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Mr. HUBBARD. The driver pays that out of the salary that he earns. The CHAIRMAN. And he adds it to the cost of the milk.
Mr. HUBBARD. It is the dairy that charges you for the milk; we just sell it.
The CHAIRMAN. All of the costs involved in the production and delivery of milk before it gets to the consumer are paid by the consumer, are they not?
Mr. HUBBARD. Yes.
The CHAIRMAN. I agree with you, in that I do not think the posts ought to furnish the milk any more than they ought to furnish bread, butter, meat, but if you had your way the people at the post would drink this milk and they would be paying you an additional cost over what they have to pay now.
Mr. HUBBARD. They would not be paying us anything additional except we would be earning that additional commission by selling them the milk.
The CHAIRMAN. You would be earning an additional commission which the fellow who buys the milk has to pay, so when you get right down to it the consumer would have to pay it.
Mr. Judd. That is completely outside the argument. When it is sold at the post exchange, the cost of the milk has to be paid by the taxpayer.
The CHAIRMAN. A part of the cost is paid by the taxpayer. The added cost would be paid by the purchaser. It is not delivered by a union driver at an additional cost of $3 a month. It is with regret that I correct the gentleman but even he cannot by assertion change the fact.
Mr. Judd. Do you mean that the milk delivered to the post exchanges is not delivered by union drivers?
Mr. HUBBARD. It is delivered to one central place. It is delivered by a union wholesale driver to the post at one particular place, and they in turn sell it across the counter.
Mr. Judd. That is right.
The CHAIRMAN. But when a union man must handle the milk there is an additional cost which the purchaser pays.
Mr. RIEHLMAN. May I ask this question? Probably it has nothing to do with this legislation, but this union driver who delivers the milk to the post, is he on a commission basis?
Mr. HUBBARD. The wholesale driver, yes, but at about half the commission the regular retail driver draws.
Mr. RIEHLMAN. And that would be true in most any case?
The CHAIRMAN. What are the approximate average yearly earnings of your drivers here in Washington?
Mr. HUBBARD. The retail drivers would average about $4,500 to $6,000 a year.
The CHAIRMAN. Do you know what they average in Chicago? Is it not between $8,000 and up, including their commissions?
Mr. HUBBARD. I would say in the wholesale field, yes, but I would say the retail drivers would not be earning over $6,000 in Chicago.
Mr. Dawson. It takes more money to live in Chicago.
The CHAIRMAN. That is all. Thank you.
Our next witness is Mr. Otis H. Ellis, general counsel of the National Oil Jobbers Council. This witness would like to have Mr. Pike hear his statement also.
STATEMENT OF OTIS H. ELLIS, GENERAL COUNSEL, NATIONAL
OIL JOBBERS COUNCIL
Mr. Ellis. Mr. Chairman and members of the committee, my name is Otis H. Ellis. I am engaged in the general practice of law in Washington, D. C., maintaining offices at 1001 Connecticut Avenue, and I am appearing here today on behalf of the National Oil Jobbers Council in my capacity as general counsel for that organization.
The CHAIRMAN. Do you wish to read that entire statement, or do you want to put it in the record and make comments on it?
Mr. Ellis. I was going to identify myself for the benefit of the record and from there on I would like to have this statement inserted in the record. I will take as little time as possible to state orally the things that I want to bring before the committee.
The CHAIRMAN. I do not mean to curtail your time. I just do not want you to duplicate. If there is no objection, we will insert the statement after he has identified himself.
(The statement referred to is as follows:)
STATEMENT OF Otis H. Ellis, GENERAL COUNSEL, NATIONAL OIL JOBBERS
I am engaged in the general practice of law in Washington, D. C., maintaining offices at 1001 Connecticut Avenue, and am appearing here today on behalf of the National Oil Jobbers Council in my capacity as general counsel for that organization.
