added bd 90 3/17/21 CONTENTS Statement of Senators- Baucus, Hon. Max, a U.S. Senator from the State of Montana. Testimony of— Page 1551, 1663 Boschwitz, Hon. Rudy, a U.S. Senator from the State of Minnesota___ 1665 Aadsen, Don, automobile dealer, Ronan, Mont- 1567 Abramson, C. E., real estate broker, Missoula, Mont.. 1575 Bradley, Allan, Washington Trust Bank, Spokane, Wash... Bruins, Ralph, president, Summit State Bank, Richfield, Minn. - Burke, Robert F., president, First National Montana Bank, Missoula, 1695 Johnson, Earl, president, First National Bank, Helena, Mont- 1570 1589 Lopach, John, director of the Governor's office of commerce and small 1555 McClelland, Arden C., attorney at law, Missoula, Mont-- 1635 Mulheran, Daniel P., president, Minnesota Family Business Council, 1723 Neu, Clyde, marketing and financial consultant, Great Falls, Mont.. 1594 Oakland, Robert H., City Motor Co., NADA director, Helena, Mont.. 1573 1665 1655 Schumacher, Peter M., president, Electric Devices, Inc., Great Falls, 1614 Sherwood, George, retired businessman, Missoula, Mont....... 1585 1658 (III) IV APPENDIX Letter dated April 16, 1980, to Herbert L. Spira, Chief Counsel, Senate Small Business Committee, from JoAnn Price, American Association of Minority Enterprise Small Business Investment Companies, Washington, D.Č.. Page 1728 1551 1576 1663 CAPITAL FORMATION MONDAY, APRIL 7, 1980 U.S. SENATE, SELECT COMMITTEE ON SMALL BUSINESS, The committee met, at 10:30 a.m., in the Federal Building, East Room, Missoula, Mont., Hon. Max Baucus, acting chairman, presiding. Present: Senator Baucus. Also present: Herbert L. Spira, chief counsel; and Edward Nef, legislative director, Office of Senator Baucus. STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM THE STATE OF MONTANA Senator BAUCUS. OK, folks, we might as well begin here. This is one of a series of many hearings conducted by the Small Business Committee of the U.S. Senate. The point of today's hearing, in particular, is to address the problem of capital formation and retention as they affect small business. More generally, the point of today's hearing is to focus on what Congress can do and what it probably should not do, at this time, to alleviate the problems that particularly face small businessmen in Montana, in the Rocky Mountain States. Obviously inflation is the primary cause of the woes that beset us, not only as individuals but also as small businesses, remembering also that small business is not only the backbone of our State but it is the mainstay of our State's economy. Montana is not a large manufacturing State, not a large industrial State like Indiana or California or some of the Eastern States such as Pennsylvania. We are basically a State of individuals, in many ways; as people and as small businessmen and basically people who probably practice a little more common sense or at least try to, compared with others in other parts of the country. Not only are we facing an extraordinary inflation at this time, but there is a twin problem that accompanies inflation; and that is interest rates. We are experiencing today approximately interest rates of approximately 20 percent. It wasn't so long ago, perhaps only about 6 to 8 months ago, certainly a year ago, that we all would have laughed if somebody had said that in April of 1980 we would be experiencing inflation rates in the range of 20 percent. We thought that those high rates were illnesses that other countries experienced, European and the South American countries in particular, but not the United States. But we are. 1551 A problem which is critical for small business; of course, is interest rates. The same thing we would have never in our wildest nightmares thought that interest rates would be 20 percent a year ago as we looked forward to April 1980, but here we are with interest rates too, at 20 percent. One of the particular problems affecting us in Montana, obviously is agriculture. High interest rates depress the forest products industry in particular, the homebuilding industry, and the real estate industry. High interest rates are affecting all small businessmen and all individuals, especially those of us on fixed incomes, senior citizens—many groups who just cannot keep up with these rates of inflation. Now, we are past the point really of knowing what some of the problems are; although that certainly is a focus of today's hearing. We have some good ideas what the problems are, and this morning and this afternoon in addition to documenting difficulties for this region, we will try to focus more on the solutions to those problems. Time is very much of the essence, because we are facing such a crisis at this moment. How do we cut back the rate of inflation? How do we control inflation, if that is the No. 1 cause, and I think it probably is. Obviously balancing the budget is going to help cut back the inflationary rates that we have experienced. Some economists feel that in strict economic terms only, balancing the budget will only reduce the rate of inflation a part of a percentage point-maybe a two-tenths, fourtenths percent cutback. Frankly, I think that it would have a much greater effect than that. I believed that balancing of the budget will in fact, if only through its psychological effects, maybe also in its practical effects, reduce the rate of inflation by a significant degree. Nobody knows exactly how much, but certainly the alternative is worse; that is the alternative of deficit spending. Second, I think some credit restraint is helpful. Some ways that probably the Federal Reserve can pursue, that will help curtain the rate of inflation, that is some control of the increases in the supply of money. But, here I think the Federal Reserve has been a little heavyhanded, a little insensitive in its credit restrictions. That is, the major banks and major big businesses, in my judgment, can withstand the effect of high interest rates much more easily than can smaller businesses or individuals who have to have operating loans, who have to stay alive. And the only way they can get the working capital is to borrow; and they just have to, if they can, pay those interest rates. Part of the problem obviously, though, is the supply of money, and the supply of money is less abundant and less available today than it was a few years ago. But certainly, credit policies can be much more selective, and they can be less burdensome on agriculture, small business, the housing industry, homebuilding industry; if they are practiced and applied and promulgated by the Federal Reserve on a much more selective basis, in my judgment. Third, we are going to have to figure out how we in America can be more energy self-sufficient. One of the additional causes of inflation, I think, is our excessive reliance upon oil from the Organization of Petroleum Exporting Countries-OPEC. Oil costs now up to $36 a barrel. Some estimates are that by the end of the decade, by 1990, |