We have tried to build up our American merchant marine in several ways. First, by Government operation of shipping lines, and then through the sale of Government vessels at low prices to private operators, and again through subsidies paid to operators under the guise of mail-pay contracts. All these efforts have resulted in failure. The mail-contract subsidies increased from $9,304,217 in 1928 to $27,012,519 in 1934.

Today out of 37,400,000 tons of vessels engaging in international trade, Great Britain leads with 14,119,000, and the others rank in the following order: United States, 3,084,000; Japan, 3,049,000; Germany, 2,832,000; France, 2,571,000; Italy, 2,264,000; and all others, 9,481,000.

Speed today is one of the outstanding requirements of merchant vessels, and in this regard the United States is in a relatively weak position. It ranks fifth in tonnage of ships with speeds of 12 knots and upward. Great Britain, Germany, France, and Japan all exceed this country in the speed of vessels. Seven countries-Great Britain, Germany, Italy, Norway, Netherlands, Japan, and Franceall have more model vessels (vessels of less than 10 years of age) than the United States.

Admiral George H. Rock, former chief constructor of the United States Navy, recently testified before a Government committee that the United States ranks lower in cargo vessels of 2,000 gross tons or over (which means ocean-going types), built within the last 10 years, than any other country having shipping except Spain. Figures compiled a few years ago show Great Britain has 735 such vessels as compared with a total of 9 for the United States. Even Norway has approximately 15 times as many vessels of this type as the United States.

President Roosevelt, whose experience as Assistant Secretary of the Navy led him to study and understand our shipping problem, recognizes the need for a strong merchant marine, and is meeting the issue in his usual straightforward

manner.

He frankly urges that the country do away with all subterfuges, admit that subsidies are necessary to successful operation of United States merchant vessels in competition with the ships of other nations, and then for the Congress to grant these subsidies openly and squarely and call them by their right name.

This recommendation is, in my opinion, one of the greatest and most courageous contributions that has been made toward an American merchant marine. We have avoided too long the fact that this Nation's shipping needs cannot exist without subsidies.

American shipping must be supported by subsidies for the obvious reason that it costs more to build and operate vessels under the United States flag than under other flags. We have a higher standard of living in this country and this fact is reflected in building and operating costs.

A cargo vessel may be built in a British yard for about five-eighths of what the same vessel would cost if built in a United States yard. This increased cost is reflected in many items, including materials, labor, and supplies. The erroneous impression exists in some quarters that wages are chiefly responsible for these added charges. Wages are a contributing factor, but it is unfair to say that they are the only one.

Increased operating costs under the American flag are easily explained; for example, the wages, food, and repairs are higher than on foreign ships. The average wage paid American seamen is about $56.50 per month, and some operators pay even more than this amount. Contrasted with seamen's wages on foreign ships, in some instances less than half, the difference in operating expenses is easily recognizable.

President Roosevelt proposes that a Government subsidy be paid to provide for the difference in building and operating costs. That is the issue, directly and clearly stated.

The payment of these necessary subsidies must meet with the approval of our citizens if we are to have a merchant marine.

In behalf of the American taxpayer, it is only fair to say that some operators in the past have not been square in dealing with the Government. They have taken unfair advantage of the taxpayers in obtaining public funds appropriated primarily to build new ships, and dissipated some of these funds for other purposes, such as exorbitant salaries, dividends, real estate, and other ventures. The interdepartmental committee appointed to study this question, in its report to the President, which he transmitted with his message to Congress, strongly urged that maximum safeguards, including the installation of uniform accounting systems for all companies participating in public funds, be set up. This and other safeguards are an imperative condition to granting subsidies.

