Mr. WOODCOCK. I would like to say in conclusion that there is a great deal of discussion of productivity today, and quite obviously keeping wages and other economic benefits generally in line with productivity is essential to the economic health of this or any other country. But we cannot close our minds to the fact that productivity is a long-term trend.

We have had a couple of years when productivity has slowed down. Productivity has slowed down in this period essentially because the economy has been throttled down. In any industry, any company, if you lay off productive workers, and keep a disproportionate number of nonproductive workers, white collar workers and others who have been laid off much later, they become nonproductive labor, and the cost of their labor feeds into the overhead and pushes down the productivity with, in fact, nothing having happened to the technology. We believe that in the automobile industry we are on the threshold of a big upsurge in productivity. For the first time in history, the General Motors Corp. has found a way to run an automobile assembly plant on a three-shift operation in Norwood, Ohio. This has never happened before. It was axiomatic that it couldn't be done; you needed the midnight hours to repair cars, to repair equipment, but they are doing it successfully in Norwood, Ohio. Having done it there, they can do it anywhere. So can Ford; so can Chrysler, increasing their plant utilization by some 42-43 percent. That will be a plus factor in productivity. Productivity now is in large part a result of a deliberately depressed economy. We cannot accept this situation, deliberately created, as a legitimate restraint on our demands, which reflect the longer term needs of our members and the longer term prospects of the industry. We have to bargain, Mr. Chairman.

I might say, in conclusion, that with respect to the General Motors Corp., Ford Motor Co., and the Chrysler Corp., we are not bargaining for the fall of 1970. We are bargaining for the 1970's. And this union, as Mr. Roche and Mr. Cole said of the corporation in addressing GM stockholders, faces the decade of the 1970's with optimism, and our bargaining this year must reflect this basic optimism.

The CHAIRMAN. Thank you very much. You may keep your seats. Remain where you are.

Dr. Landry of the Chamber of Commerce of the United States. We are glad to have you, Dr. Landry, and you may proceed as you desire, sir. You know about our rule for 10 minutes in the beginning and then we will ask you questions. We hope to have a longer period of time to ask questions. They are going to have some preliminaries in the House and we would like the members to have the benefit of that time to ask questions.

STATEMENT OF DR. RICHARD S. LANDRY, ADMINISTRATIVE DIRECTOR OF THE ECONOMIC ANALYSIS AND STUDY GROUP OF THE CHAMBER OF COMMERCE OF THE UNITED STATES

Dr. LANDRY. Thank you, Mr. Chairman. You have a copy of our

statement.

The CHAIRMAN. It will be inserted at this point in the record. (The prepared statement of Dr. Landry follows:)

47-076-70-10

PREPARED STATEMENT OF DR. RICHARD S. LANDRY ON BEHALF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES

My name is Richard S. Landry. I am administrative director of the Economic Analysis and Study Group of the Chamber of Commerce of the United States and executive of its Banking and Monetary Policy Committee. It is a privilege to testify on behalf of the national chamber federation on the "Economic Stabilization Act of 1970," which is title II of H.R. 17880.

The Chamber of Commerce of the United States opposes title II, which would authorize the President until midnight, February 28, 1971, "to issue such orders and regulations as he may deem appropriate to stabilize prices, rents, wages, and salaries at levels not less than those prevailing on May 25, 1970." Rather, the national chamber favors steady use by the administration of its present monetary and fiscal policies which have been slowing down the economy since last fall, thereby serving to remove the root cause of inflation-excessive spending by all sectors of the economy combined.

There are several reasons for the chamber's opposition to wage-price controls at the present time. The first of these reasons is the national chamber's position that the only occasion when wage, price, and rent controls might be used would be during extreme emergency conditions involving an imminent external threat to the national security, and then only when the demands to protect the national security clearly exceed the capacity of fiscal and monetary measures to cope with them. Another world war or an attack on the United States might require this kind of action, while a more limited war would not constitute enough of an emergency to justify the imposition of direct controls.

