stantially to inflation are those arrived at through collective bargaining. H.R. 4594 provides for notification of wage increases agreed upon through collective bargaining and affecting more than 5,000 employees "not more than 5 days after the agreement with respect to that increase has become effective or has been reached, whichever is later." This provision in my judgment is no improvement at all over our present authority. It is far more difficult to moderate an excessive wage increase after it is in effect than before. The proper time to influence the bargaining process is before a final agreement has been reached.

More serious problems are presented when an agreement is reached following a strike. Suppose that a union agreed to end a strike in return for a large wage increase, and that the Council then delayed this increase. Would the strikers return to work? Or would H.R. 4594, if enacted, have the effect of increasing industrial strife?

It is true that strikes decreased under the Economic Stabilization Act of 1970, but that act provided comprehensive controls, not just delays. It also seems probable, particularly in the light of recent Supreme Court decisions, that if wage increases are delayed, they will be restored through retroactive payments after the delay period.

I dwell upon the wage side because in my judgment wage increases will soon be a more important element in the inflationary process than they have been in the recent past. In 1974, price increases were larger than wage increases. In 1975 and 1976, wage increases are likely to be larger than price increases, at least in those sectors of the economy covered by collective bargaining.

Finally, the Council does not want the authority to require periodic reports. This authority could create an onerous reporting burden on businesses and labor unions, and it would require an unwanted expansion of our staff to receive and process such reports. We request reports of businesses or unions during the course of a particular investigation, and when that investigation is no longer active, we make no further requests. We believe that this system enables us to do our job without creating the burdens of routine periodic reporting.

The budget authorization in H.R. 4594 is for $4 million each year through fiscal year 1977. This is a much larger sum than is requested in the President's budget.

S. 409 which was passed by the Senate on May 6 extends the life of the Council to June 30, 1976. Like H.R. 6577, it provides that future Directors should be confirmed by the Senate, a provision which we support. Like H.R. 4594, it gives the Council the power to require periodic reports and to issue subpenas.

I have already discussed our opposition to the periodic reporting requirement. Unlike H.R. 4594, S. 409 as passed-and as passed, it is very different from the way in which it was introduced-does not grant authority to require prenotification of wage or price increases or to delay such increases. The budget authorization in S. 409 is for $1.6 million for fiscal year 1976. This is the amount requested in the President's budget and would permit the staff to be maintained at its present level.

S. 409 provides for adding three supergrade positions to the Council's staff, but does not provide any additional funds to cover these positions.

There were three amendments to S. 409, not related to the activities of the Council adopted on the floor of the Senate. With the exception of the periodic reporting provision, we find the part of S. 409 that applies to the Council to be acceptable. However, for the reasons indicated earlier, we urge our extension for 2 years rather than for 1. A related bill, H.R. 4214, has laso been referred to the Committee on Banking, Currency and Housing. This bill would establish an independent board to require prenotification of price increases and rollback of excessive prices with respect to companies in concentrated industries. We are opposed to H.R. 4214 for several reasons.

First, we believe that it is unwise and unfair to have price monitoring or control without also having wage monitoring or control. Excessive market power is not confined to corporations.

Our second ground for opposing H.R. 4214 requires greater explanation. The bill rests on the thesis that concentrated industries bear some special responsibility for inflation. We have devoted substantial effort to exploring the basis for this thesis, and we do not find it to be substantiated.

On April 14, the Council held a public conference on concentration, administered prices, and inflation. Participants included 21 economists from universities and government, including several who have done extensive research on this topic.

Following the conference, we engaged Prof. Ralph Beals of Amherst College to review the literature and the record of the conference and to summarize the state of knowledge of this topic. Professor Beals has completed his report and copies have been provided to this subcommittee for its use.

Let me quote a portion of Professor Beals' conclusions:

Empirical evidence supports the view that prices in the concentrated industries behave somewhat differently than prices in the unconcentrated industries over the cycle. There is no recognizable longrun disparity in the average rates of the price change between concentrated and unconcentrated industry, but there does seem to be more cyclical stability in the prices of concentrated industries. On average, they appear to rise less than competitive prices in expansion, but have recently fallen less or risen more in recessions. There is great disparity in industrial price movements all the time. Level of concentration in no period explains directly a large part of the variation in prices.

