Mr. SILBERMAN. A very healthy consensus in my judgment. But in ny event, Mr. Chairman, the main point that I meant to make here, ecause as you have indicated, this committee does not have direct urisdiction over the question of whether the controls program should xtend, but my point is that if it does extend there are certain mininum requirements which Congress and this committee ought to direct tself to. And the heart of those minimum requirements is the question of predictability.

Senator MATHIAS. And I would assume from what you say that if here is a phase V, it ought not to repeat phase III.

Mr. SILBERMAN. Or anything like it, anything like it. What I am afraid, you see I can think about this from either point of view after my experience. From the economist's point of view, if you forget these traditional institutional values, there is an awful lot of merit to developing a system which is so flexible and so vague and really does not have a full blown system of regulation and really does not have any kind of understandable system of regulation, but it gives you legal authority to sort of run around and put an impact on a particular wage and price movement at a particular time; and I said that we may be hit over its spill-over impact. The difficulty with this in the economist's approach with that, is that they are not looking at certain noneconomic spillovers from such a course action. And that is what I am concerned about in the phase V approach.

Senator MATHIAS. There is sort of a biological rule here that is not being observed. The World Wildlife Council last week, Prince Bernhard, the chairman, said that they could no longer be concerned with species, they had to be concerned with the whole ecological system. And that is our problem here.

Mr. SILBERMAN. Yes, you put that very well.

Senator MATHIAS. Let me ask you the $64 question, and I will not hold you any longer, but in light of our comparatively long experience in this subject, and your knowledge of it, how long do you thinkand let me say your announced bias against a control program—how long do you realistically think we will live with some form of controls, active controls, not just a standby authority on the statute books?

Mr. SILBERMAN. Well that is the $64 question. But let me first. start by pointing out that John Dunlop, for whom I have immense respect, but with whom perhaps I disagree with the probable course of future events, gave an address to the labor section of the American Bar Association several months ago, I think it was in August, and he said something that I think was terribly important and that is that he first saw the Government coming in and out of the wage-price arena for the balance of this century, not in a formal way-or maybe he implied that occasionally it would be formal-but more that there would be a continuing symbiotic relationship between the Government, labor, and industry, working on these problems.

I would hate to see that happen. I think that is wrong. I think it works sometimes on a short-range basis, as it did in the construction industry stabilization committee and John is really generalizing on that experience, but it sacrifices traditional interests. It really is sort of an interesting next step in the Government process. In the 1930's when the Government adopted the administrative agency approach, it

did so I think, I suggest it did so because it felt that there had to be another layer between the Congress and the courts. I simply think that was a little closer, a little more closer to the regulated class. but which cleared on certain quasi-legislative responsibilities, quasijudicial responsibilities; but it got a little closer to the regulated class and it could react more quickly.

And I think what Dunlop is referring to are really the systems of controls for the last 3 years which shows another jump down. You know a Government agency is so involved in day-to-day decisions, that it really is part of the decisionmaking process in many cases rather than setting forth guidelines or rules for private parties to operate under. That was so with respect to CISC. I think it is so today with respect to pay activities of the Government. They are sort of involved. they are not really involved, you cannot catch them. But what it really means is, it is a different kind of system of government than we have really come to expect and one that I think carries with it immense threats on a long-term basis, outside of the area of wage and price control.

So I guess my answer to your question is, if John is right in his prediction we are in it for good. We are in this funny hazy kind of way where nobody sets the rules or they are shifting every day, I would personally believe, however, that we have to be out next year. I think we are in it today to the tightness that we are, as Bill Walker stated. because of the worldwide commodity demand.

And the amusing thing about it is the controls have almost no impact on the price of worldwide commodities. We are always in controls for the wrong reasons. Now there are a lot of economists who want to keep controls next year I think primarily because they are afraid of a resurgence of wage push. But I really do not think they will work to withstand such a push, if it comes, so I am inclined to feel that the chances are that administration will be out next year, but that there will be a tremendous temptation to retain some vestage, some small agency that would operate in a manner that I described as a "transitional process" and to avoid the political problems which come about if Congress and the administration just said okay, that is enough.

Senator MATHIAS. Well if that were to occur, then it would seem to me it is a great challenge to this committee which has the responsibility of trying to maintain the fabric of constitutional government to make sure that in the future there are proper administrative guidelines and the proper statutory standards to avoid the dangers that both you and I agree exist.

Mr. SILBERMAN. I think you are absolutely right. I think it is this committee's responsibility and it very much goes to the question of delegation of power to the executive branch.

Senator MATHIAS. You have been extremely helpful.

If counsel have any questions they cannot resist, we will invite them, otherwise we will excuse you.

Thank you very much, sir.

We are happy to welcome the next witness here representing the National Association of Food Chains. He is responsible for administrating the affairs of an association which numbers more than 200 food chains that operate 25,000 supermarkets and doing a total annual volume in excess of $30 billion which ought to make you a very respected witness for the committee.

