As recently as 1938 the Congress authorized a fresh investigation of this broad area of public policy and created the temporary National Economic Committee for this purpose. Since that time a number of lesser examinations have been undertaken by the Congress and the Executive Departments to supplement, improve upon, or bring up to date the findings of that committee. These studies of monopoly and competition in the American economy have, of course, borne directly upon the problems of small business and the setting in which small businesses are launched and operated.

A full generation ago a new approach to these problems was begun with the establishment of the Bureau of Foreign and Domestic Commerce in the newly separated Department of Commerce originally the Department of Commerce and Labor. Charged with fostering, promoting, and developing the foreign and domestic commerce of the United States, the new Department and Bureau found that their efforts in behalf of business growth were needed by and essential to the smaller business units. Over the years since that time, the Department has developed its programs in the light of this growing experience. Today, although there is no part of the business services of the Department which is not useful to and used by small business, the requirements of smaller business establishments are also specifically recognized in a number of our programs, primarily those of the Small Business Division in our Office of Industry and Commerce. In that Office and in the closely related Office of Technical Services there are today established activities designed to aid small business in the fields of financial planning, taxation, management, Government procurement, production techniques, marketing, new product promotion, industrial development, community helf-help, and competitive practices.

In developing these programs, we have been guided not only by our own experience in servicing the business community, but by congressional action and attitudes as well.

Since 1940, when the Senate established a Small Business Committee, there has been continual congressional attention to the problems of this area. During the war, the Congress created the Smaller War Plants Corporation to assume the full appropriate utilization of small manufacturing plants.

Our present programs have benefited materially from the findings of the several congressional committees and the experience of that special-purpose corporation. We have also drawn systematically upon a Small Business Advisory Committee, whose function it is to advise the Secretary of Commerce regarding the problems of small business and to make recommendations for their solution. During my term as Secretary, I have found this committee, composed of men from smaller businesses or who are professionally concerned with small-business problems, to be fertile in constructive suggestions. The substance of title I of the present bill, providing for the insurance of loans for small business, was originally sponsored by my Small Business Advisory Committee.

Last summer and fall, in the course of my Nation-wide personal survey of business, I was able to supplement the advice of this committee through talks with many small-business men. I learned much about their problems. I was again reminded how problems which are

common to both big and little business more quickly and seriously affect the little fellow. This experience has led me to give renewed emphasis to phases of the Department's work on behalf of small business.

The CHAIRMAN. Mr. Secretary, you said you wanted to complete this before you were questioned?

Mr. SAWYER. No; not necessarily. I would be very glad to be interrupted.

The CHAIRMAN. I was impressed with that paragraph on page 4, in which you state that the investigations of the Small Business Committee have been of profit to the small-business men. In other words, you think more has been drawn out in hearings, whether any bills have been passed or not; you are better off, you are better guided by what has been brought out; is that correct?

Mr. SAWYER. Yes; I think so. I think the congressional investigational activities have been very helpful.

The CHAIRMAN. You know, of course, I withdrew the bill that this committee reported out.

Mr. SAWYER. I understood so; yes, sir.

The CHAIRMAN. Of course, you are looking after it now, and you have been very cooperative with the Small Business Subcommittee of this committee.

Mr. SAWYER. We have tried to be.

The CHAIRMAN. Your representatives particularly have been. We have had many cases before you. Are you going to talk about any of those in here?

Mr. SAWYER. In a way, I will. Of course, we cooperate with your staff at all times.

The CHAIRMAN. I appreciate your cooperation, and that is what I wanted to get down here.

You believe that from these hearings, the people we have had and the people we have sent down there, and the conferences with the staff here, that your representatives have been better informed as to how to better help small business; is that right?

Mr. SAWYER. Yes, I think so. That is what I intended to say. The CHAIRMAN. I have heard that from others, and I want to congratulate the Commerce Department on it.

Now, by what law do you have small business? You do not have any law that puts them under you?

