recting that problem alone could have substantial impact upon this other problem?

Mr. CLEVELAND. It would have a substantial impact, but you could not correct only that problem, to clarify our particular situation, but it would have a definite impact on it, yes.

Mr. SMITH. Has the tendency of the bigs to contract with one another been increasing?

Mr. CLEVELAND. Yes, sir. It not only has been increasing, but in a lot of cases it appears to be that when a subcontractor from one to the other, that really they are not as adept at doing this particular type of work as it would be if it was contracted to the small manufacturer. Mr. SMITH. How do they do this? You said previously that they solicit bids on these contracts. In these cases do they not solicit bids or do they limit the number that they ask?

Mr. CLEVELAND. In these cases the bids are not solicited evidently. They are only given to another prime contractor or to another contractor that has open time, so to speak, but even so, that they have the open time, the time that is involved in their doing the job is much greater than it would be if it was put into a smaller organization that already has the equipment there and the personnel there.

Mr. SMITH. They have a priority list that they notify when they need tools, is that right?

Mr. CLEVELAND. Well, it appears to be, and I might be using the word loosely, it appears to be you scratch my back and I'll scratch yours, so to speak.

Mr. SMITH. It reminds me of this. I went to a chamber of commerce dinner one night and I was talking to one of these fellows. He said, "Are you for the free enterprise system?" I said, " I believe I would be. I'd like to see it tried some time."

Mr. ADDABBO. Will the chairman yield for a question?

Mr. SMITH. Yes

Mr. ADDABBO. The tools that the Government gives to the prime contractor, are those tools made by government sources or are they purchased from outside sources?

Mr. CLEVELAND. No, they are usually purchased from the machine tool manufacturers, and in some cases they may come from a Government warehouse that has been in storage for some time.

Mr. ADDABBо. And before the Government obtains these tools or gives the tools to the prime contractor, does the Government ascertain if those tools are available in private industry?

Mr. CLEVELAND. No, sir; and this is what we are complaining about. There have been many times where the particular company has been loaned a tool or obtained a tool from the Government, and goes to the expense of the setting it up and hiring personnel for it, where that identical tool is available within a few miles of that particular plant, with the personnel there to operate it.

Mr. ADDABBO. Do you have any specific cases you can give to the committee?

Mr. CLEVELAND. Not at this particular time. I would be happy to give them to you at a later date. I do not have them with me, but they are available, yes.

Mr. ADDABBO. I am a member of the Defense Appropriations Committee and we would like to look at this.

One other question on Government sources. Is there any evidence that once the Government does give a tool to a prime contractor, that those tools are possibly used in non-Government work?

Mr. CLEVELAND. Yes, sir. This is another thing that we are complaining about. Again we feel that your prime contractors are competing with small business with Government-owned equipment, and we do not feel this is particularly right, because we have to buy the equipment on our own time with our own money, and yet they are competing with it, I mean on equipment that is loaned to them by the Government, in commercial work.

Mr. ADDABBO. Thank you.

Mr. SMITH. You referred in two or three places to the cost of this machinery. What is the average cost per employee of machinery in your shop?

Mr. CLEVELAND. I do not have that information handy. I could not really give you an honest answer to that.

Mr. SMITH. Can you give me a range?

Mr. CLEVELAND. Sir?

Mr. SMITH. Can you give me an approximation of what the cost would be per employee?

Mr. CLEVELAND. Well, in my particular shop I would say just to guess right now, it would be about $20,000 per employee. It would be pretty close to this. That would be a ball park estimate.

Mr. SMITH. If a machine costs a half million dollars, how many employees would work on such a machine?

Mr. CLEVELAND. On some of those particular machines, you will only have a very few employees work on one of them really, maybe only two or three.

Mr. SMITH. Each shift?

Mr. CLEVELAND. This is correct.

Mr. SMITH. You said on page 61 that the larger plants "have hired thousands of new skilled employees, many of them from the contract shops."

Then you said, "This has resulted in a continuing decline in the amount of business for the contract shops."

Is the decline in the contract business because of lack of employees or because of lack of alternative contracts to perform?

