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Mr. CULKIN. I do not want to delay the hearing, but I think if you can summarize it it would give us some definite impression, just offhand. Do not bother searching for it.

Mr. SMITH. No; I cannot give it to you off-hand. But since the first of the year—you say built abroad

Mr. CULKIN. Built out of Italy.
Mr. SMITH. I think comparatively little.

Mr. SIROVICH. Their contract only provides that in the event Italian construction companies charge more by 15 percent than another outside bidder, they can have that vessel constructed on the outside.

Mr. SMITH. That is the rule in France, and I believe the same in Italy. There is some rule to that effect—that if they are within a limited percent higher, they still build in the Italian or French yards.

Mr. SIROVICH. You brought out in your testimony before that we only built 2 cargo ships in comparison to 34, and the tremendous increase that England and Germany have had during the last 10 years?

Mr. SMITH. That is right.

Mr. SIROVICH. Why is it, considering the fact that the United States has the largest construction fund of any country in the world, that the construction companies of our country have not availed themselves of the service of building?

Mr. Smith. Because you have been faced with the development of this merchant marine in the foreign trade and, of course, you can only expect new ships to be built as they are required to be built under contracts entered into under the act of 1928, or as these companies are enabled to conduct their business profitably.

Mr. SIROVICH. Is it not a matter of fact that the ship-construction companies of our country that are building ships today and are in a position to build, independent of where they are found, are capable of turning out the finest constructed ships comparable to those of any nation of the world?

Mr: SMITH. Yes, sir. We can produce ships that are the equal of those built anywhere in the world. : Mr. SIROVICH. Therefore, my criticism would not be leveled against the construction companies that I think are capable of doing their work, that are living up to their contracts with the Govern. ment so far as labor conditions are concerned, and since 80 to 85 percent of all construction funds go for the development of labor, I believe the sentiment of Members of Congress is in favor of giving a subsidy that will represent the differential between the cost of construction in our country and in Europe, but the whole trouble with our country, as I see it, is with the operators of our merchant marine. · Mr. Suth. Well, sir, if we had not been through 6 years of depression, you would have seen a great many more ships built than were built.

Mr. SIROVICH. My reason for saying the operators did not is because, as a surgeon, I have always tried to go and see what the cause of the conditions was. We have a $150,000,000 fund for construction and for replacement and for the scrapping of obsolete ships and replacing them with new ones; we have the finest slop yards in the world, capable of rebuilding ships and constructing new ones, with the exception of the injustice that has been done to the Pacific coast, where no construction has taken place; therefore, we have no fault to find with the construction yards. The fault that I believe exists is in our operating lines, with the companies operating ships that have operated them in such a way as to bring about investigations by Congress and having reports buried in the Postmaster General's office, which have not been brought out, to show why we have been a failure in operating ships.

Mr. Smith. Of course, you must take this into account, sir, that the ship operator must have a definite policy under which he operates, over a long term of years, if you expect him to put new money into the construction of ships and the building up of ships and building up of his services. He cannot be expected to build unless he can see a return on it, and unless he knows what is going to happen to the ships he builds.

The CHAIRMAN. And that $150,000,000 fund has been used to the extent of all but $38,000,000, so that there is only a balance of $38,000,000, left in it now!

Mr. Smith. There is a $250,000,000 fund, I believe.

The CHAIRMAN. It was $250,000,000, but then it was limited afterward. The act of 1928 authorized $250,000,000.

Mr. Smith. That is right.

The CHAIRMAN. But a subsequent act of Congress limited it to $150,000,000.

Mr. SMITH. Yes.

The CHAIRMAN. And in that fund there is only available now $38,000,000.

Mr. Smith. That is right; there is not very much available at the present time.

Mr. STROVICH. What have we got to show for that $150,000,000, which is more than any construction fund of any nation in the world? On the terms that our Government has given under that construction fund, of 75 percent of the mortgage to be amortized over a period of 20 years, it has put us in a position that we have, according to your record here, about 5 percent of the ships that are hot' niore than 5 years old and the rest are all ready' to be scrapped? Is that not true?

