ECONOMIC ASPECTS OF MILITARY PROCUREMENT AND SUPPLY INTRODUCTION The Joint Economic Committee has authority to make reports and recommendations on various aspects of the national economy.1 In several of its reports in recent years reference has been made to the impact of military procurement on the economy (app. 1). The committee has consistently taken the position that our economy can afford any necessary defense expenditures. It goes without saying that what is actually needed must be obtained. Liberty and survival are priceless. The committee also has repeatedly stated that defense expenditures are not the best way to create and sustain needed economic growth and that unnecessary waste and inefficiency in defense expenditures must be "ruthlessly eliminated" as General Eisenhower also stated. That this objective has not been accomplished is undeniable and is a matter of great importance to our economy and to our defense. In 1952 members of the committee were impressed by the intensive investigations and reports of the Bonner and Hébert subcommittees of the House of Representatives concerning waste and inefficiency in military supply management and so sponsored legislation known as the O'Mahoney amendment to the Defense Appropriation Act of 1953. This amendment, which is permanent legislation, provides for the development of "an integrated supply system" in the Department of Defense. Military officers and agencies are prohibited by it from obligating funds for supply management functions except in accordance with regulations issued by the Secretary of Defense to carry out the intent of the law.3 Initially, considerable progress was made as a result of this legislation but it was short lived. By 1954 divisive service interests had 1 Sec. 5(b) (3) of the Employment Act of 1946 (Public Law 304, 79th Cong., 2d sess.) reads: "It shall be the function of the Joint Committee as a guide to the several committees of the Congress *** to file a report *** with respect to each of the main recommendations made by the President in the Economic Report and from time to time to make such other reports and recommendations to the Senate and House of Representatives as it deems advisable." [Emphasis added.] 2 Gen. Dwight D. Eisenhower's letter of June 2, 1945, to the Honorable Clifton Woodrum, chairman, select committee, House of Representatives, Washington, D.C., hearings, pp. 64-66 (see also p. 73): "Efficiency must be attained with maximum economy. (This means: (1) Expensive duplication must be ruthlessly eliminated." He also stated in his state of the Union message of Jan. 9, 1959: "We can afford everything we clearly need, but we cannot afford one cent of waste. We must examine every item of governmental expense critically. To do otherwise, would betray our Nation's future.' 3 For text of O'Mahoney amendment and committee report see pp. 155-156, staff report. See also, Commission on Organization of the Executive Branch of the Government, "Task Force Report on Food and Clothing, April 1955," pp. 84-87, 105-109. See also "Food and Clothing," H. Rept. 2013, Committee on Government Operations, Apr. 18, 1956, p. 19 ff. See "Federal Supply Management" (Implementation of Military Supply Regulations). Hearings by a subcommittee of the Committee on Executive Expenditures in the House of Representatives, 82d Cong., 2d sess., Dec. 3-5, 1952. influenced the new and inexperienced Secretary of Defense and associates, with the Budget Bureau acquiescing, that the way to improvement in military supply management is through intradepartmental action with each department separately administered and not through an integrated common supply system as intended by the O'Mahoney amendment.5 This reversal in top policy and the subsequent dissolution of an integrated medical supply and equipment test at Alameda, Calif., caused adverse criticism from many Members of Congress, Hoover Commission members and their task forces, and the public." Hurriedly, single manager plans, essentially comparable to the Alameda medical test, for a few supply classes were parceled out to the Army and Navy in late 1955 and 1956 and then action ceased." Widespread discontent with progress in integrating common supply and service activities led to the passage of the McCormack-Curtis amendment to the Department of Defense Reorganization Act of 1958 which broadens the authority of the Secretary of Defense to provide for the operation of common supply and also service functions through such an entity or entities as he determines proper.8 A relentless bombardment of scores of reports from the General Accounting Office critical of wasteful supply practices in the DOD raised the doubt as to whether the McCormack-Curtis amendment was being implemented or merely allowed to rest and atrophy on the statute books like the O'Mahoney amendment of 1952. On January 15, 1959, Senator Douglas