rather unique role in our society, where today industry after industry is controlled and dominated by large corporate complexes.

It seems to me vital to the interests of our economic system in general, and the interests of a sound small business community in particular, that this Nation's tool and die industry be in a position to continue operating in this unusual role it has occupied.

I might say here also that the reason I was a few moments late for the start of the hearing is that I was talking on the telephone to one of my constituents who was making the point that more and more of these small businesses are having to merge and give up their identity as small businesses because they cannot meet the problems that they are confronting today.

Our committee intends to examine a number of related problems concerning the tool and die industry. Underlying this examination are fundamental questions of economic concentration and technological change and advancement. To the extent that any of the problems we are going to review are found to constitute an unwarranted and dangerous threat to the economic health or survival of this industry, I believe it is incumbent that appropriate steps be taken to insure for the industry a meaningful future role in our economy.

I might also point out, Mr. Chairman, that I have the unusual distinction of not only serving on the Small Business Committee, but I also serve on the Government Operations Committee. I am the ranking member on the Military Operations Subcommittee, which has been having hearings on the problems of procurement throughout the Federal Government.

We are supporting a bill, H.R. 474, which was introduced by the chairman of that subcommittee, Mr. Holifield, myself, and others, which proposes to set up a commission to study the problems of Government procurement. We have been having hearings in March, April, and May. We are going to go into June and July, and we are having hearings at this very moment in another room in this building on this subject of procurement.

Throughout these hearings, I have been very much concerned about the fact that the percentages of small business participation in Government procurement has been going down, and this is something that I think we have to be very much concerned about. This is one of the things that we will be taking up during the course of these hearings.

Mr. Chairman, I think these hearings are very worthwhile, and I am sure that the people that we are going to hear today and throughout these hearings which are going in depth into this problem are going to be very beneficial to the members of this subcommittee and the members of our full committee.

I hope that later in the hearings we will have an opportunity to hear from some of my constituents, who I am sure will bring out some of the points that we will be hearing here today. So Mr. Chairman, I think this is going to be a very helpful hearing to an industry which is very important to the economy of this country, and I want to express our appreciation here today to those who are taking their time. to come here and present us with the problems that the industry faces. Mr. SMITH. Thank you, Mr. Horton.

(Mr. Burton's opening statement follows:)

OPENING STATEMENT OF CONGRESSMAN LAURENCE J. BURTON

Today our Subcommittee on Special Small Business Problems begins hearings on problems facing the tool and die industry.

This subcommittee is by no means unfamiliar with the operations of this industry, having held hearings in 1966 concerning general industry problems.

This year, one of the key questions to be considered at our hearings revolves around growing trends in the automotive industry to create its own in-house tool and die capacity.

With the automotive industry accounting for more than 35 percent of the tool and die industry's sales for the last 10 years, the future relationship between these two industries is obviously critically important to the economic health of the tool and die industry.

Our committee in addition to closely examining this situation also intends to look into a number of other matters relating to problems in the tool and die industry-all within the framework of a general review of how the industry stands today, where it is headed for in the future, and what steps can and should be taken to insure that it continues as a viable and productive component of this Nation's economy.

Involved in our examination are important questions of technology and modernization-questions which have substantial significance not just for this industry but for a great number of other industries in this country.

Also involved here is a basic question which underlies a great many of our small business hearings and studies. This is the question of economic concentration in terms of when should it be permissible and when must it be prohibited. I am confident that the hearings we begin today will prove to be a valuable and beneficial exploration of the problems which face the tool and die industry.

I am hopeful that they will contribute to our continuing to have in this Nation a healthy and a sound independent tool and die industry.

Mr. SMITH. For the opening statement, Mr. Gordon Cleveland. Perhaps as the witnesses come forward you can identify yourself and tell us a little bit about yourself.

TESTIMONY OF GORDON CLEVELAND, PRESIDENT, CRAIG TOOLS, INC., LOS ANGELES, CALIF.1

Mr. CLEVELAND. I would like to read my statement, if you do not mind, for the record and then in my statement I will identify myself. Mr. SMITH. That will be fine. Go ahead.