Mr. CLEVELAND. It would be more than likely alternative contracts, but I think it should be borne in mind when your large, like say your automotive companies, are setting there in house tooling, it is imperative. They must hire their people from some place else, and where are they going to do it? They have to hire the people from the small shops who have spent many years in training them and spent a lot of money with them in training them to get them to a point where they are efficient, and then the large companies have to of course hire them away from them. If the small shop does not have the work and the large company is going to put it back in there they have no alternative, the employee has no alternative but to go there.

Mr. SMITH. In another place in your statement you said that the large shops do not pay as high wages. If they do not pay as high wages, why would the employees leave you to go to them?

1 See p. 6.

Mr. CLEVELAND. They have no choice, because if the large companies, where we were getting the work from before, are putting the work in there, then regardless of what our wages are if we do not have the work for them to do they do not work.

Mr. SMITH. It all goes back to the contract then?

Mr. CLEVELAND. Then even for lower wages a man must go to work somewhere even if he has got to work for less money.

Mr. ADDABBO. Aren't you both covered by the same union?

Mr. CLEVELAND. Not necessarily.

Mr. SMITH. You referred to legal problems, which we want to go into with the Federal Trade Commission and others. We do not have any preconceived conclusions as to the problem, but I assume from what you have said that you see exactly the same result in a big company increasing its in-house capacity as if it were to acquire one of their subcontractors?

Mr. CLEVELAND. Well, it works principally the same way. However, it is really easier, because of the complications of acquiring a toolhouse outside, because it is really easier for them to, you might say, do this themselves inside their own plant, and to integrate this machine tooling inside, rather than going outside and buying another company. It is easier for them to do it themselves within their own company.

Mr. SMITH. I think it is an important matter, and we are doing some research on it. Obviously there would be some legal problems if you were to acquire all the subcontractors outright. But if you have the same result by simply not contracting any more, but doing the work in your own shop, I do not know for sure whether this is a violation. of existing law or not. We are trying to do some work on this. But at least you would say you have the same result.

Mr. CLEVELAND. The large company would have the same result. Instead of them purchasing it, I mean actually what happens is they just freeze the little guy out and they have all of this stuff within their own plant, but it is not as efficient, you see.

Mr. SMITH. Mr. Potvin?

Mr. POTVIN. Mr. Chairman.

Sir, with regard to the legalities that you mentioned as a function of acquiring the independents, this of course would be a merger or an acquisition. Section 7 of the Clayton Act states that a merger must meet certain tests, not be anticompetitive, and so forth, or it can end up being prohibited?

Mr. CLEVELAND. Yes.

Mr. POTVIN. Now a few years ago a very distinguished Member of this body, Chairman Celler of the Judiciary Committee, and a very distinguished former Member of the other body, Senator Estes Kefauver, changed the Clayton Act. Until that time it had been prohibited if you acquired the stock, but the same rule did not apply to the assets, and they looked out and said: "Isn't the result the same whether they buy the stock or whether they buy the assets, and shouldn't we treat them the same?"

The Congress in its wisdom said "Yes," and amended the law. Now are you suggesting, sir, that if it is not illegal today, that perhaps the Congress should see if the overall impact, the effect of snuffing

out you small independents through in-house expansion may not be the same as snuffing you out by buying you or acquiring you, and that perhaps some basic amendment in the law might be required at this time? Is this one of your major premises?

Mr. CLEVELAND. Yes, the idea being and I do not know how to word it properly maybe, but we come to the same effect: that they are going to snuff us out and eliminate us in a slower way than it would be if they just come along and purchase us, so to speak. But in this way

Mr. POTVIN. Over time, the result would be identical?

Mr. CLEVELAND. Right. It would be identical, except that it is more painful because it is strung out over a period of time.

Mr. HORTON. Mr. Chairman, could I ask a question?

Mr. SMITH. Yes.

Mr. HORTON. Mr. Cleveland, what would you recommend with regard to this situation? I mean having been in the problem or having seen the problem firsthand, what would you recommend that could be done to alleviate this situation, especially with regard to the matter of the Government furnishing tools, tool-and-die presses and the like?

