In that connection, I endorse the judgment of the draftsman in placing the seeking of highest return for the Government (sec. 1 (1) last among the major objectives of the legislation.

I would suggest that consideration be given, if it has not already been given, to the question whether the Administration should be set up in corporate form similar to the Reconstruction Finance Corporation. Although I do not ordinarily endorse proposals of this character, I recognize that the job to be done is more like that usually undertaken by a business establishment than a conventional Government agency. The corporate form may provide a flexibility of administration that would make for efficiency and dispatch beyond the capacities of a regular Government agency which is usually not best. adapted to the performance of the business functions involved in the large-scale disposition of Government surpluses. I do not urge this proposal, not being competent to express an expert opinion on the subject, but respectfully submit it for the consideration of the committee. Section 12 (c) provides that if the estimated cost of handling, etc., exceeds the estimated proceeds of commercial sale, surplus may be donated to States, political subdivisions or tax-supported institutions. It has occurred to me that in view of the likelihood of a great shortage of Government storage space, and in view of the possibility of obsolescence, and the desirability of conserving the energies of the Administrator and his staff for more important matters, it might be wise to allow a small additional margin of discretion by permitting the Administrator to make a free donation of the surplus commodities, as provided, when the cost of handling, etc., would exceed 90 per cent rather than 100 percent of the estimated proceeds of a commercial sale. Section 12 (d) perhaps deserves some reconsideration or further elaboration. If State governments, etc., are sometimes to be allowed 50 percent discounts in the purchase of surplus property, it is desirable that Congress lay down for the guidance of the Administrator certain indications as to when or under what circumstances this privilege is to be extended and when withheld.

Much of the surplus subject to disposition will be in an incomplete or partially used state. It was the experience of Great Britain, after the last war, that the economic and dollar value of such property could be very considerably enhanced by the Government by cleaning, repacking, finishing, repairing, and otherwise processing its surpluses. Sections 3 (f) (i) and 22 (b) of the bill reveal that the draftsman of the bill has given some consideration to this policy. I suggest the desirability of a more explicit direction to the Administrator to take such action, when in his opinion it is economically justifiable, and of more explicit permission than is provided by 22 (b) to utilize funds already raised by the sale of other surplus property for this purpose.

I observe that the Surplus War Property Board, as established in section 2 (b), does not provide for membership of a representative of the Department of Labor. In view of the fact that one of the main objectives of the bill is to promote maximum production and employment, it would seem desirable to provide for membership of an agency a primary interest of which is to encourage high levels of employment. The agencies now proposed to be represented are, properly, those expected to be in possession of surplus property or directly involved in the process of disposal. None of these agencies, however, has general responsibilities in the field of employment, as such. I respectfully

suggest, therefore, inclusion of the Department of Labor in the membership of the Board.

Section 15 (a) (3) provides for sales on credit, or on time, in the discretion of an agency or the Administrator. Such sales are an extremely important method of making surpluses available to small businesses. The phrasing "in appropriate cases in the discretion of the Agency or the Administrator" suggests that credit would be extended only in exceptional cases. It would seem desirable to strengthen this provision by positively requiring the Director to arrange liberal credit terms especially for small businesses whenever the interests of the Government can be properly safeguarded against the possibility of willful default.

The authority given in section 15 (b) to the Smaller War Plants Corporation is very desirable and might well be made even broader. The Smaller War Plants Corporation might be an even more efficient guardian of the interests of smal: buyers if this provision required tha it be notified in advance of the terms of all sales made within the United States, with certain suitable exceptions, and that it be empowered to request that sales upon terms it judged to be seriously discriminating against small business be delayed until its complaints could be registered with the Administrator.

Section 15 (d) allowing the Smaller War Plants Corporation to purchase surplus property for resale or other disposition to small business is an extremely important one, and it is to be hoped that despite the previously expressed opposition of the Defense Plants Corporation this provision will remain in the legislation. Sufficient funds should be placed at the disposal of the Smaller War Plants Corporation to enable it to intervene in this manner whenever an important service would thereby be rendered to small business. Should not provision be made for a use of part of the funds derived from the sale of surplus property by the Surplus War Property Administration to finance this function of the Smaller War Plants Corporation?