Mr. CLEVELAND. Good morning, Mr. Chairman and members of this subcommittee, my name is Gordon Cleveland and I am president of Craig Tools, Inc., a firm in Los Angeles, Calif. I have long been active in the affairs of the National Tool, Die & Precision Machining Association as well as our local, affiliated organization, the Southern California Tool & Die Association. I am presently serving as chairman of the government relations committee of our national organiza

1 Biographical sketch of Gordon Cleveland, chairman, NTDPMA Government Relations Committee: president of Craig Tools, Inc., El Segundo, Calif., Gordon Cleveland currently serves as chairman of the Government Relations Committee of the National Tool, Die & Precision Machining Association and as a member of that organization's board of trustees. Born in Randolph, Ala., Cleveland is a 26-year veteran of the tool and die industry, having begun his career in 1942 with the Airesearch Manufacturing Co., Phoenix, Ariz. In 1956, he founded Craig Tools, Inc., a company which now employs more than 40 persons and maintains a 6,400-square-foot machine capacity.

In addition to service with NTDPMA, Mr. Cleveland's industry affiliations also include membership since 1945 in ASTME, and since 1953 in the Carbide Engineers Association. A member of the Southern California Tool & Die Association since 1956, he currently serves that organization as chairman of the SCTDA Government Relations Committee. A past president of the Chamber of Commerce of El Segundo (1963-64), Mr. Cleveland received the Key Award for community service from that organization in 1961. In addition, his civic affiliations include service as current local chairman of the Congressional Action Committee of the U.S. Chamber of Commerce, membership in the California Taxpayers Association, and on the board of the Westchester Mental Health Clinic. With his wife, Priscilla, he makes his home in Rolling Hills Estates, Calif.

tion, and in that capacity, I would like to present to the subcommittee a general introduction to the problem areas these hearings are intended to investigate.

Mr. Chairman, let me emphasize at the outset that in responding to the subcommittee's invitation to participate in these hearings our national association seeks only to present to the subcommittee an accurate and realistic picture of the matters in question and to propose constructive and possible solutions.

The time of this subcommittee is too valuable for such hearings to be used as a forum for all grievances an industry might have. Nor do we regard this as a proper forum to criticize for the sake of publicity the actions or intentions of any other industry. Our hope is that by public discussion and investigation of certain fundamental and far-reaching problems in our industry the public interest will be served by more constructive policies on the part of government and the major industries which our companies serve.

I would like also to say a few words about small business, because that is really what our industry is all about, and that is certainly what this subcommittee is all about. I think that too often we think of small business as a faction that has to be contended with or has to be given particular treatment without really thinking through the benefits that small business offers to our country and the reasons why it should be preserved. To the extent that small business is preserved, the fundamental competitive principles of our economy are also preserved.

When a man with an idea and the courage to take a risk sets out to serve a new public need or to offer a better product, our economy is served. When it is his fortune that is at stake, his personal management that will guide the effort from day to day, and his personal pride that is tied to the fortunes of his company, the dedication to quality, to efficiency, and to innovation is maximized.

And when, as in our industry, there are thousands of similar small firms, we have that old-fashioned thing called competition-real competition and this has always been the surest means of achieving lowest prices and best service to consumers.

The personal satisfaction of one engaged in his own business is something we hear of often. There are many persons who could never be happy no matter how high the office they might hold in a large, publicly held corporation. For these people, and you will hear from many of them today and tomorrow, it is essential that conditions be preserved that will permit the establishment and continuance of small businesses.

Our industry, the tool, die, and precision machining industry, is comprised of about 7,000 individual companies. The average employment of these companies is approximately 30 employees. Typically, the companies are family owned and managed. The products and services our industry provides are numerous. The principal product is tooling-tools, dies, gages, fixtures, jigs, molds, and the hundreds of other items that are related to these basic categories.

My company, for instance, is principally involved in the production of cutting tools, which are the moving metal parts attached to machine tools which actually come in contact with a metal intermediate or end product and cut it to a desired shape.

A second category of our industry's work is machining, which simply means the precise forming by machining operationscutting, grinding, and milling-of pieces of metal to extremely close tolerances.

