job of the JGO becomes much more difficult and complex than envisioned in H.R. 50. The real problem is what should be done as the "reserve army of unemployed" in the private sector grows over time. Of course, the magnitude of the task is even more immense if we consider underemployment, as measured by one or another "subemployment" index.

According to the Bill, this situation would have to be dealt with by expanding the public sector over time as the private sector shrunk. But here the Bill lets us down altogether. The main problem with H.R. 50 is that it creates job slots, but fails to provide all of the complementary inputs required for productive work. All economists-traditionalists and radicals alike-realize that for labor to be productive, it must have capital and raw materials to work with. Without plant and machinery and without raw materials, labor's productivity is minuscule. This is the primary reason why many public service employment programs often do contain a degree of make-work. With the exception of some WPA and CCC projects in the 1930's, most public service employment programs fail to appropriate any funds for capital equipment. The PEP program only supplied funds for wages and administrative overhead. CETA Titles II and VI have a similar weakness. Without provision for capital equipment, many of the Jobs created will have extremely low productivity. Thus the conservatives will, in effect, see a selffulfilling prophesy, with public service jobs being little more than distinguished welfare.

Nowhere in H.R. 50 is attention paid to "capitalizing" jobs in the work "reservoir." This is particularly perplexing because the Bill explicitly calls for reservoir projects including construction and maintenance of public buildings and other projects which require extensive amounts of equipment. Even public service jobs in welfare, education, health, and environmental protection require complementary inputs of transportation, books, typewriters, etc. Capitalizing these public service jobs is obviously necessary.

Presumably the authors of the Bill evaded this question because inclusion of "capitalization" would smack of "public enterprise" and "socialism." But without capital, the program is unworkable. Some local governments are presently trying to combine CETA wage subsidies with the community. Development Block Grants from HUD and EDAS Public Works grants and loans. But the dollar amounts are far too small and local governments are not for the most part competent to "package" such resources, due to the fragmentation of agencies within state and local government. Moreover, the Bill ignores the very serious "maintenance of effort" problem, where local prime sponsors use part of the federal grant to finance activities they would have undertaken anyway, in the absence of the grant. The result is that net (actual) job creation falls short of the expected job-creation for a given federal expenditure. The problem is real; how would H.R. 50's designers deal with it?

Along with the problem of "capitalization" and the implicit "cyclical" perspective on unemployment, H.R. 50 fails to deal with the central issue of local and regional economic development. The main reason why unemployment is so pervasive and persistent in a growing number of areas in the U.S. is that economic development has slowed down to a crawl. Beyond a lack of explicit planning for development, there is little capital inflow into large areas of the country and, in some cases, a good-sized capital outflow. In some cases, the outflow is from one region to another within the nation's boundaries. Increasingly, however, the flow is to other countries via the multinational corporations (especially the banks). Economic development of depressed areas then requires (1) planning (2) job slots and (3) capital. H.R. 50 provides for the first two, but fails once again on number three.

Economic development is more than a problem of just keeping capital around in order to provide meaningful jobs in what otherwise would be depressed areas. True planning and development requires the ability to boost certain industries at the expense of others. If we make a commitment to mass transit as part of a local, regional, or national development scheme, this necessarily means expanding parts of the transportation industry at the expense of other sectors of the economy. There is no escaping this conclusion: public planning requires actions that will unquestionably injure some private corporations, by reallocating capital from those sectors whose outputs Congress believes to be excessive to those who outputs it believes to be underdeveloped.

The oponents of H.R. 50 are bound to bring up the spectre of runaway inflation caused by wage-price spirals. With a full employment economy, the federal gov

ernment will be in direct competition for labor with the private sector. From the perspective of the private sector, there will be a massive "shortage" of labor and the bidding process will push up labor costs and inevitably prices. Given built-in cost-of-living protection, such labor shortages will lead inevitably to the price spiral and there will be nothing to turn it around.

