I am enclosing herewith answers to the specific questions raised by your letter. Sincerely, JAMES M. GAVIN, 1. What is your view with regard to S. 1285? I do not believe that there is a need for S. 1285. 2. Has your organization been engaged in any “spinoff" or conversion effort? If so, what has been your experience? A major share of Arthur D. Little's work is involved in conversion in that we develop products and processes for industry, Government, and our own account, and strive to bring about their use to forward the economic progress of the Nation. The transfer of technology is, we find, a complex process which requires personal contact between the developer of a product and the manufacturer. This drive and zeal is necessary in order to hurdle the particular complex of cultural, social, political, human resource, natural resource, financial, educational, and entrepreneurial factors involved in any single instance. Lack of such personal contact, coupled with the lack of personal rewards, has been a large factor in the lack of success in Government to industry "spinoff" in many cases we have studied for NASA. 3. What financial or governmental obstacles have you encountered in "spinoff" or conversion? Government's "spinoffs" are hampered by lack of money, and sometimes business understanding, to permit the personal contact driving force needed, and by restrictive Government patent policies. 4. Are there products, systems, or techniques on the drawing boards of private industry that could be directly applied to the solution of urban problems? If so, what is holding them back? This is a very large question as it can be directed at so many different urban problems. We will restrict our answer to housing for purposes of brevity. We have just completed a report entitled "Technology in Connecticut Housing Delivery System" for the department of community affairs under contract with the Connecticut Research Commission. In general, this report indicates the technology for reducing the cost of homes 5 to 10 percent exists, but that social, market, code, and labor factors may prevent the attainment of this potential saving. 5. Would a guaranteed market-or any other Federal action-improve this situation? 6. How should the guaranteed market work? What financial arrangements would be necessary and for how long a period of time? 7. Which areas of public need do you feel can best be met by government? The matters of guaranteed market and economic factors in construction are covered in the aforementioned report in some detail. Should 1 The full report is on file with the subcommittee. you be interested, we will be glad to arrange for you to receive a copy through the State of Connecticut. Hon. ABRAHAM RIBICOFF, AVCO CORP., New York, N.Y., September 11, 1969. Chairman, Subcommittee on Executive Reorganization, DEAR SENATOR RIBICOFF: My associates and I have given careful consideration to your request for comment on S. 1285, a bill to establish a National Commission on Economic Conversion. In general we favor such a bill and are pleased to enclose a memorandum from John B. Kelley, president of Avco Economic Systems Corp., commenting on specific questions raised in your letter of August 15. Jim Kerr, our president, and I both concur with the thoughts expressed in Mr. Kelley's memorandum. With kind personal regards. KENDRICK R. WILSON, Jr. MEMORANDUM, SEPTEMBER 4, 1969 To: K. R. Wilson, Jr. From: J. B. Kelley. Subject: S. 1285. In response to your memorandum of August 28, here are some general comments on S. 1285, the bill to create a National Commission on Economic Conversion, on which Senator Ribicoff asked your opinion. In general, I take a positive view of the proposed Commission. It is a wise thing to start thinking now about converting parts of our economy toward domestic concerns, in order that there will be some guidelines for Government and industry to follow when defense and space expenditures decline. Section 5(a), which would require defense contractors to define their conversion capability, would perhaps work a hardship on some contractors. But, as a matter of public policy, it would probably be a good thing to get them thinking about the day when defense expenditures decline and to do some planning for that day. Senator Ribicoff's letter asked a number of specific questions. My comments above cover his first question. Here are some thoughts on his other questions: 2. Avco has been engaged in conversion efforts for three and a half years, through the creation of Avco Economic Systems Corp. which was formed specifically to focus resources on economic and social problems confronting the Nation. Through Avco ESC, Avco put its managerial and training resources at the disposal of the Government and successfully operated two large Job Corps Centers to help prepare disadvantaged youths for a proper place in the economic mainstream. Avco ESC is also using its resources to help the Government evaluate certain of its socioeconomic programs, and to do research on environmental problems. Avco was the first major corporation to start