Mr. SAWYER. We have a Small Business Section or Small Business Division.

The CHAIRMAN. There is no law of the land that turns it over to you?

Mr. SAWYER. No.

The CHAIRMAN. But in this bill where small business is turned over to the Commerce Department, that would be a law and you would be able then to have perhaps more authority under that, would you not?

Mr. SAWYER. To a certain extent. I planned to mention that later on.

The CHAIRMAN. I will withdraw the question until you do. I was so interested in the good work that you have been doing and the cooperation with the staff here that, when we pass this bill to create the Small Business Administrator under the White House, recall the

bill from the calendar, I was hopeful that in S. 3625-I do not know what sections may be adopted or may not be adopted; all of them may be adopted or none of them may be adopted-but I am particularly interested at this time to refer to that one, and that is to have some law passed in which the Commerce Department by law would have more authority to deal with small business than they now have, and that would give you more authority, this section of the law.

Mr. SAWYER. There is no doubt but what several sections of this bill would give more authority than the Commerce Department now has, although it has, of course, the over-all authority given in the original enactment under which we are operating at the moment.

1

I hope you will feel free to interrupt me at any time, Mr. Chairman, or any other members of the committee.

One aspect of our work which has general application is designed to remedy the long recognized inadequacies of present definitions of small business. Obviously, no single standard of size can be applied to all lines of enterprise or for all purposes. Members of the Department's staff now have under way a series of studies which, when completed, will provide a well-grounded basis for the definition of the small business sector of each of the recognized lines of industry and trade and for arriving at the terms of eligibility for the financial assistance which is provided by certain sections of the Small Business Act of 1950.

The CHAIRMAN. Have any of those studies been completed?
Mr. SAWYER. No, not yet.

The CHAIRMAN. Would you be good enough to furnish this committee with them when they are completed?

Mr. SAWYER. Yes, we certainly shall.

In addition to emphasizing our work in the small-business field, I have felt it important to improve the coordination of all of our program. I hope to be able, through the powers granted by the Reorganization Plan No. 5, to carry such matters of coordination further still. I am endeavoring to secure the fullest practicable degree of coordination, not only within the Department but between our activities and the related activities of other departments. If an additional Assistant Secretary of Commerce is authorized by the Congress, as provided in the present bill, I shall look to him for major assistance in carrying such coordination forward.

In many ways small business is handicapped because the expert business knowledge it requires is not easily developed by a firm below a given size. This applies to such matters as technical research, market development, and tax compliance. It applies also to many aspects of management in which specialized expertness has been developed in recent years. On problems of this general character, the Department has been able to provide useful services to enable small businesses to overcome the handicaps of size. A little later, in connection with certain provisions of the Small Business Act, I shall comment further on these and indicate how I think they should be expanded.

There is an additional area, however, in which small business suffers serious handicaps and in which, so far, a fully adequate program has yet to be developed. That is the area of finance.

Conditions are not alike in every region of the country and the availability of suitable financing varies from one community to an

other. By and large, however, the smaller units of American business suffer handicaps in securing the financing which their health and survival require. A very important factor is the increase in financial requirements which has resulted from the larger amounts of fixed capital necessary for efficient operation under modern technology. Another important factor, of course, is the impact of taxation both on the small business itself and on the availability of equity capital.

The CHAIRMAN. Right there, Mr. Secretary, Senator Robertson called attention to that statement. You have heard what he had to say. Do you think this new bill will relieve some of this impact of taxation?

Mr. SAWYER. You mean the bill that is now before the House? The CHAIRMAN. Yes.

Mr. SAWYER. From what I understand of its provisions, I think it will; and, of course, as I think the members of the committee all know, I made such a recommendation to the President after my tour last fall. I am in complete agreement with the Senator.

The CHAIRMAN. The tax issue is the main problem, one of the main problems?

