S. 964 is a more adequate bill than S. 2663 introduced by Senator Douglas in 1955 (Depressed Areas Act). In June 1956, Senator Douglas introduced S. 2663 (Area Redevelopment Act). In most respects S. 964 follows the later version of S. 2663, which passed the Senate, 60 to 30. The funds made available are somewhat larger and few other changes have been made.

This bill meets the tests of a sound bill. It makes a good beginning in providing resources; it puts part of the responsibility on local and State governments, at the same time recognizing the impoverishment of many areas with surplus labor; it proposes favoring within limits depressed areas in government procurement and tax concessions; it is based on the principle that the major attack should be to bring jobs to the workers, not vice versa; it provides resources for retraining periods; and at least in part it admits to the need of financing additional jobs for nonmanufacturing as well as manufacturing.

COMMENTS ON THE BILL

In general I heartily approve.

Is it adequate?

Here are a few suggestions.

Even if it be assumed that the $100 million made available for redevelopment industrial loans and the $75 millions for loans for public facilities provide an equal number of jobs and that, on the average, the Federal Government provides 50 percent of the cost of the project and that only $5,000 of capital is required for additional jobs ($10,000 the usual figure), then only 70,000 additional jobs could be provided. But this is a good beginning, and there are likely to be secondary effects.

Contribution to absorbing unemployed

In this connection the following is of some interest. I have estimated the amount of unemployment for 20 major cities on the continent for May 1956. The amount is roughly 130,000; for the corresponding labor areas the amount is 246,000. I have not included 65 smaller areas classified as surplus labor areas. At this time total unemployment in the Nation was about 2.6 millions, or 3.8 percent of the civilian labor force. These 20 labor areas, with 4.9 percent of the Nation's population, had 9.5 percent of the unemployment-or twice the national average.

On the basis of my estimates the total potential rise of employment under S. 964 would be 30 percent of the unemployment in the 20 major labor surplus areas, but a much smaller percentage for all surplus labor areas. The unemploy ment in May 1956 was, of course, at an almost record low figure. In view of increasing doubts about the economic situation we would be foolish to assume that the problem of these 20 areas is one of but 250,000 unemployed. On this issue also see below on the problem of disarmament. Rate of interest

It is proposed that the loans carry an interest rate of one-half of 1 percent in excess of the cost to the Federal Government. In view of the savings on assistance, UC, and increased tax receipts, might not a case be made out for a more generous treatment of borrowers for local development? This is especially so since, in part as a result of the dear money policy of the Federal Government, the rates on local issues have risen by 70 percent in 5 years and on Federal issues by about two-thirds of 1 percent recently.

Guaranties

Would it not be helpful to rely also on guaranties for loans made by local or State authorities for development purposes? The trend has been toward guaranties. This has a great appeal for the administration since they do not show on the budget and involve no outlays for the present. At any rate, since fiscal year 1953 the rise of guaranties and insurance by Federal credit agencies has been from $28 billion to $65 billion (estimated) and of loans and investments only from $16 billion to $19 billion. Why not a ceiling of $1 billion on guaranties for financing of depressed areas?

Percentage to be contributed by the Federal Government

The Douglas bill proposes a ceiling of 75 percent (and even 100 percent when grants are made). The 1956 administration bill allowed contributions of only 35 percent. Indeed, it has been argued that with a given sum expended by the United States Treasury the administration proposals yield more outlays.

But I prefer the Douglas proposals. They take into account the difficulties confronting State and local governments. With good administration the Government may still make many loans with Federal contributions of only 25 to 50 percent, but the way should be open for larger Federal contributions.

On this score we should take into account the plight of State and local finance.

THE ADMINISTRATION BILL

On February 28, 1957, six Republican Senators introduced the administration bill (S. 1433, the Area Assistance Act of 1957). This bill closely follows the 1956 proposals of the administration. The revolving loan fund is to be but $50 million; and the contribution of the Federal Government is limited to 35 percent (25 percent previously). Areas with 8 percent of unemployment for 2 years or more may be designated areas of substantial and persistent unemployment. These areas will profit from technical assistance, vocational guidance, priorities in help under the Urban Renewal Act and the construction of public faciilties under the housing amendment of 1955 (sec. 202 of title II), the loan section which provides funds for acquisition of land and construction or renovation of industrial buildings, not for working capital or purchase of equipment.

The major deficiencies of S. 1433 lie in the entrusting of the administration to the Secretary of Commerce, who is not likely to be appreciative of the needs, the small amount of money made available, the exclusion of areas with large amounts of unemployment for less than 2 years, the failure to provide unemployment compensation during training periods, and the ceiling on Federal contributions (35 percent).

