III As a result of the foregoing violations of economic principles the practical effects of the act and the amendments will be: 1. To lower levels of living throughout the country; 2. To widen existing geographical differentials in wages and levels of living; 3. To obstruct commerce and the free flow of commerce between the States: 4. To promote big business at the expense of small business; 5. To promote monopoly at the expense of free competitive enterprise; 6. To promote deficit-financed public investment at the expense of private investment, private enterprise, and stable prices; 7. To reduce private employment and to deny to many Americans able to work and seeking work the opportunity for private jobs in their home communities; 8. To prevent full and effective utilization of the Nation's resources; 9. To reduce real farm income with a consequent demand for ever increasing farm subsidies; 10. To reduce international trade and thereby increase the likelihood of war; and, finally, 11. To promote centralization at the expense of small communities and perhaps at the expense of national survival in the event of another war. All these defects could be obviated by a very simple modification of the law. All that is necessary is that the law should provide for variable wage minima by regions and by size of community within regions. Mr. RAMSPECK. Any questions, Mr. Adams? Mr. ADAMS. Dr. Van Sickle, you are connected with Vanderbilt University, sir? Dr. VAN SICKLE. Yes, sir. Mr. ADAMS. You are a teacher? Dr. VAN SICKLE. Yes, sir. Mr. ADAMS. What do you teach? Dr. VAN SICKLE. I teach economics. I am chairman of the department there. Mr. ADAMS. Is it not a fact that high wage rates in industry promote agricultural prosperity? Dr. VAN SICKLE. Not necessarily. On the whole I would say the answer is no, that the trouble today is that if we take all the supports out from under agriculture we will get a fall in agricultural prices and the ratio of exchange between farm and nonfarm products will turn against the agricultural group; that the real problem is to shift a substantial number of our farm population out of farming into nonfarming activities, and high-wage rates and restrictive employment policies prevent that transfer and prevent the raising of incomes of farm peoples. Mr. ADAMS. Is it not a fact, Dr. Van Sickle, that high-wage rates in industry are necessary to provide the purchasing power to support high production and industrial prosperity? Dr. VAN SICKLE. If the wage rates are in perfect adjustment, yes. A high-wage rate which is the result of high productivity-and hence compatible with low-product prices--and which is necessary to attract additional workers, contributes to high employment. But there is such a thing as wages being too high. Some wages are too high and some are too low, and a blanket statement that any wage, no matter how high it is, promotes full employment, is simply not so. Sir William Beveridge very frankly recognized that in his book on Full Employment in a Free Society. He says that plenty of our wage rates are so high that they are forcing other groups to take less. Mr. ADAMS. In my paper, which is published in the capital city of New Hampshire, appears the following headline: "Rumford pay hike amounts to $178,000; 850 employees to receive at least $3 more per week. Gerkin says policy is to share profits. Vacation plan liberalized." There was no argument about that; there was no dispute. This company, which is one of the larger companies that we have in New Hampshire-none of them is very large happens to print, among others, the Reader's Digest. They just decided they would raise the pay, on the ground that they believed in it. Now, to what extent do you feel that employers will voluntarily engage in that kind of program? Dr. VAN SICKLE. I think a good employer, an efficient employer, making satisfactory profits, will tend to raise the wages to the point where he can get the kind of men he needs and build up the kind of morale he needs, but I do not think he will voluntarily go way above the prevailing market conditions, nor do I think he should. I think what he should do, if he is genuinely concerned with the general welfare and is making substantial profits, is to pass them on to consumers through lower prices so that not only the group that are attached to his industry may benefit, but so that the whole community may benefit from his efficiency. I would always stress lower prices rather than higher wages to a particular group, because it is through lower prices that you spread the benefits of efficiency to all groups in the community. We are all consumers, and the test of general welfare in my judgment is, How do you get it to the consumers? Mr. ADAMS. It has come to my attention, Dr. Van Sickle, that you think that this law has some effect on the military defense of this country. You made some statements concerning that, and have some conviction about it. Have you any statement that you would like to make on that score? Dr. VAN SICKLE. Well, Mr. Congressman, I have been reading the papers, as doubtless we all have, and reading these statements from the scientists. They tell us that there is no known defense against the atomic bomb, that we are living in a terrifically dangerous world. It would seem to me that we must not only bend every effort to develop an international organization that will prevent some