Mr. GERHARDT. I might mention, Mr. Morse, that there are quite a number of the home leave employees that do travel by air, a large number.

The CHAIRMAN. Did you look into that figure as to the percentage that travel by air and the percentage that travel by ship?

Mr. GERHARDT. Yes, Mr. Bonner. I think I have that data. The CHAIRMAN. How does that show back through a period of, say, 5 or 10 years?

Mr. GERHARDT. Mr. Bonner, I do not have the figures that go back over a period of time. I can point out that in 1959 of the northbound passengers, speaking of the home leave passenger traffic, 1,444, or 50 percent, traveled on the Panama Line and 1,366 by air and surface. Southbound, about 64 percent traveled on the Line and 36 percent by air and other surface ships.

The CHAIRMAN. That means 50 percent traveled on the Panama Line?

Mr. GERHARDT. That is right.

The CHAIRMAN. And the remaining 50 percent either came by air or by other passenger services?

Mr. GERHARDT. Mainly by air, I believe.

The CHAIRMAN. Mainly by air?

Mr. GERHARDT. Yes.

The CHAIRMAN. Then half of them came back by air.

You do not have any figures to show how this has increased from year to year, of course?

Mr. GERHARDT. No, sir; I do not. I just have the statistics for 1959.

Mrs. SULLIVAN. Mr. Chairman, if I may interrupt, we asked for that before and I am pretty certain that that was given to us. I have seen those figures, I believe, from 1955 up to last year.

I cannot put my figuer on them but I am certain that the committee counsel has those figures.

The CHAIRMAN. But as it stands now, half of the employees come and go by air.

Mrs. SULLIVAN. There are other services.

Mr. GERHARDT. The statistics for 1959 are--northbound, 1,288 by air and 78 by other surface ships and southbound, 937 by air and 48 by surface ships.

Mr. MORSE. Madam Chairman, one further question.

Mrs. SULLIVAN. Yes.

Mr. MORSE. Do you know what the air rates are between the Panama Canal and New York City?

Mr. GERHARDT. Not precisely, but I believe that the air rates are comparable to the rates on the Panama ships. I think it would amount to about $375 round trip, I am not certain but I think that is probably right.

Mrs. SULLIVAN. You mean that is the commercial rate on the Panama ships, not the company employees rate?

Mr. GERHARDT. Yes.

Mrs. SULLIVAN. There is just one other thing, Mr. Gerhardt. You say that the higher costs to the Canal Company can be absorbed through their operating revenues but I want to remind the committee that we have an undecided issue of $11⁄2 million additional annuity to the Republic of Panama that the taxpayers of the United States are now paying.

The Panama Canal Company is not paying that.
Mr. GERHARDT. That is right, Mrs. Sullivan.

Mrs. SULLIVAN. We have reason for leaving it that way but let us not forget that this $12 million is not really profit to the Company because it is being paid out in some other manner.

I was just reminded by the counsel that all the improvements to the canal for better passage of the ships is being paid out of these profits.

Mr. GERHARDT. That is right, Mrs. Sullivan, and the improvement program is going to require a considerable expenditure of funds over the next number of years, so I think that the profits from the operation of the canal should be used for that purpose.

Mrs. SULLIVAN. That is right.

Mr. Gerhardt and Mr. Jones and Mr. Brown, thank you very much for coming before us.

We may have some questions a little later as we develop this but we are trying to get all different interests to come in to give us a true picture.

I more than appreciate your help this morning.

Mr. GERHARDT. Thank you, and if we can be of any further assistance to you, we will be quite happy to do so.

Mrs. SULLIVAN. Thank you.

Our next witness will be Mr. Perry Shoemaker, vice chairman of the Erie-Lackawanna Railroad Co., representing the U.S. Chamber of Commerce.

STATEMENT OF PERRY M. SHOEMAKER, VICE CHAIRMAN, ERIE-
LACKAWANNA RAILROAD CO., ON BEHALF OF THE CHAMBER
OF COMMERCE OF THE UNITED STATES

Mrs. SULLIVAN. Mr. Shoemaker, we are glad to have you.
Would you identify yourself for the stenographer?
Mr. SHOEMAKER. Thank you.