Mr. SMITH. You have asked me, sir, what do we have to show. As I have stated, you have 31 of the finest ships that have ever been built by any country of the world, which I think are suitable, with a definite policy-which I anticipate you gentlemen will formulate to form the backbone of our future merchant marine and will be worthy of what they were intended to do. :

Mr. SiROVICH. In other words, since you have quoted the testimony of Professor Haag, you believe if we went on for the next 7 years with a construction program and a 'reconstruction program, under which we would put out

about 300,000 tons of new ships every year, that we could equal, within a period of 7 or 10 years, any nation of the world in foreign-cargo tonnage? Mr. Smith. You could equal it in tonnage Mr. SIROVICH. I mean you have the modernity, you have the speed, you have the newness.

Mr. SMITH. Yes.

Mr. SIROVICH. Those are the three elements which I understand are necessary.

Mr. Smith. That is right.
Mr. SIROVICH. To put into a new ship.
Mr. SMITH. That is right.

Mr. SIROVICH. You made the statement that if you could standardize ships—and you used the comparison of automobiles - you could bring down the cost of the architects' fees? In other words, each ship may have an average of about $500,000 in the cost of construction to start off with, for design, plans, and everything?

Mr. SMITH. The cost of your plans, as I have said, on a 18-knot ship might run as high as $500,000.

Mr. SIROVICH. Would it be possible to do just as we have been doing in the city of New York in building schools, where we standardize 5 or 10 schools so that we bring the cost of construction down because the overhead is always the same?

The CHAIRMAN. But you are building the schools in New York, and these people are building ships throughout the world.

Mr. SIROVICH. Yes; but my theory, Mr. Chairman, is, instead of building 1 or 2 ships, that we try to standardize 5 or 10.

The CHAIRMAN. I' understand the theory, but you are referring now to New York.

Mr. SIROVICH. No; I am just trying to bring out the fact that we have brought down the cost of construction of schools not by making every school alike and turning them out as they do à Ford automobile, but by having 5 or 10 schools built from the same design, which has brought the cost of production down and saved the taxpayers money.

Mr. SMITH. That is what I considered here. You probably can save 10 percent if you would build up to 4 or 5 ships of the same design; 10 percent on the cost of each one.

Mr. SIROVICH. Because the only differential that I can see between the cost of production in the United States and in foreign countries is the cost of labor, that is the differential.

Mr. SMITH. That is right.

Mr. WELCH. Mr. Smith, you referred to the plants owned and operated by the Bethlehem Steel Corporation.

Mr. SMITH. Yes, sir.

Mr. WELCH. How many plants are owned and operated by that corporation ?

Mr. Smith. It has the Fore River plant, in Quincy, Mass. It has a repair plant in Boston. It has a repair plant in Baltimore that has done no building in many years, except a barge.or-something of that sort. It has the Union Iron Works plant at the city of San Francisco; and then the drydocks at Hunter's Point. And it has a plant at San Pedro, Calif.

Mr. WELCH. Why is it that the Bethlehem Steel Corporation has done no shipbuilding in their Pacific coast yards for many years!

Mr. Smith. Well, they have built two yessels for the Hawaiian trade some years ago and that is about all, I think, that they have built of commercial vessels since the completion of the war program in 1922. I think that was the last ship that they completed on the Pacific coast, or in 1921. There have been no commercial vessels

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built on the west coast except those two and small craft, since the war. There have been, however, the General Engineering ship yards, who have built five, I think, vessels for the Coast Guard.

And the two navy yards, of course, the one at Mare Island and the one at Puget Sound, have done some work.

Mr. WELCH. I have in mind private shipbuilding.

Mr. Smith, The Todd Co. built two cruisers at Tacoma since the war. Outside of that, there has been no commercial shipbuilding on the west coast.

Mr. WELCH. The Government of the United States has made available approximately $150,000,000 for shipbuilding and the shipbuilding interests of this country, not one dollar of which has been spent in the construction of a ship on the Pacific coast. Our shipyards have gone to wrack and ruin. Shipyards, the gentleman will agree, are a part of our national defense, but they do not exist on the west coast. Can you suggest anything to this committee that will revive shipbuilding on the Pacific coast ?