Although it is probably true that concentrated industries charge higher prices than they would charge if they were more competitive, it does not appear to be true that prices in these industries rise more rapidly than other prices. This last hypothesis would require not only that concentration confer a price advantage, but also that this advantage be continuously increasing.

In any event, it is abundantly clear that the economics profession is sharply divided on this issue. It would be highly inadvisable to base legislation on the views of only one side of this unresolved controversy. Finally, we note that H.R. 4214, unlike the other bills we have discussed, is intended to be permanent legislation. It would permanently create authority to delay proposed price increases in concentrated industries, to disapprove them, or to roll them back in accordance with orders and regulations issued to carry out the puposes of the proposed legislation.

Such permanent price control could create serious economic dislocations. It substitutes the judgment of a Government board for that of

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the executives of business corporations. Concentrated industries would in effect become federally regulated public utilities as airlines and railroads are.

We believe that rate regulation has had serious adverse consequences in transportation, a view widely shared by a broad range of economists. We should not extend this kind of bureaucratic rate or price regulation to a large new set of industries.

In summary, Mr. Chairman, we believe that because of the continued unacceptable rate of inflation, the life of the Council on Wage and Price Stability should be extended for 2 years.

The easiest way to accomplish this would be for the House to pass S. 409 with the changes I have suggested earlier.

Mr. Chairman and members of the subcommittee, thank you for your attention. Mr. Williams and I would be most happy to reply to questions.

Mr. ASHLEY. Thank you, Dr. Rees.

Your statement, Dr. Rees, contained a partial listing of what the Council has addressed itself to, the type of situation the Council has addressed itself to. Since you took over the directorship, has the staff been sufficient for the scope of your task?

Dr. REES. We have been very selective, Mr. Chairman, in the targets we have examined. And our staff has been sufficient to carry out those inquiries that we have undertaken.

Mr. ASHLEY. Have you been selective because of the staff? Has the size of the staff forced you to be more selective than you otherwise would have been?

Dr. REES. If we had a larger staff, we could undertake a larger number of inquiries at any one time. And that might be desirable.

We are not opposed to a modest increase in the size of the staff. However, we do feel very strongly that the quality of our work is even more important than the quantity. We feel that the quality has been high. We would not like to grow very rapidly for fear that very rapid growth would dilute the quality of our work.

Mr. ASHLEY. You say a sudden increase in the size would dilute the quality of the work?

Dr. REES. Yes. An increase in our budget of the size proposed in one of the bills before us which would increase us from a current rate of spending of $1.6 million to $4 million, which we feel would be too rapid. We would not be able to maintain the quality of the work with that rapid a rate of growth.

Mr. ASHLEY. How many professionals do you have?

Dr. REES. About 25.

Mr. ASHLEY. Have you tried to survey and cover the entire private sector of management and labor with 25 people?

Dr. REES. At any one time, we are investigating perhaps five or six industries simultaneously, those that appear to be most troublesome, and perhaps two or three different major collective bargaining situations.

Now, if the rate of inflation should accelerate, it might be desirable to undertake more investigations at once. However, we do not expect an acceleration of inflation within the next year.

Mr. ASHLEY. Have you been receiving all of the information from the participants in the private sector from whom such information has been requested?

Dr. REES. No, sir. We have occasionally requested information that has not been provided.

Mr. ASHLEY. You suggest that you can get along with voluntary solicitation of information, that this is really a nicer way of going about it. What happens when you don't get the information that is requested?

Dr. REES. Under our present powers, the only thing that we can do when we don't get information that is requested, is to make public the name of the party that refused to provide it. We are about to do that in a report that is going to be released on the metal can industry.

Mr. ASHLEY. That doesn't give you a very broad arsenal of weapons, does it?

Dr. REES. It is not a very powerful weapon, Mr. Chairman, I agree. Mr. ASHLEY. Then why, let me ask, do you come out so strongly against the proposed granting of the power of subpena?

Dr. REES. I did not come out against the proposed granting of the power of subpena. I came out only against the request to require periodic reports on a product-line basis, which is the other part of that same provision of S. 409.

