MORE ABOUT HOG ISLAND
More About Hog Island Former Chairman of Shipping Board Says Profiteering Was Real Bone of Contention in Shipbuilding Program HON. WILLIAM DENMAN, formerly Chairman of the Shipping Board, in...
...Provision will be made for decreasing the fee to prevent unnecessary cost...
...that is true...
...Connick's graceful retirement from this alleged controversy was a retirement for a day to give us the next morning those figures...
...Therefore the men think that when they work efficiently they are only putting increased profits into the hands of profiteering capitalists and in many cases working themselves out of a job...
...Who prepared the plan* for the yard...
...I.know it is very much lower than the figure on which Gen...
...DENMAN, That was the strange thing j*out it...
...The design of the ship is ready...
...Here was...
...The testimony shows that the Hog Island promoters first demanded $20,000,-000, later they were willing to accept $12,000-000, and finally they have been hammered down to about $10,000,000, which is pretty steep compensation for two years active service of hall a dozen "know how" men...
...Options will be given to the contractors to purchase the plants at arbitrated values on the completion of the work...
...The huge profits to those in the fabricating combinations were entirely apaTt from the $12^)00,000 fee...
...SENATOR VARDAMAN...
...and the figures used in the case of other ships would be of some value, but not very much...
...The CHAIRMAN...
...They were to supervise the building of the plant...
...The inauguration of the building of a Diesel motor-driven fleet of merchant ships, of the Norwegian George Washington"type, which, with the great saving in fuel and cargo space, wide sailing radius, and reduced labor cost, would free us from bunker control of other nations and give us a dominance in maritime carriage after the war...
...In a statement that I gave to Senator Phelan, which he read into the Congressional record on August 15, 1917, I enumerated at the end the various things that t,h* Shipping Board had then determined as matters of policy, and this particular paragraph might well go ih the record here: Fifth...
...Well, they were to supervise the building of the plant also ? MR...
...Goethals and Mr...
...This proposal, which to our minds was the best thing we had to offer for the after-the-war period of the American mercantile marine has been receiving very serious consideration from the Shipping Board and we trust in the very near future may mature into some actual activity in that direction...
...We were able to make that agreement with the sailors, because we understood their aspirations and their desires...
...Chairman, to say...
...But we hazarded a guess at that time that it would be about half and half...
...But the Government was to furnish all th-s money, and to pay all of the salaries, except of these few men at the head...
...The $12,000,000 foi $200,000,000 of work, about $125,000,000 of which they would supervise, was his estimate and his offer to them...
...THE CHAIRMAN...
...they could stop the flow of steel to other places and divert it to this place...
...12,000,000 for supervising an estimated $125,000,000 worth of work, where the plant is owned by the contractor, and the scheme is, furnished by the contractor, and the running capital is furnished by the contractor, is one thing...
...The exact value of the work which he would actually supervise I could not then figure...
...The compensation which he was ready to accept was between $12,000,000 and $15,000,000...
...SENATOR JONES...
...and the testimony that has since been given here, I think, substantiates that estimate...
...Did the Shipping Board taelf have any data or any idea about the cost ft* the ships ? MR...
...SENATOR JONES...
...There is not any doubt that the Diesel is the coming motive power for over-seas ships, and we can look to the Japanese and the Germans, our most vigorous competitors, to have very considerable fleets to initiate the after-the-war fight for the control of the sea when we get back into normal commercial conditions...
...Goethals for those feures, and he said they were over In the Airier., wan International Corporation...
...We asked" Glen...
...And in response to a perfectly natural and human instinct that "I should have my share of this if these big fellows above us, who can well afford to give their services free, are going to get so much...
...Denman's testimony it is necessary to have in mind who are the Vanderlip group that compose the International Corporation conducting the Hog Island enterprise...
...Connick came down to us ready to accept a compensation for about $200,-000,000 worth of completed ships—$200,000,000 more or less—about half of the work on which would be done, as we then figured, and as testimony new develops, under the supervision of the men to be furnished by this Vanderlip group of corporations...
...Thi6 price is also believed to be greatly in excess of what it should be...
...THE CHAIRMAN...
...Goethals and ourselves...
...Connick had their understanding...
...The Government seemed to be proposing to pay $12,000,000 for tho work of five or six men for two years...
...I have not examined it carefully enough, Mr...
...so that I am not divulging any correspondence that passed between us that Gen...
...Goethals, at the initiation of this entire scheme of fabricating ships through semi-Government plants...
...As you read Mr...
...And in that respect your apprehensions have been realized ? MR...
...The contracts will give the Government the benefit of Government fixed commodity prices, and will provide for cessation of work at any time, so that the appropriation may not be exceeded...
...May I ask what your idea is regarding the terms and conditions of the contract as finally made with the Hog Island people—whether you would regard it as a reasonable contract for the Emergency Fleft Corporation to make...
...Goethals—that entire plan had been worked out before the contract had been entered into...
...I have seen a number of other contracts drawn by them for other classes of work but I have not gone into this contract carefully enough to give an opinion on it...
...Goethals—that they were prepared bf some one in Stone & Webster, or some one of the Vanderlip group of corporations...
...the Government embarking in a great enterprise, and the only place where the figures as to that enterprise were was in the hands of those other people...