by letter asked Secretary McElroy for (1) a listing of common supply and service activities falling within the scope of the McCormack-Curtis amendment, and (2) "what plans or actions have been taken," or (3) "are contemplated" with respect to them.10 This letter was acknowledged on January 29, 1959, and after staff conferences, was answered in detail on July 10, 1959. In general, progress has been slow, laborious, and painful, considering the needs and potentialities. One of the areas where most progress toward integration has been claimed by the Assistant Secretary of Defense (S & L) is in the "single manager plans," for common supply and services. However, another Assistant Secretary of Defense (Comptroller) repeatedly downgraded the "single manager" effort. The opposite points of view of two Assistant Secretaries of Defense as to the effectiveness of single manager plans were so apparent as to require a review.12 It also became evident to committee members during the January 1959 hearings on the President's Economic Report that this most 5 Staff report, pp. 139, 231–236. Staff report, pp. 106-109, 221, 231–236. Congressman Curtis' letter of Jan. 19, 1955, to Hon. Charles E. Wilson, pp. 192-199, hearings, subcommittee of the Committee on Government Operations, House of Representatives on Commission on Organization of the Executive Branch of the Government (Food and Clothing Report), 84th Cong., 1st sess. (See also hearings, pp. 480-486.) See hearings, p. 180. 8 See Congressman McCormack's letter of Jan. 18, 1960, to Senator Douglas re intent and content of amendment, p. 1; 202 staff report. Staff report, p. 100; 165-199; Hearings, pp. 2–30; 450-467. 10 Staff report, pp. 210-217. 11 January 1959 hearings on "Economic Report of the President," pp. 679-680; staff report, pp. 45-61; p. 9, pt. 4, DOD appropriations, 1960, House of Representatives. 12 See hearings, pp. 491-497 (House Majority Leader McCormack asks Secretary McElroy for an authoritative evaluation of the single manager plans in view of the contradictory testimony on them by DOD witnesses). important subject of military supply and service management, involving potential savings of billions of dollars was not comprehended let alone being ruthlesssly attacked by those responsible for top management in the executive branch.13 As stated by Congressman Clarence J. Brown, father of both Hoover Commissions and one long interested in securing economy in defense procurement, to Budget Director Stans: If this is not a management and organizational problem of the highest order, then there is none.' 14 Acknowledgment is made of the nonpartisan efforts many Members of Congress who have given their support to the efforts that have been made during the past decade to improve the management of supply and service activities in the Department of Defense and in related activities in the General Services Administration. Particular mention should be made of Majority Leader McCormack and Congressman Thomas B. Curtis as sponsors of the McCormackCurtis amendment of 1958 and to Congressman Brown as father of the Hoover Commission and Senators O'Mahoney, Douglas, and Congressman Bonner as sponsors of the O'Mahoney amendments of 1952 and 1957. The Committee of Hoover Commission Task Force members has also remained active and most helpful in this area. With support from President Hoover they have continued at personal expense to assist in many ways in this work which they consider the most fruitful management improvement area in the Federal Government and one of great impact on the national economy. The U.S. Chamber of Commerce has also taken an active, persistent, and nonpartisan interest in the matter. GENERAL SUMMARY We learned several economic lessons from World War II: First, we learned of the all-out total nature of modern war. No longer is war a matter of a few professional or mercenary soldiers going to battle while the home folk are relatively secure. We know now that all human and physical resources must be geared to an allout effort. The effort requires top level management of high caliber. It means obtaining the most from the least, of directing our resources toward national objectives understood by all. Second, we learned and should remember that we are not a nation of inexhaustible resources and we have found it necessary to comb the world for strategic and critical materials needed for our great and complex modern supply systems of millions of items. Elemental prudence and the desire for survival should dictate a careful husbandry of our resources for the long pull. Yet such was not the case during World War II nor is it now during the cold war which may last for generations and, in the words of President de Gaulle, "engulfs resources.' 13 See statements of Budget Director Stans in hearings before the Joint Economic Committee, 86th Cong., 1st sess., Jan. 28, 1959, pp. 66-68. 