The American taxpayer. I believe is ready and willing to help any legitimate `ip op rafor expand foreign trade and to aud him in making ships avaliable to the country in time of war but he is not wiảng Pat his hard-earned money nated Herce it is the duty of the Congress aria iministrative stino oopholes are left open so that the taxpayer may be wronged

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made by the interdepartmental committee, which I heartily turime • than estaba ment of a Naval Reserve to be manned by members vit marine If this suggestion is adopted volg men would be trafung ito ma 1 ty on merchant vessels in, pesox times and star i in readilIan va ta merve t cir contry in emergenes periods This not only word create a I defer se for the United States, but it also woud give employment and tra.. ing to many young men who are now without employment or ave a real desire to make the sea a career

ut my path Me Itave always a ivocated a strong merchant marine, heer at easire to reiterate my faith, in it tonight President Roosevelt fins. I believe laid down a spiendi i program for our merchant marine, and 1 for one al al do my utmost to bring about its ad- ption.

A vessels which might be necessary in event of war. To do so would require a huge outlay of taxpayers' money and might tend to encourage unnecessary defense expenditures.

Speaking generally, the same types of ships which are necessary from the commercial standpoint in time of peace are required from the defense standpoint in time of war. Our World War experience is a striking testimony to the value of anfadequate and efficient merchant marine and conclusive proof of the handicaps imposed and excessive expenses incurred through the lack of an adequate merchant marine. Upon the entrance of the United States into the World War we had to depend to a great extent upon foreign ships for transport and military purposes and for the import and export of raw materials and manufactured products. Much of this transportation had to be done at an excessive cost to the American Government and also was a severe handicap to naval and military operations. Thus, from both the commercial and defense standpoints, it would seem that for the economic self-respect, the military self-respect, and the pride of the Nation, an adequate and proper development and maintenance of an American merchant marine is a fundamental necessity.

The practical question in view of these conditions, which early arose and is still before us, is the way in which the labor and other extra cost inequalities, as previously described, can be met or equalized so as to permit the building and sustaining of a requisite merchant marine. An equally important aspect of this question is the necessity of fixing the amount of the subsidy at a point where it will equalize these differentials and stimulate rather than discourage private initiative.

We can readily see that nationality determines the political and economic conditions under which a ship operates. The owner of an American vessel buys his repairs, employs part of his labor, and in some cases all of it, part of the supplies and frequently the ship itself, in the protected domestic market characterized by the costs incidental to a high living standard. His stock in trade is ship's space, which he sells in an unprotected, competitive world market. Naturally the ship operator looks to the nationl interest which may be inherent in his business to neutralize any resultant handicaps.

We all insist that we must maintain our standard of living as against the lower living standards of other countries, and by so doing we automatically impose a handicap upon American shipowners. The best answer that Congress has worked out to this problem of meeting differential costs and expenses is to have the Federal Government supplement the larger costs for our country with money from the Federal Treasury. The question then arose: What is the safest and most effective manner of putting this principle into practicable operation? Congress decided to let this excess cost represent service rendered by the American shipping lines in carrying the mail and has seen fit to designate this financial aid as ocean-mail pay or a subsidy. Funk & Wagnall's Standard Dictionary defines as subsidy as "Pecuniary aid directly granted by government to an individual or commercial enterprise deemed productive of public benefit." Webster's New International Dictionary defines subsidy as A grant of funds or property from a government *to a private person or company to assist in the establishment or support of an enterprise deemed advantageous to the public.' Applying these definitions to the merchant marine we may say that the subsidy in this case is a payment of funds from the Government to American ship operators to offset the lower costs of ship construction and operation in foreign countries, so that American vessels may be placed on a sounder competitive basis in the world market. Merchant-marine subsidies take the form of ocean-mail pay and Government financing of shipbuilding and shipping operations to the extent that private business is unable to supply or provide.

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Unfortunately, the Federal Government has not been industrious enough in its efforts to enlighten the people on the subject of subsidies and this use of public funds; and many people probably think that the subsidy is nothing more than the compensation which transportation lines get for carrying the mail. It is not that, but rather a method for actually building a competitive American merchant marine.