The aim of section 16 appears to be to prevent the disposal of surplus property from accentuating monopolistic tendencies. It would certainly be desirable to have the opinion of the Attorney General regarding the effects on competition of the disposal of large plants. It is not clear from the language of the provision, however, that the Administrator would be bound in any way by an adverse judgment of the Attorney General. If it is intended that he should be so bound, much more specific language should be included. If this is not intended it would be wise in the interest of clarity to indicate the area of discretion left to the Administrator. A further question relates to the criteria upon the basis of which judgment is to be made. In the language of the bill the Attorney General determines whether a proposed sale or transfer "will either violate the antitrust laws, or encourage monopoly or undue concentration of industry or commerce, or restrain competition substantially." While violation of the antitrust laws is a purely legal concept, "undue concentration," or "substantial restraint of competition" is to a marked degree an economic concept; it is questionable whether there is not need to set up new criteria for determining more precisely the content of these new norms. While section 17, requiring buyers of Government plants to keep them in operation for 2 years, will be strongly resisted in some quarters, we feel that this is a most important provision. It gives a minimum

of assurance that this productive capacity will not be immediately suppressed. Perhaps the duration of this period should be extended beyond 2 years. Some thought might also be given to the possibility of devising effective administrative procedures to prevent the destruction of privately owned capacity for the purpose of maintaining prices above competitive levels by buyers of surplus war plants (or by companies financially integrated with them) without at the same time preventing the appropriate withdrawal of technologically obsolete capacity. Furthermore, consideration should be given to the question whether the objectives of the act would be accomplished by "substantial operation and production" under substandard working conditions, or under circumstances constituting a violation of labor standards established by Federal or State statutes. It would seem as appropriate for the Government in disposing of surplus plants as in entering into contracts for Government supplies under the WalshHealey Act to require operators of those plants to abide by conditions of operation in the public interest.

In view of the fact that the Attorney General has already expressed doubts as to the validity of some of the options to purchase or otherwise acquire Government-owned property contained in current contracts and leases, I consider the provisions in section 18 requiring his opinion as to the validity of such options, before their consummation, to be commendable.

The idea of building up a reserve of strategic metals and minerals, provided for in section 19, seems a desirable one on several counts. The reserve might, however, be put to important subsidiary use without impairing its effectiveness as a weapon of national defense, by giving permission, in the legislation, to make sales from the reserve, if prices within the first 5 years after the war become uneconomically high. (The appropriateness of prices would have to be judged by general criteria indicated in the legislation.) Compensating provisions could be made later so as to restore the losses from the reserve and to build it up to its original size. There may be some question, however, whether the strategically desirable amounts will correspond, in the case of each metal and mineral, with the size of the Government stock piles as they happen to exist at the date of the closing of the war. Nowhere in sections 14 to 19 is explicit consideration given to the problem of the interim utilization of plants which for one reason or another cannot readily be sold. This situation, however, may be by no means uncommon. Thus, in the case of some of the largest war plants private purchasers might be lacking for several years in view of the difficulty of determining the long-run outlook of the demand for the product; or, it might be the case that sale to the only available purchasers might strengthen concentration and monopoly in the industry, and that the division of these plants into smaller units to be sold to smaller operators would involve a serious loss of efficiency. If employment and production are to be maintained under such circumstances it will probably be necessary to arrange for temporary leases to private operators under terms which will insure full operation. While the possibility of leasing is assumed in section 17, the bill does not contain any specific statement of the conditions under which plants shall be leased instead of sold in order to achieve its objectives. This comment applies also to section 20 in which it is proposed that disposition be effected generally pursuant to a series of plans to be

drawn up within 6 months and presented to Congress. While careful planning for the ultimate disposition of these properties is greatly to be desired, it is also important, wherever possible, to maintain high levels of operation in plants producing basic materials, and to move as rapidly as possible to the reconversion of plants which could be economically operated in the production of civilian goods. The Administrator should therefore be required to attempt to arrange such interim leases where operation would otherwise be discontinued. However, the importance, to the Government, of interim operation of plants under lease until a final disposition can be effected would appear to be so great as to justify preferential consideration in the final sale of plants to enterprises serving the public interest by undertaking to operate under lease in the transitional period.

