Mr. ANDERSON. So that, although Alcoa, as you say, built these plants for the Government without fee or profit, the operation of the plants did result in a substantial profit to Alcoa?

Mr. WILSON. That is correct.

Senator O'MAHONEY. And at the reduced price for aluminum?
Mr. WILSON. That is correct.

Mr. TROY. Does that include the 4 percent overhead by the Government to Alcoa and 2 percent in other instances?

Mr. WILSON. I don't know what you mean. It is an expense that is included

Mr. TROY (interposing). But it was treated as an expense item? Mr. WILSON. That is correct-not included in the profit.

Mr. TROY. In other words, it was money paid by the Government to Alcoa?

Senator O'MAHONEY. He said that it is not included in the profit. Mr. WILSON. It works the other way. The Government trusted Alcoa to operate these plants and trusted Alcoa to collect the money when we sold the product from these plants, and then we accounted to the Government for the operation and paid all the expenses in connection with the operation of all of these plants, and paid to the Government, then, $29,000,000 plus. The Government itself didn't pay Alcoa anything.

Mr. ANDERSON. To pursue that for a moment, the Government had the investment, not Alcoa?

Mr. WILSON. That is correct.

Mr. ANDERSON. It was the Government's property and you were leasing these plants, and operating them on the terms of a lease which insured you against any and all losses, and with a guaranteed profit, or a share in the profits, of 15 percent?

Mr. WILSON. That is correct. But when we were guaranteed against all losses we first wrote a blanket contract on August 19, 1941, under which we undertook and agreed to build for the Government certain aluminum plants, and the start of the Hurricane Creek alumina plant, and in that same contract agreed that we would operate such of those plants as the Government wished us to operate, under certain provisions as set forth in that contract; and we also agreed that at any time in the future the Government program called for more construction which they wished Alcoa to undertake for the Government, we would build those plants. So that the first contract was a blanket contract and there was no ability to foresee, either on the part of Government or of Alcoa, what might be brought in under the provisions of that first blanket contract. It was felt that there might be programed plants that had no possibility of being economically operated, but which would be needed to provide material for the war program, in order to permit us to win the war. And Alcoa went wholeheartedly into an arrangement to give to this Government everything that it could give to the successful conclusion of the war.

GUARANTIES AGAINST LOSSES AND SUBSIDIES

Senator O'MAHONEY. That is not at issue here, Mr. Wilson. I think that I can say that everybody agrees that Alcoa did an efficient job,. and that the production of aluminum by Alcoa and the other corporations which were subsidized by the Government and guaranteed against

losses was absolutely essential to the winning of the war. We are now looking forward to the future and the question which is presented here, as I see it-in view of the fact that Congress has repeatedly declared a policy of reestablishing competition-is to what extent and in what manner the Government, by its disposal policies, may promote the utilization of these aluminum plants in a competitive system. That is what we are looking at.

Now you are attacking, as I gather it, the policy in peace of subsidy from which you benefited in time of war, and, of course, there is a big distinction. The Government had to subsidize Alcoa and Reynolds and Olin and all the others in order to make sure that we did produce the aluminum necessary.

Mr. WILSON. Mr. Chairman, may I ask you this question?
Senator O'MAHONEY. Surely.

Mr. WILSON. Where did the Government subsidize Alcoa during the war? We paid the Government over $29,000,000 for the right to run these plants. Does that constitute a subsidy to Alcoa?

Senator O'MAHONEY. Was there not deducted from the over-all of $42,000,000, some $13,000,000 of losses?

Mr. WILSON. But we did this in a whole blanket arrangement; we said, "Throw in anything you want.”

Senator O'MAHONEY. In other words, there was a guaranty against loss. Fortunately on the whole there wasn't a loss; but there was a guaranty against loss, was there not?

Mr. WILSON. There was, yes.

Senator WHERRY. Mr. Chairman, may I ask a question?
Senator O'MAHONEY. Surely.

Senator WHERRY. Mr. Wilson, is it the "know how" that made the difference between what might have been a profit or a loss in your operation of those plants? The reason I am asking that questionand it is entirely different from the point made here-is that in the testimony before the Small Business Committee Mr. Reynolds testified that they could not produce ingot aluminum for, I believe it was, 15 cents a pound

Mr. WILSON (interposing). That has been the price.

