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We find, then, that in the lumber industry there are means of easy evasion of any rules or requirements which may be imposed. If these evasions are suspected, they cannot be proved. Proof is necessary if the penalties of the bill are to be enforced, and without penalties the bill is worse than useless.
We find moreover that the administrative task of checking to determine conformity with the bill's requirements in the lumber industry is so huge, involved, and extensive that it becomes a practical impossibility. There will be tens of thousands of transactions with thousands of unidentified dealers and producers whose relations are not with the agency charged with the bill's administration, but with hundreds of uncoordinated independent Government purchasing agencies. Under these circumstances uniform equitable administration is out of the question.
2. If it were possible to enforce the provisions of the bill as to lumber, the administrative cost would be prohibitive. Mention has already been made of the thousands of establishments of producers, the thousands of distributors, the tens of thousands of transactions, and the hundreds of different Government purchasing agencies. Our experience under the lumber code has demonstrated the absolute necessity, if compliance is to be had with fixed labor standards in the lumber industry, of maintaining continuous contact with and making frequent inspection of the operations of all lumber producers. A break on the part of one producer away from standards which affect his costs and improve his competitive position is the signal for similar breaks on the part of his competitors who indeed have no alternative if they are to continue in competition.
To carry out its obligations under the lumber code in respect of maintaining compliance and of assisting governmental agencies in prosecuting code violators, the Lumber Code Authority maintained a staff of more than 200 field inspectors. This field force was assisted by an office force of about equal size. All of this personnel was familiar with the lumber industry and its organization; and by reason of such familiarity were far more efficient in carrying on their duties than others not having such knowledge. The fact that more than 15,000 complaints of noncompliance were reported and 12,000 were disposed of in 1934 by this staff indicates to some degree the volume of work entailed. About 40 percent of these were labor complaints. Assuming for the moment that the bill can be administered at all, it is our firm conviction that effective administration of the provisions of this bill as to lumber would require a staff of equal size. The administrative cost of maintaining this establishment would probably be in the neighborhood of a million dollars.
The cost to industry of conforming to the bill's requirements would also be great. Administrative officers, in constant and daily contact with purchases and supplies are granted little discretion. Literal conformance with rules and regulations promulgated under the bill would be required. These rules must be general and to some extent arbitrary. This means troublesome and expensive detail for those who do business with the Government.
Therefore even if it were reasonably possible to give the bill effective administration, the administrative cost would be prohibitive. It is suggested that this money would be better spent, if it must be spent, by granting a bounty to labor employed in producing materials sold to the Government. That method of expenditure would at least insure higher income to wage earners, the announced purpose of the bill.
3. Ineffective enforcement will subsidize the unscrupulous. It seems well to consider the result if effective, fair and equitable administration is not had. We are able to cite from extensive experience proof of our contention that the act will operate to defeat its own purposes. Government agencies must by law accept the bids of the lowest bidder. More often than not the lowest bidder is the one who has the cheapest labor. Under the Lumber Code, Government business went in ever-increasing proportions to middlemen who purchased their supplies from Code violators until in the spring of 1935 those companies still resisting the pressures toward noncompliance with code provisions had, with few exceptions, abandoned the futile effort even to bid on Government business. During this period it is not exaggeration to say that the Government itself, through the administration of a measure designed to stimulate code compliance, was in fact encouraging violation. The result was complete demoralization with code-complying producers penalized for their honesty.
The bill subsidizes the shrewd and skillful evader and violator. First of all, he is able by reason of his low wages to quote a lower price and he gets the business. He thereby deprives others of this business who, while they may not be operating in strict conformity with code-labor provisions, are at least operating at substantially higher wage levels. By increasing the volume of business of the lowest wage classes, their competitive position in the general market is improved, and their chances to secure more nongovernmental business are bettered. And the quotation of low prices, based on low labor costs, to the Government has a material influence on the general level of market prices. Thus all these factors combine to improve the position of those who evade and violate to the disadvantage of those who do not.
It is appropriate to say at this point, that without the restrictions of the bill, the class of competitors is enlarged because it permits competition with the lowest wage classes by others who pay somewhat higher wages. While ibis situation is not entirely satisfactory because a substantial amount of Government business will still go to establishments not observing code labor standards, the amount is decreased, and the tendency to improve the business of those with better wage standards is strengthened.
There is nothing in the present bill giving assurance against a repetition of what has repeatedly happened under the Lumber Covie. It cannot be viewed by those who have already been victims of this condition as other than a furiher penalty on their good faith and honesty. Indeed in some respects the provisions of the bill are worse. The several sections are drawn to cover such a wide field that under present circumstances, in which Government money penetrates in some fashion into almost every business transaction, it would affect a far larger nuniber of business transactions.