For the information of the committee, I should like to briefly review the organization of the National Oil Jobbers Council. The council is composed of 26 State and regional associations of independent jobbers and distributors of petroleum products. These 26 associations in turn represent some ten to twelve thousand jobbers doing business in 31 States. An oil jobber is a marketer of petroleum products primarily engaged in wholesale distribution, although some jobbers also engage in the operation of gasoline service stations and substantially all of them engage in the retail distribution of household fuel oil. The terms "jobber" and "distributor" are used synonymously in industry nomenclature. The word "independent” as it applies to å jobber means that he owns his own business and is not affiliated with, a subsidiary of, or in any manner financially controlled by a major, integrated oil company. Jobbers, distributors, and commission agents distribute and market a substantial percentage of the total gasoline supplies marketed in the United States.
I would like to take this opportunity to commend the chairman and his distinguished associates of the House Committee on Government Operations for their diligent efforts and time-consuming studies over a period of many months into the problem of Government competition with private enterprise. The searching inquiries that have been conducted by the Subcommittee on Intergovernmental Relations under the able chairmanship of the gentlewoman from Indiana, Representative Cecil M. Harden, and the well documented reports that have been issued by this group are well known to those of us in the business community who are concerned about the encroachment of Government competition.
Your fellow committee member, Representative Frank C. Osmers, reviewed the present inquiry and outlined this problem before the House of Representatives on July 13, 1954 (100 Congressional Record 9809). Mr. Osmers stated:
"The chief reason for taking Government out of business is to protect and encourage the taxpaying businessmen-big and little—who make the Federal Government possible through tax payments.”
We are heartily in accord with this principle and indeed find additional compelling reasons for the elimination of Government competition with free commercial enterprise.
As to the bills pending before this committee, H. R. 8832, H. R. 9834, and H. R. 9835, the National Oil Jobbers Council wishes to go on record as endorsing the basic aim and intent of these proposals. We prefer to reserve comment on the best mechanical or operating procedures for achieving the end sought. We believe that this distinguished committee and its members who have devoted so much time to this problem over a period of many months are best qualified to determine the appropriate mechanics or governmental organization which could best effectuate congressional intent and serve to control the encroachment of Government competition and bureaucracy on the business affairs of industry and
GOVERNMENT COMPETITION AFFECTING JOBBERS AND MARKETERS
The phase of Government competition with private enterprise that is of substantial concern to the jobbers and distributors of petroleum products is that having to do with the operation and maintenance of gasoline service stations by post exchanges on armed services installations. For the information of the committee, I would like to briefly review some of the backgrou of this problem and the efforts made by the National Oil Jobbers Council to obtain responsive answers from various officials within the Department of Defense.
Late last year I felt there was an indication of hope and a promise that problems such as the one I am presenting to the committee would be resolved when I read in the press that Secretary of Defense Charles E. Wilson had stated in a Department of Defense directive as follows:
“The Department of Defense supports the basic principle that free competitive enterprise should be fostered by the Government. Therefore, privately owned or Government owned and privately operated commercial and industrial type facilities will be used by the Defense Department to the greatest extent practicable * * *»
This appeared to be a most enlightened and commendable approach for the Department of Defense to adopt. On January 6, 1954, I wrote Secretary Wilson, indicating that I concurred wholeheartedly with this statement, but pointed out that it seemed inconsistent with the pattern of competition that was currently in existence as between commercially operated gasoline stations and those service stations being maintained by post exchanges at service installations throughout the country.
The comments contained in my letter to Mr. Wilson were not only based upon my knowledge of the factual situation, but also upon my having thoroughly studied and analyzed the directive in question. Unfortunately this particular directive followed the pattern of all too many Government regulations in that “what the large print giveth, the small print taketh away.” In this instance section II of the Department of Defense Directive 4100.15 defined what the Department of Defense considered to be "commercial and industrial-type facilities.” By such definition post exchanges were specifically excluded from this category.