I do not concur in the general philosophy underlying the Johnson amendment to S. 2045 (introduced August 3) which appears to be to place severe limitations on the capacity of the Administrator to sell surplus durable property during a 5-year period, without regard to the supply and demand situation then prevailing. It seems especially unfortunate to require that the sale of certain categories of surplus commodities must await specific authorization of Congress in each case. The requirement that dispositions be "made in a manner that will minimize the effect thereof on pre-war industries" would not only unduly complicate the task of the Administrator, but would set up a principle of dubious validity, namely, that the pre-war structure of industry should in all cases be protected against the impact of wartime changes.

In general the language of the Johnson amendment seems less clear and less carefully developed than the language of S. 2065.

Your letter of August 4 requested my comments on the report of your subcommittee. In my opinion, the subcommittee has made an extremely valuable contribution to thinking on the subject of surplus property disposal by its excellent analysis of the problems with which the Nation is faced. It is a matter of considerable gratification that many of its provisions are consistent with the materials I transmitted with my letter of June 2, 1944.

In view of the fact that the bill to which the above remarks are addressed was not available until August 10, 1944, and you requested this report by today, my comments are not, perhaps, as well organized as they would be had additional time been afforded for their preparation. The comments on sections 2 (b), 17 and the comments on the interim disposal of plants and the maintenance of employment in the transition period relate to matters within an area of direct concern to the Department of Labor. My comments on other sections may be taken as observations on matters concerning which the Department of Labor is interested but possesses no special competence.

In view of the urgent request for this report I have had no opportunity to determine from the Bureau of the Budget its relation to the program of the President.

Sincerely yours,

FRANCES PERKINS.

Hon. ROBERT R. REYNOLDS,

WAR DEPARTMENT,

Washington, D. C., August 12, 1944.

Chairman, Committee on Military Affairs,

United States Senate.

DEAR SENATOR REYNOLDS: At the request of Senator Murray, the War Department has considered the substitute draft of S. 2045, dated August 3, 1944. The War Department is opposed to the enactment of this bill for the reasons stated in its report on the original draft, and for the following additional reasons:

The principal change made by the substitute draft is contained in section 11, which provides in substance that durable property, with the exception of certain aircraft, shall not be disposed of until after the expiration of 5 years after the termination of the present war and that obsolete property and scrap shall be placed in a permanent stock pile and disposed of only as specifically authorized by Congress. This section further provides that termination inventories may be retained by contractors for manufacturing purposes but may not be sold by them.

The absolute prohibition against the sale of durable property and scrap is subject to the same objections which this Department interposed to the limited prohibition in the original draft, and to the further objection that the new draft would prevent the sale of such property to meet the requirements of war production. It is necessary for the War Department to sell durable property and scrap in substantial quantities from time to time to contractors for use in war production, and the proposed bill would have a seriously adverse effect on war procurement.

The bill omits a number of important provisions which are contained in the bill proposed by the Surplus War Property Administrator, and which should be included in any surplus property legislation. Among the most important of these provisions are (a) the recognition of the necessity for sales for war production and of scrap, waste and salvage and certain other classes of surplus property by the owning agencies; (b) a clear statement of the responsibility of disposal agencies for the storage and handling of surplus property; (c) a statement of the authority of military commanders in theaters of operation, and (d) a statement of the allowable methods of sale or other disposition.

If the prohibitions of section 11 were approved, there would seem to be little reason for establishing a surplus property agency, as there would be only a comparatively minor amount of property to be disposed of until the end of the 5-year period.

The War Department is unable to estimate the fiscal effect of the enactment of S. 2045.

The Bureau of the Budget advises that there is no objection to the submission of this report, with the understanding that no commitment is made at this time as to the relationship to the program of the President of each and every provision of this and other bills in the surplus property field that are now before Congress.

Sincerely yours,

JOHN J. MCCLOY, Acting Secretary of War.