The truth of the matter, as we see it, is that the above argument is not far off the mark, given no government intervention or limited intervention in the setting of wages and prices. "Full" employment in the face of no controls always leads to inflation as firms attempt to keep their profits up. Thus, without some form of far-reaching incomes policy, H.R. 50 will be highly inflationary. And once we begin to talk about an incomes policy, we must think carefully about what political mechanisms can be developed to set "fair" prices, wages, and profits. The point to remember is that a "full employment" policy as outlined in H.R. 50 is tantamount to a high level minimum wage law which pushes up labor costs in both the private and public sector. The public jobs "reservoir" ensures a decent minimum wage while the standby Job Corps provides a mechanism to compensate those workers who become disemployed because of higher wages. This is all well and good, but it must be realized that to the extent that H.R. 50 provides an alternative to poverty wage jobs in the "secondary labor market", there will be a substantial disemployment effect which will rapidly expand the need for the public jobs "reservior" and expand the standby Job Corps.

Another shortcoming of the Bill is that it fails to deal with some specific shortrun employment problems. A key one is the question of plant closings. Recently we have seen whole industries lay off up to one-third of their employees with little prior notification. The result has been wholesale disruption of families, communities, and even regions. Without some control over the procedure by which major employers can dislocate workers, it will fall completely to the public sector to take care of those who lose their jobs. There will be even less concern among private employers when contemplating closing down part of their operations in any particular region or locality, should H.R. 50 be passed in its present version. The "insurance" of public service jobs and a commitment to full employment may thus lead to even greater "reckless driving" on behalf of individual employers, unless some mechanism such as "experience rating" in unemployment compensation is used in the overall full employment program. We believe that at least some portion of the public job "reservoir" funding and standby Job Corps should come from business through employment experience-rated taxes.

In addition, H.R. 50 or some other piece of legislation should deal with mechanisms to curtail the unregulated right of employers to discharge huge numbers of workers whenever they felt this is necessary to maintain profits. Again, it seems that a government-guaranteed "right to a job" cannot be seriously enforced without radically altering the traditional "right to dispose of private property." H.R. 50 is very naive on this fundamental conflict.

Finally, one last point. Section 6 of H.R. 50 refers to the compensation of Job Corps members. It mentions only the payment of a "monthly sum" appropriate to the skill level of the individual Corps members. Clearly we should be moving In the direction of defining adequate compensation in terms of compensation plus other "fringe" benefits necessary to ensure a decent standard of living. Jobs in the public employment “reservoir" and the Standby Job Corps should offer pension rights, medical insurance, and possibly life and disability insurance, as well as wage-equivalent grants. This would at least ease the present problem under Unemployment Compensation (UIB), where an unemployed worker loses not only part of his or her earnings, but company-paid medical insurance and other benefits as well. (Of course, some form of national health insurance would largely eliminate this problem.)

Part III. A Political Critique

Beyond the economic critique, there are a number of political issues that must be considered, having to with the style of the Bill. In its creation of new agency titles and the endless shopping list of "good things to do," especially given the absence of a capitalization plan, H.R. 50 sounds absolutely utopian. In order to make the Bill less utopian, a great deal must be added to each section of the Act, spelling out in detail how the program would work. This detail would have to take into account all of the economic critiques outlined above and specifically deal with the question of "capitalization."

In addition, the Bill must be "costed out" to suggest just how much would have to be spent where-and where considerable savings could actually be made (the mention of $15 billion in the emergency appropriation is a bit irresponsible, since none of the technical forecasts mandated by the Bill were in fact computed to arrive at that—or any other-figure). On the optimistic side, it is conceivable that large amounts of welfare expenditures could be transferred into the work programs, although we strongly oppose financing a patently experimental program at the short-term expense of welfare recipients. On the other hand, capital-spending may require large new outlays in line with the economic development and full-employment goals envisioned in the Bill.

Equally important on the financing side is how the funds will be raised for the purposes of fulfilling H.R. 50. Will they come out of the already inequitable income tax structure? Will there be new taxes on private corporations? Will the government begin to go into production and use the revenues from sales to pay for certain work projects? Will the government capitalize cooperatives or private firms with equity and use any dividends to pay for the program? All of these are questions that must be further investigated. Others are actively discussing them; why not the authors of H.R. 50?