a new industrial facility in the inner city to provide jobs and training for the hardcore unemployed, utilizing managerial, training, and technical skills in the process. This effort, undertaken in the Roxbury section of Boston, also helped spur black capitalism because Avco provided technical assistance to small black contractors who were thus able to build the new $2.5 million plant in the ghetto. Finally, Avco is currently involved in a major effort to convert the former Glasgow Air Force The questions that were asked by the subcommittee staff can be found in letter dated August 26, 1969, page 13, of this committee print. Base, in Glasgow, Mont., into a self-sufficient industrial community. With Government seed money, in the form of a contract to rehabilitate and manufacture certain ordnance items, the company has launched a production effort and is undertaking an economic development program to obtain other commerical tenants for the former base. 3. The principal obstacle encountered by Avco in undertaking conversion efforts was the underfinancing of the venture by the Government and the Government's short-term approach to these problems. In Roxbury, for example, Government financial aid was provided to partly offset heavy startup costs of the new inner-city plant. However, the aid did not cover all of the extra costs encountered. Furthermore, the Government aid was withdrawn after the first year, and it is our experience that a new inner-city plant staffed by a disadvantaged work force requires a subsidy beyond 1 year because of the long-term problem of overcoming the low productivity of the work force. 4. Private industry has developed numerous approaches which can be utilized to help solve urban problems. For example. Avco developed a technique in the construction of its new inner-city plant which could be used to help foster black capitalism in other locations. Avco provided a team of five experienced construction technicians who provided technical and managerial assistance to a group of inexperienced black contractors who were given the contract to build the new $2.5 million Avco plant. With the help of this team, the contractors were able to perform a task which they otherwise could not have handled. Avco would be prepared to assist other black contractors in a similar way, if a method could be found to provide funding to cover the cost of such technical assistance. Yet no such methods now exist, and Avco has been obliged to decline invitations to assist other black contractors because of the lack of funding. 5. The private sector could undoubtedly make a greatly increased contribution toward solving urban problems if a method could be found to protect the profit position of private companies which undertook such efforts. For example our own inner-city plant probably will not encourage other companies to follow a similar route because it is currently running deeply in the red. If, in addition to providing startup costs, the Government would guarantee a market for the plant's product for several years. the operation could arrive at a sound economic position during its initial 2 or 3 years instead of representing a drain on the corporation. 6. Details of a guaranteed market plan would vary, according to the product produced by an inner-city plant. Care should be taken to insure that the plant does not become wholly dependent on Government markets. But our experience indicates that a new inner-city plant, with a disadvantaged work force, requires at least 3 years to reach the break-even point. If it is public policy to encourage inner-city economic development by private enterprise, then a method should be found to reimburse the private company for the extra costs it would encounter by going into the inner-city rather than into suburbia. 7. Private enterprise can do much to help seek solutions to some of our critical urban problems. But the private sector is attuned to the profit motive, and will only respond in areas where there is a long-term profit potential. Where the problem is such that the profit motive cannot be triggered, then Government must continue to bear the burden. Government must either operate such programs itself, or provide cost plus fixed fee contracts to industry, if it expects the private sector to tackle the problem. The CPFF philosophy has been followed in our space and defense programs. Urgent problems confronting our cities merit no less a priority, and consideration should be given to utilizing the same approach which has proved successful in the space and defense programs. Hon. ABRAHAM RIBICOFF, THE BOEING CO., Chairman, Subcommittee on Executive Reorganization, U.S. Senate, Washington, D.C. DEAR SENATOR RIBICOFF: Thank you for your letter of August 26, 1969, requesting my opinion on S. 1285. The Boeing Co. has a long tradition of making resources available to the United States for programs of high national need. We intend to continue that approach, when we are qualified, supporting those civilian, space or military programs the United States chooses to implement. Much of our