CONDITION OF STATE AND LOCAL FINANCE

The plight of State and local governments is serious, indeed, as is to be noted from figures below. Not only the net rise of debt and expenditures but the serious shortages in the capital market are relevant and especially as the market for tax exempts has become saturated.

Trends in revenues, expenditures, and debt-Postwar growth of State-local and Federal revenues, expenditures, and debt

Source: Hearings, Joint Congressional Committee on Economic Report, Feb. 1, 1957 (H. Weller).

This table reveals that State and local outlays are rising at a rate of 11⁄2 times Federal outlays and debt at 3 times the Federal rate. State and local expenditures are increasing at the rate of almost $3 billion yearly and debt at more than $3 billion yearly.

With this vast expansion of demands for capital and the dear money policy introduced to cope with inflationary forces, State and local governments are confronted with serious problems in the capital market.

First, the Federal Government (Departments of Labor and Commerce) estimates that in 10 years these governments will need $200 billion for public works. In the last 10 years the outlays were only one-third as large.

Since prewar,

The current rate of spending on capital is about $12 billion per year. Heavy construction demands have greatly increased costs. construction costs have risen by 50 percent more than the cost of living. Since 1946, construction costs of buildings have risen by 88 percent; of highways, by 40 percent.

In part the increased demands are the result of a shift of construction responsibilities from the Federal Government to State and local governments.

New construction, 1952 and 1956

「

[In billions]

Procurement, tax amortization, and other similar aids

Over the years much has been made of the diversion of Government contracts and special tax favors for depressed areas. Under the area redevelopment bill, virtually all possible approaches are suggested: e. g., matching bids, set asides for areas with surplus labor, financial assistance for industrial and commercial rebuilding under the Housing Act.

One approach is not proposed; special treatment under buy-American legislalation. The President announced that even when a contract bid is more than the minimum 6 percent above foreign bids, the contract may be granted to an area with surplus labor.

The results of these programs and in particular under Defense Manpower Policy No. 4 (1952-53) were not striking. As a result of this policy, New England textile mills received about $5 million in Government contracts in 1953. This is about one-fifth of 1 percent of the sales of the New England firms in this year. What is more, under pressure from southern Congressmen the privilege of matching bids was removed. In all, according to Mr. William Batt, Jr., only $23.5 million of defense contracts in fiscal year 1956, or the equivalent of 2,343 man-years of employment in all surplus areas, were provided. Senator Kennedy noted that many communities in trouble, e. g., Lawrence, Mass., received no help under this directive.

The special tax-amortization program, according to William L. Batt, Jr., encouraged an investment of $217 million in new plants in labor-surplus areas in 21⁄2 years, or 11,311 new permanent jobs. Even this is not a striking contribution even if it were clear that the projects would not have been consummated in the absence of these tax concessions.

Perhaps a better approach would be to investigate the extent to which accelerated tax amortization made possible the expansion of industry in some regions so that losses of plants were induced elsewhere. From this viewpoint it would be well to study the distribution of these tax favors: for example, how much did New England, and Pennsylvania, West Virginia, and Illinois receive, States especially vulnerable to the growth of new industries elsewhere?

In this connection, I note that in 1954 New England received only 19 percent as much of Federal loans, to individuals and groups, of $6.2 billion as might have been expected in view of her relative income. Political strength of States and regions unfortunately account in part for the participation in Federal lending programs; and in part the participation depends on the nature of the programs.

SOME GENERAL COMMENTS

At the outset, I should emphasize the point that the best treatment of depressed areas is to prevent their ever becoming such. The causes are often, as noted below, not easily controlled. But to some extent, as we argue below and especially for textile towns, the causes lie in mistaken policy on both Federal and State and local levels.

(a) Causes of depressed areas

They are

In earlier statements, I analyzed the reasons for depressed areas. adequately discussed in earlier hearings as well as in the recent NPA study, Depressed Industrial Areas a National Problem, and in the annual reports of the New England Governors' Textile Committee.

Technical changes-e. g., the substitution of the diesel engine-hits some communities (Altoona, Pa.); exhaustion of raw materials (the Upper Peninsula, Mich.), technological advances (coal mining in Pennsylvania, West Virginia, and Illinois), and discovery of new materials (e. g., oil) are among the factors, as well as competition of newer areas (e. g., textiles).

(b) Textiles-a special case

Often many explanations are necessary. Consider textiles, in which we are especially interested. From 1947 to 1955, New England lost about 43 percent of its textile jobs. In one metropolitan area of about 125,000 population, 25,000 jobs were lost within a few years. From 1951 to 1955, New England lost 87,000 of its textile jobs, or about one-third of its 259,000 jobs in 1951. By 1956, they experienced an additional loss of 7 to 8 percent. The number of textile jobs in New England is less than half that of 1919.