Mr. SAWYER. It is one of the main problems; there is certainly no doubt about that, and any relief which can be given to the smallbusiness concern will have two effects:

In the first place, it will enable the operator of the business to put a little more of his capital into reserves and thus strengthen his own position, and it will make investment in the small-business concern a little more attractive to outsiders.

The CHAIRMAN. Mr. Secretary, have you studied the financial borrowings of the small businesses at all? I mean, do they borrow from the local banks?

Mr. SAWYER. My Department has; yes, and I have, of course, discussed the matter at some length.

The CHAIRMAN. Do you not think this FDIC bill which we passed and which is now before the House on which they are having hearings, together with other bills that increase the guararties from $5,000 to $10,000, would lead to the leaving of more funds in local banks, if they are insured for $10,000, rather than sending then to larger banks, and would that not make more money available for small business?

Mr. SAWYER. I do not feel competent to comment on that bill. I only know generaly of its provisions, but I should think it might have that general effect; yes.

The CHAIRMAN. In other words, there would be more money left in the little local bank in the backwoods and not sent to the big city banks, because they would be insured for $10,000 instead of $5,000?

Mr. SAWYER. It would seem to me it would have that effect. As to what effect that would have on the willingness of the local banks to make loans to small business, I am not so sure.

The CHAIRMAN. I think they would have the capital to do it with. Mr. SAWYER. At least, they would have the money there.

The CHAIRMAN. I thought that would be quite an aid to small busi

ness.

Mr. SAWYER. Of course, there are a number of factors involved in the problems of small business, but I am in complete agreement with

the Senator that the tax problem is certainly one of the most important, if not the most important one.

For this and a number of other reasons, capital which in earlier generations was substantially supplied by friends and relatives is no longer available in adequate amounts. The financial titles of the pending bill address themselves to this set of problems.

To understand these financial titles of the bill, we need to emphasize the idea that a small-business man may have trouble getting adequately financed even though nothing is wrong with his business or its prospects. It is possible that our financial machinery has not developed in full accord with the needs of the community. The whole structure of modern consumer-installment finance is a reminder that new economic circumstances call for departures from established ways, departures that may be long overdue before they occur in any significant measure.

Consider for a moment what the state of our economy would be today if the financial standards of our fathers and grandfathers were still to apply to consumer buying. What would production in Detroit be today? What would employment and income be? And consider how many other industries are dependent upon installment credit and how important they loom, as a group, in the national economy.

It is always possible, too, that well-established financial institutions function with less than the fullest capacity. It is small comfort to an individual businessman to know that at the other end of the country successful bankers every day grant loans such as he is seeking.

With respect to the need for a new instrument of equity financing, may I refer you to the findings of a study made by our Office of Business Economics. This study was concerned with the capital sources drawn upon by the nearly 166,000 new manufacturing concerns which entered business during the period 1945-47. Their total financing was approximately 2 billion dollars, or an average of about $12,000 each. Of this total initial capital, 60 percent was provided from the savings of the owners, 15 percent by friends and relatives, and the remaining 25 percent came about equally from supplier credit and bank advances. Over half of the bank advances was of long-term character, with mortgages of residential property securing a sizable proportion. It is noteworthy that the amount of capital obtained through the security markets was negligible. Our studies of firms entering wholesale and retail trade reveal a similar pattern, with the security markets again outside the picture.

The mortgaging of the small-business man's home may evidence praiseworthy enterprise and determination, but this fact, taken together with the rest of the pattern revealed, suggests that our financial machinery may not be as well adapted to the needs of new businessmen as it should be.

The same studies reveal further that the firms which went out of business after 12 to 18 months were predominantly those whose initial capital was low. We cannot say, of course, to what extent these business closings could have been avoided if the initial capital had been larger, or to what extent the community has suffered because of them. Nor can we make any estimate of the number and importance of additional new businesses that might have been formed successfully if financing had been more adequate. Studies such as these are suggestive rather than definitive. We know all too little about the degree