Mr. COFFIN. We understand that if we had the type of problemsuppose we had a manufacturer who could move to our area if he enjoyed the set-aside provisions under the existing legislation. We understand if we put our case to the Commerce Department, or whoever makes the decision, we could get a very speedy determination, and perhaps some of the benefits of the surplus-area concept, without the out-and-out declaration that we were a labor-surplus area. Senator CLARK. It is my thought, too, that the areas which the Commerce Department works in are somewhat too large. You will find a pocket of unemployment in a large area where the percentage is not met, and yet transportation problems and dislocation are such that you do not really get the prosperity of the surrounding area making up for the unemployment in the pocket. Mr. COFFIN. I would agree. For example, I think in Maine they have the Sanford-Biddeford-Saco area, which might have been necessary to meet the standard at that time. It is really two areas, both of which are depressed. Senator CLARK. Mr. Maxwell said yesterday he did not understand why he was always being grouped with Sanford, because Biddeford was fine and they did not have any responsibility for Sanford. He did not quite put it that way, but that was the implication. Mr. COFFIN. I agree with you on that. I have concluded what I had to say on these two bills, and I think it might be of help, and I appreciate the fact that you have this formal statement printed. I do think this: This is the third time I have appeared, and I have made substantially these suggestions. I have studied the record of the testimony as it has developed. I have found in that testimony no good reason why the studies bill is not a good bill, except that the attitude is, Why make us do what we admit should be done? I have found no good reason regarding the suggestion in S. 2185 regarding loans to nonprofit organizations excepting, Why give us clear-cut authority to do what we admit is being done and ought to be done, where the authority is not clear? Then, finally, I think the permanency of the Small Business Administration has a great many ramifications which indicate that is a valuable step to take. Senator CLARK. You do not share the fear of Mr. Maxwell that we are building another monster which will soon become an RFC, which is adverse to the public interest? Mr. COFFIN. No. I think we have to look on Government as a tool which we can use with incerasing skill as the years go by, and that we can learn by mistakes. We have carried the Small Business Administration along now since 1953. We have made some mistakes, but certainly it has not developed into a giant machine. Like a baby, it has just crawled, and we think now the normal walking period should begin. I have confidence we have developed enough know-how and skilled personnel to administer the Small Business Administration in a very sensible and helpful manner, and we have no alternative unless we want to confine ourselves to the extinction of small units of business. Senator CLARK. Thank you very much, Mr. Congressman. We are very grateful to you for coming over here, and your suggestions have been most helpful. Mr. COFFIN. Thank you very much, Mr. Chairman. (The prepared statement of Mr. Coffin follows:) STATEMENT OF FRANK M. COFFIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE Mr Chairman and members of the subcommittee, I want to thank you for the privilege and opportunity to testify before your committee today. know you have had busy and lengthy sessions, and so I shall endeavor to be as brief as possible. You have before you a number of legislative proposals relating to problems of small business. Some are concerned with the future and functions of the Small Business Administration; others involve proposals for entirely new approaches to credit problems of small business. I should like to make some general comments on small business and its peculiar situation today, and then I should like to comment briefly on two bills introduced by Senator Humphrey, S. 2184 and S. 2185. There are some spokesmen who refuse to admit the existence of any substantial problem facing small business which cannot be cured by better management under existing conditions and credit availabilities. There have been citations of Dun & Bradstreet figures to prove that the major cause of small-business failures has been poor management. The corollary to this proposition is that any Government lending program for this group is bound to assist the poor managers and maintain in business people who shouldn't be there. The contention is, that under normal procedures the loss of certain small business will be compensated for by the establishment of healthy, well-managed small busi nesses. In certain instances this may be true. But I fear that in the vast majority of cases, the liquidation of one small busines in a given field, particularly in manufacturing, is not followed by the establishment of a sounder small business in its place, but by a greater concentration of the available market in a preexisting larger company. As Churchill might say, "Never has so much been owned by so few." I cannot view with calm assurance the increasing concentration of business power, the steady attrition of small businesses, and the stifling of many communities in my State. Undoubtedly many small-business failures have been due to mismanagement. Certainly we do not want to maintain indefinitely businesses which cannot, when helped over the rough spots of a temporary crisis, stand on their own feet. But we do not want to condemn one of the most vital parts of our economy to a hazardous existence, at the mercy of circumstances and forces beyond the control of the individuals involved in small-business operations. I believe the crisis confronting us in the small-business community today will continue for some time and, in view of this forecast, I am convinced of the necessity for continuing an agency like the Small Business Administration. As I see it, SBA performs two very essential functions for small businesses: (1) It provides necessary capital not available through private credit sources; and (2) it makes available technical assistance and advice for struggling