So then, you are making very risky advances, and you are dealing with people who are not in a position in most cases to hire the best technical advice.

It is important, therefore, to have the technical-assistance program actually precede in many cases, and always go along with, the rendering of financial aid.

You get those two working together, and you have what is the standard program in most parts of the world, except the United States.

That, for instance, is the program that has been working in West Berlin now for several years, and is very successful. In many other places, too, in one form or another.

They do not have to go through exactly the same channels, but the financing and the technical assistance should be closely coordinated. Now, I have finally, a third very general suggestion to make. This is pure "blue sky."

This has not been tried anywhere, as far as I know, and that is: to go to the center of the problem and attempt a regrowth of industry in areas. Start right in from the beginning and try to see if you can establish entirely new industries.

Now, by that I do not suggest that the Government go into business, or anything like the rural resettlement program factories in the 30's. I suggest, simply, that you consider the natural history of business, and how businesses get started. When you do, you will see that money was almost never the important factor. The essential factor was always the time, the free time, of a very able and ambitious individual. He can then promote the money that he needs, if he has got his free time.

I feel that it would be possible to establish a program like that on very much the basis that you established a graduate fellowship program. That the end product, instead of being a thesis and a teaching license, would be a going concern.

The fellowships would simply cover the cost of living, with maybe a few business expenses. You would have to promote any money for the business.

There would be additional expense in what might be the equivalent of faculty advice, and that expense might come to even more than the entire living allowance.

I think it would be appropriate for the Government to provide the funds throughout the technical-assistance program for the overhead on the faculty advice; and that with that provided, I think that the relatively small sums required would come quite readily from local voluntary contributions. Let the fellowships themselves be paid for by the local people.

I think in that way we might get to the heart of the matter of starting a regrowth of industry in many of these areas.

Now, of course, in fact, without any stimulation, that is what is happening, but it is too slow.

For instance in New England, the textile mills go out and throw thousands out of employment in each town. The new plant starts and employs 15 or 20. Finally they will catch up. What we need is to speed up the process of the new industry being established.

In all of New England, the new electronic and instrumentation industries and so on are growing up all over the place like

Senator DOUGLAS. There surely must be a limit to the electronics industry. People speak of new industries to replace textiles. We speak of electronics. I suppose that is everything connected with tubes.

But, I wondered about the ability of the country to absorb electronic equipment.

Mr. Wood. You are right.

During the war there was a much greater output than there is now and right after the war there were enormous casualties in those small electronics plants.

Now they are beginning to pick up again, but it is a convenient example of a modern small industry. There are so many that there aren't even names for them, now. I don't know how-I don't know what you would call an industry that makes filtering equipment for swimming pools, for instance; or what you would call an industry that makes infra red instrumentation to watch metallurgical furnaces. I don't know what kind of industry that would be. It is instrument industry.

But, there were four of them established in Connecticut last year, all employing 15 or 20 people each; with great potentialities for growth. When you cut down or burn over a forest-just like that, these things spring up again. It takes time, however, and I feel by some judicious planting, you would accelerate the pace of regrowth and I think that you do not have to depend on natural regrowth. You can actually stimulate it.

My suggestion bears on that.

Senator DOUGLAS. Well, your testimony has been most provocative, Mr. Woods. You have given us lots of new things to think about. I want to thank you very, very much.

Now, if you can submit material at not too great length which will describe some of the State corporations in this country, if it wouldn't be too much trouble for you

Mr. WOOD. I would like to do it, very much.

Senator DOUGLAS. We will make that an appendix to your testimony so the members of the committee will have a chance to study these very interesting proposals which you make.

Mr. WOOD. Thank you, sir. I will do that.

(The material referred to follows:)

DEVELOPMENT CREDIT CORPORATIONS

(Small Business Credit Commission, American Bankers Association)

PURPOSE

Reports of successfully operated development credit corporations have stimulated widespread interest in this type of organization as a means of meeting capital needs.

A flood of questions reaching the small business credit commission of the American Bankers Association has come from bankers and others throughout the country. They concern the nature, purpose, extent, method of operation, and procedure for organizing this new form of credit institution.

This brochure has been prepared to answer these questions. It describes the steps to be taken in organizing a development credit corporation as a means of increasing the service of financial institutions to the State's economy in general and small business in particular.

INTRODUCTION

When the small-business credit commission of the American Bankers Association was organized approximately 11 years ago, its objectives were twofold. First, it was its aim to see that bank credit was made available to every competent individual, firm, or corporation needing it for a construction purpose. Ways and means to accomplish this were put into operation, such as encouraging the making of term loans, urging greater use of bank correspondent relationships, fostering a share-the-loan program among banks, and aiding in the creation of voluntary bank-credit groups.