STATEMENT OF CLARENCE G. ADAMY, PRESIDENT, NATIONAL AS-SOCIATION OF FOOD CHAINS, ACCOMPANIED BY JAMES RILL, ESQ., GENERAL COUNSEL

Mr. ADAMY. Thank you, Mr. Chairman. Are we under a real time stricture?

Senator MATHIAS. We have enough time if you want to summarize your statement, it can be presented in full, but feel free.

Mr. ADAMY. Well let me do that, Mr. Chairman, I would much rather respond to your questions. Incidentally, I am accompanied today by Mr. James Rill of the law firm of Collier, Shannon, Rill & Edwards, our general counsel.

My statement, in summary, recognizes the tremendous difficulties. of administering a program as complex as economic stabilization by the Cost of Living Council. At the same time we are critical of the lack of certainty and of the irrational delays built into the program. We make quite an example of the fact that during phases I, II, III, III-2, there was no consultation. The chaos, the political nature of the problem, forced them to issue regulations without consultation with the involved parties, either the public or the involved parties. In IV-A and IV-B we have had consultation. We propose that they are much better rules because of that consultation.

We suggest very firmly that the inbuilding of the administrative act and the consultation procedures is helpful to the Government, to the consumers, and obviously to the regulated people in here.

The exception procedure up to now has been basically a farce. There have not been exceptions granted. There has not been consideration of it, and there is a real need for it.

I will move to the last part of my statement which covers the direct cost of compliance which is in itself difficult to measure. At least one top executive in each firm or division of a firm, has worked nearly full time on the Economic Stabilization Programs. Another 10 to 15 executives in the average firm or division have spent 5 to 10 percent of their time on ESP. This is equivalent to at least a second full-time man. The managers of each of approximately 45,000 supermarkets throughout the Nation have been involved in posting signs, checking prices, and answering consumer questions, and a multitude of other activities, amounting to about 1 man-year per store.

In sum, the Cost of Living Council has, by and large, done an incredible job of administering a difficult and complex program. And if my remarks appear critical, it is only because they focus on shortcomings. The distortions that have occurred can only be corrected by a return to free markets with competitively determined prices. Where one layer of regulation has failed, additional layers of regulationswould only compound the failure. The deficiencies which have, from time to time, existed in the Cost of Living Council procedure can best be cured by streamlining and simplification.

Now the report which this committee prepares will hopefully be directed toward these ends. Excuse me for not reading my prepared' statement but I hope the committee will put it in the record.

Senator MATHIAS. It will be included in the record in full.

[The prepared statement of Clarence G. Adamy follows:]

28-511-74- -10

PREPARED STATEMENT OF CLARENCE G. ADAMY

Mr. Chairman and Members of this Committee, my name is Clarence G. Adamy and I am President of the National Association of Food Chains ("NAFC"). NAFC is a trade association representing approximately 200 food retailers, including all the larger and a cross-section of medium sized and smaller firms.

It is an honor to appear before you this morning to discuss our experiences with the procedures of the Cost of Living Council. While we certainly agree with all of those spokesmen in the Congress, in the Administration and in the private sector who have expressed their view that the present Phase IV of the Economic Stabilization Program should be followed by a phase-out of controls, it is nevertheless worthwhile to review the procedures which have been used during Phases I, II, III, and IV to be prepared against the unwelcome possibility that they will yet be succeeded by a Phase V.

Food retailers recognize and respect the goals of the Economic Stabilization Program and appreciate the difficult tasks which have faced the Cost of Living Council in administering it. At the same time, however, the last two years have been difficult for food retailers.

In 1966, after-tax earnings were about 1.4 percent, prior to the onset of inflation. Operating results for food chains reported in a recent Cornell University study show that average after-tax net earnings during 1972-73 fell to 0.49 net as a percent of sales. Net earnings after taxes expressed as a percent of net worth are at an all time low and are down 37 percent from the prior year.

It is to the credit of the Cost of Living Council that they have tried to take account of the difficult circumstances faced by food retailers. For example Cost of Living Council Director John Dunlop alluded to "the exceptionally low level of profitability which prevailed in 1972 among food retailers" at the time he issued the proposed Phase IV Food Regulations.

But sympathetic as we are to the difficult tasks which have faced the Cost of Living Council and appreciative as we are for the sympathy which they have shown toward the problems of food retailers, it is evident to us that the policies and procedures of the Cost of Living Council have at times hurt food retailers and contributed to food price increases.

This Committee is interested in the procedural aspects of the Economie Stabilization Program and therefore my testimony will focus on procedure rather than policy. Let me suggest, as a layman surrounded here by lawyers, my own lay criteria for judging the merit or demerit of CLC procedures.

