Professor ADAMS. I agree with Professor Galbraith's analysis. I disagree with his conclusions. I think competition is a far more effective regulator in the public interest than any government price commission or nationalized industry.

Professor GALBRAITH. How would you apply that to Lockheed? Senator NELSON. May I interrupt for a moment? I have to go to the floor and cast another vote. We will have a brief recess.

(A brief recess was taken for a vote.)

Senator GURNEY (presiding). The subcommittee will come to order. One question, Dr. Adams, in connection with those wage matters that I was discussing. I think to get some sort of a clearer picture here we ought to know also what the wage factors are in the foreign countries. that compete with ours in steelmaking-such as Western Germany, Sweden, countries like that. They would obviously have a very great effect as far as foreign competition is concerned.

Could you supply those for the record as well?
Professor ADAMS. Yes, Senator.

(The following information was submitted after the hearings by Professor Adams in response to the question by Senator Gurney:)

It is undoubtedly true that wage rates in the American steel industry are higher than those of its principal foreign competitors. This does not explain, however, the domestic industry's inability or unwillingness to compete effectively against steel imports during the 1960's. First, it is generally conceded that the wage differential between the U.S. steel industry and its principal competitors has been narrowing rather than widening. Second, the higher wage rates prevailing in the domestic industry are largely offset by other cost advantages over foreign producers selling in the U.S. market. According to Dr. Richard S. Thorn, Professor at the University of Pittsburgh, who has studied this problem in some detail, "The higher productivity of labor has offset a major portion of the higher wage costs paid U.S. steelworkers when compared with foreign wages. Higher material, transportation and capital costs have largely, or completely, offset any other cost advantages foreign steel producers may have. For most steel products, American steel products are already 'cost competitive' in U.S. markets. * * * What is lacking is an aggressive price competitiveness to match the high cost competitiveness of the American industry."

Senator GURNEY. Dr. Galbraith, I don't, of course, have the benefit of a prepared statement, so I am going to have to draw on memory and that may not be entirely accurate all the time. If it isn't, please cor

rect me.

Is it your main thesis, the main thrust of your argument, that the big corporations in the United States, like General Motors, General Electric, the telephone company and so on, should be publicly owned? Is that your statement?

Professor GALBRAITH. I think one has to be gradual about these matters. I don't hold to the view, popularly assumed, that General Motors represents the last and highest and ultimate stage in the development of human affairs.

I would assume that there would be further development.

Senator GURNEY. I don't know who made that statement. I don't agree with it either.

Professor GALBRAITH. I would assume there would be further development. It seems to me almost certainly that further development will be to recognize corporations of that size as essentially public in character and ultimately they will indeed be public firms.

I wouldn't, however, begin with General Motors. I would begin with the obvious cases, a firm like Lockheed, and/or General Dynamics, or the big munitions firms.

There, it seems to me, our habit of calling them private firms is, if I may say so, Senator, a fraudulent device by which we conceal ́an essentially public character from ourselves.

As I said in my prepared statement, the firms' assets are publicly owned and its working capital publicly provided and if its business comes from the Government and if its losses are underwritten by the Government, even if its civilian business is underwritten by the Government, I am sure we would agree it is pretty difficult to call that a private firm.

I am also, I must say, more than a little interested in how Professor Adams, with whom I normally agree, would go about rehabilitating competition in the production of military aircraft. The application of his competitive principles to the production of the C5A is something, I think, we will all await with enormous interest.

Despite the enormous ingenuity and competence of his economics. I venture to think this would cause him some difficulty.

Senator GURNEY. If we can only get the answer to the question, that is important here, too. I understand that you do not advocate that the Government go into the business of manufacturing automobiles. Professor GALBRAITH. I would give this rather low priority.

Senator GURNEY. But you do say that the Government ought to publicly own the aircraft manufacturers?

Professor GALBRAITH. I would put it this way, Senator: We should affirm what is the fact, that the Government does own these firms and that we shouldn't continue to conceal that fact from ourselves.