Mrs. SULLIVAN. I hear you have a short statement. Would you prefer to follow your statement or summarize it, Mr. Shoemaker?

Mr. SHOEMAKER. Mrs. Sullivan, if I may, I would like to follow the statement and then comment on one or two items that have come out of this discussion this morning on which I would like to try and be helpful.

Mrs. SULLIVAN. That is fine. We would be glad to have you proceed.

Mr. SHOEMAKER. Thank you.

I am Perry M. Shoemaker, vice chairman of the Erie-Lackawanna Railroad Co., headquartered in Cleveland, Ohio. I appear on behalf of the Chamber of Commerce of the United States.

I have studied the Panama Line in connection with my membership on the transportation and communication committee of the national chamber and in a former connection as the chairman of the transportation task force of the second Hoover Commission on Organization of the Executive Branch of the Government.

The Chamber of Commerce of the United States represents all business and industry, large and small, and every section of the country. It is composed of more than 3,600 organization members-

local, State, and regional chambers of commerce, and trade and professional associations; and more than 27,000 business membersfirms, corporations, and individuals.

The national chamber has sought discontinuance of the Panama Line for many years. In our view, it is the most flagrant example of Government competition with business. It not only takes Government traffic away from commercial carriers but it actively solicits commercial traffic in competition with them.

Reasons given by the Panama Canal Company over the years for continuing the line, have always been about the same.

It says that the line is considered vital for insuring continuity of supply to the canal and that canal needs cannot be subject to interference from strikes or competing demands upon private business. It has also said that the transportation requirements of its employees could not be satisfactorily met by commercial carriers and that discontinuance of the line would increase charges against the taxpayer. In the past it has been difficult to obtain specific information on the operation of the Panama Line. Its accounts have been absorbed in those of its parent company, the Panama Railroad Company.

Recently, however, studies have become available that pinpoint facts that previously were known only in generalities. These doubtless have been made known to you, or will be, and I will touch on them only briefly.

The fact that 70 percent of the line's revenues come from commercial business is, in itself, evidence that the Government should not engage in operations of this kind.

The fact that less than 40 percent of its freight capacity is used, and only 65 percent of its passenger capacity, even with a preponderance of commercial traffic, shows beyond question that it is not an economical operation.

Regardless of these telling facts, there are few who would say that Government activities should compete with those of its own citizens.

There is no lack of commercial freight and passenger service from all parts of the United States to the Canal Zone. We have rail, motor, water, and air service to our ports on all three coasts, ocean and air service from all ports to the Canal Zone, and direct air service from internal points to the canal.

Service is frequent and dependable-much more frequent than could possibly be provided by the two ships operated by the Panama Line, and there is a much wider choice of routings, since the Panama Line serves only New York.

Argument is made that the cost to zone employees on home leave is less using the Panama Line than it is on commercial carriers. This is probably true, since the line makes concessions to zone employees as part of an inducement to work outside the United States in a tropical climate.

Inducements are perhaps proper but they should not be made by a Government dedicated to a private enterprise economy at the expense of that principle. Any inducements required should be given directly to the employee and shown in the accounts of the Company.

For example, the Panama Canal Company or the Canal Zone Government could pay the employee the difference between charges he now pays on the Panama Line and those he would pay on a commercial carrier. I am convinced that this apparent increase in costs

would be saved many times over by the elimination of the annual losses occasioned by the continuation of this Government service. But whether or not they would, they properly should be a charge against the Government and not advanced as a reason for the Government competing against its citizens.

Because of many reasons well known to this committee, our Government must subsidize U.S.-flag shipping in international commerce. The Panama Line competes with some of these same lines. Consequently, we find ourselves in the ludicrous position of subsidizing privately operated lines and at the same time operating a Government line in direct competition with them. This doesn't seem to make sense and I am sure that in this critical period of our history, we can find any number of places where these dollars can be used to produce real benefits for the nation.

The national chamber hopes you will conclude that the services of the Panama Line should be discontinued and transportation services required by the Canal Zone Government be purchased from privately operated commercial U.S.-flag carriers.

