Mr. WHITTEN. In some cases you might say all of it.

Representative CURTIS. Yes. I have had that brought to my attention in considerable detail as a member of the Ways and Means Committee where we have under our jurisdiction the Renegotiation Act.

It is the airplane companies to a large degree. I think something like 70 or 80 percent of capital furnished is Government capital. The argument is that, therefore, they should earn a lower amount. I want to just pose this one question. It is the question I asked the various witnesses:

Do we contemplate 10 years from now having the same situation, the Government furnishing 70 or 80 percent of the capital or do we hope that maybe in 10 years most of Government capital will be replaced by private capital?

Mr. WHITTEN. It is pretty hard for me to figure out sometimes what the people contemplate, or what the Congress contemplates.

I do not have the least idea. I am fearful that if we follow the present road we may get something we did not contemplate because I think we are heading toward that line.

May I say, using a homely illustration again, the biggest reason we have trouble in getting something done about this goes back to when I first came here, which was a number of years ago, back when you had mules and all that in farming. We had a circuit judge where I had been district attorney. Shortly after I got here I had a letter from him. He said, "Jamie" he called a man's name "came in to see me." He said in his town every time the Farmers Home Administration bought a mule that they were giving his brother a $15 kickback. The judge said, "I will write Jamie and he will stop it."

He said, "No Judge, I don't want him to stop it. I want to make him cut me in on it."

We get little help in correcting this situation because too many areas have been cut in or want to get cut in.

I mean temporary activity, employment temporarily, or closing this factory down, where are the people going

There is mighty little of the Nation that is not involved to say the least. I think we have gotten ourselves in such a situation without an awareness to the point where it is going to be hard to scale it back and if we don't wake up, the situation gets more dangerous.

I think we have to give some attention to at least shifting the surplus spending to activities where we can get some goods to offset it. Representative CURTIS. Again I want to thank the gentleman for bringing out these points which are convincing me, not that I needed convincing, that this committee has been very wise in going into this

area.

It is something that we might well consider remaining in.

The CHAIRMAN. We thank you very much, Congressman. We appreciate your coming. You have been a very valuable witness. Mr. WHITTEN. Thank you, Mr. Chairman.

The CHAIRMAN. Our next witness is Mr. Elmer B. Staats, Deputy Director of the Bureau of the Budget.

Mr. Staats, before you proceed will you identify your associates? As you do So, will each one of them advise the committee as to their respective responsibilities?

STATEMENT OF HON. ELMER B. STAATS, DEPUTY DIRECTOR, BUREAU OF THE BUDGET; ACCOMPANIED BY WILLIAM F. SCHAUB, CHIEF, MILITARY DIVISION; GEORGE G. MULLINS, CHIEF, PROPERTY AND SYSTEMS MANAGEMENT GROUP; AND SAMUEL M. COHN, CHIEF, FISCAL ANALYSIS

Mr. STAATS. Thank you, Mr. Chairman.

I have with me here this morning three of the members of the staff of the Bureau of the Budget, Mr. George Mullins is here to my left. He is Chief of our Property and Systems Management Group in our Office of Management and Organization. To my immediate right here is Mr. William F. Schaub, who is Chief of our Military Division. To his right is Mr. Samuel M. Cohn, who is Chief of Fiscal Analysis in our Office of Budget Review.

Mr. Chairman, I am very happy to have the chance to appear here before you again this morning. I have been here a number of times before the Joint Economic Committee. It is always a pleasure to come back.

I appreciate the opportunity to be here today to discuss briefly, the procurement and supply activities of the Government. As you know, direct Federal expenditures for goods and services comprise a considerable portion of the total Federal budget; during the past 2 fiscal years such expenditures have amounted to over $50 billion annually, which is about 11 percent of the gross national product. If we exclude military and civilian payrolls and related costs, the Federal Government's purchases from private businesses amount to about 7 percent of the gross national product.

The Federal Government is the Nation's largest employer and largest purchaser. Considering the magnitudes, we can appreciate the interest of this committee in the Government's procurement and supply sustems. It is a concern which we in the Bureau of the Budget share with you. Of course, other committees, such as those for appropriations and Government operations, also have a direct concern and responsibility in this matter, as do such Government operating agencies as the Department of Defense and the General Services Admin

istration.

The biggest portion of the Federal budget and of the Government's purchases is for the DOD. Budget expenditures for the military functions of the DOD are estimated at $41 billion in 1961, which is about the same as the current estimate for 1960. The following table shows the breakdown of this total by appropriation group for 1959–61.

The purpose of this table is to help relate the procurement total to the totals in the military budget.

You will note that in the "Procurement total" in 1959 it totals $14,410 million; 1960, $13,943 million; 1961, $13,602 million, which is a relatively constant figure, a slight decrease in these 3 years relatively.

The "Construction" item, as you will note there, is down some and the "Revolving and management funds," in which we have been very much interested, shows a negative figure for all 3 years, $444 million for the year ending next June 30 and $350 million anticipated for

1961.

No one can deny that purchases of the indicated magnitude have a substantial impact on our economy. The impact has its greatest force in specific industries and geographical locations.