Senator GURNEY. Of course, the Government doesn't own them. It does supply a good deal of the money with which they manufacture products, but it doesn't own them.

Professor GALBRAITH. The Government owns a very large part of the fixed plant of Lockheed. It owns the shop in which they are making the TriStar.

Senator GURNEY. It owns some facilities and leases them to the company to be used by them.

Professor GALBRAITH. Yes.

Senator GURNEY. But that is a far cry from owning the company. Let me ask you this: Do the stockholders own the company or does Uncle Sam?

Professor GALBRAITH. I would say the major part of the company is owned by Uncle Sam, yes.

Senator GURNEY. Then you are saying the stock is owned by Uncle Sam?

Professor GALBRAITH. No; I say the major equity of that corporation is owned by Uncle Sam.

Senator GURNEY. What does that consist of?

Professor GALBRAITH. The fixed plant and the working capital, the overwhelming part of which is supplied by the United States.

Senator GURNEY. Your statement, then, is that the fixed plant of Lockheed is owned by the U.S. Government?

Professor GALBRAITH. The overwhelming part of it.

Senator GURNEY. What percentage?

Professor GALBRAITH. This is something that is hard to get hold of. Senator GURNEY. How can you say that it owns most of it if you don't know?

Professor GALBRAITH. You are asking for a specific percentage? Senator GURNEY. Yes; I am, because I think it is extremely important. If you state the Government owns that company, then you ought to at least know how much it owns.

Professor GALBRAITH. Senator, I am saying, and I stand on this statement-I can understand how the information doesn't give you great satisfaction-that the majority of the fixed plant and the working capital of the large aircraft corporations, including specifically Lockheed and General Dynamics, is supplied by the Federal Govern

ment.

Senator GURNEY. Would you supply for the committee's edification exactly what the percentage is and what is owned and the value of this?

Professor GALBRAITH. May I say I would be absolutely delighted, Senator. May I say that I do so in response to a request of this committee?

Senator GURNEY. Yes.

Professor GALBRAITH. That is all right.

(NOTE. The following table was subsequently prepared by the committee's staff from data contained in correspondence initiated by Professor Galbraith with six defense contractors. The entire correspondence will be found in appendix V.-Committee editor.)

SUMMARY TABLE.-UNDEPRECIATED VALUE OF PLANT AND EQUIPMENT OF 6 PRINCIPAL DEFENSE CONTRACTORS FEDERAL GOVERNMENT SHARE AND CORPORATE SHARE, 1971 (1970 FOR THIOKOL CHEMICAL CORP.)

1 Includes $31,300,000 (9.1 percent of Grumman total) "leased from Government."

2 Does not include the undepreciated cost of $47,100,000 of a Government-owned ordnance plant operated for the Army by Thiokol Chemical Corp.

Source: Correspondence with the respective companies by and on behalf of the Senate Small Business Committee and Senator E. J. Gurney.

Senator GURNEY. What about corporate salaries? Is it your recommendation that the Government regulate or set salaries in these big corporations?

Professor GALBRAITH. As far as the ones that we are talking about here, the aircraft companies, I would say by all means. It seems to me to be absolutely outrageous that your salary and that of the Secretary of Defense should be a matter of public concern and the salary of the head of Lockheed-all of which comes out of public funds, all of it

now that the Tri-Star is being publicly supported; that is, socialized— should be a matter of public indifference.

The answer is yes.

Senator GURNEY. Do you confine this now to the airplane companies that the Government is going to own under your economic theory?

Professor GALBRAITH. As far as the head of General Motors is concerned, I think this is a more difficult question frankly, although it seems to me that we should hope over the years they will develop a sense of equity which would cause the upper range of the executive salaries to be much lower than they are and the lower levels to be much higher than they are.

I would, however, be a little reluctant to go into the matter of fixing salaries there. There are other things that I think are more important. Senator GURNEY. How would we go about this matter of equity to get these corporate salaries in line? What would you suggest? Should the President write General Motors and tell them the salaries are too high?

Professor GALBRAITH. I wouldn't be averse to that.
Senator GURNEY. Do you recommend it?