The national chamber does not believe that the present economic situation calls for either selective or general price controls. Circumstances are radically different today from World War II when wages and prices were frozen and rationing, a necessary adjunct, was instituted. Currently there is no all-out war effort accompanied by the patriotic fervor that provides public support for controls. On the contrary, the nation is engaged in a highly unpopular limited war. Compared to World War II's overwhelming drain on our national resources--a drain amounting to half of total production and 80 percent of durable goods production--the Vietnam war is absorbing only about 3 percent of the GNP, and all signs point to a lesser percentage as defense spending declines.

The second reason for the national chamber's opposition to wage-price controls is the different character of today's inflation from that which occurred during World War II.

Today's inflation is concentrated in the service industries. During the past quarter century the American economy has become increasingly service-oriented. Ours is the only country in the world employing a majority of its workers in the production of services, such as education, health, trade, finance, recreation, transportation, communication, and government. Under the impact of rising consumer demand for these services and inelastic supply, their prices have risen three times as fast as the prices of durable goods since April 1965-34 percent as against 111⁄2 percent.

The relevance of this fact to wage-price controls is clear and unmistakablefor the most part the prices that are rising most rapidly are not those of identifiable nationally marketed consumer goods whose prices and wages can be readily controlled by governmental decree. On the contrary, most service prices are locally determined and would be extremely difficult to control on a national scale without a vast enforcement machinery. This aspect of our current inflation is one which has not received sufficient attention, especially from those who favor wage-price controls.

A third reason for the chamber's opposition to wage-price controls is the inequities that would be involved. Of course, price and wage ceilings always impose inequities, since they represent the substitution of arbitrary judgments by a few individuals for the multitude of decisions in the marketplace under competition. The inflation of the past 4 years has been accompanied by wide dis parities in the extent to which various prices and wages have risen in different sectors of the economy. One reason for this has been the prevalence of 3-year labor management contracts that have become renewable at different times Another reason has been the distortions from excessive demand impacting unevenly on different markets. Until these relative wage-price disparities are re moved, it will not be possible to pave the way for a resumption of the kind of stable economic growth that this country enjoyed in the first half of the last decade.

If wages and prices were to be frozen in all industries simultaneously, as is contemplated by H.R. 17880, those industries coming up for contract negotiations later this year would have to accept a standstill at present levels. This would accentuate wage and price inequities which have been developing since escalation of the Vietnam war in mid-1965.

With respect to upward adjustments under a general price and wage freeze, as is provided in H.R. 17880, these might have to be so substantial as to frustrate the objectives of the freeze. That is to say, existing inequities would presumably be removed under the bill. But such inequities would also be removed by market forces in the absence of the bill and without the great drawback of controls. World War II controls similarly provided for removal of inequities. For example, under the "Little Steel Formula" adopted by the War Labor Board early in World War II, any group of workers whose straight-time hourly earnings had increased by less than 15 percent since January 1, 1941, became entitled to wage increases bringing them up to that level. This compares with the recent United Rubber Workers-Goodyear settlement of 8-plus percent annually after a 7-week strike and the earlier General Electric settlement of about 7 percent following a 4-month strike.

Nor were strikes eliminated in World War II, despite controls. Work stoppages then involved an annual average of 7.5 percent of employed wage earners, a far higher percentage than in World War I and double the percentage in 1968.

Our current inflation is the result of past errors of omission and commission in monetary and fiscal policies following escalation of the Vietnam war in mid-1965. Policies were changed to correct these errors only a year ago and the slowdown in the economy apparent since last fall shows that the policy of restraint is working. Since most of the slowdown so far has been in the durable goods area, as indicated by sluggish sales and rising unemployment, more time will be required for this sluggishness to spread to the service sector and decelerate the price rises there. The big cost-push wage increases of the last 2 to 3 years have largely been responses to loss of purchasing power through previous and anticipated inflation. As for the role of business in the inflation by and large, it cannot be accused accurately of causing inflation by raising prices more than costs, because there has been virtually no advance in after-tax corporate profits since the final quarter of 1965.