Employment and payrolls in the aircraft, shipbuilding, electronics, and several other industries are dependent in varying degrees on Department of Defense expenditures for these goods.

As an illustration, the aircraft field total sales of all aircraft manufacturers to the Government make up 86 percent of the total for that industry.

That ranges downward in the field of electronics, which is another example, to radio and communications equipment, where sales to the Government constitute 22 percent of the total. Then you get on down to items which are common to civilian as well as military economy such as motor vehicles and equipment. About 212 percent of sales in that industry are to the Government. In the clothing and textile field it is running about 2 percent. These are based on fiscal 1959 figures. We do not have any figures for this year. In other industries, as I have mentioned, textiles, automotive industries, defense procurement also is important, but is proportionately a less significant determinant of the industry's output.

One of the most important characteristics of defense spending today and as projected forward is the rapid pace of technological changes and in weapons modernization. As was pointed out in the President's budget message:

The last few years have witnessed what have been perhaps the most rapid advances in military technology in history. Some weapons systems have become obsolescent while still in production and some while still under development. It is inevitable, given the pace of change, that outmoded as well as wornout defense supplies and equipment are generated in large quantities.

In the past 2 years the Government generated excess personal property which cost $14 billion, and we are informed the volume will increase during the next few years due largely, but not entirely, to accelerated replacement of military equipment. The ultilization and disposal of excess and surplus personal property is now one of the Government's most difficult administrative problems, and we have joined with the Department of Defense and the General Services Administration in order to deal with it effectively. To encourage more utilization of excess personal property within the Government, we are working with the GSA in relaxing existing policies under which agencies are required to pay for excess property transferred to them.

This is a very recent step, Mr. Chairman. You may recall that under the Federal Property and Administrative Services Act, which the Bureau of the Budget took the lead on back in the late 1940's, and which Mr. Ward will well remember because of his identification with that move, we had a firm requirement that there be reimbursement by the agencies when excess property was transferred from one agency to another.

Since then there have been some modifications. We believe, in the light of the experience, it is worth attempting to see what can be done by way of moving this property between agencies more expeditiously under arrangements whereby they will not be required to make reimbursement. The Bureau of the Budget will take steps to avoid undue augmentation of appropriations as a result.

Now, to continue, we recognize that administrative safeguards will be necessary in order to assure that property is transferred only when it is needed for an approved program and that appropriations are not unduly augmented by such transfers.

We are also conducting a sample analysis to determine the extent to which agencies may be purchasing new property when their needs could be satisfied through use of available excess. Our objective is to identify the basic causes of such practices and to develop practical corrective measures, if needed.

Primary responsibility for property and supply management activities in the Government is properly assigned by law to the Administrator of General Services, the Secretary of Defense, and to the operating agencies which are partially or wholly exempted from the provisions of the Federal Property and Administrative Services Act. The Bureau of the Budget has a very substantial interest, however, because procurement and property management are important elements in the President's budget and because governmentwide issues of organization and management are involved.

For example, during the past several years, the Bureau has supported the single manager system for the Department of Defense, although we recognize that it may have to be expanded and revised on the basis of experience if we are to attain the most effective and economical supply management. I think here the Defense Department will set forth for you this afternoon some recent steps which have been taken in this field and plans which they have for extending them.

The Bureau has also urged that the GSA be assigned greater responsibility for the furnishing of common use and administrative supplies to the Department of Defense. The volume of business handled by General Services Administration for the Department of Defense has increased steadily each year. This fiscal year the volume of shipments from GSA's warehouses to the Department of Defense is expected to be about $180 million, which is more than five times as large as in 1953, and we believe the volume can and should be further increased. Present plans in the Department of Defense to review its current methods of procuring common use items should result in an orderly, but substantial transfer of procurement and distribution responsibility from the services to General Services Administration. We intend to keep in close touch with this program as it develops, not only because we believe its success is important, but also because it will affect the current and future budget requirements of both the Department of Defense and the General Services Administration.

The Bureau also performed the staff work for the President in carrying out a recommendation of the Cabinet Committee on Small Business. This resulted in an assignment of responsibility to the GSA for making an analysis and for standardizing the Government's policies and procedures for procurement and contracting. The main objective of this program is to make it easier for industry, and particularly small businesses, to do business with the Government.

Examples of other areas is which the Bureau of the Budget has been active include:

1. A full-scale study of the organization and management of the General Services Administration, a survey financed from the appropriation to the President for expenses of management improvement. Some of the fundamental changes in organization and policy which the present Administrator of General Services has implemented were based upon that study. This study I believe was completed in

1956.

2. A study, also financed from the President's appropriation, to determine the best organization and assignment of responsibilities for procurement and distribution of subsistence supplies used by the civilian agencies. Agreement has been reached between the General Services Administration and the Veterans' Administration for consolidating responsibility for procurement and distribution of subsistence supplies, but actual operation under the new arrangement has not commenced.

3. Strong budgetary and management support of the interagency motor vehicle pool program being carried out by the General Services Administration. Such support has taken several forms. For example, under the statute which authorized establishment of inter