tion of a high degree of savings relative to income on the part of consumers so that goods were purchased as soon as they could be produced.

The situation today is not the same as after World War II. There is no great pent up demand and the accumulation of savings is certainly no greater than usual. Therefore, there are not necessarily numerous opportunities for successful commercial ventures awaiting defense industries as soon as they can begin to produce for a commercial market. Furthermore, the needs that defense industry may be expected to help meet will not necessarily be those of providing an increased supply of consumer goods of the type already available. They are likely to be needs largely of a different character and the proposed Commission would make a significant contribution to the future welfare of the economy and the people if it can help identify the needs of the future so that industry would have an increasing awareness of how to plan its future development.

In a study conducted 3 years ago by the Senate Foreign Relations Subcommittee on Disarmament, 370 defense companies provided comprehensive and detailed information regarding the impact of defense work on their business. One question they were asked was whether defense production had facilitated nondefense output in any way. Only about 44 of the companies answered this question in the affirmative. In other words 326 out of 370 companies did not see any nondefense byproducts of their defense work. Of the 44 companies that did see a constructive relationship most of these were the very large companies. This one piece of evidence regarding the relationship between the products of defense and their application to civilian needs suggests that a Commission is indeed required to focus attention on the matter.

If the Commission is to fulfill its assignment by the time mentioned in the bill, that is by January 1, 1965, then it would seem that the passage of the legislation and the appointment of the Commission should proceed without delay. If one thinks only of the question of obtaining Government security clearance for the nongovernmental members of the Commission plus the expert staff that will be needed the Commission will be hard pressed to complete its work within the time specified. Perhaps the time allowed is insufficient and should be extended; or, provision might be made for Congress to extend the time period if this is shown to be necessary.

I do not have any other specific comments to make on the proposed bill, S. 2298, other than to hope that there could be a significant degree of participation on the part of industry and labor. Many of the defense industries of today have become so complex that Government officials often have not become familiar with the ways in which these industries and their labor force operate. If Government is to act intelligently to assist the economy in running at the highest possible level in any transition period then civil servants must comprehend thoroughly the operations of defense industries. One way to help achieve this objective is to have many of the advisory groups to a Commission, which by its proposed terms can include at the most only two or three representatives of industry and labor, consist of businessmen and labor leaders.

DEFENSE EXPENDITURES LIKELY TO DECLINE

Unless there is a great crisis in the world, defense expenditures are likely to decline. When one looks at key expenditures for defense today and realizes that a big chunk of current spending goes for the emplacement of the large U.S. missile force of Titans, Minutemen, and Polaris it becomes clearer that defense expenditures should decline when these programs are completed. Of course, it is possible that the momentum of the arms race itself, if it cannot be resisted by those in the executive and legislative branches will cause the expenditures of vast sums on new weapons systems. The pressures for an RS-70 bomber, a mission for the Air Force to be prepared to place weapons in space, and the emphasis for continued work on antimissile missiles do not stem only from military considerations. They stem also from a concern to keep our defense industry running at a high level so as not to lose to peacetime pursuits many of the defense skills acquired. If this objective were to be carried to a logical extreme it would mean continuing defense work for its own sake, to the detriment of the economy,our national security, and peace.

Since the beginning of the current arms race, which began approximately with the end of the Korean war, very few in Government or private life have been willing to study seriously the economic impacts of reduced defense spending, especially as this might relate to a disarmament agreement. The main reason

why few would attempt such a study is that the subject was considered premature. No disarmament was in sight so why examine problems that appear so extremely hypothetical, was the attitude. Some even went further and said that to study the economic aspects of disarmament might give the people of the country the impression that disarmament was imminent and that such an impression would weaken the resolve of the country to be willing to be taxed heavily for defense. Today these attitudes seem to be changing. The Congress and the public appear to be looking at both the defense budget and disarmament proposals more critically.

