Making investments of that kind, it would undoubtedly be desirable for the investment company to have a small staff of experts in production, marketing and accounting so as to assist any of their customers in case they seem to be getting into trouble. In this way, they would not only protect their investment, but do the small business a very real service by educating its management. Thus the capital bank or investment company would not be competing with existing financial institutions but supplementing them. The commercial banks should welcome them because, after all, any small company, well financed on a long-term basis, would be a much sounder risk for short-term accommodation. Then, after they had grown large enough, the company would be a candidate for the insurance companies, investment bankers, and the stock exchanges.

Because the need was so obvious and because this seemed to be the best means for filling it that they knew of, the Smaller Business Association of New England picked up the idea at once and has been pushing it ever since. Another means of taking care of that same need which has been promoted by other small business groups was the suggestion of Government guaranteed loans patterned after the FHA. SBANE, however, preferred the capital-bank idea; first, because it seemed to fill the need better for both long-term and equity financing and, second because it would be run as a profitmaking institution and eventually be entirely privately owned.

The State development corporations are working in this same direction and might very well fill part of the need. So far, however, they are too small and they are too weak themselves to give the equity aid which is so badly needed or to take risks much beyond those which a regular commercial bank is willing to take. Incidentally, these facts highlight the need for added capital and for being unable to build up adequate loss reserves, which would be facilitated by special tax treatment.

At this point I should like to address myself particularly to S. 2160. While I have not had an opportunity to study it thoroughly, nevertheless a cursory reading seems to indicate it carries out better than any bill I have yet seen the general purposes which we small-business men want. I assume that the technical provisions are so drawn as to effect those purposes.

In section 106 (a) "Loans and Investment," line 7, page 10, the investment company is authorized "to purchase obligations of said enterprises." To me "obligations" would not include common stock but would mean debt instruments. In (b), however, the investment company is authorized to sell the securities acquired and common stocks are specifically mentioned, so I infer they are supposed to be included in "obligation." I would be happier, however, if they were specifically mentioned in (a), too. It would also seem to me highly desirable that a national investment company should have the right to pass through to its stockholders proceeds of sales as capital gains, i. e., the same right now granted many investment trusts. My feeling is that this would help make the investment company stocks more attractive to private investors and thus help bring in private capital more quickly.

As another step in that same direction, I should think it might be desirable in the administration of the investment company that they should adopt a policy along the lines of the Federal land banks so that each customer would take perhaps 5 percent of his accommodation in stock of the investment company. That, too, would facilitate the taking over of the investment company by private capital.

I was very glad to see the provision which allows State development corporations to become national investment companies if they so desire. That provision will eliminate any question of friction between the two and prevent possible duplication of effort in areas where State development corporations are already functioning. Furthermore, once these capital banks are well established and functioning it seems to me they might very well take care of most of the small businesses which now have to go to the Small Business Administration for financing, another case of substituting private enterprise for a Government agency.

There may be other ways in which this particular bill can be improved but I would like to say that to me it seems a long step forward toward filling an increasingly urgent need of many small businesses which is not being met by our present financial institutions. They develop slowly. It took the commercial banks a good many years, for instance, to realize that automobile paper was a good investment, likewise they looked down their noses at small personal loans. Others had to pioneer in both fields but eventually the banks changed

their attitude and now most have special departments to handle that business. They even advertise for it.

The national investment company would be just an addition to our present financial institutions to round out their service to the business community by taking care of the financing needs of small and growing businesses.

Senator CLARK. We are fortunate to have with us this morning as our first witness the Honorable Hubert H. Humphrey, the distinguished Senator from Minnesota, who has two bills pending before the subcommittee.

Senator Humphrey, we are pleased to have you here. Will you please proceed in your own way.

STATEMENT OF HON. HUBERT H. HUMPHREY, A UNITED STATES SENATOR FROM THE STATE OF MINNESOTA

Senator HUMPHREY. Thank you very much, Senator Clark. Mr. Chairman, it is, without my emphasizing it, a privilege to be permitted to testify here before your subcommittee and to testify on behalf of the two bills which I have authored and which are before you, along with other measures to assist small business.

I have been a member of the Senate Select Committee on Small Business since its inception.

Senator CLARK. Senator, excuse my interrupting, but for purposes of the record, the bills you refer to are S. 2184 and S. 2185.