Second, it was the commission's aim to undertake a program of education of small-business men with publicity focused on the problems of small businesses and their needs. This is being accomplished, in part, through the commission's program of sponsoring clinics for small business in conjunction with universities and colleges.

The underlying purpose which motivated the commission's program was the desire to strengthen the national economy in a postwar era by making certain that all business, especially small business, would recive the financial assistance and advice vital for its successful operation. The success of this program would, it was felt, discourage the Federal Government from further encroaching upon the field of private lending.

As one phase of the program, the small-business credit commission sponsored in 1944 the establishment of approximately 55 bank-credit groups throughout the country to handle the so-called marginal loans to small business.

These groups were organized on a State or regional basis. The existence of the groups had the effect of increasing the interest of banks generally in financial problems of small business and in ways to meet them.

It soon became apparent that the primary financial requirement of small businss often was not a need for loans, but rather a need for equity capital. This led to a new movement. The need for capital led bankers in the State of Maine to organize the Development Credit Corporation of Maine with the financial cooperation of the principal industries in that State. This evolution from the bank-credit groups is spreading and is being encouraged by the smallbusiness credit commission of the American Bankers Association.

As a result of this new development and the various activities of the A. B. A. small-business credit commission, the whole subject of financial, advisory, and educational assistance to small business has been brought home to thousands of commercial banks. They now are paying particular attention to the needs of small businesses, resulting in the establishment of specialized loan programs. This loan activity with its specialized analysis of the needs of small business brought two point clearly into focus. First, the need of small business for access to capital; second, the need for education and training in the administration of small business.

The answers to these two questions have been presented in the formation of development credit corporations, and in the promotion of clinics and other educational media.

BACKGROUND OF INDUSTRIAL DEVELOPMENT ACTIVITIES AND REASONS FOR

INCREASED BANKER PARTICIPATION

Basic trends indicate the increased importance of industrial development to the community.

There is increased awareness of this importance and a consequent multiplication of efforts.

Unwise governmental activities can be minimized by the constructive efforts of private enterprise.

Basic trends

Underlying forces that are changing the industrial map of the Nation raise questions as to how different localities will be affected.

We are a growing Nation. The population increased 22.7 percent from 1930 to 1950, but variations in population changes by States-ranging for the two decades from a loss of 8.9 percent to a maximum State gain of 88.76 percentcause each State to question how it will share in the expected population of 188 million for 1965, and as high as 228 million for 1975.

Industrialization is proceeding at a rapid pace. From 1947 to 1954, the Nation's manufacturing employment increased 11.9 percent, but again, the shares of individual States have varied greatly, ranging from actual losses in some 73437-56-pt. 240

States to a maximum State increase of 56.5 percent. Increased population, rising standards of living, improved technology-in fact, all available indicespoint to continued expansion of industrial production. Shifts in population, and hence in markets, changes in use and sources of raw materials, and higher cost of transportation-major factors influencing prospective changes in the industrial map of the Nation-raise questions as to whether a particular locality will gain or lose in the coming competition for plant location. As a consequence, each State, region and community is faced at once with a threat to its economy and an opportunity to influence its own industrial future.

Increased industrial development activities

Awareness of this combination of threat and opportunity accounts in large measure for the increased interest in industrial activity on the part of chambers of commerce and other civic bodies, railroads, public utilities and, of course, banks, for the setting up of local, regional and State development commissions or committees, and for the establishment of industrial foundations.

The Development Credit Corporation should be viewed as an institution brought into being by bankers and guided by them to fit into and supplement activities of other agencies in the area. Its existence should facilitate rather than hinder bankers' participation in other constructive activities of the community. Industrial development and governmental activity

The Industrial Development Credit Corporation also should be considered in relation to governmental activities. On the local and State level, tax abatements and direct subsidies are commonly used means to attract new industries, and the pattern for providing capital funds already has appeared. In Louisiana and Mississippi, for example, the State provides for local authorities to issue tax. exempt bonds to finance new plant construction or expansion.

On the Federal level, the argument that small businesses should share in industrial development has been used in support of handouts to small concerns that could not obtain financing from local banks. By providing capital funds for any business whose prospects justify an advance of funds for expansion, the Development Credit Corporation supplies a direct offset to such political pressures. Significantly, the experience of the several New England development credit corporations recently was used effectively in testimony against handouts from the Small Business Administration.