SOME WRONGLY THINK THE ECONOMY NEEDS DEFENSE FUNDS

From what I have been able to give to the question of economic adjustments to reduced defense spending there is no doubt in my mind that with proper planning on the part of industry, labor, and Government smooth and positive adjustments can be made. But because the public and even those in Government have received little information about this matter there appears to be a myth growing up that the economy must be buttressed by a large defense expenditures. In meeting with groups from different parts of the country I have been concerned at the number of times one question keeps coming up. That question is, are the United States and the Soviet Governments sincere about disarmament? This question used to be asked only with respect to the Soviet Government. Now our own Government is also included. One of the reasons cited by these people as to why they think the U.S. Government might not be sincere is that they believe the economic consequences might be so grave the Government cannot take disarmament seriously. These remarks come not from industry spokesmen, who usually voice a conviction that industry can adjust to reduced defense spending, but they come from citizens who have not been given any concrete grounds for reassurance.

Some in the executive branch of our Government believe that disarmament policy should be determined in part by its economic impact. Such arguments come not primarily from economists and businessmen, but rather from military and Foreign Service officers. They argue that U.S. disarmament plans should proceed slowly and reductions should not be drastic because the economy could not stand significant cutbacks taking place within a short period. Some also contend that the Congress, on economic grounds, would not condone any policy of rapid arms reductions. To my knowledge the Congress has never argued that U.S. disarmament policy should be in any way conditioned on economic grounds. especially economic grounds that had never been examined intensively. On the contrary, one of the few occasions when a part of the Congress did speak on this question the opposite conclusion was reached. In a report of the Senate Subcommittee on Disarmament the members unanmously stated:

"The subcommittee is of the firm conviction that efforts to achieve the control and reduction of armaments should not be hampered in any way on the grounds of their economic consequences. The ultimate benefits of disarmament are so great that we must proceed toward this goal despite any momentary problems in the economic sphere."

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ECONOMIC IMPACT OF A PRODUCTION CUTOFF

The point of the relationship between disarmament policy and economic considerations can be illustrated by referring to one of the most important aspects on a disarmament agreement, and that is the curtailment of production of key weapons. This happens to be one area where the positions of the United States and the Soviet Union, at the present level of detail at least, are quite close. Both countries propose that production of major weapons and parts of weapons be stopped in the first stage of a disarmament agreement. Both countries propose that the verification of such a measure should consist of international inspectors being placed at plants known to be producing weapons and that these inspectors should witness either the dismantlement of the plant or its conversion to peaceful pursuits.

Suppose that the Soviet Union and the United States decided to start the disarmament process by reaching agreement to implement this measure of a

1"Control and Reduction of Armaments," report of Sept. 6, 1957, contained in "Control and Reduction of Armaments," final report of the Committee on Foreign Relations, Subcommittee on Disarmament, 85th Cong., 2d sess., Rept. 2501, filed Aug. 1, 1958, p. 66.

production stoppage immediately; for example, to begin a stoppage of production by July 1, 1964, to be completed by June 30, 1965, and without necessarily tying this to other disarmament measures. What would be the economic consequences of such a measure implemented within this time period? I do not believe we know the answer to this question. And the answer should be given in terms of the economy as a whole; in terms of the health of the particular industries and companies involved including the production workers, scientists, engineers, managers, stockholders, and financiers; and in terms of the individual communities that would be directly affected in the first instance. I suspect that one of the reasons why the U.S. Government does not press this disarmament measure as strongly as it might is that it does not feel confident it understands the full economic impact.

NEED FOR DISCUSSIONS WITH KEY DEFENSE CONTRACTORS

I would now like to turn to some specific ways in which Government, industry, and labor might begin to study the effects of a reduction of defense spending. My concerns are not so much with the impact of defense spending on the economy as a whole, but on certain key industries and communities. The subcommittee is well aware that defense work has become highly concentrated on the west and east coasts with some 23 percent of defense revenue going to California alone. We know also that some States, such as New Mexico, Arizona, Kansas, and Utah, may not rank high in terms of total defense sales; but they are among the highest in terms of the portion of manufacturing employment that defense employment represents. In this sense such States are in a position not too unlike some countries, such as many in South America, where changes in sales abroad for one or two products affect the entire economy. Finally, we know too that defense work is highly concentrated in a few companies. According to data collected by the Senate Subcommittee on Disarmament in 1960 and 1961, 24 companies received about $15.7 billion from the Government for defense work for the calendar year 1959.

