Senator DOUGLAS. That is a very good criticism, I think. Mr. DICKINSON. There is serious danger, furthermore, that the migration of firms to such areas could cause real unemployment elsewhere and create depressed areas where none now exist. The safeguards of the present act against this happening are, in my opinion, inadequate. There are many devices, corporate and administrative, under which an employer can negotiate with a community without the Federal Administrator being able to determine exactly what shifts in employment would occur. I am sure the committee members realize that the prohibition in section 7 (a) (4) could be evaded until the actual transfer of employment had taken place. Once employment had been shifted from its existing location to the new location. and it became apparent that this clause had been violated, the Federal Administrator would have to decide whether to withdraw all the financial aid leaving the community in serious financial difficulties or to accept the violation as an accomplished fact.

There is another point I should like to raise in this respect. A new employer could be encouraged to undertake operations in a new plant under these provisions. He could then conceivably take markets from producers in other areas that were already in a distressed condition or on the verge of distress. The bill provides no protection whatsoever against this type of unfair and dangerous competition. I would recommend as a minimum strengthening of section 7 that it be amended to provide that the loans could not be used for an industry which is depressed elsewhere in the country. The comparable provision in the Martin bill, in section 107 (a), is equally in need of tightening.

I also believe that the dangers of bad business judgment and excessive migration would be reduced if the contributing share of private capital was raised above its present 5 percent, as I said a little while ago. In the long run this will best serve the interests of the areas seeking development as well as those areas now enjoying full employment. If private capital makes careful decisions about the most economical location, it is more apt to be a successful producer and a permanent employer. I am sure that the rural redevelopment areas as well as the industrial redevelopment areas are looking for such employers.

A word about the size of the loan fund established. Under proper safeguards these loans can be of great importance to many communities which genuinely need aid. But if the loan fund is small many communities will have to go without. The Douglas bill fund of $100 million for industrial redevelopment areas will probably be adequate. The Martin bill fund of only $50 million surely will not. Again the Martin bill provides "too little."

Then section 8. I would like to call attention to several things there.

My duties as commissioner of commerce of the State of New York have demonstrated to me on several occasions that industry needs adequate public facilities such as highways, sewage disposal, and water supply if it is to operate successfully in a community. Industries looking for new plant sites check carefully to determine whether such facilities are available.

It is conceivable that a community might not be able to finance the expansion of such facilities in today's tight money market. It is

appropriate that this bill should establish a revolving fund of $75 million for Federal loans to communities at reasonable interest rates for such construction and improvement where these are needed by an industry which finds such a community a sound place in which to locate. If the industry operates successfully in the community it should be able through its payment of taxes to contribute its proper share to covering the interest and principal on the loan.

The Martin bill attempts to meet the problem by placing distressed areas ahead of small communities as claimants for the revolving fund for loans for public facilities under title II of the Housing Amendments of 1955. Such action would take funds away from other legitimate users and leave both distressed areas and others with too little.

The term "public facility" however is not defined in section 8 of the Douglas bill. It is quite conceivable that it would be interpreted to include municipally owned land, warehouses and factories which could be leased to private firms. So defined, the public facility could serve the same purpose as the land, plants, and equipment provided for in section 7, but in section 8 there is no provision to protect other areas against loss of employment. The present wording is an open invitation to use section 8 loans for section 7 purposes. I believe it important that section 8 be amended to prohibit the definition of "public facility" in a way that would cover land, plant, or equipment to be leased to or sold to private employers.

Senator DOUGLAS. Now, then, what you would say is that these loans should be used, for example, to provide industrial water, but not the so-called industrial power.

Mr. DICKINSON. În other words, to bring a water supply to the site, which perhaps is a normal municipal function, but not to build a plant-I would not provide for it to go into the plant-just to the site. Senator DOUGLAS. What about building access roads to the plant? Mr. DICKINSON. Access roads I think are a legitimate county or town expense. But I think this is a little loose, and people might pervert it.

Among the normal costs of doing business practically anywhere in the United States are the local taxes necessary to cover the construction and operation of public facilities in that territory.

Each business taxpayer enjoy the benefits of these public facilities and few businesses would go into an area where they were not adequate. Businesses accept local taxes as a legitimate cost. As such, however, it affects the price at which they can sell their products and make a profit.