madman from using this weapon of destruction, but we must also see to it that the structure of our economy is such that no sudden sneak attack could seriously cripple us, and our industrial capacity today is, to my mind, dangerously concentrated in a relatively few counties in these United States. There is a great concentrated industrial belt where you have one big city after another. In my judgment that is socially unsound anyway, and in the age into which we are moving it is strategically most dangerous. Mr. ADAMS. You made the point that you are concerned with_area and regional differentials. If this act could give effect to regional differentials that have always obtained, would that alter your objections? Dr. VAN SICKLE. Very considerably. In my opinion we can make this law something that will promote the general welfare of all parts of the country. My own idea is that what the law should provide is that the States be ranked by per capita income from top to bottom. You will find that there is a very close relationship between per capita income and the diversification of economic activity. The States that are most exclusively agricultural are at the very bottom, and as you go up through diversification, with manufacturing and then with the service trades, you move up steadily in per capita income. I think it would be possible, on the basis of per capita income, to break the States down into a limited number of regions, from the economic point of view-areas with similar economic structures-and then I think you could break down each such region by size of community, beginning with the most rural areas, those in which the largest town in a county is, say, less than 5,000 population; then another group of counties in this region with a population from 5,000 to 10,000; another of from 10,000 to 25,000. I am picking these at random, of course, but on up until you come to your great metropolitan centers. I think it can be shown that in a healthily operating private enterprise system there is a tendency for wages to vary with size of communities, and what I would like to see, Mr. Congressman, would be such a break-down, and then that the Bureau of Labor Statistics, for example, be charged with determining the wages being paid by industries covered by law in counties of a given size-class all over the region, you see. That would give you a whole series of wage brackets with the numbers actually employed in each bracket. Then take, as the minimum for this particular community class, the highest wage in the lowest quartile of wages paid. Let us say if there were 10,000 workers employed you would get that rate that would be above those of 2,500 of the workers. You would fix it at the highest rate in the lowest quarter, and that would be the lowest rate which any employer in that type of community in tlrat region would be permitted to pay. Mr. ADAMS. Is it not a fact, Dr. Van Sickle, that even though these differentials have existed, and exist today, that the costs of living in smaller communities do not vary to any appreciable extent from the costs of living in the larger communities, when you get at the facts, but the differences in the rates of wages that are paid in smaller communities reflect the standard of living under which those people live as compared with the standard of living in larger communities? Dr. VAN SICKLE. Yes, there are differences in levels of living. If you, of course, price the identical budget in different parts of the country, the differences are not enormous, but I know areas, and you doubtless know areas, where, given the present population, the resources at their disposal, the capital available, the markets, the population cannot now produce as much, the productivity of the workers is not as high, as in some other areas, and to legislate a minimum under those circumstances does not help that area. In and of itself it makes the situation in that area worse. There are some areas where the situation is so tragic that Congress may well be concerned with measures to assist a considerable number of people to get out in order that those that remain may be able to make a decent living, but just to legislate a minimum wage and do nothing else simply complicates the problem in that area, because in general the wage rates you are touching by this law in such an area are the highest wages that are anywhere being paid in the area, and what you are doing is denying people an opportunity to find the very best employment presently available there simply because it is not still higher. Those people are then forced back into the uncovered segments of the economy, where their condition is very much worse than before, and that does not strike me as a humanitarian measure. Mr. ADAMS. You have been on the Continent, sir? Dr. VAN SICKLE. Yes. Mr. ADAMS. Have you ever made observation as to whether or not this sort of thing has been tried over there, and what the results have been? Dr. VAN SICKLE. I lived 10 years in Europe and, in the course of my duties, I went practically all over Europe every year. I must say at that time I was not particularly interested in this problem, but we do find everywhere this tendency to work for a minimum. I would like to take up England for a moment. Of course, in England, back before the First World War, they started with minimum wages in what they call the sweated industries. They put them up. But