The total amount spent by the Defense Department in 1959 in the two major categories involving industry especially was: $16.9 billion for major procurement and $2.7 billion for research, development, test, and evaluation. The $15.7 billion, therefore, accounts for a major share of the procurement and research and development expenditures. This is true even if account is made for some of the $15.7 billion belonging to other defense categories, such as operations and maintenance. Although the data collected were for 1959 there is no reason to suppose that the trend of industry involvement in defense spending has altered substantially; it is probable that the sums mentioned above going to a few countries would be about the same today.

The 24 companies have 347 plants doing defense work, of which 152 plants did defense work over $10 million in 1959; of these 152 plants, 108 of them did no or very little commercial business. The 108 plants are located in 30 States, but 25 of them are in California; 10 each in New York and Massachusetts; 9 are in Ohio, and the rest are scattered with no more than 5 in any 1 State. There are many other plants of other companies, however, which devote anywhere from 75 to 100 percent of their efforts to defense.

My point in mentioning these facts is that plans for adjustment to reduced defense spending should be made, not only with respect to the economy as a whole, but with special attention paid to individual States, companies, plants, and communities. For example, it would be particularly significant to know whether the 108 plants, accounting for billions of dollars of defense business, have diversified at all these past 3 years. And, if not, certainly plants doing 75 to 100 percent defense work raise the question of the type of nonmilitary work that could be undertaken in such plants.

As of the time the data I have been discussing were gathered, very little of industry had begun to conduct studies on ways to adjust to reductions in defense spending. Of 264 large companies asked whether they had conducted studies, 219 indicated they had not yet done so. Therefore, because industry itself, either on its own initiative or as a result of Government suggestion, has appeared uninterested in the question of adjustment, and because so many defense plants are so completely devoted to defense, it is essential for the Government to initiate studies or programs to meet this problem. And one of the methods to do this is to look at the type of adjustment needed for individual plants.

Most companies, when asked how they would meet a situation of reduced defense income, stated that they would reduce production. This means often laying off workers. Twenty-eight percent of the companies responding to the Disarmament Subcommittee's questionnaire stated that they would develop new products. This is a sizable number but not as high as one would expect if full employment is to be achieved in the aftermath of disarmament.

In view of the above considerations the key defense contractors should be brought together to join with Government in a discussion of what steps toward measuring the effects of reduced defense spending should be taken and what steps should be tried in order to mitigate potentially harmful impacts. It should not be necessary to bring together large numbers of defense contractors; they could be brought together in groups according to industry, or according to their degree of participation in defense business. If the latter course were chosen the Government might start with the companies which account for the bulk of defense business, such as the 24 companies which accounted for the major portion of the defense pie in 1959–60. Such discussions with key defense contractors could be followed by conferences with the leaders in those communities that would be affected by certain kinds of defense cutbacks.

PRIORITY OF NATIONAL NEEDS

The final point I would like to make concerns the nature of the enterprises that might constitute the substitute for armament production on the part of defense companies. It is doubtful that it would be sufficient if defense companies attempted only to enter or expand in the commercial market in a manner whereby each company followed its own plans and efforts. At the present time the economy is not able to consume all the products industry offers. This suggests that the key to the adjustment for many companies and their individual plants heavily engaged in defense work lies initially at least in Government programs sponsored at the Federal or international level.

Many of the needs facing the country cannot be met without the aid of Government participation. The building of roads, schools, and hospitals; utilization of water resources; urban renewal; measures to combat air pollution and mass transportation systems all constitute needs which cannot be met in a haphazard manner by private industry alone or even by local and State governments acting independently of each other. Many companies, however, which have been engaged in defense work would be peculiarly suited to assist in meeting these needs in cooperation with Government.