Even with the much lower costs existing in other maritime nations, our chief competitors have found subsidies necessary in order to build and maintain their merchant marines. Great Britain, France, and Japan, with their much lower costs, have found subsidies necessary to maintain their commercial fleets for both economic and national defense purposes. It should not be difficult to understand, therefore, that a subsidy policy is essential in the building and maintenance of our merchant marine, at least until a better method is developed.

When we have accepted the necessity for a merchant-marine subsidy, we then face the quest, n of how this money is to be most wisely spent, how the Treasury is to be safeguar fed in these expenditures, and just what form these subsidies should take When pubite fur ds are to be expended in as large quantities as tise needed to maintain our merchant marine, the public is entitled to know what polier the Government has adopted and why such a policy is necessary, The question of subs, les comprel er da, therefore, a study of the compiete scope of the stupting and foreign-trade activities of the United States.

I ́e des gration of payments made to ship operators by the Government as "Devan mal jav jewhat maleading Mail pay is a Triste Trier, for Tarts are not made primarily as o tojensation for carrying the mail If tiny were, these payments would only be à fractional part of what they are at ]Tort Hence it would seem to me that there would be less misunderstanding if these payments were clear, and frankly designated as direct subsidien

A private eompany operating an essential trade route under the American fing would rest, re a car tai investment and a continuing cost wineli, against fire an empetition, would give no hope of a reas nabie return over a period of VERTH tut which would rest in heavy josses instead. Consequentiv the Goverment of the Ur, ted States determines essential trade routes and agrees ་ ༢བས འt « -p- perafer by sharing in the venture through a "ecutract service”

What does this submidy include and how is it determined”

}rst, as already explained, we have the excess cost of construction in this ecoetry as cre of the items which the Government mig't seek to amortize Partially In the second place, we have the ecnsiderably higher cost of seat en and other later as compared wit'. foreign countries. Then we have the tird factor of the subsides given by foreign countries to their stap operators. After these facts are caref llly weighed, the differential ecsta determined, and an agreement reached that the trade route is an essential one, t'e Government then, in effect, says to the ship operator, "We are absorbing a part of ti ese additional ests in order that you may operate and develop tas essential trade route.” The payments made by the Government for this purpose are subsi‹hes.

See the traz ster of the Shipping Board to the Department of Commerce as a regular bureau of the Dej artz ent, the Secretary of Con merce is charged with the responsibility of fostering the development of our merchant nar.be. After a study of the country's shipping prijev in effect daring the post-World War period, I am convinced that we must initiate a sounder and more adequate merei ant marine and subsidy program To sec-mpish this objective, there are several ma, rens, lerations which it seems to me deserve caref d'attentan.

We all stard for fair and equital le competition in aŭ unes of trade and e me theree, but we all know that competition can be carried to such extremes as to destres the purpose for which proper competition is designed for instance, when the Government *.pports che line of slips chi ati enactitial trade route Orengh mahmudy payments, it is very foolish and destructive to masel ans tei era le otter lines to buld ships and et gage in commerce in ecm.petition with the very lines wi, ch the Government is mirendly mupporting, and throngla wlach it is trying to build a merchant marine. Such a p×jicy is like Ue man who would defer if him self with one hand and ecmmit suicide with the other hand,

It asmuch as Government avis to shopping lave as their objective the esta) lis ment of an eff cent and ultimativ a self-susta titig merchant marite, tie essential trade routes to be served stud be determined by analyzing the flow and volume of traffe with dae ectisideration to such other factors as deferinė req jiremer ta, trade poi cies, and ind atrisi and agreat irai nieedia When these requirements are determined, Government and abould be given to ship ubes necessary to fulfill these resurements and and should be watareid from any other domestic operators seeking to enter into direct exmpetition with the i ne already receiving Government mad.

