business to produce great masses of end items. In this unparalleled mass production, all segments of business participate.

The Military Establishment, though not the Government agency most conversant with the problem of monopoly, is anxious to preserve competition among its suppliers. We hope that these hearings will further efforts to strengthen our competitive free enterprise system. There follows, as I said, the chart which shows the details of the business transacted by the three departments of the Military Establishment, and then there is a statement of policy on small business approved by the Munitions Board, which we think is important, and which I would like to read. It is as of June 30, 1949, and reads as follows:

The capacity of American small business to supply goods for both peace and war is an integral part of the total industrial resources of the United States. The good health of small business is essential to a stable business economy and to the maintenance of this country's war production potential, both of which are necessary to the national security.

Small business can supply many of the material requirements of the armed services, both in peace and war. It is the policy of the National Military Establishment to encourage full participation by small business in current procurement and in plans for the mobilization of industry to meet any national emergency.

The National Military Establishment will, in order to give effect to this policy, develop an active program to assist small business in its dealings with the military departments.

The CHAIRMAN. Any questions?

Mr. Secretary, we naturally are very gratified at this declaration of policy, but too often declarations of policy do not square with the implementation of that policy. We do hope that you, in your capacity as Secretary of the Navy, will exercise the greatest influence to see that that policy is carried out.

Now, I noticed in your figures contained on the chart that you submitted that the proportion of National Military Establishment procurement placed with small business is indicated at 28.5 percent of the total, and that the dollar volume is $4,080,143,000.

Secretary MATTHEWS. That is correct.

The CHAIRMAN. I am curious to know whether or not that dollar volume and percentage was the result of direct contracts between the various procurement divisions of the armed services and small business, or whether or not there is included in those figures so-called subcontracts which are made by the large entities with the small industrial units or small business?

Secretary MATTHEWS. These contracts are contracts that are made direct with the small business units.

The CHAIRMAN. And with no intervention of any industrial unit employing, to use your definition, more than 500 people, 500 employees?

Secretary MATTHEWS. That is right, Mr. Chairman.

The CHAIRMAN. Is it possible to step up that percentage?

Secretary MATTHEWS. We hope it is. It is our desire to do so, and we are aiming to do that all the time in any way that we can do it. The CHAIRMAN. Can you tell us anything about the geographical dispersal of these various contracts? Is there or is there not too great a degree of concentration in the letting out of these contracts?

Secretary MATTHEWS. I do not have that detailed information with me or at hand, but we can get it and submit it to you quite accurately.

(The matter referred to is as follows:)

Department of the Air Force, value of procurement actions by State, May 19, 1948

Alabama.

Arizona

Arkansas.

California.

Colorado

Connecticut....

Florida_.

to May 31, 1949

$1,080, 436 | Nebraska

339, 287 Nevada__.

36, 470 New Hampshire_.

Delaware--

1, 165, 621

District of Columbia_

7, 229, 550

North Carolina_
Ohio---.

NOTE.-Excludes adjustments downward for decreases or cancellations but includes adjustments for increases. Includes procurement of Air Matériel Command only and includes procurement from May 19 to June 30, 1948, from the fiscal year 1948 supplemental appropriation.

Department of the Navy, value of procurement actions by State, July 1, 1948, to Mar. 31, 1949

Value $306, 200

6, 047, 644 92, 305, 208

680, 547

171, 657, 785 12,730, 062

17, 496 45, 694, 940 3, 547, 022 1,793, 935 88,502, 393 5, 273, 692 7,934, 973 50,071 9,444, 697 95, 773, 976 1, 295, 608 453, 626 19, 216, 327 7,770, 916 2,743, 790 7, 120, 996

130, 856

1,297, 958, 960

NOTE. Excludes actions under $5,000. Includes letters of intent entered into on or after July 1, 1948, and still outstanding on Mar. 31, 1949. Excludes changes or modifications in definitive contracts.

Department of the Army, value of procurement actions by State,
July 1, 1948, to May 31, 1949

NOTE. Excludes actions under $5,000. Army data are for contracts placed through procurement offices; i. e., not including local purchases. Army data are adjusted for all changes and modifications in contracts.

The CHAIRMAN. It was stated here by one of the witnesses the day before yesterday, Mr. Ernst, that during the war 80 percent of all procurement of the National Military Establishment or the armed services went to approximately only 100 industrial large units, and that the 20 percent trickled down to the many, many thousands of others.

Would you say that those figures are in error and that the amount given to small business was larger or was under 28 percent?

Secretary MATTHEWS. I would not say that they were in error or that they were correct, as I do not have any actual personal knowledge of those figures. I would say, just from observation as a citizen, that that might have happened in the period of wartime, in a national emergency, under the circumstances that prevailed then.

However, I do not know whether Mr. Ernst meant that 20 percent went to small business through direct contracts or whether the 20 percent included what small business got by subcontracting with the bigger institutions.

The CHAIRMAN. He implied, I think, that most of the business that went to the small industrial units was by way of subcontract.

Secretary MATTHEWS. I would not expect that to be the case myself, but if you would like to have that information we will be very glad to give it for the record.

The CHAIRMAN. If it is not too inconvenient, we would certainly like to have it. Mr. Secretary.

