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Mr. Boyd. That seems to be the situation; yes, sir.

Senator CAPEHART. Well, would it not sound more logical to you to correct that situation and get the flow of venture capital in the business again, rather than to inject the Government into going into the banking business and the loan business and thereby demanding more tax money, and thereby making the situation worse rather than making it better?

Mr. Boyd. I always feel that the freedom of private enterprise to do these things would be a more advantageous approach to the problem. It is an entrepreneur approach and has to be done with courage, and must be done with the incentive of return.

Senator CAPEHART. In other words, you wouldn't invest money in a venture with venture capital, and if you won you were going to pay 38 percent in Federal corporation taxes, and then if you were going to have to pay out at least 50 percent or more of the money in tax that you received from the corporation as dividends, you would certainly hesitate to invest X amount of money in that sort of a project, knowing that if it failed you would lose all your capital, and if you won the best that you could do would be to keep—I am talking about you as an individual stockholder now, if you were in a corporationthe best you could possibly do would be to keep 15 or 20 percent of your

total earnings. Mr. Boyd. I might answer it this way, sir: If I were a consulting engineer and if an individual approached me and asked about going into mining today under present conditions, I would not recommend they do so, unless it was an exceptionally high grade mine and you had it well proven.

Senator ČAPEHART. Unless it was a cinch?
Mr. Boyd. That is right.

Senator CAPEHART. Do you not feel that the other 150,000,000 Americans feel just as you do?

Mr. Boyd. I would not be able to judge, but I assume they would.

Senator CAPEHART. But isn't that the problem that is facing us, and don't you think that is the problem we ought to solve, rather than injecting the Government further into the banking and loan business, requiring more taxes and more controls and more red tape?

Mr. Boyd. Well, I understood in this particular bill it was intended to put this thing into private hands?

Senator CAPEHART. There is an effort to do it, but I just wondered if it was the proper method. I am not arguing the merits or demerits of the bill. I am just wondering, it might well be desirable, but I think some other things are more desirable, and I think other things should possibly come ahead of this. At least they ought to come simultaneously.

Mr. Boyd. I am not able to judge the requirements of Government income against the means of doing these things.

Senator CAPEHART. Of course, I presume there is no limit to the amount of money the Government could spend if they had to.

Mr. Boyd. I know that we could spend a great deal more profitably if we had it.

Senator CAPEHART. At the moment, the legislation before us—if we pass it-would require 15 or 30 billion dollars in taxes. I presume a

government is like an individual; they never get through dreaming about what they might do or might spend money

for. The CITAIRMAN. Senator Benton?

Senator BENTON. I am interested in whether the factor of working capital is a real factor here. Senator Capehart is talking about taxes, in a general sense. The fellow going into mining has a much better break on taxes, as I see it, than men going into other lines of business, because he does have this 15-percent depletion. So instead of talking about this as a general problem, I would like to stick to the Bureau that you represent for a minute and stick to mining for a minute, where we do, under the tax laws, give a man an advantage he does not get when he starts to make glasses or matches, or something else, because he gets his 50-percent depletion allowance. That is true, is it not?

Mr. Boyd. It does give him a benefit, but it is a means of recovering a wasting asset.

Senator BENTON. Now, is not the problem that of cost rather than working capital! If I am a little fellow and owned a mine and my costs go up and up and I get so I cannot operate profitably, I actually shut it down. But, if I can operate it profitably I do have the asset in the ground in the form of the metal, whatever that asset is worth, which is something that is not true of many businesses, where their assets are not as tangible as having metal in the ground. If I could operate it profitably, are there not places that I could go and get working capital with a record that proves that I can operate it profitably?

Mr. Boyd. Senator, may I say this: This is one of the number of problems in this mining field. There are some deposits that have been discovered that do need working capital, but the ore reserves have not been sufficient to serve as collateral, but for pure exploration you have to get something else; this will not do the job.

Senator BENTON. I see.

Mr. Boyd. The problem of cost against market price for metals now, that requires other solutions to develop a satisfactory result. But there are intermediate costs where ore has been discovered, but is not large enough to give the collateral necessary for a loan.

This is only attacking one part of the problem.

Senator BENTON. Yes. There are two kinds of things you are talking about, the nonexistent companies—where you want to encourage exploration and the existing small company that would go ahead with its mining operation if it had working capital.

Mr. Boyd. Yes; assuming it had sufficiently high grade ore to meet the costs, and there are deposits like that.

Senator BENTON. I am not sufficiently familiar with the requirements of the RFC to know what, under present law, the latter type of company could come to the RFC and expect as a loan, and what kind of presentation could be made with the asset of having the ore, and cost figures that show the operation could be profitably conducted if he had working capital.

Mr. Boyd. I do not know the details of it. I have knowledge of that, but I think there are some RFC men present here, sir, if you are interested in that.

Senator BENTON. I wonder what this new bill adds that we do not have under the RFC for that particular type of enterprise!

Mr. Boyd. I think that the answer would probably be that these funds would be in the hands of people out in the area-private bankers—where a small man could come for funds.

Senator BENTON. I shall ask the RFC about that. Thank you.