small businesses. In its formative years, SBA has done very well. I think it can do much more. For example, in the 31⁄2 years of its existence, SBA has not issued adequate reports on basic problems of small business. I have mentioned the assertions by Dun & Bradstreet. However, some small-business groups deny that management is a primary problem. SBA has not produced any independent survey to show whether management problems are a primary cause of the weakening of the small-business segment of the economy. The President's Cabinet Committee on Small Business has made a number of recommendations to strengthen small business. It appears clear that these recommendations are not based on any documented survey of the fundamental problems of small business. Indeed, how could they be, since no study of these problems, to my knowledge, has been found. Senator Humphrey's bill, S. 2184, would require studies of fundamental problems of small business. This bill, and the identical measure which I have introduced, H. R. 5651, state specifically that studies include principal problems that affect the growth, competitive strength, and stability of small business. This would include the effects on small business of inflation and deflation, availability of credit, materials and supplies, cost factors, labor problems, management and personnel problems, new equipment, merchandising methods, and manufacturing techniques, research problems, automation, nationwide distribution, advertising, atomic development, foreign competition, Government regulation, and taxes. SBA would be authorized to hire private organizations to help in making these studies. Finally, it would be required to make detailed, semiannual reports on present and contemplated research programs. The second of Senator Humphrey's bills, which I wish to comment on, this morning, is S. 2185, which would make funds available for loan to nonprofit development groups. SBA has, to its credit, recognized the desirability of making loans to such groups. But, lacking specific legislative authority, this program has been neces sarily tentative and limited in scope as well as in amount. Therefore, loans are made only when a specific, ascertainable firm is the beneficiary of the loan. The amount is held down to $250,000 for any one nonprofit development group, whether it is to aid 1 firm or 20 firms. Mr. Barnes, in testimony before the House Banking and Currency Committee, stated that my proposal, identical to S. 2185, may have merit. He added, however, that a preferable approach for financial help to development organizations would be through the proposed Administration Area Assistance Act, H. R. 5459. I ask you, gentlemen, why, if the SBA regards this type of loan sufficiently desirable to stretch its authority to make them, does it hesitate to have its authority sanctioned and extended by Congress? Why should the SBA suggest that this authority be given to some other agency under legislation and a program which does not yet exist? Moreover, financial help under the areaassistance bill is restricted to areas where there has been at least 8 percent unemployment for the major portion of 2 years. I wish to emphasize that this bill does not envisage this program as one for depressed areas. This type of activity is one of the best guaranties that communities will not become depressed areas. It encourages self-help and places the responsibility on the community. It enables the development-credit corporations to get financing for community programs in a planning stage, regardless of whether they have firm commitments with a particular small-business firm. Since the bill does not limit the amount of loans which can be made to one development corporation, it will provide more realistic financing to groups performing a community service on a wide scale. In other words, the support of a community industrial program will depend on its inherent soundness, rather than on an artificial quota. In Maine we are trying, through our State Department of Economic Development, and through the efforts of individual communities, to encourage the strengthening of existing businesses and the establishment of healthy new enterprises. There are some 71 communities actively participating in this program at the present time. Nationwide there are 3,000 such communities, of which about 2,000 are active. This is a very healthy development of a townmeeting approach to economic problems. Such enterprise on the part of civic leaders deserves encouragement and support. Sooner or later most of these communities are going to need financial assistance for the establishment or improvement of businesses. Existing private sources will not always meet the need. Something has been made of the State development-credit corporations, such as we have in Maine. It is true that these institutions have supplied a new source of long-term credit, not previously available. However, even this is not enough. If our experience in Maine is any indication, the loan policies of these corporations tend to approximate those of the member banks, eliminating the applications which involve more risk than the ordinary bank is willing to take. A good example of this type of risk is the Colonial Aircraft Corp. of Sanford, Maine, which has received two loans from the Small Business Administration. This small company has, in a new plane of its own creation, found a demand which has outstripped its current ability to produce. It is now searching for additional skilled labor, and it needs further financing for expansion. So long as there is "tight money" and so long as the various problems I have mentioned continue to press on small businesses, there will be need for more imaginative approaches than is to be found in traditional, conservative credit thinking. I believe these two proposals of Senator Humphrey which I have discussed today provide room for a substantial improvement in the necessary operation of the Small Business Administration. I have This is not the first time I have discussed these ideas at this session. been on record three times on these matters. I have studied the testimony of others. I have yet to hear or read an effective argument against them. To S. 2185, providing for loans to nonprofit