Secretary MATTHEWS. We will supply that to you, Mr. Chairman. (The information referred to is on page 161.)

The CHAIRMAN. Do any other members have any questions? I have some other questions, but I would like to reserve them for a bit. Mr. Keating?

Mr. KEATING. Mr. Secretary, do these figures relate to the entire National Military Establishment or simply the Navy?

Secretary MATTHEWS. They relate to the entire Military Establishment.

Mr. KEATING. What you have said as to policy also relates to the entire Military Establishment?

Secretary MATTHEWS. Yes; they relate to the three Departments of the Military Establishment-the Army, the Navy, and the Air Force.

Mr. KEATING. In other words, in a manner of speaking, you are here speaking for the Secretary of National Defense in this appearance before the committee?

Secretary MATTHEWS. Yes; I am speaking for the whole Military Establishment.

Mr. KEATING. To what extent are contracts let by bidding as against

Secretary MATTHEWS. Negotiated contracts?

Mr. KEATING. Yes.

Secretary MATTHEWS. Why, pretty largely by bidding. Of course, the law requires us to let contracts by bidding except in certain specific exceptions, and contracts are let where they can be through bids, through advertised bids.

Mr. KEATING. Do you have anything as to percentages; any figures as to percentages in that respect?

Secretary MATTHEWS. I do not have that in mind; no, Mr. Keating. We can supply that also if you wish it.

Mr. KEATING. The purpose, I take it, or one purpose, for the creation of this Department to deal with businessmen is to eliminate the so-called 5-percenter?

Secretary MATTHEWS. Well, I do not know how the 5-percenters function, Mr. Keating. I do not know whether that wouldMr. KEATING. You never have encountered them?

Secretary MATTHEWS. I personally never have encountered them. Mr. MICHENER. You were not here during the war?

Secretary MATTHEWS. No; I was not here during the war.

Mr. KEATING. You are not familiar with the statements of a highranking officer in a sister service, the Army, with reference to the fact that he knew 300 of these 5-percenters operating in Washington?

Secretary MATTHEWS. Well, he has had longer experience in his posi tion than I have had in mine. If that has been his experience, perhaps I have some of it ahead of me; I do not know.

Mr. KEATING. But you have not encountered it yourself?

Secretary MATTHEWS. I have not seen any trace of it so far as the Navy is concerned in my 5 weeks that I have been here.

Mr. KEATING. Is it your intent and purpose, so far as possible, if you encounter such practice, to try to eliminate it?

Secretary MATTHEWS. I would do the best I could in that respect, Mr. Keating; yes, sir.

I will say this: I do not think it is necessary to have any 5-percenters to get a fair deal in the matter of getting business with the Navy or any of the military departments.

Mr. KEATING. In other words, there is no reason why a businessman cannot deal with the appropriate department of the Army or Navy directly?

Secretary MATTHEWS. Not the slightest; and I have had some in my office, and I think I can say with propriety that they have left well satisfied, I believe, with the treatment they have received. Mr. KEATING. Both large- and small-business men? Secretary MATTHEWS. Large and small; yes.

Mr. KEATING. I am glad to hear your statement. Thank you. Mr. MICHENER. Mr. Secretary, does your Department make any distinction in the manner of letting contracts in times of emergency as compared to times of peace?

Secretary MATTHEWS. Do you mean do we make any distinction as to whether contracts in times of emergency are let by bids or whether they are negotiated?

Mr. MICHENER. That is just what I am getting at.

Secretary MATTHEWS. Yes; there is a distinction in that respect. In times of emergency, we are relieved of the obligation to call for bids when the national welfare requires such action. Obviously, that would have to be so.

Mr. MICHENER. Surely.

Now, the thing I am thinking of is this: In times of emergency, the prime contractor too often is nothing but a broker; he has to let all the work out to subcontractors, pretty much of it, and he is the middleman between the Government and the fellow who does the I work. I am very much interested-I went through the war here-in seeing that as many contracts of the smaller type that the smallerbusiness man can handle, are so let that the small-business man may have an opportunity to develop himself rather than develop through the larger contractor whom I call the broker in that case. I hope that, with respect to the question of monopoly, attention will be given to that phase of it.

Here is just one other thing I want to ask you about: We have had a lot of discussion here, in the last week or two, in the Congress on freight absorption, a very fundamental item with respect to monopoly, and I am sure you are familiar with it. What is your attitude toward that?

Secretary MATTHEWS. Well, that is a question that is rather difficult to answer.

Generally speaking, I believe that there is merit in basing point pricing. However, the Supreme Court has said that is not proper, not legal, and it cannot be done until the Congress-you men in Congress authorizes it. You know whether Congress is going to

do that.

Mr. MICHENER. I am trying to get some help. The Senate passed the O'Mahoney bill in a day; it came to the House, and the House made some amendments. The House amendments made considerable changes to the Senate bill along that particular phase of it. You do not make the policy, but you are an expert who can give us information. Do you think that we should make the Supreme Court decision the law of the land or the congressional law as it was interpreted down. through the years by industry the law of the land?

Secretary MATTHEWS. I suppose my opinion would be somewhat influenced by my geographical location as a matter of residence. I

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