the results with decision rules which will draw the attention of decisionmakers to the possible trouble spots, violations, or other mischief. In effect, I am saying that we need an information technology comparable in scale to our present commendable military and space hardware technology.

Techniques are in hand to enable worldwide continuous monitoring of commodity flows, crop assessment, industrial production and demand patterns. Such data are now collected by various national bureaus of commerce and by the U.N. They are furnished to the public on a subscription basis with a time lag of 1 month to 2 years, by which late time much of the potential value has withered away. The total systems development of which our industry is capable could furnish this information to the decisionmaker on a virtually up-to-the-minute basis.

B. Communications, command, and control systems

In modern war, great events may be precipitated by the acts of individuals. We are all familiar with the great efforts of this country to insure against the possibility of unauthorized placement of a nuclear burst. But also at lower levels of military action, in regions far removed from the command centers at Washington, we require a detailed, current, and absolutely correct knowledge of what the enemy is doing, what forces he retains, what our forces are doing and what forces we retain. We require a speed and completeness of data and command transmission without precedent, to control the action of future war. Much valuable progress has been made along these lines, but our achievements remain inadequate before the visible task.

It is important to tie the world together. Voice, data, and video communication in this age is one of several essentials in bringing a developing economy to the takeoff stage. The long land lines and microwave links in Latin America, Africa, the Middle East, the Philippines, and southeast Asia are pitiably inadequate. There is a basic principle in the communications business that communications capacity never remains unused-people use communications capacity to its limits very soon after it is available. The best and cheapest means to create long-distance communication between industrial or population centers in these areas is by means of stationary syncom-type satellites which do not reqnuire large, costly ground stations, an ephemeris for determining the position of the satellite, or switching of the ground station from one satellite to another. Three advanced syncom satellites could serve all the world's telephones and all the world's television. One of the more rewarding avenues of U.S. investment in assistance to underdeveloped economies lies in the communications area, and the resulting systems would have immediate utility for U.S. military elements which may be called upon to control subversion in such areas. C. Educational aids

The U.S. Government agencies deserve great credit for the strides they have made in training by simulation. Pilots learn instrument flying on the ground; astronauts fly their complete missions many times in simulators before they approach their flight capsules. The Government, with industry's help, has successfully devised methods for the efficient training of vast numbers of people in such diverse subjects as foreign languages, technology, maintenance of complex equipment, international politics, and jungle combat.