It may be simple enough to identify community and national needs, to estimate their costs, and even to make tentative plans with industry for its cooperation in planning to meet these worthwhile objectives. But what is less likely to happen is the development of a consensus within the executive and legislative branches of Government as to the political desirability of sponsoring such projects soon enough after defense spending is reduced to maintain the economy at a high level. Government spending for defense is easily accepted by the political organs of the Government and by the people. What is still much less accepted today is the outlay of large expenditures at the Federal level to meet community needs, such as those I have mentioned.

NEED FOR INTERNATIONAL WATER DEVELOPMENT AUTHORITY

It would also be desirable if the Government did not restrict itself to programs for the United States alone. The United States, through statements by the Truman, Eisenhower, and Kennedy administrations, is committed to using part of the savings from disarmament for international development. We have not yet looked seriously at what international development projects should be given priority. The proposed Commission which would be established in the bill sponsored by Senators Hart and Humphrey appears to limit the Commission's terms of reference to national needs. Of additional importance would be a better comprehension of how defense industries in the United States might also use their talents and skills to further international economic development. My own preference, and one that Senators Sparkman and Humphrey have proposed, is that the United States in conjunction with other powers should investigate what could be done to develop water resources, where two or more countries are involved, through the creation of an international or several regional water development authorities.

The water problems of many countries constitute a key factor in their economic development. Power development, desalinization, irrigation, flood control, and antipollution measures would be concrete and useful ways to divert in a transition period expenditures from defense to civilian programs. In most cases individual or even groups of countries do not yet have the financial or technical resources to solve these problems by themselves. Furthermore, important and desirable political ramifications could result from a massive and coordinated program of international water development. In several areas the water problems are a source of political dispute among two or more counties; e.g., the Nile, the Jordan, the Indus, and the Mekong. The international development of water resources and the solution of regional water problems could, therefore, result in increased political stability in such areas and act as a constructive force for peace.

The

As in the domestic picture, there is the question whether the political decisions would be taken in time to make the economic transition a smooth one. more study and discussion that is undertaken now the greater the possibility the Congress and the public will be prepared to support the steps to meet the economic needs facing the Nation, and hopefully make at the same time a contribution to world economic betterment.

Senator CLARK. I have four statements dealing with the subject before this subcommittee and also the bill S. 2298 and Senate Joint Resolution 105 that I would like to have included in the record at this time.

These are the statements of Gerhard Colm, chief economist of the National Planning Association; Joseph A. Beirne, president of the Communications Workers of America; A. J. Hayes, international president of the International Association of Machinists and vice president of the AFL-CIO; and James T. Ramey, of the Atomic Energy Commission.

(The statements follow :)

PREPARED STATEMENT BY GERHARD COLM, NATIONAL PLANNING ASSOCIATION

I am Gerhard Colm, chief economist of the National Planning Association. I am appearing here in response to the chairman's invitation, and speak as an individual, not as a representative of NPA.

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Like the sponsors of Joint Resolution 105 before you, I also believe that automation presents at the same time one of the great economic opportunities and one of the great social threats of our time. In spite of this conviction I cannot persuade myself that the proposed establishment of a Presidential Commission on Automation would be the most effective next step in the solution of this problem.

I probably need to say little about automation as an opportunity and threat, for the members of this subcommittee are fully aware of these. Nevertheless, I want to make sure that my skepticism about the specific proposal will not be interpreted as a belief that automation does not present a serious challenge. On the contrary, automation deserves all possible attention of labor, business, government, and the public. The question is, What are the best steps to deal with this problem?

The adoption of automation wherever it improves a product at present costs or reduces the cost of a product is an opportunity which we cannot afford to forego. Ours is a high wage economy based on producing technologically advanced merchandise and depending on high and rising labor productivity. Standardization, assembly-line production, scientific management, operations research, and automation are some of the milestones on the road to increased productivity. These methods were developed successfully in the United States because the size and rapid growth of the domestic market offered the opportunities for largescale production.

1 I am using the term "automation" as a concept symbolizing a great variety of devices which represent substantial innovations in technological and managerial practices. Their common characteristic is that they not only replace muscle power by machines (mechanization), but also use machines for guiding operations.