The most important issue raised by H.R. 50 has to do with planning. In order to avoid the great potential for undemocratic control, the Bill calls for local planning councils to develop plans for the public jobs reservoir and to oversee the local and regional operation of the JGO. While decentralized planning protects against autocratic rule, it nevertheless creates an immense problem of coordination. In effect there is always some trade-off between efficiency in planning and democratic decision-making. Somehow a mechanism must be developed so that planning can be coordinated with a minimum amount of autocratic control. At present the House Bill is unclear on the relative strength of the national Job Guarantee Office and the hundreds of individual local planning councils. The relationship between the two must be thought out carefully.

Part IV. Toward an Economic Development System to Implement the Job Guarantee

To create jobs, it is necessary to create enterprises and projects that use laboralong with capital-to produce goods and services. The supply of capital available for building such enterprises-for expanding the productive capacity of investment (e.g., elements of the Bank Holding Act of 1969, the DISC program, etc.), seriously repealing many unproductive national and state business tax incentives, and similar policies are needed.

Then, we need mechanisms for reallocating more of the capital that is available for domestic investment from the overdeveloped parts of the private sector to the public sector. These would be used to finance the high-priority budget areas, and as a fund for "fueling" those local job councils which are really the heart of H.R. 50's "delivery system." AFL-CIO Secretary Treasurer Lane Kirkland has proposed a national economic development bank, which would be funded mainly by the requirement that all private banks-as a condition of retaining (or getting) federal charters-subscribe to the development bank. This is a concrete, nitty-gritty proposal for reallocating capital from the private to the public sector. Kirkland lists new enterprise development, emergency aid to ailing businesses, and the guarantee of state and municipal bonds as top priorities for the national development bank. Other people (including the authors) are currently working on similar models, especially as devices for promoting low-income community economic development.

If the private sector chronically underinvests in those parts of the economy where it is especially difficult to make a "competitive profit"-or chooses to disinvest in an activity (or region) because there's more money to be made elsewhere (say, in Taiwan)-then useful jobs are not being created-or are actually being destroyed. The remedy is, in our opinion, a great increase in enterprise development, whether publicly-owned (as in the case of municipal or county electric utilities), organized neighborhood-based cooperatives, or simply locally-controlled private businesses. One important potential "sideeffect" of a publicly-financed (but deliberately-decentralized) program to expand the number of enterprises in the American economy is the brake this might place on the power of "oligopolistic" firms to use their market power to raise (or otherwise maintain high) prices. We strongly believe that monopoly cannot be defeated by anti-trust laws. It must be confronted directly, in the market

place, by competition. Thus, for example, Illinois Senator Adlai Stevenson's proposed Public Oil Corp. would directly compete with (e.g.) EXXON, thereby helping to reveal to the public the true cost of "mining" and processing petroleum. In sum, we believe that the creation of "full employment" requires providing the institutions contemplated in H.R. 50 with capital and the power to create new enterprises. Increased savings, reallocation of capital from the private to the public sector, and encouragement of the widespread development of new public and private (but locally-owned) enterprises are the main elements of the sort of program that is needed. H.R. 50 needs to incorporate them.

Part V-Summary

In sum, H.R. 50 speaks to the best of humanitarian motives and presents the first beginnings of a comprehensive program to assure a decent standard of living through full employment for all. What it fails to do is to come to grips with three fundamental issues:

(1) The issue of long-run relatively high levels of structural unemployment created by increased disemployment in the private sector;

(2) The issue of "capitalizing" public sector employment, in particular, and enterprise/project development, in general; and

(3) The issue of providing the proper balance between local democratic control of the economic planning mechanism and coordinated public planning.

The goals of the Bill deserve the support of progressive elements in societybut equally require that we begin to understand the types of changes mandated by the changing structure of the American economy. Specifically, a "full employment" bill needs not only to identify the kinds of jobs (in the kinds of sectors) that are "needed" (according to some people's value judgments), but must also mandate concrete legal processes for acquiring and allocating capital with which to create the enterprises or projects in which these jobs will be "embedded."