In summary, the national chamber is opposed to enactment of title II of H.R. 17880 because:

(1) Wage and price controls are unnecessary under present and foreseeable economic conditions;

(2) Such controls would not be accepted by the public;

(3) The wages and prices that would be most amenable to control are not the wages and prices that have boosted the price level most during the past 4 years; (4) Inequities would be immediately created by the proposed wage-price freeze;

(5) Monetary-fiscal policies have been slowing down the economy. As the economic slowdown deepens and spreads, further depressing profits, employers will stiffen their resistance to excessive wage increases. This employer resistance, in conjunction with rising unemployment, should cause average wage increases to be smaller this year than last.

Dr. LANDRY. As you know, it is quite short, and I will summarize it. The national chamber is opposed to wage-price controls, except under unusual circumstances attendant upon a major war.

The national chamber does not believe that the present economic situation calls for either selective or general price-wage controls. Circumstances are not at all similar today to those which were obtained under the conditions of World War II when we had a massive increase in the demand upon our national resources occasioned by the all-out war effort. Currently there is no all-out war effort, nor is there the patriotic fervor that provides public support for controls.

On the contrary, the Nation is engaged in a highly unpopular, limited war. Compared to World War II's overwhelming drain on our national resources, which amounted to half of total production and 80 percent of durable goods production, the Vietnam war is absorbing only about 3 percent of our GNP, and all signs point to a lesser percentage as defense spending declines.

The national chamber is opposed to wage-price controls in addition because of the character of today's inflation, which previous witnesses have not referred to and which we regard as most significant. The character of today's inflation is markedly different from that which occurred during World War II.

Today's inflation is concentrated in the service industries. During the past quarter century the American economy has become increasingly service-oriented. Ours is the only country in the world employing a majority of its workers in the production of services, such as education, health, trade, finance, recreation, transportation, communication, and government.

Under the impact of rising consumer demand for these services and inelastic supply of these services, their prices have risen three times as fast as the prices of durable goods since April 1965. The rise has amounted to 34 percent for services as against 111⁄2 percent for durables.

The relevance of this fact to wage-price controls is clear and unmistakable for the most part the prices that are rising most rapidly are not those of identifiable nationally marketed consumer goods whose prices and wages can be readily controlled by governmental decree. On the contrary, most service prices are locally determined and would be extremely difficult to control on a national scale without a vast enforcement machinery. This aspect of our current inflation is one which has not received sufficient attention, especially from those who favor wage-price controls.

The national chamber is opposed to wage-price controls currently on the grounds also of the inequities that would be involved. Of course, price and wage ceilings always impose inequities, even when they seem to be necessary, since they represent the substitution of arbitrary judg ments by a few individuals for the multitude of decisions in the marketplace under competition.

The inflation of the past 4 years has been accompanied by wide disparities in the extent to which various prices and wages have risen in different sectors of the economy. One reason for this has been the prevalence of 3-year labor management contracts that have become renewable at different times.

And another reason has been the distortions from excessive demand impacting unevenly on different markets. Until these relative wageprice disparities are removed, it will not be possible to pave the way for a resumption of a kind of stable economic growth that this country enjoyed in the first half of the last decade.

In summary, the national chamber is opposed to enactment of title II of H.R. 17880 because:

(1) Wage and price controls are unnecessary under present and foreseeable economic conditions;

(2) Such controls would not be accepted by the public;

(3) The wages and prices that would be most amenable to control are not the wages and prices that have boosted the price level most during the past 4 years;

(4) Inequities would be immediately created by the proposed wageprice freeze: and

(5) Monetary fiscal policies have been slowing down the economy. As the economic slowdown deepens and spreads, further depressing profits, employers will stiffen their resistance to excessive wage in