If I may add just a few comments to that, Mrs. Sullivan and members of the committee, in connection with our study carried on by the Second Hoover Commission, we went intensively into the operations of the Panama Line and the task force group, of which I was chairman, came up with a firm recommendation that the Panama Line be discontinued and that its property and equipment be disposed of to the best interests of the Government.

Mrs. SULLIVAN. May I ask you right there, was not that recommendation reversed by the full Hoover Commission group?

Mr. SHOEMAKER. I am coming to that and I would like to point that out.

Mrs. SULLIVAN. All right.

Mr. SHOEMAKER. The full Hoover Commission, in considering the report of its task force had this to say:

The line is operated primarily for Government freight and personnel. Government freight in 1952 was about 34 percent of all freight carried while only 24 percent in 1954. The number of passengers carried at Government rates declined from 6,248 in 1950 to 4,746 in 1954. Passenger facilities are utilized at about 58 percent of capacity. The Military Sea Transport Service also under the Department of Defense competes with and duplicates the service of this line. The Military Sea Transport Service had 28 passenger ships voyages and 8 freighter voyages between the Canal Zone and east coast ports in 1954. Each carried 79,000 measurement tons of cargo, 6,900 passengers and 9,300 troops. This was done while Panama Steamship Line was making weekly sailings with only partly filled ships. The subcommittee on transportation found that these lines not only compete with each other but both lines are in direct competition with adequate private shipping. Two American-flag lines offer passenger and freight service from east coast ports to the zone and one offers freight service from the gulf coast. This Commission in its report on transportation stated that the Military Sea Transport Service should cease competing with and duplicating the Panama Steamship Line.

The Commission_recommended that the three military services should fully utilize the Panama Line's capacity.

That is the difference in the recommendation of the Second Hoover Commission as against the task force which I headed.

During the intervening period of years since the report was made, it has been found impracticable for the military to utilize the Panama Line at the expense of not using to that extent the Military Sea Transport Service.

There is good reason for this.

I am sure that you will have testimony from MSTS people and others in the military that can explain it in more detail than I will attempt to do. But one of the facets of our study of the Panama Line involved some question of the procurement practices of the Canal Company.

We found freight cargo being brought in from all parts of the United States to the one port, New York, which the Panama Line used, thus building up internal transportation expense.

The military has the same problem. It has both cargo and personnel all over the United States going to and from the Canal Zone. The artificial use of the port of New York for that, thus utilizing the Panama Line, would build up losses in transportation costs and some inefficiency and additional loss in time as against using the ports or airports, as the case may be, that are most advantageous for the movement of people and goods to and from the Canal Zone.

I am sure that the Military Traffic Management Agency or perhaps GSA, in their Traffic Department, may have some views on the additional transportation costs that would accrue if the use of the port of New York was forced upon them as against using MSTS.

I am also sure the committee realizes that many of the MSTS vessels serving the Canal Zone are not solely in the Canal Zone trade but use the Canal Zone as a stopover port, if you will, when they are en route through the canal or down the east coast of South America or the Caribbean points.

So that, there are other indirect costs that do affect the taxpayer's dollar in these things which are very real.

Nothing has happened in the past 5 years since our report was made to the Commission which leads me to believe that it is practicable to artificially force the use of the Panama Line by the military.

I continue to believe that we have a very important principle here. the principle of whether we are going to perpetuate this striking example of Government competition with its own private citizens. Thank you.

Mrs. SULLIVAN. Thank you, Mr. Shoemaker.

I have a very frank question at the very start that I would like to ask you.

Does it always necessarily follow that the Government saves money and gets a better job done by turning over every possible activity to private enterprise?

Mr. SHOEMAKER. I do not think that is always true, Mrs. Sullivan. I think the principle, however, of private enterprise doing the job for which it is established and paying taxes to the Government on the enterprise which it conducts is a vitally important principle and I think by and large the net return to the Government is better by so doing, but I am sure that there can be examples cited where a contrary result is true in a specific situation.

Mrs. SULLIVAN. I wondered if you were familiar with many of the instances reported by congressional investigating committees in which contracting out of what had previously been done by Government employees or Government agencies had led to huge increases in costs.

It is not always true that private enterprise does better, or that it should be entrusted with the mail service as was suggested a few years back.