To follow the sequence of events in this situation—under date of February 9, 1954, I received a reply from John A. Hannah, Assistant Secretary of Defense (Manpower and Personnel), wherein this gentleman informed me as follows:
"The mission of the exchanges is to supply persons to whom sales are authorized with articles and services of necessity and convenience at uniformly low prices and to generate funds to afford military personnel additional facilities for comfort, recreation, and amusement, and to contribute to activities which will foster and increase the physical and spiritual welfare of military personnel.” (Italic supplied.)
Mr. Hannah continued:
"The Department of Defense considers the privilege of the post exchange to be a necessary adjunct to service life, having very important effects on the morale of uniformed personnel, and therefore justified for continued operation.'
I responded to Mr. Hannah by indicating that post exchanges do in fact serve as an important factor in the general well-being of military personnel, but that it appears to be inequitable for the Government to maintain a type of facility, such as gasoline service stations, at these exchanges which are in direct competition with the local businessmen and which have a substantial effect on local marketing conditions.
I was subsequently requested to comment on a letter that Mr. Hannah had sent to Senator Edward J. Thye, chairman, Senate Select Committee on Small
Business, wherein Mr. Hannah, among other things, made the following statement:
"In view of the limitations on authorized patrons of the exchange service stations and type of merchandise to be sold, I do not consider the presence of service stations on military installations as being in direct competition with privately owned service stations." (Italics supplied.]
On March 8, 1954, the Department of Defense issued Directive 4100.16, which provides that the various departments shall undertake to review industrial and commercial-type facilities being conducted by the military departments and to formulate and prescribe a basic pattern for the Department of Defense in the conduct of these activities. I again note that while this directive appears on the surface to serve a commendable purpose, I remain a cynic as to generally how effective this form of regulatory approach is in dealing with this type of problem. Of more importance is the fact that this revised directive continues to exclude post exchanges from the category of commercial-type activities. Therefore, insofar as the National Oil Jobbers Council is concerned there has been no alleviation of the problem; in fact, as I will shortly demonstrate to the committee, it is daily being compounded.
There is an additional factor that causes us a great deal of concern in that there appears to have been accomplished an excellent job of salesmanship on the part of the Department of Defense officials in their dealings with Members of Congress. I might also add that such salesmanship seems to be based upon presenting a one-sided or distorted factual situation in explaining the matter to congressional representatives. To illustrate what I consider to be based upon misleading information, I have in my files a copy of a letter that was written by a distinguished and able Congressman wherein this gentleman stated as follows:
“I appreciate the feeling of various segments of the retail industry that the particular ret vil operations by the military services which adversely affect them should be abolished. However, I am sure I need not tell you that most of us in the Congress are today deeply concerned with the obvious lack of attractiveness of military service and we are doing every thing possible to reverse this trend in order that greater numbers of persons will remain in military service during this trying period. If this could be accomplished, it would represent a tremendous savings in dollars to the taxpayer and, of equal importance, make for greater attractiveness of service careers.
On the surface a statement of this type would appear to be most difficult to rebut or refute. Obviously the United States must maintain a posture of defense in these trying times, which, in turn, requires that military services be made reasonably attractive to competent young men and women. However, rather than deal in Fourth of July platitudes and bromides, let's continue to consider only facts.
To analyze the foregoing observation-just how attractive does the operation of a post exchange gasoline station make service life to a soldier, sailor, or marine? Let us assume that a soldier has access to a post exchange service st tion that sells gasoline at 3 cents per gallon under the local commercial market, in direct competition with local businessmen, and that this same serviceman drives his car 10,000 miles per year using post exchange gasoline obtained at the preferential price. Let us further assume that the soldier gets 15 miles per gallon frɔm his 1948 model car. On this basis our soldier would be able to save during the course of the rear the phenomenal sum of $20.
If $20 per annum is going to make the difference between retaining a soldier in a position to defend our country or going to other endeavors, I am substantially concerned about the welfare of the United States and how well we are in fact prepared to meet an adversary.
As I have analyzed the contentions and arguments of Depertment of Defense officials in support of maintaining a form of activity that is highly competitive with local private business, it seems that the justification is based on two factors:
(1) To provide articles and services of “necessity and convenience” for military personnel; and
(2) To make adjustment for the “disadvantageous compensation rates” given military personnel.