for the most part the British relied upon collective bargaining to provide the minimum by industries, and as I interpret British history, it work out this way: The minimum was raised so high relative to the productivity of British labor that the British economy found it impossible to accumulate capital, better tools and better equipment behind British labor, so that its costs in terms of cost of production in other parts of the world became too high and the British lost their export markets. Their capital equipment became more and more inadequate, and the British savings, instead of being invested in Britain, where there was not a sufficient profit margin left to make it worth while, were invested in foreign countries, and Britain faced chronic unemployment. Limited groups had standards of living much higher than before the First World War, but large numbers were on the dole, and the total income of British labor was reduced, and finally the British, under these pressures, tried to get out of a bad position by abandoning their historic policy of free trade, abandoning the gold standard. By various manipulative devices which broke down the international division of labor they tried to get out of the bad situation created by attempting to use short-cut methods-legislation, or collective bargaining-and to reach quickly the minimum which public opinion regarded as desirable. In trying that method, Britain undercut the very basis for her prosperity, and in my opinion Britain provides a very excellent example of the dangers of trying to get there too quickly. Mr. ADAMS. This has been bothersome to me, Dr. Van Sickle. This Congress has adopted the policy of authorizing the administration to enter into agreements whereby our tariff wall may be lowered. I voted for that. I believe I had good ground. On the other hand, in looking ahead, what do you anticipate would be the effect were this law adopted in terms of the rise in cost of exportable goods and the effect of that situation on our export market? Dr. VAN SICKLE. Well, it seems to me quite clear that this law is going to bring about a continuous upward spiraling of wages which will reduce the ability of our most efficient industries to sell in foreign markets. If the world ever gets back into order, it will even reduce their ability to command the domestic market. There will be, I should suppose, a very strong demand both from American labor and American capital that they be protected from the products produced by lowpaid workers in other parts of the world, and I would suppose that if the Congress has accepted the principle that it is uneconomical and unjust and unfair that American workers in high-wage areas should be expected to compete with American workers in low-wage areas, on the basis of wage differentials, they would find it exceedingly difficult not to apply the same principle internationally. They would say the price of allowing foreign goods to enter the American market on low-tariff rates is that the producers in those countries pay fair wages and observe fair standards. Now, what will be the test of a fair wage in a foreign country? The only kind of standard that will do any good is a wage sufficiently high to prevent goods from coming in. Well, this is just the old protective tariff policy which did such enormous damage to us in the past being applied in a new guise with a new set of arguments, but I do not see it as being very different from the old argument that we should have a tariff that equalizes the cost of production at home and abroad. Economists for years have said that that is an absurd proposition, that if you have a tariff that equalizes the cost of production at home and abroad you do not have international trade; that goods move in terms of differences in cost. So this measure, as I see it, is going to lead us almost inevitably into a type of protectionism from which we thought we were escaping under the magnificent leadership of Mr. Hull and the whole group that have so long been associated with him. Now it seems to me that American business has shown of recent years an awareness of the international implications of protection, and just when public opinion appears to be rallying to the idea of lower tariffs we suddenly get the same principle brought in by the side door via this concept of fair wages. May I, sir, read a very brief statement by one of our greatest economists, Jacob Viner, of the University of Chicago, who was writing on the colonial problem, in a symposium that appeared just a few weeks ago. Writing on "The American Interest In the Colonial Problem," Professor Viner remarks, apropos of outside efforts at laying down minimum standards with respect to working conditions, wages, social security, and so forth, that such efforts "are not always unselfish or even nonselfish. It can rarely be certain," he adds and it is often doubtful, that minimum requirements with respect to such matters will serve to raise rather than to lower the economic productivity of the area to which such standards are applied. In fact, proposals for their application, when made from outside the area, at times have the appearance at least of having as their real objective the reduction of the competitive power of such areas insofar as it results from low wages and poor working conditions. The authorities in the areas with this in mind will tend in such cases either to |