Development credit corporations as an opportunity for leadership by bankers The preceding reference to forces underlying industrial development and to the scope of activities already in existence, are included in this brochure by way of emphasizing the importance of industrial development and indicating the opportunity for bankers to assert themselves in positions of leadership in these activities.

WHAT IS A DEVELOPMENT CREDIT CORPORATION

Although details of organization and operation vary considerably, certain features distinguish the 10 existing Development Credit Corporations. (Listed on p. 17.)

Invariably, the institution is an autonomous corporate unit, with powers to provide venture capital loans without the restrictions imposed on commercial banks. The corporation is accordingly able to extend long-term credit and capital to businessmen (especially those operating small enterprises) whose prospects, assure repayment in an enterprise of value to the community, but who cannot qualify for a bank loan. Through stock subscriptions, any risks of the corporation itself are assumed by business interests that stand to benefit from industrial and commercial growth of the area and by public-spirited men who are willing to share in underwriting a program to improve the State's economy.

Associated with the corporation through certain commitments, but not as shareholders due to legal restrictions, commercial banks and other private financial institutions, designated as members, lend money to the corporation. Money available for lending accordingly represents the pooled funds advanced as loans to the corporation by such members, plus, of course, the capital stock which serves as a cushion for possible losses. The maximum aggregate funds which would be available for loans consequently is several times the amount of the capital stock. Although accomplishing a pooling of credit, the corporation avoids the weakness of an ordinary credit pool. It does not require the cumbersome procedure of agreement by each of a number of participating institutions. The administration of credit transactions is the responsibility of the corporation's staff, not of the individual bank members of the corporation.

Because of this assignment of responsibility, banking regulations do not restrict the corporation's activities; nor do these regulations prevent a bank from assuming its important role of lending money to the corporation and participating jointly in its overall administration.

Regulating authority

Development Credit Corporations are not subject to regulations and restrictions imposed on commercial banking. They, nevertheless, are subject to the appropriate regulating authority. In the 10 corporations under discussion, this authority is vested in the bank commissioner in Maine, New Hampshire, Rhode Island, and Connecticut; the commissioner of banking and insurance in Vermont; the bank commissioner in Kansas; the superintendent of banks in New York, and the comptroller in Florida. In Massachusetts, regulation is lodged in the commissioner of commerce who relays information to the commissioner of banks and commissioner of insurance. In Florida, the commissioner of banks makes reports available to the commissioner of insurance and to the Governor.

Type of authority granted to Development Credit Corporations

Through special legislation and corporation charters, Development Credit Corporations have been given broad powers as well as specific authority enabling them to accomplish the stated purpose of attracting new industry and fostering industrial prosperity and growth by making available to industry funds raised by the corporation.

Significantly, existing corporations usually are authorized to lend funds only if such is not available from conventional private sources. Also common is the specific authority to buy real estate for lease, resale or other disposal; and to acquire stocks or bonds or other evidences of ownership.

In some cases provisions have been made which would give specific authority to promote the establishment of local foundations, to assist clients through research and counsel, to investigate ways of promoting general welfare, to act as surety for others, and to mortgage, pledge, or otherwise encumber property acquired.

PROCEDURES IN SETTING UP A DEVELOPMENT CREDIT CORPORATION

Promoting the idea

Before a corporation is launched, support must be obtained from (a) banks and other financial institutions to serve as members, (b) industrial and commercial organizations and individual businessmen who will subscribe for capital stock, and (c) legislators and public officials. Understanding on the part of the public may be added as an important objective.

Practically every element in the economy of most areas is keenly aware of the benefits of increased business activity and of new industrial and commercial developments. Promotion of the Development Credit Corporation calls for leadership to bring about the proper emphasis on financing. It requires painstaking work to show how the corporation can fit into the existing structure of financial institutions and industrial development agencies. More specifically, the institution must be "sold" to the three elements whose support is necessary to its successful launching.

The important part played by bankers in launching corporations thus far started, suggests a role of leadership for bankers in other areas.

Meeting legal requirements

This step involves the setting up of a corporation, an action which must be taken with full cognizance of the laws of the particular State. In most States it appears that a Development Credit Corporation can be chartered without special legislation. Despite this fact, most existing corporations have come into being under special legislation. The Maine Corp., which started operations in 1950 as the first of the 10 existing State institutions of this type, set a desirable pattern by obtaining its charter through special legislation accompanied by an act which made obligations of the corporation legal investments for State-chartered banks and trust companies, mutual savings banks, building and loan associations, and insurance companies. The State of Massachusetts permits financial members to subscribe up to one-tenth of their loan limit (set by charter formula) in shares of stock.

Advantages of the special legislation include the wide publicity of the program attained through committee hearings and legislative debates.