Senator WHERRY. Well, that they couldn't produce it for less than that except at a loss. What I would like to know-because it might have a bearing on the Government putting anyone else in businessis this: I take it that if there had been a loss then there would have been a subsidy because you had this guaranty. But you made a profit. Now what I want to know is this: Is it the "know how" that produced that profit or could another business, operating under those guaranteed contracts, have produced that aluminum at that price or would it have had to be reimbursed because it couldn't make it? What is your opinion of that?

Mr. WILSON. Well, I hesitate to express certainly more than an opinion; it isn't any judgment on my part. But I can't see how it can be much of anything else. I think it sounds a little bit immodest for Alcoa to step up and say, "We know a little more about this business than anybody else." Maybe we do; maybe it is a fact.

Mr. TROY. Mr. Reynolds indicated that the price they paid for bauxite was far greater than Alcoa's price, and that his power rates were higher, based upon his considerably different contract rates for power.

Senator WHERRY. What I want to know is just this thing: Could we go out and subsidize any new firm and obtain the same results? Mr. TROY. It wasn't just based on "know how"; it was on the price of bauxite and power.

Senator WHERRY. I am not interested in that. They simply made the statement that they couldn't produce for less than that; I don't know what the difficulty was and that is beside the question. I want to know if there is a "know how" in the production of aluminumthere are no patents about it, and I am not asking you to be immodestbut I want to know if the Government could expect to put another outfit in business and go in and produce this material, as an integrated competitor, and be able to compete because they do or do not have the "know how" that you seemed to have in producing a profit in those plants, where others seemed to lose money at the same price? Mr. WILSON. Without wanting to sidestep in any way, of course there is a "know how" in any business. Nobody can go and open up a corner grocery store and make a succcess of it without at least knowing how to buy and how to sell and how to stock and what to prepare for. Of course there is a "know how" in any business. But why does that mean that the Government-whether it is assistance or aid or whether it is subsidy-should go out and help this other man in? Experience is what he needs and that is the only way Alcoa got it.

Senator TAYLOR. We are not going to help the corner grocer because there definitely is competition in that field. We are interested in seeing that there is competition in the aluminum industry, if there is to be any help for anybody.

"ALCOA WELCOMES COMPETITION," WITNESS SAYS

Mr. WILSON. As far as Alcoa is concerned we will welcome competition that is sound, straightforward, honest competition. We realize that we have got much to gain from it, but we want straightforward, honest, on-the-line competition, and the stronger it is the better it will be.

Senator O'MAHONEY. But you take the position that Government should not, by any aids or incentives, encourage little business to become competitors?

Mr. WILSON. Not at all. Alcoa started as a little business.

Senator WHERRY. You didn't use the right word that time, Senator. [Laughter].

Senator O'MAHONEY. I am using this word with malice aforethought because I have in mind some of the bills which have been introduced in Congress and some of the policies which have been recommended by the Small Business Committee.

I say, Mr. Wilson, that you nevertheless take the position that the Government should not, by aid or incentive, help little business to become competitors of Alcoa?

Mr. WILSON. Oh, no; not if you will limit your aid and incentive to proper aid and incentive.

Senator O'MAHONEY. All right. Now that is what we want. Will you, sometime during the hearing, tell us what you regard as proper aid and incentive to be extended by the Government in the disposal of these plants to competitors of Alcoa?

Mr. WILSON. I hope that I may be able to, but I am just human enough, and it is much easier, to say what I don't think is proper rather than what I think is proper, and I admit that that is a human failing. [Laughter.]

"PATENTS AND KNOW-HOW SHOULD BE PAID FOR IN SOME WAY," SAYS MR. STRAUS, OF AMERICAN SMELTING & REFINING CO.

Senator O'MAHONEY. Now I understand the story. I notice Mr. Straus of the American Smelting & Refining Co. here, who may be able to make a comment on the "know how," concerning which Senator Wherry asked.

Mr. STRAUS. Mr. Chairman, I am quite sure that in any metallurgical operation as complicated as the production of aluminum, and particularly of alumina at the Hurricane Creek plant, that anybody who hasn't got the "know how" cannot operate it. The "know how", as Mr. Wilson says, comes from experience, and I think if anybody were to be given the "know how" to operate that plant they should have to pay for it in some way, under some license agreement, not only for the patents but also for the "know how."