Professor GALBRAITH. I would say that our conscience, Senator, should be more aroused than it is by the fact that the man who works on the shop floor, who does the really dirty work in that industry, who most needs the pay to keep him at work, on the whole gets the least. When you get salaries of over a half million dollars, justification in market terms is difficult.

Senator GURNEY. Is it your testimony that because you have high corporate salaries for executives that the workers are not getting enough?

Professor GALBRAITH. I would say that there is a maldistribution of income within the corporation.

Senator GURNEY. How much of the annual income of the General Motors Corp. goes to the payment of top executives?

Professor GALBRAITH. I suppose it is relatively small.

Senator GURNEY. How much do you think it is? Is it 10 percent? Professor GALBRAITH. The inequity is like

Senator GURNEY. Do you think it is 10 percent or 1 percent?

Professor GALBRAITH. I don't know, Senator. It is, perhaps, around 1 percent.

Senator GURNEY. You think it is about 1 percent?

Professor GALBRAITH. I am taking that from Dr. Turner. I do not have a figure in mind.

Professor TURNER. Nor do I. That is just an estimate.

Senator GURNEY. Let's suppose it is 1 percent. If you cut it in half, that would be a pretty good slice. Then if you distribute that one-half percent to the workers, how much of a wage increase would they get? Could you answer that question?

Your thesis is that the corporate executives are being paid too much, that they should be paid less, and the workers paid more. You may be right, I don't know.

What I am trying to get at are the facts of the matter so we can determine that.

Professor GALBRAITH. May I say I would like, if I might, to have sort of a control over my own thesis. Can we establish that?

Senator GURNEY. Well, let me put it this way: The subcommittee listens with patience to the assertions of witnesses. A lot of times we disagree with them 100 percent. During the questioning period we like to get to some of the things we are interested in. So we like to have a little control at this stage of the hearing, too. You know, turnabout is fair play.

Professor GALBRAITH. I would like for you to have full control of your views but not mine.

Senator GURNEY. I certainly don't want full control of your views. I think they are disastrous. Go ahead.

Professor GALBRAITH. The point I am making is that there is no justification in equity for the way in which income is distributed. The better distribution of that income would not necessarily raise the pay of the man in the shop. But I am suggesting that inequity is indefensible on principle, quite apart from its economic consequences.

One doesn't endorse larceny even though the amount is small. Senator GURNEY. Let's shift to another subject. Suppose in the United States today probably the people who make the most money are in the entertainment field. Many of them make millions of dollars a year. I expect one of the reasons why they do is because they have access to the public airwaves, radio and television.

Would you think that this was equitable or inequitable; and if you think it is inequitable, do you think we ought to regulate it?

Professor GALBRAITH. You see, you come to the question of regulation here. As I say, I backed away from fixing the General Motors salaries.

Senator GURNEY. Only the upper salaries.

Professor GALBRAITH. I am not sure how far away I should back from that. As will be evident, this is something which the Nixon administration is already undertaking to do. I don't want to seem to be too critical of them on this point.

Senator GURNEY. I appreciate that. He is having a hard time.

Professor GALBRAITH. As far as the entertainment industry is concerned, I would certainly want to do that by taxation. I am quite prepared to argue that the present application of taxation in the upper income brackets there is inadequate.

Senator GURNEY. Isn't that true of a General Motors Corp. president who may make a half million dollars a year? Doesn't Uncle Sam take quite a tax bite out of that?

Professor GALBRAITH. I must say a very outrageous step was taken in the last 2 years on that, reducing the upper limits of that tax to 50 percent.

Senator GURNEY. That was the Johnson tax bill, wasn't it?

Professor GALBRAITH. Absolutely.

Senator GURNEY. I just want to make sure. This administration had nothing to do with that.

Professor GALBRAITH. I hope you are not putting me in a position of defending everything that the Johnson administration did.

Senator GURNEY. I wouldn't put that onus on you. That would be too great a burden to carry.

Well, you don't think, then, that the profits of entertainers ought to be regulated?

Professor GALBRAITH. No.