The bill wouid bar from Government business all establishments of subsiantial size who ordinarily deal directly with the Government if they vary in the slightest degree from code standards. They are moreover vulnerable because of their direct lealings and the bar would more likely be effective. On the other hand, the bill would not effectively stop purchases from sources where middle men deal with the Government, although it is these men who ordinarily buy from the chronic chiseler at whom the penalties of the act are really aimed. Thus there would be set up another system of selective justice, penalizing the honest and subsidizing the unscrupul us.
We find therefore that the bill would operate in fact to produce an inequality of treatment repugnant to sound public policy. In requiring the observance of well-established and entirely acceptable standards it in fact invites and stimulates the destruction of these standards. It offers no promise of evenhanded justice which must be the basis of all good laws; but on the contrary, (Teates opportunities for self-benefit to the skillful, the shrewd, and the dishonest who operate in avoidance or violation of law.
4. The bill is contrary to the interests of the Government itself. It is to the interest of the Government to be able to purchase its requirements in all fields at the lowest possible cost, but the Government in pursuance of that policy should not en ourage actions taken in violation of law or detrimental to the public welfare. The pending bill, as has been shown, is not in fact a social measure which will improve conditions of labor. But it will materially increase the cost of purchases by the Federal Government and by others in(·luded within the scope of the bill. Mention has already been made of the tremendous cost of administration by the Government. There will be a similar cost imposed on those covered by the bill by reason of the requirements which it imposes for certificates, reports, investigations, etc. Obviously, this cost must be returned through higher prices which will be imposed on those purchasing the products of the establishments affected. Thus without accomplishing its declared purposes, the bill will add materially to the already heavy burden of the cost of government.
The bill will moreover materially slow down the progress of the Public Works Administration and other activities by means of which the Government is seeking to relieve unemployment and stimulate industrial activity. Lvel my w many orders are placed for materi Is asking for delivery within 2 or 3 weeks' time. These materials are neerled promptly to avoid delay in the construction of public works and other public projects. The bill imposes l'equirements which must be satisfied before shipments may he accepted by purchasing agencies, and before payment therefore can be made. Investigations and examinations to determine whether such requirements have been met will be necessary. Failure to secure a certificate or representation made mandatory by the act, no matter how insignificant, or how unimportant in terms of the project subject to delay, will result in such delay. The importance of this factor cannot be fully appreciated unless one thinks of the hundreds of thousands of transactions which are directly or indirectly related to the Government building and construction program.
Evidences of impatience at the delays which have already occurred in getting the public works program under way are apparent. There is a universal desire to cut the red tape which impedes progress. The pending bill will add materially to the confusion and the red tape against which public officials are now struggling; or else certificates of compliance will be accepted at “ face value without investigation or check, which will be worse.
5. Laying aside other considerations, the bill should contain a definite, clearcut provision authorizing exceptions or exemptions when it operates contrary to its intended purposes. The statements made herein merely outline in a brief and general way problems on which any desired amount of testimony and evidence can be offered. The lumber industry is convinced by experience that the pending bill is unsound and will in practice retard and not advance its declared purposes. But if the Congress concludes to undertake it and chooses to rely on the agency established for its administration to work out the practical problems which in our opinion make it impossible of uniform, fair, and effective enforcement, then there should at least be included in the bill explicit provision which will permit the Government, without further reference to Congress and upon application by an industry as well as an agency of Government, to make exemptions or exceptions necessary to prevent substantial injustices or the subversion of the declared purposes of the legislation.
NATIONAL LUMBER MANUFACTURERS' ASSOCIATION. WASHINGTON, D. C.. August 19, 1935.
The National Lumber Manufacturers' Association is a federation of the folnowing regional lumber associations, each of which is representative of lumber establishments in its respective lumber-producing region. Membership in the regional associations federated in the national association includes approximately 60 percent of the lumber production of the United States :
American Walnut Manufacturers' Association, Chicago, Ill.
Mr. FULBRIGHT. Now, of course, we understand that this legislation is upon the theory, which I do not now dispute, that Congress has a plenary power to describe the terms and conditions upon which contracts may be made in behalf of the National Government. The general policy of legislation with respect to Government contracts has been for the purpose of protecting the Government against some fraud or imposition or to secure to the Government that it will get the thing that it contracts for. There have been some exceptions to this; for example, the Bacon-Davis Act which applies to Government construction.
This legislation before, however, as you have already learned, has for its purpose to reestablish the Federal regulation of production in the several States, after the Supreme Court by unanimous decision has decided that it cannot be done directly. I am not discussing the legality of the means which is here selected to bring that about, but I wish to call your attention that through the first 12 pages of this bill there is incorporated every device that human imagination can conceive to directly and indirectly compel the persons who have anything to do with any contracts with the Government, or supplying of materials to anyone who has contracts with the Government or
the supplying of materials to anyone who has borrowed money from the Government, that they shall comply with the National Industrial Recovery Act as of May 26, 1935, and as it may be from time to time changed.