Mr. SMITH. I would like to say this, however, in the first instance, that I am entirely sympathetic with that point of view, that there should be some private shipbuilding facilities maintained and continued on the west coast, from the standpoint of the national defense. I think it is very important.

In the first place, however, you have got--you are faced with the problem of the owner, that you cannot stop him from buying a ship where he chooses; and that, of course, is a problem. There is some difficultythe only handicap at the present time—the essential handicap is transportation. The labor rate is substantially the same; very little, if any, difference.

The transportation is high. We figured it out some time ago for a cargo ship and it worked out from 2 to 212 percent higher.

I think, as you know, for many, many years the Congress, in appropriating for the building of naval vessels, allowed a differential of 4 percent; and most of those naval vessels built at the old Union Iron Works in San Francisco were built under that differential; that is, that they took that into account, and, if they were not more than 4 percent higher than the bid on the east coast, they got the contract.

Mr. SIROVICH. Why should there be that increment in the cost of production over there?

Mr. Smith. Well, it is because most of the materials they use come from the east coast.

Mr. SIROVICH. The transportation cost?
Mr. Smith. Steel has to be transported from the east coast.

Mr. Culkin. Can you state, Mr. Smith, whether or not the organization of the International Mercantile Marine has had an unfavorable effect on the construction of ships and the American shipping? And take into consideration, in answering that question, the fact that we did subsidize some foreign ships.

Mr. SMITH. Oh, I would say positively that there have not been any unfavorable effects. It has been quite the reverse. They built three of the finest ships in the intercoastal trade, the California, Virginia, and Pennsylvania, and they built the largest ship for the trans-Atlantic service that we have ever built in this service.

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Mr. Culkin. As a matter of fact, we did subsidize a Belgian line that carried one steamship which disbursed $2,000,000.

Mr. Smith. I do not know anything about that.
Mr. CULKIN. You do not know about that?
Mr. SMITH. No.

Mr. CULKIN. Well now, do you think your group, the present or the prospective beneficiaries of this subsidy, are thoroughly national in every way? There is no question about that?

Mr. Smith. Yes, sir. Oh, I think there is no question about that.

Mr. Culkin. And they have the view only of the interests of America?

Mr. Smith. That is my profound belief.
Mr. CULKIN. There is no divided allegiance in your group?
Mr. SMITH. None at all.

Mr. CULKIN. Well now, take the construction of the wooden ships at the time of the World War; we spent $300,000,000 on them, I understand.

Mr. SMITH. Yes, sir.

Mr. CULKIN. And is it a fact that that was done at the suggestion of Lloyd George and the English naval group, who wanted us to build wooden ships, so that we would not have anything after the war to compete with them?

Mr. SMITH. No; I think not. I think it was more the interest of the people that had lumber to sell.

Mr. CULKIN. You think the lumber was a factor?
Mr. Smith. Yes, sir.
Mr. CULKIN. You think it was a mistake, of course?
Mr. Smith. I think it was a terrible mistake.

Mr. WELCH. If the gentleman from New York please, I did not finish questioning the witness.

Mr. CULKIN. I thought you had.

The CHAIRMAN. I think one member ought to finish before another starts

Mr. Culkin. I supposed he was through, Mr. Chairman.
The CHAIRMAN. I apologize to Mr. Welch.

Mr. Culkin. I did not intend to interrupt, Mr. Chairman. I do not want to leave that inference. Go ahead.

The CHAIRMAN. I am sure you did not.

Mr. Welch. The witness will agree that shipyards are a necessary part of our national defense?

Mr. SMITH. Yes, sir; they are just as important a factor in the national defense as our Government navy yards, in my opinion.

Mr. WELCH. Would you favor, Mr. Smith, a differential of onehalf of 1 percent in the Government interest charge for loans on vessels constructed on the Pacific coast for the Pacific coast trade?

Mr. Smith. Well, I figured that out the other day; and that would work out to about 5 percent advantage in cost over the lifetime of a ship, if it was amortized for 20 years. It seems to me that is a little high. That is more than is necessary to cover the actual differential, by considerable.

Mr. Welch. How much would you suggest ?

Mr. Smith. Around one-fourth of 1 percent, I think, would about cover it, instead of one-half of 1 percent.

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