Yet production seems to be higher with less than half as many workers. What is the explanation of this decline?

First, the competition of the South is relevant, blessed as it is with large supplies of labor migrating from the farms. For many years this migration has given them a cost advantage in lower wages, an advantage that in many segments of the industry has largely been wiped out in the last few years. Their productivity is probably still higher than in New England, in part because, on the average, their plants are newer, construction costs are lower, and they find it somewhat easier without strong unions to introduce new methods and adjust workloads. On the last there have been substantial improvements in New England in recent years.

Second, the development of man-made fibers has hurt New England and the Middle Atlantic States. (From 1951 to 1955, the Middle Atlantic States lost 59,000 jobs, or 22 percent; and the South, 21,000, or 31⁄2 percent of its textile jobs.) As synthetics are used more, part of the processing is transferred to the South, and besides, when new machinery and equipment are needed, the advantage of locating where labor costs are less is increased.

Third, some Federal policies are not without relevance. In view of the continued decline in the industry, the reduction of tariffs is not easily justified. In woolens and worsteds, for example, a reduction of more than 50 percent in jobs in 8 years followed the decline of tariff rates for 1948. Yet no correction was made until just before the election in 1956. I am not contending that tariff policy was the major factor in the decline. But tariff policy, along with high prices for wool induced in part by Federal policies, changing patterns of consumption (a rise of apparel consumption of 8 percent, of housing of 99 percent, of automobiles of 137 percent, the latter two related to Federal monetary and financial policies), technical changes, and indeed poor management by the industry's leader, American Woolen, contributed to the decline.

Again, the rapid relative rise of imports from Japan seriously curtailed investment in the textile industry in 1955 and 1956.

Federal tax and spending policies also had their effects. Over a period of 20 years, 5 main southern competitors of New England received back from the Federal Government, relative to what was paid in, 3 to 4 times as much as the three major manufacturing States in New England. These funds were used to some extent to strengthen competitors. In this connection, I am glad to note that S. 964 is explicit on the unavailability of funds for development when the effect is likely to be a loss of jobs elsewhere.

This should not be interpreted as a plea for balancing of regional accounts. Rather, we should be clear concerning the facts, and we should seek adequate help for surplus labor areas when they need it.

(c) More jobs, not men

The proper approach is to move capital to where the unemployed is, rather than to press the unemployed to move. Provision of development funds is an attempt to bring the job to the man, rather than to move the man to the job.

(d) Nonmanufacturing jobs

More emphasis should be put upon service (tertiary) employments. Even S. 964 provides for acquisition of land only for industrial purposes. But it

should be noted that jobs in nonmanufacturing rise much more than in manufacturing. Thus, from 1947 to 1954 the following occurred:

Though an economy like New England's is likely to be tied to manufacturing and the loss of manufacturing jobs is likely to bring a reduction of tertiary jobs as well, nevertheless, to some extent service jobs, and especially those related to servicing other regions, may replace factory jobs. As New England loses factory jobs, to some extent she becomes more competitive in finance, insurance, provision of government services, distribution, etc.

GENERAL BUSINESS CONDITIONS AND UNEMPLOYMENT IN SURPLUS LABOR AREAS The better the general situation, the less troublesome depressed areas are likely to be. But this should be accepted with reservations. Of course, they profit from large spending of the economy; some spills over into increased outlays for coal, textiles, agricultural machinery. Yet it would require a great inflation, which would greatly damage the economy, to wipe out 20 percent of unemployment that prevailed in Lawrence, Mass., for 3 years or more. relevant the general situation is may be gleaned from the following: Average percent unemployment in 5 major textile towns

How

PROBLEMS OF FINDING SUBSTITUTE EMPLOYMENTS

With the flight of industry, many localities seek to find substitute industries. They establish local development units, and many States have established State development corporations and credit corporations. These institutions seek capital through private financial sources. They often take over abandoned plants but also, as in Lowell, build new modern plants. In Pennsylvania, the State corporation had an opportunity to operate on a regional basis; but in the New England States the local communities did not generally integrate their work well with State organizations. By the end of December 1955, the New England corporations had approved $10.9 million of $28.2 million of applications for loans. This is not a large sum, when it is realized that New England's annual investment, on the basis of its stake in the economy, should average 2 to 3 billion dollars yearly and when the unemployment in all areas with surplus labor even at the peak of a boom is considerably in excess of 300,000.

It is not easy to find substitute employments for the factory jobs lost. On an earlier occasion, I wrote as follows:

2

1 See chs. 4 and 5 of W. H. Miernyk, Depressed Industrial Areas-A National Problem, 1957, pp. 32-33.

S. E. Harris, Interregional Competition: With Particular Reference to North-South Competition, Proceedings of the American Economic Association, 1954, pp. 370-372.