Senator HUMPHREY. That is correct. S. 2184, directing the Small Business Administration to make extensive, comprehensive and continuing studies of certain problems of small business; and S. 2185, to authorize the Small Business Administration to make loans to private nonprofit organizations formed to assist, develop, and expand the economy of the area.

I just said that I had been privileged to serve as a member of the Senate Select Committee on Small Business since 1950, when that committee was established. And I have had, therefore, an opportunity to study some of the problems of small business at close range. I do not have to emphasize before you, sir, and this subcommittee, that the difficulties of small business today are considerable. The facts speak for themselves. Small-business failures are at the highest level since. 1939; corporate mergers are increasing each year; large and powerful corporations gaining an ever-larger percentage of total assets; and small firms finding it increasingly difficult to obtain capital without which they cannot grow and prosper. And I should like to underscore that latter point: The difficulty of obtaining capital under favorable terms, where the rate of profit is adequate to amortize or liquidate the loan and pay the interest.

Senator CLARK. That would have reference to long-term loans and. also to equity capital.

Senator HUMPHREY. That is right. And also short-term capital for inventory purposes, too, Mr. Chairman. That has become an increasingly difficult problem for small manufacturers.

Now, these critical problems, as the chairman well knows, call for much more than mere lipservice, and this subcommittee is to be commended for its serious and conscientious efforts to correct present inequities and to present positive measures that will serve to benefit small business.

The first bill that I wish to discuss is S. 2174, a companion bill to H. R. 5651, introduced in the House by Representative Frank Coffin, of Maine. The measure would direct the Small Business Administration to make extensive, comprehensive, and continuous studies of small-business problems, and to make semiannual reports to Congress on the results of such studies.

I disgress from my prepared testimony here to say that I have long believed the SBA should be a permanent agency of the Government, and that we ought not to have to go through this business of reauthorizing it every so often. If there is any one segment of the American economy that needs to have an agency of Government concerned with its well-being and its long-term objectives, it is independent small business. And therefore, I have long supported and will continue to support what I understand is now the recommendation of this committee, that the Small Business Administration be a permanent agency of the Government.

Senator CLARK. Senator, we have not reached that point yet.
Senator HUMPHREY. Maybe I am just hoping.

Senator CLARK. I take it that you are not one of those who thinks that the Small Business Administration should be placed in the Department of Commerce.

Senator HUMPHREY. I think it should have an independent status, sir, until the Department of Commerce is able to demonstrate to me the same kind of alacrity and keen interest in the welfare of independent small business that some other departments are able to demonstrate in reference to their areas of jurisdiction.

Senator CLARK. There seems to be a widespread view that organizationally the Small Business Administration ought to be in the Department of Commerce, but administratively, with the present philosophy of the Department, that would result in killing the agency.

Senator HUMPHREY. Well, may I say most respectfully-and I trust there is a representative here of the Small Business Administrationright now its condition is slightly anemic, and to affiliate it with the Department of Commerce at the moment might be more than the body can take. Therefore, with all due respect to those who administer these departments, you need the kind of verve and zeal and fervor for small business that an advocate would have for a cause, if an agency is to do a job.

Senator CLARK. I do not want to digress too far, Senator, but I wonder if you have any views as to the desirability of continuing the Loan Policy Committee where, as you know, the Secretary of Commerce and the Secretary of the Treasury sit with the Administrator of the Small Business Administration to determine policy. That has been under some attack. A number of bills have been introduced to abolish it. On the other hand, I think the Administration feels very strongly it should be continued.

Senator HUMPHREY. I remember when the Small Business Administration was established, one of the big arguments, if my memory serves me correctly, was over the Loan Policy Board and the relationship of the Secretary of Commerce and the Secretary of the Treasury to the Small Business Administration in its loan policy.

Now, I suggest that they be friendly observers; that their administrative wings be clipped; that they be permitted to play around in the

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nest, but not to fly off with the eggs. To put it quite bluntly, it is perfectly proper that the Secretary of Commerce and the Secretary of the Treasury, both intimately involved in the business life of our Nation, should have at least a friendly and continuing interest in the policies of the Small Business Administration. But until such time as there has been a clearly demonstrated fact that these agencies, or these departments, are interested in the well-being of small business, I don't believe in letting them come on in and determine policy. If we are going to do that, we ought to turn it over to the Treasury Department or the Commerce Department.