Section 9 would provide for outright grants to communities to provide necessary public facilities. Such a grant would be a gift to all taxpayers in the locality, including all business firms. It would subsidize business firms in the area by relieving them of taxes which their competitors in other areas would still have to pay. The firms enjoying this subsidy could then offer their goods for less and take markets away from firms which are paying their customary share for local public facilities. An increase in employment in a subsidized firm could cause a decrease in employment in its nonsubsidized competitor. The unemployment would thus be shifted from one area to another. The country as a whole would not have benefited and industry may have been induced to move to an uneconomic location.

The term "public facility" is subject to the same broad interpretation in this section that it is in section 8, and the implications of this loose construction are even more threatening than they were in section 8.

Since the number of rural redevelopment areas is conceivably very large, the demands on the Administrator to make grants under this section may be numerous and powerful. The bill gives the Administrator little protection against excessive demands, except the total money available for this purpose.

There is great danger that the $50 million hereby authorized as grants would be used to cause uneconomic movements of employment from existing locations to new locations. Such movement of employment would threaten not only the operations of legitimate employers throughout the country; it would also threaten the maintenance of the high wage structures and the favorable employer-employee relations in existing areas of employment.

I believe that this section can do more harm than good, and I recommend that, if my concern in this respect is shared by the committee, the section be eliminated.

Senator DOUGLAS. You know, it is very interesting that you offer this criticism, because some people have attacked this bill on the ground that it may impede the movement of industries from the present manufacturing centers to the South. And it is said that this is an attempt by the North to keep industry within its own area and prevent the South from growing. Now you are saying that it may tear down the industry-established States. Both of these criticisms cannot be true.

Mr. DICKINSON. Since I do not know the basis of the first argument, it is impossible for me to debate against it. But I feel that this would not help. Frankly, I think it would do more harm than good. I recommend, if my concern in this respect is shared by the committee, that the section be eliminated.

I have outlined for you the questions I have with respect to various portions of these bills. Any criticism implied is intended to be constructive. I would like to repeat in closing that there are many features of the Douglas bill and several in the Martin bill which I consider helpful and valuable. Without being inclusive, I would mention as outstanding in the Douglas bill the provision of information provided in section 12, the technical assistance provided in section 13, the amendment of title I of the Housing Act of 1949 as provided in section 17, the urban planning grants as provided in section 18, vocational training as provided in section 19, and the retraining subsistence payments as provided in section 20.

If you believe I have been unduly concerned with loopholes and possible abuses that might arise, I can only say that it is my duty to argue against the use of Federal funds to subsidize competition that threatens the maintenance of good wage levels, fine working conditions, and advanced social legislation in our State. I think the Douglas bill is a good and important measure. It should be passed. But I do hope that proper safeguards to protect progressive States like New York will be incorporated in the final version.

I thank you.

Senator DOUGLAS. Thank you very much, Mr. Dickinson. That is very constructive testimony, and we are taking careful note of the suggestions which you have made.

The next witness is an old friend, Mr. Seymour Harris, chairman of the New England Governors' Textile Committee.

STATEMENT OF SEYMOUR E. HARRIS, CHAIRMAN, NEW ENGLAND GOVERNORS' TEXTILE COMMITTEE

Mr. HARRIS. Mr. Chairman, I would like to present this paper in evidence, and I would like to summarize it to save you the fatigue of having to listen to this fairly long paper.

Senator DOUGLAS. That will be done. We will print the material that you have prepared in the hearings, and then print the informal summary which you make.

(The prepared statement of Mr. Harris follows:)

STATEMENT BY SEYMOUR E. HARRIS, CHAIRMAN OF THE NEW ENGLAND GOVERNORS TEXTILE COMMITTEE AND CHAIRMAN OF THE DEPARTMENT OF ECONOMICS, HARVARD UNIVERSITY

S. 964 is a good bill

SUMMARY

S. 964 marks a great advance over earlier proposals of the administration. It provides enough funds to assure a substantial attack on the problem of depressed

areas.

The tests of a good bill are: Moving jobs to the man, not man to the jobs: providing adequate resources; requiring contributions for financing from State and local governments though related to their capacity; assuring help during retraining period and provision of retraining programs; making finance available for nonmanufacturing as well as manufacturing.

Some comments on S. 964

A rough guess suggests that the bill might make 70,000 additional jobs available aside from secondary effects. Greater stress on nonmanufacturing might increase this total. In 20 major surplus labor areas, unemployment in May 1956 amounted to around 250,000; in all surplus labor areas, substantially more. These 20 major areas, with 4.9 percent of the Nation's population, had 9.5 percent of the unemployment. Three of these areas were in New England and four in Pennsylvania and West Virginia. The bill provides for jobs equal to considerably less than 30 percent of the unemployment at the top of a boom. But secondary effects would increase the proportion.