It seems to me that the present system of aid in the form of comper sat or for the carrying of occan mails might properly be rejaced by specile matsuchies granted for the man teli ce of essential services The sites gra: tesi stor. i be based on differentiais in bulging and operating exata, tit should be flexit de erough to permit adjustments as charges in conditions and circumsta’ces may warrant. Furthermore, s „l sudies should not be granted to more than one pie competing in the same trade route

In order to facilitate the proper handut g of subsidies, two broad class.fications of subsidies might be made First, a subsidy to cover the differences in si..p

building costs, so long as governmental policy provides for compensation for this differential; and, second, a subsidy to offset the difference in operating costs with competing foreign companies. The governmental agency administering the subsidy should also have discretionary authority to make allowances in the national interest to meet exceptional trade developments. With these factors as a basis, subsidy payments could be made with maximum equality, because some operators would have the major requirement of a construction subsidy, others an operating subsidy, and another, perhaps under certain conditions, a trade-development subsidy.

The application of this subsidy policy must take into consideration present conditions in the merchant-marine industry and a proper audit and check-up on merchant marine as a safeguard to Government expenditures. In respect to the latter requirement, the Government should have authority to examine books at frequent intervals of the creditor companies, establish uniform accounting, and scrutinize carefully all items of cost. On such data readjustments of the direct subsidies or cost differentials can and should be made at annual intervals.

In a special study of shipping trends conducted by the Transportation Division, Bureau of Foreign and Domestic Commerce, in connection with its economic survey of a proposed ship canal. the following facts were developed.

The fleet of sea-going steamers under American registry in the World War era was expanded from 2,000,000 gross tons in 1914 to 13,500,000 gross tons in 1921. Most of this additional tonnage was constructed during that period, part of it was acquired by purchase of American and foreign ships, and part of it through seizure of interned enemy vessels. Not all of the tonnage acquired was suitable for commercial use and a considerable portion of it was never so employed. A considerable amount is either laid up or sold. Even at the time it was built, this war-time tonnage was not up-to-date in type. At the time, quantity of production was the primary consideration.

This war-time fleet, far from modern at the time it was acquired, is still the backbone of our American merchant marine and constitutes te great bulk of our sea-going tonnage.

Since the war period there have been additions to the American tanker fleet and a number of American combination-type vessels have been built, largely with Government assistance. But, with only one or two exceptions, the American freighter fleet was built during the war construction period.

Since the war, rapid strides have been made in ship construction, particularly with regard to more economic propulsion, coupled with a definite trend toward increased speed. For instance, when compared with the general run of machinery installed during the war period, a modern high-pressure, superheated steam engine installation would operate, if at the same speed, on 35 to 40 percent less fuel.

Tonnage acquired in the war period cannot be estimated to last more than 8 to 10 years more, and may be retired much faster if faced with competition of many ships of the newer types.

Unless provision is made for progressive replacement of most of our concurrently operated vessels, the passing of American shipping from foreign trade appears certain from one or both of the following causes:

The end of the present economic depression and attendant world trade revival will see the constitution of a number of modern-type vessels under foreign flags, with which our tonnage cannot compete on equal terms. Also,at the end of 8 or 10 years, our war-built tonnage will be so obsolete that it will be retired very rapidly and its business pass into foreign hands.

It seems clear to me that the subsidy is only a part of the problem of developing an adequate merchant marine. The shipping acts reflect the intent of Congress that the shipping industry should be properly regulated. Without such regulation, no subsidy, however well administered, can accomplish its intended purpose. The subsidy must not be used to cloak inefficiency. The communities served by American shipping lines must supplement governmental aid and support by doing everything within their power to encourage and promote business on these American lines. In the past many of our seaport communities have failed to do their rightful share in supporting and maintaining the merchant marine.

The United States can expect to attain the highest degree of efficiency and progress in our merchant-marine activities only if the ship operators and the communities served by our shipping lines fulfill in every sense their responsibilities, which are fully as great as those of the Government.

What is needed here as elsewhere is complete cooperation among the agencies affected in attaining results for the common good. Our shipping bottoms are