Senator CLARK. Well, I am not sure I don't agree with you. I think probably at this point I do. But doesn't that place us in the position of saying that we are going to do something administratively and organizationally unsound because we do not have any confidence in the attitude toward small business of those who should really be sympathetic to it?

Senator HUMPHREY. Well, Mr. Chairman, I am not so sure about that, either. I think we have on overaddiction in this country to what we call neatness of compartmentalization or administrative organization. People love to see these charts where you have it all blocked out and you have a large block and inside of that block under a secretary you have all these bureaus and units and so on. That looks good-and I have taught public administration and I know it makes a much more attractive book and makes a much more at least plausible organizational chart. But that does not necessarily mean that it works better. That which is best is that which works best. And I think when you have an administrator in charge of an agency that really fights for his people and works for them, that that is a lot better than trying to have a nice chart, where you do not have some little agency dangling over to the left side or the right side.

Senator CLARK. You, also, however, Senator, have been the chief executive of a great American City, and you know how difficult it is when executive responsibilities diffuse and the executive has to supervise more people than he can conveniently get around to handling.

Senator HUMPHREY. Exactly. And that is why I am not so sure that the Department of Commerce ought to have the Small Business Administration. I think they have their hands full right now.

Now, as I said, the first bill I wish to discuss is S. 2184. And I have identified that bill in reference to the House. This measure would direct the Small Business Administration to make extensive, comprehensive, and continuous studies of small business problems, which I believe is necessary. For example, one of the things I would like to see done right now is a project which I would term "Operation Main Street." I would like to see the Small Business Administration, or, if possible, a committee of Congress, this subcommittee of the Banking and Currency Committee or the Select Committee on Small Business, go into typical American cities and really find out what is going on.

For example, let's go down to Virginia, and find a city of 25,000 or 50,000, and go up and down the main streets, with proper questionnaires, and trained interrogators, and really find out from the businessman what is going on-not just in terms of these broad statistics that come out in the so-called statistical averages from New York City, but let's go and find out what is really going on.

I could bring in the books here of our business and show you what is going on. We know what is happening to the net rate of profit. We know what is happening to our sales. Sales go up and profits may go down. We know what is happening to our overhead and tax structure. How do you find this out? By a careful analysis on the spot. That is what I think needs to be done here.

Senator CLARK. Senator, to some extent the Small Business Administration has the power to do that right now under existing legislation, does it not?

Senator HUMPHREY. Yes, it does; but it needs to be directed.

Senator CLARK. You think they need a little encouragement and incentive in the form of legislation.

Senator HUMPHREY. One of the failings of humankind is, I won't say indifference or inaction, but there is a sort of lethargy that comes over us, particularly in the heat of the summer, like this, and that is understandable. And when you want something done, Mr. Chairman, I suggest most respectfully it is good to direct it to be done, and then it will be done.

The present Small Business Act, as you know, permits the Small Business Administration to study basic problem of small business, as the chairman has just noted. But such studies are not mandatory. To date, however, the Small Business Administration has done little, if anything, in this field. And I want to publicly chastise them for not having done something about it-when the rate of business failures goes up, when credit problems of small business are so evident that Business Week itself writes lead articles about it and the Wall Street Journal has lead articles about the credit problems of small business. I want to know why the Small Business Administration is not moving and coming forth with the kind of construtive examination of the small-business aspect or area of the American economy that the act permits it to do.

Senator CLARK. Of course, Mr. Barnes has been in here telling us that he is doing a great deal of that kind of work, holding clinics and discussing problems in various areas of the country, making suggestions to small business-and his reports are full of the sort of things that they purport to be doing. But I take it that your feeling is that they are rather dragging their heels on getting into the really important areas to do something concrete and constructive instead of just holding another panel discussion.

Senator HUMPHREY. Well, may I just say this-and I say it with due respect for those who operate these agencies. I know they work diligently and apply themselves to their job. I say that there is a lot of difference between just doing what you are required to do, and then doing it with a zeal and doing it with a determination. We in politics know a great deal about this. Many times things are done that you just do, and that satisfies some people that are not too careful in their scrutiny. But what I want is the Small Business Administration doing what it should do with such vigor and zeal that it gets criticized, and gets criticized by those in big business and those in high finance for the position which small business takes. I have not seen them irritate anybody for a long time, except a few Members of Congress.