Financing might be improved if recourse were also had to guaranties. In 5 years (fiscal year 1953 to 1958, the latter estimated), Federal guaranties rose by $37 billion, or 132 percent, and loans and investments by only $3 billion, or 20 percent. The administration proposal, which allows only 35 percent of Federal financing, puts too great a strain on State and local finance. (S. 964 generally sets a ceiling of 75 percent of Federal aid and in exceptional cases 100 percent.) The administration bill

This bill provides too little money, fails to deal with the need of unemployment compensation, and also puts the responsibility on the unsympathetic Secretary of Commerce.

State and local finance

Municipal borrowing rates are up 70 percent in 5 years, or more than twice the Federal rate: State and local debt has risen by almost two-thirds from 1952 to 1956 (Federal, by only 4% percent, or one-fifteenth as much). Expenditures are up respectively by one-half and 6 percent.

General comments

The best policy is to prevent the emergence of depressed areas. To some extent and notably in textile areas, the cause lies in mistaken policies. But changing fashions, technical revolutions, exhaustion of resources, competition of

newer industrial areas are all relevant. Note in the case of textiles, the building up of competitive areas, large reductions in tariffs when employment was dropping and by as much as almost 50 percent in less than a decade in New England, rising prices of raw materials, tax policies, credit policies, merger policy-these and other factors have hurt.

Any legislation providing financing for additional jobs should also stress the importance of nonmanufacturing employment. In a recent period of 7 years, New England lost 9 percent of its factory jobs but gained 14 percent of its nonagricultural and nonmanufacturing jobs.

The relevance of general business conditions

A healthy

In 1954, a recession year, the percentage of unemployment in five New England towns (Providence, Lawrence, Lowell, New Bedford, and Fall River) was one quarter higher than in 1955, when the economic situation was more favorable. (In 1954, GNP dropped by $3 billion; in 1955, it rose by $30 billion.) economy reduces unemployment in surplus labor areas but cannot be expected to eliminate it through rising expenditures except at the cost of a vast inflation. Problems of finding substitute employments

Local and State development and credit corporations help bring new industry in. They should be encouraged; but so far their contributions have not been striking.

When factory jobs are lost, the replacements must largely be found in nonmanufacturing jobs, for manufacturing accounts for less than one-third of all jobs. But a large part of the service jobs are almost free of interregional competition-medicine, government, public utilities, domestic service, retailing, etc. An estimate of "service" employments, accounting for about 60 percent of all employments, suggests that only 10 percent of this total is largely subject to interregional competition. And even in manufacturing, proximity to raw materials and markets are decisive factors in determining location for 14 out of 19 industries. All these considerations point up the difficulties of finding replacements when industries disappear and factories close down. Unemployment with demobilization

A serious demobilization would greatly increase the importance of depressed areas. A demobilization would hit regions with unequal intensity depending upon their contribution toward government procurement and their gains from tax cuts. The details are given in the paper. Note, for example, that on the basis of heavy reliance on manufacturing and military burdens, the Central States, New England, and the Middle East, and Connecticut, Indiana, Ohio, and Michigan would especially suffer; but Massachusetts and Illinois would also feel the effects.

PREVIOUS TESTIMONY

On two previous occasions (November 15, 1955, before the Subcommittee on Low-Income Families, of the Joint Committee on the Economic Report, and on February 3, 1956, before the Senate Committee on Labor and Public Welfare), I testified on the issue of depressed areas. Here I shall only briefly refer to the points raised at that time.

S. 964

S. 964 marks a great advance over earlier proposals and particularly over the Area Assistance Act proposed by the administration in 1956. As compared to the Area Assistance Act of 1956 (and early reports reveal no substantial difference in the 1947 report-the major contribution is still to be $50 million), the 1957 proposals (S. 964) provide for $275 million of loans on a revolving basis and $50 million of grants, and loans of the Federal Government might be as high as 75 percent of the cost of project.

The major advantages of the proposed legislation over the administration proposals of 1956 and 1957 are the larger sums made available, the greater relative contributions of the Federal Government when this was necessary (75 versus 35 percent in the Area Assistance Act), provision of rural redevelopment and of supplementary unemployment compensation (UC) for 13 weeks to be financed by the Federal Government during retraining periods when UC was not available, and the proposal of a new administrative unit which might integrate the work of the relevant agencies and departments rather than to give the responsibility to a Department of Commerce which is not likely to be sympathetic with the objectives.