14 Staff report, pp. 227-229. Third, we learned a lesson in the need for unity and economy, as stated by Secretary Stimson: In World War II we accomplished great things by cooperation between two separate departments, but from that experience we learned that cooperation is not enough. I will not rehearse the unhappy list of duplications, or the instances of friction and disagreement which then hampered our work. But I would emphasize that each succeeding emergency in the last 50 years has made heavier demands on our armed services. The element of economy in our use of armed force might well be critical in any future contest. It came nearer to being critical toward the end of this last war than I had dreamed likely during the years preceding the war. I do not mean economy in dollar terms (though in the long run we should greatly gain in that respect too under this bill), but rather that strategic economy which exerts maximum force with limited national resources. Without increased unity we cannot get that kind of economy; we will continue instead to operate with the wasteful opulence that has characterized much of our work in the past. This new bill provides the framework for the increased unity we need.1 Fourth, we learned that there is no longer land war, sea war, or air war, as such, in major conflict. They have been merged-or fusedby modern weapons. General Eisenhower stated before the Armed Services Committee of the Senate on March 25, 1947: war. During those long months in Europe I and my associates came to understand that in a major conflict there was no such thing as a separate land, sea, or air Single purpose and direction and careful balancing of forces were necessary. We, therefore, came to believe that in the broader field of preparation and production of forces, in planning and in control of operations, a closely knit headquarters in Washington would add to national efficiency and economy. All agreed that single command in the field was essential; for my part this incontestable truth applied equally to the Washington management from which the orders for the field commander must come. We have learned that it is not only the size of the gross national product which is important but the effectiveness to which it is directed toward national objectives. An undetermined amount of the $27 billion worth of surplus, excess, and long supply of property in military depots constitutes a portion of the gross national product which is not a military asset but a liability in that it is costly to warehouse, maintain, inventory, and control, and yet is of no foreseeable value to the military and may, if sold, have an adverse impact on segments of the economy. The tons of steel, copper, aluminum, zinc, and other materials, some strategic and critical; and the engineering, manpower, and other resources which have gone into these unneeded products could well have been put to better use in connection with other programs and products essential to our military and economic well-being. As stated elsewhere in this report, however, (pp. 39-41, 52-54) there is much of the so-called excess and surplus property which is needed by the military agencies themselves. The Budget Bureau has proved that some agencies are buying many of these items as others dispose of them. Some of this property is new and unused and is not worn, obsolete, obsolescent or inferior. Other property that is not in A-1 condition could be used if the philosophy were "to use it up, wear it out, make it do." The chairman of the Joint Economic Committee, in concert with other members, decided in August 1959 to hold hearings on the "Im 1 "On Active Service in Peace and War," Stimson & Bundy, p. 520. pact of Defense Procurement on the Economy" and appointed a special subcommittee on the subject consisting of Senator Douglas, chairman, Senators Sparkman, O'Mahoney, Javits; and Congressmen Patman, Bolling, Curtis, and Widnall. The chairman also secured the services of a temporary staff to prepare background material on the subject. This has been printed as "Background Material on Economic Aspects of Military Procurement and Supply," dated February 16, 1960, and is referred to herein as "staff report.' On January 28, 29, and 30, 1960, the Special Subcommitee on Military Procurement held hearings with the following testifying and/or filing statements: Hon. Joseph Campbell, Comptroller General of the United States. Ray Ward, staff member, special subcommittee. Richard J. Newman, staff member, special subcommittee. Hon. Elmer B. Staats, Deputy Director, Bureau of the Budget. U.S. Chamber of Commerce (filed a statement). The hearings were printed and released on April 25, 1960, and are referred to as "hearings." There follows a special subcommittee report as a result of consideration of the staff report, the hearings, and related information. 60935-60 |