A good procedure is one that promotes fairness. Fairness only can be promoted if action taken under the procedure and the reasons for the action are clearly expressed so that those who are regulated can understand what is expected of them. Abnormal and unusual requirements should be avoided whenever possible and customary business practices should be approved whenever possible. There should be ample notice to those who are regulated that regulations will change, or have changed, and there should be an opportunity to comment on the changes. Finally, procedures should operate on a prompt and punctual basis to deal with problems as they arise.

Unfortunately there have been times during recent months when the procedures employed by the Cost of Living Council in issuing regulations and in granting exceptions have left much to be desired. This was particularly true during the freeze announced on June 13, 1973. Whether or not price freezes are desirable is a policy question beyond the scope of these hearings. It is my view that such freezes are not desirable policy. Nevertheless my discussion here will be limited to the procedural distortions which occurred with the announcement of the freeze on June 13.

The Cost of Living Council deserves a generous credit for issuing both its Phase IV, Stage A regulations and its Final Phase IV Food Regulations in proposed form allowing the opportunity for comment. The regulations which resulted show the benefits of the comments which were received.

However, the Council's freeze regulations which were issued with no opportunity for comment produced problems and economic distortions which were costly to retailers, manufacturers and particularly consumers.

The Cost of Living Council has been publicly criticized for its tendency to avoid the requirement of the Administrative Procedure Act that interested parties be given the opportunity to participate in rulemaking through "submission of written data, views or arguments with or without opportunity for oral presentation." Too often the Council has circumvented this requirement by prefacing a regulation with language that public comment is impractical.

The Cost of Living Council's Freeze Regulations were issued on June 13, 1973 without any opportunity for prior comment. The reasons for this were: "Because the immediate implementation of Executive Order No. 11723 is required, and because the purpose of these regulations is to provide immediate guidance as to Cost of Living Council decisions, the Council finds that publication in accordance with normal rule making procedure is impracticable and that good cause exists for making these regulations effective in less than 30 days.

A Cost of Living Council official has described the "freeze" as "shock therapy to the inflationary psychology which was again sweeping the country." Such shock therapy ignores procedural rights which are provided to help improve the regulatory process. The freeze showed that when procedural rights are ignored there can be serious and adverse substantive consequences. In plainer terms, food retailers and consumers faced food shortages for the first time since World War II.

The severe problems caused by the freeze were enumerated by the Cost of Living Council Deputy Director James W. McLane in a speech to the Commonwealth Club of California on July 23, 1973. McLane pointed out that confectioners, millers, poultry and egg producers and others faced costs greater than they were allowed to charge. Those are the people who supply retailers. They have little incentive to supply anyone at a loss. Many retailers found that they had items which they too were forced to either discontinue or sell at a loss for the duration of the freeze.

In his California speech Mr. McLane pointed out that pork and poultry producers slaughtered breeder stock at "alarming rates" during the freeze. The result was that our customers have had to pay higher prices for pork and chicken.

Certainly there may be situations where it is necessary to publish regulations which take effect immediately. But the freeze is an example of the almost catastrophic impact such preemptory procedure can have.

When the freeze regulations were published, there was a provision in the preface that "Interested persons may submit comments regarding these regulations." If it is sometimes essential to issue regulations immediately, this procedure for comment after issuance should be improved and made more specific. A seven day comment period with some prospect of prompt changes responsive to comment might well have lessened the inequities and economic dislocations which occurred during the freeze. As I have pointed out, it is to the credit of the Cost of Living Council that they did allow comments on proposed Phase IV regulations and Phase IV Food Regulations. The procedures which were followed in issuing the freeze regulations should never be repeated.

The Committee has also inquired about our experience with the Cost of Living Council's procedures for requesting exceptions, I understand that Cost of Living Council officials indicated that the freeze and Stage A of Phase IV were rigorous regulatory programs and, therefore, there would be a responsive exception procedure. Unfortunately, the exceptions procedure during Stage A did not prove responsive.

On August 1, 1973, the National Association of Food Chains requested three class exceptions on behalf of food retailers. The exceptions requested were:

1. Immediate action to place sales of beef under the same regulations which apply to sales of pork and lamb, in order to assure adequate production and marketing of beef at reasonable prices.

2. Immediate suspension of invoice certification requirements contained in Section 140.93 and Sections 130.127-130.129.

3. An exception from the requirements of Part 140.93 (d) and (e) allowing retailers to adjust the price of any item, the actual average cost of which exceeds the freeze price the retailer is allowed to charge, to a price at least equal to actual cost.

These seemed to be reasonable requests. They were designed to relieve serious hardship and gross inequity and to prevent market disruption. In fact, if those exceptions had been granted, the program would have been strengthened and the economy would have benefited.

No response to these exception requests was received by us until September 12, 1973, by which time Stage A had ended and the requests were no longer relevant to the new Stage B regulations. The Cost of Living Council response was dated 9 September 1973, the last day of Stage A. It stated that "the request does not show that compliance with Phase IV, Stage A food regulations results in a serious hardship, a gross inequity or serious market disruption." The response indicated that the first two of our exception requests were denied and