I don't think that it is proper to say that the Government should hand the "know how" over to anyone for nothing. Whether or not the Aluminum Co. would want the "know how" in other hands, I don't know.

Senator O'MAHONEY. How much "know how" is there?

Mr. STRAUS. A great deal.

Senator O'MAHONEY. And where is it?

Mr. STRAUS. So far as the alumina operations at Hurricane Creek are concerned, it is entirely in the hands of the Aluminum Co. of America, so far as I know.

Senator O'MAHONEY. So that the Aluminum Co. of America, so far as Hurricane Creek is concerned, at least, has a monopoly on the "know how"?

Mr. STRAUS. So far as I know.

Mr. BORCHARDT. Mr. Wilson, would you mind stating for the record whether the operations of all the plants which you operated for the Government were profitable or whether some of those plants operated at a loss?

Mr. WILSON. Oh, very definitely some of the plants operated at a loss. They were inherently high-cost operations.

Mr. BORCHARDT. Would you like to mention some of those?

Mr. WILSON. Without being able to speak with exactitude on this— the Maspeth or Queens plant, operated at a loss

Senator O'MAHONEY (interposing). There was a heavy power charge there, wasn't there?

Mr. WILSON. Yes; the power charge alone was 7 cents or more per pound of aluminum. The Burlington, N. J., plant is in the same category because of high power charges. The St. Lawrence or Massena, N. Y., plant was in that category. The Riverbank, Calif., plant, I believe, finished a little in the red; it was practically a stand-off. The Torrance or Los Angeles plant, I think, operated at a loss.

Mr. BORCHARDT. So you might say that even with the best of "know how" available to Alcoa, you had to go into the red as to some of the Government-owned plants?

Mr. WILSON. I think that was recognized when they were laid down by the War Production Board, and the only justification for those plants was not that they would result in a profitable operation but that they were the only locations at which sufficient power could be obtained to obtain the production that was felt necessary for the war effort.

Senator O'MAHONEY. We had to expand the production of aluminum, and we had to use the best means available for that purpose even though it were at a loss, and the Government undertook to underwrite the loss.

Mr. WILSON. I think it was felt-although I can't speak positively as to this because I don't know what was in the minds of the War Production Board and its predecessor-but I always obtained the impression that the successful operation, from a financial viewpoint, of the expanded facilities to be owned by the Government, was never considered as to whether it would result in a profit or a loss; it was considered only from the standpoint of, would the material be provided in sufficient quantities and in sufficient time to let us win the war? Insofar as it was given us to have a part in that program, we made every endeavor to see that the part that we had would not only provide the material in time and in sufficient quantities but at a cost that would save the taxpayers as much money as we could save for them.

Senator O'MAHONEY. Now, some of the plants of Alcoa, the plants privately owned by Alcoa, were also expanded, were they not?

Mr. WILSON. Very definitely. As to Alcoa itself, the largest production it had before the war was 327,000,000 pounds a year. We, in 1938, started to expand our production facilities when we felt that there was a shadow over the world, and we put in $300,000,000 of our own money, not dollars that we had but money that we went out and borrowed, and expanded our facilities from 327,000,000 pounds a year to 830,000,000 pounds a year, and we would have made further expansions on our own account but for the fact that we were denied by the Government the opportunity to spend our own money to do so. Mr. Goldschmidt knows that we were willing to increase the capacity of our Vancouver, Wash., plant, which is dependent upon power from Bonneville, but the Department of the Interior said "No," that Alcoa should not be permitted to purchase any more power to expand its plant.

Senator O'MAHONEY. Didn't you have the benefit of the write-off provisions of the Federal law, the 5-year amortization?

Mr. WILSON. Not when we started our expansion in 1938.
Senator O'MAHONEY. But you did later on?

Mr. WILSON. Later on Congress extended that opportunity and, of course, we took advantage of it.

Senator O'MAHONEY. In other words, Congress passed a law which was an aid or an incentive to Alcoa, or if I am to accommodate Senator Wherry, a subsidy to Alcoa to expand its own plants?

Mr. WILSON. But the point I wish to make, Senator, is that we embarked on that program before Congress ever offered that incentive, aid, or subsidy.

Senator O'MAHONEY. Oh, surely, but you took it afterward. All right, you may proceed.