Mr. CLEVELAND. Well, first, our suggestion here is to see to it before any tooling is loaned, or purchased, or given to the large companies— to be sure that that particular equipment is not available in a small shop, or in that particular area. This is the thing that we complain about, because so many times the Government has given or loaned to the large prime manufacturer equipment that is already available in a given area. All they are doing is duplicating a cost, to set it up and to train people, where they already have it available. There has to be a little bit more you might say a little more research into something before it is actually given. Just because some large company says, "We need this and want that," I do not think it should be given automatically. I think it should be looked into, to see if it is available in that particular area.

Mr. POTVIN. Your point is that this whole area ought to be reviewed, and reviewed very carefully, keeping in mind the problem of the small tool-and-die business.

Mr. CLEVELAND. This is exactly right, and the facilities that that small tool-and-die facility has, you see.

Mr. POTVIN. What would happen if all the small tool-and-die businesses were absorbed or could not meet the competition and had to close up? What would be the effect in this country, in your judgment?

Mr. CLEVELAND. It is really hard to fathom. If the small tool-and-die shop went out of business, or was nonexistent all of a sudden, we would come to a grinding halt, believe it or not. Almost anything you do, the paper cup that you are using, the pitcher, the pins, the pencils, everything is due to the tool-and-die maker. Somewhere there has got to be a die, or a tool, or a metal part made to manufacture anything, and this all comes from the small-not all of it, but the biggest part of it, comes from the small tool-and-die shops across this country, not from your large manufacturers.

Mr. HORTON. I want to underscore exactly what you have said. I think a lot of people do not understand what the tool-and-die industry means to this country today. You have talked in your remarks about the automotive industry, and this is a specialized type of thing. But,

if you eliminate all these small tool-and-die companies, you are going to eliminate a lot of the progress that we have been able to make in this country. This industry, furthermore, has a lot to do with the national defense you people in the tool-and-die industry are making a very valuable contribution to the defense of this Nation, and so I think that the understanding of the role of the tool-and-die industry is very important. We ought to be very selfish to try to preserve and lean over backward to preserve the independent tool-and-die businessman; because if we do not, we are going to have some very serious consequences in this country. I assume you agree with that, wouldn't you?

Mr. CLEVELAND. We would be-and I am very glad that you brought this up-we would be in a very, very touchy position, defensewise, in this country, if our small tool-and-die shops were eliminated, because these are the people who scratch their heads with the papers covering the blueprints and this and that, and they are really the production people of this country, and in time of emergency we would be in serious trouble without them. There is no question about it.

Mr. HORTON. You fellows are not looking for subsidies either. You want to take care of your own business.

Mr. CLEVELAND. This is exactly right.

Mr. HORTON. What is happening is that they are putting you in such a position that you are not able to compete in this type of a market? Mr. CLEVELAND. That is right, as long as we have the business, we can purchase the equipment, but if this business is taken and put into your large companies where they are putting in all this in-house tooling at more cost, then you see we cannot do this.

Mr. HORTON. You have made a very fine statement, Mr. Cleveland, and I think that you should be commended on the part of the Congress for the manner in which you have brought this to the attention of this subcommittee. I think it is very well stated.

Mr. CLEVELAND. Thank you, sir.

Mr. SMITH. You said on page 15

In many cases machine tools have been provided to the aircraft companies for in-house use when the exact same machines, with experienced personnel to operate them, were sitting idle in contract tool-and-die shops around the country. Do you have some specific examples in mind?

Mr. CLEVELAND. Yes. I do not have them with me, but we have those examples; yes, sir.

Mr. SMITH. I think that is important. We will have the staff get in touch with you and others concerning those examples.

Mr. CLEVELAND. Fine.

Mr. SMITH. Mr. Addabbo, do you have any questions?

Mr. ADDABBO. On page 16,2 you speak of the aircraft companies: "have built up substantial in-house tooling machine facilities." Can you give us any types of examples on that type of an operation? Isn't there some limitation, when the Government gives out their tools, as to when they should be returned or how long they are to be used and for what purposes they are to be used?

Mr. CLEVELAND. This seems to be a little bit of a point of confusion. I do know that in many cases where there is certain tooling that is

1 See p. 10.

2 See p. 10.