After reciting all of those things, the bill on its face recognizes the utter impossibility of laying down through a statute such a provision and making it workable. Therefore, in section 6 it provides the very broad authority to make exceptions, not only in specoific cases but otherwise, in general cases.
I was quite interested to note that the distinguished Senator from Massachusetts in so ably presenting to you this morning some features of this bill very freely admitted the utter impossibility of trying to lay down one rule that will fit the complex conditions of industry or of one industry actually. Therefore, it means that we are necessarily going to have a rule of law and a rule of exception. We are going to have, instead of even-handed justice, a system of selected justice, and the moment the Government officials in charge of this—and it is humanly impossible for the President to do all of these things—the moment those agencies in charge of this begin to make exceptions, that moment you will begin to have dissatisfaction throughout those elements of the industry that may be affected and do not have the benefit of the exception.
Now, you have had some things stated to you about the impracticability of this bill. I am not going to repeat those. I do want to reiterate just one or two thoughts.
For example, the question asked by the chairman this morning : What difference is there in laying down a requirement as to the specifications of an article and laying down the requirement here? You take a man that is selling lumber to the Government or in the contracting business where he has to use lumber. That contract will call for certain grades and specifications of lumber. There are certain standards set up by the Bureau of Standards, certain recognized standards that have to be followed in grading that lumber, and they have expert men in behalf of the Government to gradle it. If a subcontractor offers him some lumber, he is supposed to be competent to tell whether or not that comes up to the specifications. If it does not and he does furnish it to the Government, he gets it thrown out; it is his own fault and he has no kick about it-he ought to get it thrown out.
But how can he tell when he gets that lumber how many hours per week the man that ran the sawmill worked on that lumber? It cannot be done. There is where the great difficulty comes. That is the thing that people fear about this bill. It is that indirection.
Now, I recognize that it was explained this morning that the act says that the President may add additional costs to the amounts in the price. That additional cost may be added where, in building up his specifications in the contract, your added costs are required. But let us take the case of where the man has been furnished some lumber out of a lumber yard, and by tracing it back they found out that some of that lumber came from one of these mills that paid no attention to the code—and there are lots of them that never will and never have—that he gets that contract canceled. He has got to go out and make new offers, new bids. He may have the whole thing canceled, the whole article, because a part of it so affected.
Senator Walsh. Pardon me—the specifications are written in the application for bid. He would not bid at all if he could show the certificates as showing how the lumber was made. There is no cancelation of contracts afterward. The invitation for bid sets forth all the conditions.
Mr. FULBRIGHT. I wish to refer to the provision of the bill which says that, “ The principal contractor shall, if directed by the contracting officer upon the recommendation of the President, cancel any subcontract for a breach by the subcontractor of his written representation or agreement, and failure on the part of the principal subcontractor so to cancel shall subject his contract to cancelation.
Senator Walsh. That is correct.
Senator WALSH. After the written specifications went forwarıl and the man bids, and then it later develops that he is not living up to those terms, the agency of the Government can ask cancelation.
Mr. FULBRIGHT. That is the point. He cancels it. Then he goes out to buy again. He may not be able to get it at the same concern. He may be delayed 2 weeks in carrying out his contract. He may be penalized. And there is not one line in this bill to protect him in a case like that.
Then, take the question of the material already in being. You are buying lumber out of lumber stocks. It is practically impossible to tell when a particular piece of lumber is manufactured. The Goyernment may buy lumber from these large concentration yards. They in turn are buying lumber from mills throughout the South. It comes into those yards, put in there according to the grade and dimension of the lumber, placed in these stocks. A large amount of those stocks throughout the country today are accumulated stocks. What are we going to do about those! You cannot tell. When they commingle you cannot tell whether part of your lumber has come out of a mill that complied with the code and part not.
Furthermore, you are going to run up against the same proposition here that you did in the code itself, and that is that unless you have an army of inspectors to enforce the legislation it will be a failure. In 1932 the lumber industry in the South was flat on its back. In the first quarter of 1933 a survey made of a large number of representative operations showed that they were actually losing $5 per thousand feet for every thousand feet of lumber that they sold. Many of them who were able to do so only conducted such operations as were necessary to keep their little organization together. A great deal of the operation was carried on in order to provide a living for the people in these little communities where these sawmills were located, where the populace had depended upon those sawmills. They furnished them houses rent free. They furnished them supplies out of the commissary, hoping for the day to come when they could get enough employment to pay for it.
Then came the proposal to enact the National Industrial Recovery Act. We were such in our industry that the lumbermen of the South felt that now we will have something worth while. We had meetings—not merely of the Southern Pine Association—but called as many as we could get together. I sat in one of those meetings in New Orleans, and we sat there to consider what we would do about this act, which, by the way, was hardly on the statute books at that