Mr. Boyd. As Secretary Sawyer pointed out, under tile V, which in this bill gives specific authority to the Secretary of Commerce, the small operator cannot maintain his own technical staff, and this principle, as applied to small industries other than mining, applies equally to mining. The Bureau of Mines has long applied the principle of technical aid in its field, but not, however, with the same broad authority as is proposed here and very little in managerial aid. We would expect the Department to cooperate with the Secretary of Commerce in carrying out the provisions of this act.

The Department of the Interior believes that any measure that would have a beneficial effect through furnishing additional incentives for new mineral development is desirable. S. 3625 should be of assistance in overcoming some of the current inertia that has resulted in virtual stagnation of an important segment of our metal-mining industry.

The CHAIRMAN. Are you familiar with title V?
Mr. Boyd. Yes, sir.

The CHAIRMAN. Under that section, we are giving aid to our own people; is that right?

Mr. Boyd. We are giving some, but I say not enough.

The CHAIRMAN. But I say, why should we give it to foreigners and not to our own people? That is what title V in this bill gives.

Mr. Boyd. That is right. Senator CAPEHART. Is it technical aid or is it an atmosphere under which they can operate and invest money freely and operate their business freely and make money?

Mr. Boyd. I believe they need both.

Senator CAPEHART. Do they not also need protection against imports at a very, very low figure that makes it impossible for them to produce and sell at the price that we are now permitting imports to come into this country? Mr. Boyd. That may be a factor, Senator.

Senator CAPEHART. Isn't it the big thing? Certainly it is the differential between price and cost, and imports have an effect on that.

That is all.
The CHAIRMAN. Thank you, Doctor.
The next witness is Mr. Gunderson of the RFC.
Mr. Gunderson, I understand you have a prepared statement.
Mr. GUNDERSON. I do, Mr. Chairman.

The CHAIRMAN. I understand that the Select Committee on Small Bussiness had the RFC before them some time last week. Unfortunately I was tied up with appropriations and was unable to be present at that session, but I did read some of the testimony and was told what you said. I am advised that those hearings will be printed simultaneously with these, so we will make your testimony before that committee a part of this record, by reference.

The CHAIRMAN. You may proceed with your statement, Mr. Gunderson.



DIRECTORS, RECONSTRUCTION FINANCE CORPORATION Mr. GUNDERSON. Mr. Chairman, I appreciate this opportunity to discuss with the Banking and Currency Committee the pending legislation to aid small business, particularly the proposed Small Business Act of 1950, S. 3625. The Chairman of the Board of Directors of the RFC, Mr. Harley Hise, who had hoped to testify, has asked me to express his regrets that he cannot be here this morning.

The CHAIRMAN. Let me ask you this: Has the Board of Directors discussed this bill in their meetings?

Mr. GUNDERSON. Yes, generally.
The CHAIRMAN. What is the attitude of the entire board ?
Mr. GUNDERSON. I expect to present that this morning.
The CHAIRMAN. I beg your pardon. Go ahead, please.

Mr. GUNDERSON. My comments are directed particularly to the provisions of title III of S. 3625. This title would add a new paragraph (2) to the present section 4 (a) of the RFC Act which would authorize the Corporation to make loans to any small-business enterprises—as determined pursuant to section 603 of the Small Business Act of 1950, and the classifications established thereunder--which does not have collateral adequate for its credit requirements, provided the management abilities, potential earnings, and other factors afford a reasonable expectation that the loan will be repaid.

The CHAIRMAN. What law is that you are quoting?

Mr. GUNDERSON. The Small Business Act of 1950. It would change section 4 (a) of the RFC Act.

The CHAIRMAN. You are talking about the amendment in this act?
The CHAIRMAN. Not in the law?
Mr. GUNDERSON. This proposed act.

The CHAIRMAN. That is what I wanted the record to show—the proposed act, not the act.

Mr. GUNDERSON. Since the present RFC Act requires that loans to business enterprises must be so secured as reasonably to assure repayment, it obviously is the purpose of the proposed amendment to shift the emphasis from collateral security to other types of assurance of repayment; namely, the abilities of those directors, officers, or individuals managing the small-business enterprise, the potential earnings of the business, and other pertinent factors.

I believe that I should inform the committee that in passing on loan applications of small-business enterprises our directors have always carefully considered the management, the past and present record of earnings, and future prospects of the borrower.

In May 1946, the RFC established a Small Business Division in order that loan applications of small-business enterprises might be given special consideration and analysis and that their legitimate financial needs might be handled within the framework of the RFC Act, but independent of our office of loans.

In 1948, the RFC Act was amended by the Congress by adding as one of the purposes of RFC loans “to encourage small business. I believe that we have implemented this objective to the fullest prac

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tical extent within the limitations prescribed by the act. Approximately 90 percent of all the business loans authorized by the RFC during the past 2 years have been in amounts of $100,000 or less, and each month from 8,000 to 10,000 small-business enterprises seek the Corporation's advice and assistance.

The CHAIRMAN. How many do you approve?

Mr. GUNDERSON. Loans per month Fve hundred to six hundred a month.

The CHAIRMAN. You say "each month from 8,000 to 10,000.”
Mr. GUNDERSON. That is the amount of inquiries we have, sir.
The CHAIRMAN. How many received loans?
Mr. GUNDERSON. I can give you the actual figures.
The CHAIRMAN. Will you make it available for the record ?

Mr. GUNDERSON. We had them and we put them in the other record.

The CHAIRMAN. I know you did, but I would like to have those figures in this record.

(The information referred to follows:)

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