technology and management know-how derived from past military and space programs, has already been placed into our commercial airplane programs. I think you would agree that commercial aviation, including the proposed supersonic transport, has substantial civil benefits as well as providing economic and international benefits to this country. The company has examined many of the civil systems markets during the past 5 years. These have included in-depth studies of surface transportation, water management, waste disposal, and security systems. We find that each of these have elements consistent with our technical and systems management capabilities. However, we do not see either established national goals in these areas, consistent commitment to adequate funding, reasonable-size contracts of adequate duration, or contracting modes consistent with these. All such features are important to establish a realistic market to utilize the aerospace systems companies. We also have encountered some problems in applying such technology to certain potential civil markets. Particularly, we suspect people have overestimated the virtues of the system sciences (systems analysis, systems engineering, and systems management) to problems having large sociological and economic elements. Such attempts should continue but they will not solve all problems easily. I do not believe it is logical for us to recommend which new policies should be followed nor which national goals should have priority. However, as national priorities do change, subsidies or special dispensations to individual segments of industry are in our opinion much less desirable than adequate funding of a reliable duration to those governmental elements capable of contracting major problems with large companies. Your suggested National Economic Conversion Commission could assist if its emphasis were focused on establishing these goals, their relative priority, and a long-term funding plan. If these outputs were accepted by both the executive and legislative branches, I feel confident that the normal processes of the free enterprise system would make it attractive for individual companies to seek these new markets enthusiastically, diverting whatever resources are needed from other projects. I have not attempted to answer each of your questions in detail, because I do not feel we are qualified in every instance. However, if you or your staff wishes to pursue this further, please request additional information or assistance. I assure you we are very interested in this effort. Respectfully, WILLIAM M. ALLEN, BORDEN INC., Hon. ABRAHAM RIBICOFF, New York, N.Y., September 12, 1969. Chairman, Subcommittee on Executive Reorganization, U.S. Senate, Washington, D.C. DEAR SENATOR RIBICOFF: Thank you for asking for our comments about S. 1285, the bill which calls for the creation of a National Economic Conversion Commission. As a general supplier of food products, Borden did not find it necessary to develop and build special production facilities, nor to hire specialized manpower to meet any demands from the Department of Defense, the military or the Atomic Energy Commission. Therefore, since the bill's proposals are generally outside the area of our experience, we respectfully believe that it would be inappropriate for us to respond to your questions without direct knowledge of the problems faced by other companies that would need to convert their facilities and manpower. Sincerely yours, HON. ABRAHAM RIBICOFF, Committee on Government Operations, A. R. MARUSI, President. CATERPILLAR TRACTOR CO., Peoria, Ill., September 24, 1969. DEAR SENATOR RIBICOFF: Your letter inviting our views on Senate bill 1285, to create a National Economic Conversion Commission, arrived prior to my departure on a business trip, from which I have just returned. We appreciate the opportunity to comment on this proposal. Frankly, our views tend to be shaped largely by the very nature of the business of Caterpillar. As you probably know, we are engaged worldwide in the manufacture of earthmoving and materials-handling equipment and industrial engines. Our products are basically nonmilitary in character and are primarily used in markets which meet basic public needs: highways and general construction, mining, water management, forest products, warehousing, agriculture, and so forth. Sales to the U.S. Government and U.S. Government prime contractors comprise less than 5 percent of our business, and consist largely of commercial product. With that as background, the following thoughts are offered in the same order as the questions you posed: 1 1. Our reaction to S. 1285 in its present form is somewhat mixed. While we agree with the broad objectives of the act as outlined in its declaration of purpose (that is, to provide the means through which the United States can determine the public policies which will best allow such economic conversion), we may not be in the best position 1 The questions that were asked by the subcommittee staff can be found in letter dated Aug. 26, 1969, p. 13, of this committee print. |