organizations, the only argument is: We have made this type of loan a few times without clear authority, so why give us clear-cut authority to do what we admit is being and ought to be done? To S. 2184, providing for studies, the only argument seems to be: Basic attention to small business problems must be given; we don't have the time or money to give this basic attention, but why make us do what we admit ought to be done? If this type of argument is enough to prevail, then I fear that small business is in for a good long wait. I hope that this subcommittee will give favorable consideration to Senator Humphrey's bills, S. 2184 and S. 2185. Senator CLARK. At this point in the record I would like to offer a letter dated June 3, 1957, addressed to the Committee on Banking and Currency of the United States Senate, from the Connecticut Development Credit Corp., expressing their views on S. 2160 and commenting on the Arkansas plan. (The statement referred to follows:) THE CONNECTICUT DEVELOPMENT CREDIT CORP., COMMITTEE ON BANKING AND CURRENCY, United States Senate, Washington, D. C. (Attention Mr. J. H. Yingling, chief clerk.) Meriden, Conn., June 3, 1957. GENTLEMEN: Thank you for the copy of Senate bill, revised as S. 2160. I am sorry that our activities preclude my appearance at the committee hearing, but I shall endeavor to furnish you with the views of some of our officials with reference to the bill. The purposes appear sound and essential, but the methods to effect them may be difficult to consummate. The provision to supply equity capital is an element of unusual risk, particularly to new businesses, as the best laid plans of any businessman can go awry. Our corporation can make equity investments under its charter but that provision has not yet been used, and the same result, furnishing usable funds, çan be obtained with long-term loans. It is noted that the sources of capital for the national investment companies are the respective Federal Reserve banks, but the formation of such companies appears to be permissive rather than mandatory. The availability of $5 million for loans is a desirable factor but that amount may be too large for some States and too small for others. The advantages of conversion by a State development-credit corporation appear to lie in the increased amount of loanable funds available in the national investment company and the specific tax advantages enumerated. However, it is difficult to visualize a Federal Reserve bank supplying $5 million capital with the expectation that it would be repaid from the eventual resale of such stock to banks and other private investors. The incentive to buy the stock would be absent as the prospective investors would take the attitude that they would be repaying the Reserve bank rather than aiding the economic growth of the State. Perhaps an arrangement which would have the Federal Reserve bank match the capital of private investors with preferred stock or long-term bonds might be more workable as it would enable the bank to be repaid on a more definite basis. I trust I may be pardoned for looking the gift horse in the mouth, but this phase of the bill appears to be the one which may be the difference between a workable bill and one which may be enacted and not used. Sincerely, J. D. LINEHAN, Manager. Senator CLARK. The next witness will be Mr. David J. Duggan, vice president and general secretary of the New York Business Development Corp. We are happy to welcome you here, Mr. Duggan. STATEMENT OF DAVID J. DUGGAN, VICE PRESIDENT AND GEN- Mr. DUGGAN. Thank you very much. I am happy to be here. Mr. DUGGAN. Thank you. I will try to follow the little outline Mr. Cash, your counsel, gave me. Senator CLARK. The outline the witness refers to is the list of questions having to do with the organization and present status of the development corporation. Mr. DUGGAN. The New York Business Development Corp. was created through an amendment to the State Banking Act, chapter 863, which permitted all of the financial institutions in the State to become members of this organization; not necessarily stockholders, but members. We then embarked on a small stock sales program. Senator CLARK. Mr. Duggan, what was the date of the legislation? Mr. DUGGAN. It was on April 20, 1955. We were authorized to sell 20,000 shares of stock at $100 a share, giving us a potential of $2 million paid in. Senator CLARK. Common stock? Mr. DUGGAN. Common stock. We have sold to date $429,300 in stock. Our particular program is not tied in with paid-in capital. We may lend up to 10 times our paid-in capital, or $50 million. That is the way our legislation is designed. Our charter reads that way— 10 times, or $50 million. Senator CLARK. Could you give us some general idea of the kind of stockholders who bought your stock? Mr. DUGGAN. Yes. Utility companies, industrial companies, Pete Smith, Johnny Jones. It has gone right through from the big utility to the individual. Savings banks bought our stock, and one insurance company bought our stock. Senator CLARK. Is your corporation organized for profit? Mr. DUGGAN. Yes, sir. In addition to the stockholders, we derive money from our financial members, who have agreed generally to place on call with us 2 percent of their capital and surplus. That is a general figure. With a mutual company, of course, it is guaranteed funds as against the capital and surplus of a bank. Today we have 180 financial members who have placed on call with us $13 million. Senator CLARK. Is that without any restriction as to the amount of your capital? Mr. DUGGAN. Without any restriction. Senator CLARK. Tell me, if you will, Mr. Duggan, about this $50 million. Is there some sort of a State guaranty, or how did that $50 million come into being? Mr. DUGGAN. When putting this thing together originally, we computed what the total would be on a 2 percent basis of capital and surplus, or mutual funds, of all those eligible institutions in the State if they would come in. That would happen to work out at $56 million. Senator CLARK. Did that include insurance companies? Mr. DUGGAN. Yes, sir. Senator CLARK. And commercial banks? Mr. DUGGAN. Yes, sir. invest more than $250,000. 000 from any 1 member. But we have a limit. No 1 member may |