STATEMENT OF PROF. BENNETT HARRISON, MASSACHUSETTS INSTITUTE OF TECHNOLOGY AND PROF. BARRY BLUESTONE, BOSTON COLLEGE, CHESTNUT HILL, MASS.

Mr. BLUESTONE. Mr. Chairman, Professor Harrison and I have a joint statement. We will present it together.

Mr. HAWKINS. We recognize the presence of Prof. Bennett Harrison now. Which one of you will present the statement or will you give it jointly? You may proceed as you desire.

Mr. BLUESTONE. Thank you very much. We appreciate the opportunity to appear before this subcommittee.

At a fundamental level H.R. 50 can be thought of as a statement of political commitment to a full employment economy tied to a massive planning effort directed at fulfilling this commitment. It commits the Federal Government to guaranteeing a job in the private or public sector to anyone willing and able to work. It would do this, according to the bill, by indepth micro planning of the economy so as to maximize employment in the regular private and public sectors and by providing a new public sector job reservoir for those who temporarily cannot find employment in the regular economy. In this way, according to the bill's sponsors, we would no longer waste human resources and we would begin to produce desired public services and public works.

The Employment Act of 1946 made it the Federal Government's responsibility to use fiscal and monetary macroeconomic policies to provide for full employment, stable prices and a favorable balance of payments. H.R. 50 goes well beyond the 1946 act, stipulating that

full employment takes precedence over all other goals and envisioning the need for microeconomic planning for this purpose. In addition to macroeconomic policy, the present bill calls for the annual Presidential promulgation of a full employment and national purposes budet and establishes local planning councils to develop local work projects, a la the Canadian local initiatives program. Priority target sectors are identified, for example, housing, health, and mass transit.

To carry out the bill's purpose a Job Guarantee Office would be created which would have three methods of placing jobseekers: (1) Through the current employment service, to be renamed the U.S. Full Employment Service; (2) through the placement of workers in public service jobs planned at the local level; and (3) through placement in a standby Job Corps where jobseekers would be registered and compensated.

A new agency called the National Institute for Full Employment would carry out a massive research effort on a whole range of issues related to employment, labor markets, and planning. Executive agencies would forecast expected private employment growth and compute the employment impacts of alternative Federal budgets and the plans of the local councils.

Mr. HARRISON. Thus the bill calls for a political commitment to full employment as a first priority item of government policy and for a massive research and planning effort to analyze and forecast expected private employment and the employment impacts of alternative Federal budgets. It encourages local councils to propose new work projects. These provisions constitute a major step forward in American statecraft and we applaud them. There is no question that we do now have the technical capacity to prepare such full employment and national purpose budgets. The U.S. Bureau of Labor Statistics has already begun to promulgate the tools. Presidents and Congress people can estimate the industry occupation and even to some extent the locational impacts of alternative Federal budget. They could then "fold in” the proposals from the local planning councils and projections of normal private and non-Federal public growth, totaling up the employment forecast by type and location of job. These totals would then be compared with a forecast of the future size of the labor force, using the more accurate definitions of the latter that have been developed by Gross and Moses, Harrison and Vietorisz, and others, to arrive at a prediction of the unemployment rate. If that is too high the budget can be juggled, allocations to the local planning councils can be increased et cetera. More rational use of the Federal budget as an economic development-job creation instrument is now feasible and H.R. 50 is most farsighted by recognizing this fact and requiring the President to use the budget in that manner.

But H.R. 50 is in our opinion very weak about the crucial matter of implementation. Specifically, how will the President and Congress be able to act on the plans generated by the research? How will the local councils acquire the capital with which to create jobs? Is this an enterprise development bill or a blown-up public service employment bill? If existing governments or private employers are to be eligible prime sponsors, how will we deal with the "maintenance of effort" problem? Growth has proved to be a crucial problem with the capitalization of CETA.