A third category, which defies any better definition, is special machinery. A customer says he wants a machine to do a particular job and our companies design and build such a machine. This takes quite a bit of imagination and know-how, not to mention risk. Our companies also build special machines for their own use in tooling production, die casting, end-item production, and many other functions. Our industry is also engaged in the production of finished parts of various types. These may be produced as stampings from presses or perhaps as die castings from moulds. Many of the companies in our industry perform the whole range of these functions: They receive the design or specifications for a particular part from their customer and proceed to design and build the necessary dies or moulds, stamp or die-cast the finished part in their own facilities, and then, if necessary, precision machine the final parts to the necessary tolerances.

The essential ingredients of our industry are management knowhow in design and production, highly skilled labor, and extremely sophisticated and expensive machinery. Where a company falls behind in any of these ingredients it cannot hope to maintain its position in this highly competitive industry.

A substantial part of our industry has grown up around the automotive industry. Traditionally the automotive industry has relied upon our companies to design and make the dies and other tooling for automotive products. As the automotive companies many years ago began to move to more frequent model changes the demand for our products expanded tremendously and the number of our companies engaged in this area grew accordingly.

I think it is fair to say that our industry deserves much of the credit for the know-how and skill that have made mass production in the automotive industry the most efficient and successful mass production operation in the world. It has always made sense for the automotive companies to purchase their tooling from outside concerns, and it still makes sense today.

The hundreds of small businesses that serve the automotive industry do not offer a central management through which all orders and directions can be channeled with ease. But they offer something much more important: competition-the individual desire of each of the hundreds of companies to do a better job at a lower cost.

We are now experiencing a change in the historical relationship between the automotive industry and the contract tool and die industry. For reasons which will be discussed in detail throughout these hearings, the three major auto companies, some to a greater extent than others, have set out to build in their own plants substantial facilities for the production of tooling. They have hired thousands of new, skilled employees, many of them from the contract shops, to man these new facilities. This has resulted in a continuing decline in the amount of business for the contract shops. Many of them have gone out of business in the last 2 years. Many more are on the verge of failure, ad the great majority are extremely doubtful that they can survive

principally as suppliers to the automotive industry. If this decline continues, a substantial portion of the capacity of our industry that is available to other industries, present or future, and to national defense in times of emergency will be lost.

We feel that this erosion of the traditional markets of our industry raises significant public interest questions that must be considered before it is too late. We think we know some of the reasons why this is happening but we can only speculate as to others.

One reason undoubtedly is that in the huge corporations in our country there is a natural tendency to continually take over more and more of the functions of suppliers. Naturally there is pressure to expand in this way in the giant firms from some personnel who have something to gain personally if their responsibilities are broadened.

Some policymakers feel that it is more convenient to develop their own sources of supply and, of course, there is naturally greater control over supply and supply personnel when these facilities are owned and operated by the customer. Some companies have expanded in this fashion through acquisitions, and this has happened in the automotive industry in a number of cases where a large automotive manufacturer has acquired independent tool and die shops. But because of the particular legal problems involved in acquiring these facilities it is much easier for the large corporations to simply develop such facilities and integrate from within.

Another, and yet a closely related reason, is that in some big corporations there is a failure to look carefully at the cost of operating in-house facilities as opposed to the cost of purchasing from outside suppliers. We think this is very much the case in the automotive trend. toward increased in-house tooling capacity.

Studies have shown that even though wages in the contract shops have been higher than in the automotive captive shops, the contract shops have been able to design, build, and sell with a profit at a lower cost to the automotive companies than they spend on their own inhouse facilities. Because the contract shops are smaller and more efficient in so many respects, the overhead in the captive tooling facility runs double and triple that of the contract shops.

A manufacturer's lack of attention to cost is a problem for the public because it means higher consumer prices. And in industries that have dwindled to only a few extremely large competitors, such as the automotive industry, it seems clear that higher prices for tooling do not mean lower profits, just higher prices to consumers.

Another reason for the in-house trend in automotive is the "snowballing" effect of the auto companies' use of maintenance facilities for tooling supplied by the contract shops. Traditionally the automotive manufacturers have maintained small tooling facilities in-house for maintenance and repair work on dies and for tryout work before dies are actually put into the production presses.

These facilities cannot be operated economically because they are only used a very small portion of the time. Nevertheless, they are necessary because when die repair is needed to keep a production line moving or to get a production line started, in-house capacity must be available right away and in the necessary amount.

However, perhaps 10 or 15 years ago the automakers began to try to round out the work of these maintenance facilities by doing a small