To comment briefly on these arguments—there is no question but what certain items and articles are required for the "convenience and necessity” of military personnel residing on service installations. However, this concept has been strained to the breaking point, as members of this committee have discovered during the course of their investigations of parallel forms of competition engaged in by the Government.
With respect to the contention that military personnel are compensated on a "disadvantageous” basis, this would appear to be premised on the assumption that the Department of Defense feels justified in making up alleged compensation deficiencies by means of other benefits-such as the sale of gasoline at cut-rate prices. I would not be so presumptuous as to argue the issue whether military personnel are underpaid or overpaid. That is a matter for the best judgment of the Congress. However, adequate compensation for military personnel is a problem for the entire country and is a burden that should be assumed by all taxpayers. It most certainly is not in keeping with the principles of the free enterprise system and our system of government to ask that merchants and business men located near military installations subsidize military compensation deficiencies by way of direct competition with their business.
SPECIFIC EXAMPLES OF COMPETITION
For the information and enlightenment of this committee I should like to now present a bill of particulars-specific examples selected at random as to just how the Government is competing in this particular segment of marketing and the effects that such competition has on local business in the United States.
Before turning to specific illustrations I should like to briefly present some general statistics to the committee. I have obtained figures indicating the dollar volume of gasoline sold through post exchange filling stations at Army and Air Force installations during the years 1952 and 1953. In the calendar year 1952, Army and Air Force post-exchange-operated service stations had sales in excess of $23,480,000. In 1953 these same facilities marketed in excess of $23,900,000 worth of gasoline and other items normally carried by such outlets.
For these 2 years of operation, and this is based on Army and Air Force figures alone and does not include facilities operated by the Navy, Marine Corps, or other service components, approximately $47.5 million in sales were made by post-exchange-operated service stations. For the information of the committee I submit as exhibit A the complete details behind these sales figures.
This means that local jobbers and retailers were deprived of this volume of business and that the Government was deprived of the taxes that would have been paid by these businessmen on the income generated on this additional volume in their business operations.
Not only have the Army and Air Force sold almost $48 million worth of gasoline and related items through post-exchange service stations in direct competition with local businessmen, but they have also obtained such favorable prices on this gasoline that they are able to merchandise it at some 2 to 4 cents per gallon less than the local businessmen can sell a comparable product of equal grade and quality.
I have obtained from jobbers throughout the country dozens of specific illustrations demonstrating the scope of this competition by the Government and the impact it has on the marketing conditions in the local areas affected.
I would like to briefly review just a few of these specific illustrations for the information of the committee.
Florida-Tyndall Air Force Base, Panama City, Fla., has one post-exchange filling station which was built in 1945. This post-exchange station sells gasoline 2 to 3 cents per gallon below local commercial stations. The station markets approximately 80,000 to 100.000 gallons of gasoline a month, and also sells what are known in the trade as TBA items (tires, batteries, and accessories) in proportion to this gasoline volume. In this instance a commercial, locally owned and operated gasoline station is located within 200 yards of the base and is closer to many officers and airmen stationed at Tyndall Field than is the post-exchange gasoline station. In addition, over 50 commercial stations are located within a radius of 1 to 10 miles of the base.
North Carolina.— The situation existing at the Marine Corps installation at Camp Lejeune, N. C., is a classic. I am informed that four post-exchange service stations are currently being operated at this base and there is an excellent possibility that a fifth will be installed in the very near future. These post-exchange stations are marketing regular and premium gasoline at 4 cents per gallon under the local commercial-station price. It is estimated that the gallonage sold by these PX stations is approximately 375,000 gallons per month, and this represents about one-third of all the gasoline sold in the area immediately surrounding Camp Lejeune.
In addition to competition with local stations, some of which are located within one-quarter of a mile of the base, these stations are maintaining a vigorous competition in the merchandising of tires, batteries, and accessories. For example,