Mr. ASHLEY. Why don't you describe exactly what is involved there and why in a period when public information seems to be desirable, you don't feel it is a good idea?

Dr. REES. There is a great deal of opposition in the business community to requirements for periodic reports on a line-of-business basis, or on product-line basis, which is even a finer subdivision than lineof-business, as defined by the Federal Trade Commission.

Not all businesses keep their records this way. They have difficulties in allocating overhead cost on products, though they are willing to do this for us by and large. The great majority of businesses have cooperated in our particular investigations, if they understand that this is serving some useful purpose at the time.

But they are strongly opposed, and I think rightly so, to having to file a lot of periodic reports with various Government agencies, when those reports are not going to be used. And that is why we say we would simply like to, instead of having routine periodic reporting, solicit information as we find the need for it.

Mr. ASHLEY. Do you get now, the type of information that is complained against by segments o private industry?

Dr. REES. We do get it on a confidential basis, and we do not disclose it. We only make disclosure when we can combine data from four or more firms.

What the business community is clearly worried about is the disclosure of individual firm data on a product-line basis, which they regard as proprietary information that could be of value to their competitors.

Mr. ASHLEY. Well, of course, what seems to be involved here is the understandable interest of private business, versus the understandable interest of the public that is being eaten alive by inflation. And the trick, it would seem, would be to try to reconcile those perhaps not necessarily fatally conflicting interests so that both can be served to the greatest extent possible.

I must say that I am not entirely sure that your proposal comes down on the side of the public interest to the degree that it might.

Dr. REES. Mr. Chairman, there would be another way of going at this, and that would be to leave in the power to require periodic reports, but at the same time provide strong protection against the disclosure of those reports by the Council and against the subpena of company copies of these reports by interested third parties.

Mr. ASHLEY. At this time, do you suggest that your ability to go public with information is very helpful in persuading participants to behave more in the public interest than they otherwise might? Is that correct?

Dr. REES. Yes. In most industries, however, when a price increase is announced by one firm, it is followed by others. We can go public with information that represents averages of the several firms in that industry. We don't have to disclose the individual firm data.

Mr. ASHLEY. Well, I am sympathetic to the legitimate concerns of the private sector, those that aren't gouging the public. But I would hate to see you fence yourself in as far as the use of information that you might receive.

Dr. REES. Mr. Chairman, if I could read the provision that bothers us, it appears in H.R. 4594, paragraph (h) of section 2, and states:

Notwithstanding the provisions of section 4, any information obtained by the Council under subsection (g) shall be made available to the public unless the Council determines that public disclosure of such information would impose an undue competitive disadvantage on the person submitting such information, except that the Council may not make such a determination with respect to any information which could not be excluded from public annual reports to the Securities and Exchange Commission pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 by a business enterprise exclusively engaged in the manufacture or sale of a single product or service.

In other words, that proposal would require the disclosure of proprietary business information by multiproduct firms, which has never been disclosed before by any Federal Government agency.

Mr. ASHLEY. Including the SEC?

Dr. REES. Including the SEC, because it applies to multiproduct. firms the standard of the SEC with respect to single-product firms. In other words, it says if the General Electric Co. makes washing machines, it must provide as much information about its profits, sales, margins, costs, and so forth for washing machines as would the Maytag Corp., which manufactures only washing machines.

Mr. TOM REES. Would the Chairman yield?

Mr. ASHLEY. Yes.

Mr. TOM REES. Wasn't this the Hathaway amendment which was put in the Economic Stabilization Act, I think, 3 or 4 years ago? There is a specific language that talked about single-product lines. And I think it was an interpretation by the Board that would not come out with the interpretation as intended by Senator Hathaway. Mr. ASHLEY. I think that may be right.

Mr. WILLIAMS. If I may try responding to that, Mr. Rees, it is correct that similar language was added by Senator Hathaway to the Economic Stabilization Act. The experience of the Cost of Living Council under that amendment was that a fairly substantial rash of litigation resulted. At first, the Council's regulations were invalidated, and the Council was ordered to prepare further regulations, which would provide for broader disclosure.