...Harrison H. D. Connick, vice president of the International Corporation and of the American International Ship Building Corporation gave some testimony with respect to the dealing with the Shipping Board and the Emergency Fleet Corporation, which brought out the testimony given by Mr...
...THE CHAIRMAN...
...The writer of the letter calls attention to the condition in shipyards and says: Although it does not seem to be an established fact, it is generally believed that these ships are being built on a contract price and not on the basis of a percentage of profit above cost...
...Ho was simply acting as an agent trying to make a good bargain for his group...
...Names the Backers...
...SENATOR VARDAMAN...
...A man does not have to have a -profound knowledge of human nature to see that that is just what would happen under the circumstances...
...Denman, in which he hold* the profiteering on the part of the Hog Island promoters responsible for the labor troubles which have been experienced in the ship building industry...
...Yes, Mr...
...Goethal's offer...
...On Monday I shall offer the contracts for the building of two plants to be owned by the Government for the construction of fabricated steel ships, to produce 400 ships of an aggregate tonnage capacity of 2,500,000 tons withing the next IK to 24 months...
...and that agreement has stuck...
...he lias done great work in California...
...You say the figures are in the record, Mr...
...IAM firmly convinced of the value of the Diesel engine and of the Diesel boat, and I have been and am advising my clients that they begin to look up that class of tonnage...
...Of course, the fabricated ships were an entirely new proposition...
...So that the figure which he has already to accept, and desired at that time, was between $12,000,000 and $15,000,000 for the supervision of from $100,000,000 to $125,-000,000 of work to be done in this semi-Government plant and its construction...
...THE CHAIRMAN...
...THESE are: Percy A. Rockefeller, Jr.., J. 0.;-den Armour, Robert Dollar, Frank A. Vanderlip, Robert S. Lovett, William E. Corey, John D. Ryan, Theodore N. Vail, Otto H. Kahn, Pierro S. du Pont, James A. Stilman, Berkman Win-throp and Charles A. Stone...
...SENATOR VARDAMAN...
...It Is 5 per cent on the Ships...
...And the next morning, and the next morning, and the days passed, during which time the press, as you will remember was filled with stories of disagreements between Gen...
...Chairman ? THE CHAIRMAN...
...and presumably we were going to make great savings by the rapid outrun of ships on the ways due to the standardization of the parts...
...Connick's testimony, you gather the impression that a vigorous and an acrimonious contest was being carried on between Gen...
...the distribution of the work of furnishing material and of fabrication is arranged...
...And the figures did not come...
...They ¦*ere in a position to give an estimate on the total cost of the ships...
...Goethals when we handed In our resignations...
...SENATOR JONES...
...I regard Mr...
...the plans of the yards are ready...
...I detailed very fully '"hat I knew of the situation...
...COnnick's negotiations with the Shipping Board and Gen...
...but that figure, for the job in this case, seemed to us open to question...
...We had already designed the ship ourselves, through our own employes, and the great combination that Mr...
...The question of profiteering at Hog Island was the only one between Gen...
...Do you want to put tha whole letter in the record ? Question of Profiteering...
...I understand that it figures out about 4Ms per cent...
...THE CHAIRMAN...
...Why They Hesitated...
...If the Goevrnment desires earnest cooperation from labor, it must make conditions such that the wage earners are only helping the Government to win the war, and not helping the capitalists to make greater profits...
...they could use the Government pressure on labor, and they were to have every assistance that the Government, with all of its war powers, could give them...
...For the building of these two yards and the construction of the ships in them, I shall offer as compensation to the agents who undertake the work, a fee approximately 6 per cent of the total cost of the work, with rewards for saving...
...but you see I had &ot received the figures from Mr...
...Connick's agency...
...DENMAN (continuing...
...on cost, and for speeding delivery...
...Was Fully Convinced...
...Connick, that we were to get out of this group of corporations anything more than the 'know how"—and that phrase was used at that time—of, perhaps, half a dozen men...
...that they make their investment in that class of plants...
...But we felt that, in a great transaction like this work, where the Government itself, and its power, was the main reliance for the success of the enterprise, anything that looked like a profiteering payment to the great people on top who could well have given us for nothing the services of these five or six men, would be simply an invitation to every laboring man, from the lowest unskilled labor up, to demand a wage on a similiar Lasis...
...Connick to get for us the figure* and segregate the cost in the yard and outside the yard, of these vessels, and Mr...
...Denman, before you proceed further will you allow me to read an extract from a letter that I have just received from a gentleman of Seattle, Wash., which is very much in accord with the suggestion you have just mad« and shows how much the people of the country actually are looking on the situation...
...The schema for fabricating ships was not new...
...And that was to be part of the bond that we were to give the Vanderlip group, through Mr...
...It had been suggested by Secretary Redfield several years before...
...I will now read from a letter Gen...
...I think the contract is in the record...
...WILLIAM DENMAN, formerly Chairman of the Shipping Board, in testimony before the Senate Committee on Commerce, tore aside the veil and showed that the only difference between him and General Coethals arose out of the hoggishness of the Vanderlip group, who desired to make great iiml unconscionable profits out of the government...
...Well, it is very hard to get at the exact figure from the contract...
...it is all that refers to Hog Island, however...
...Goethals sent to me, of July 13, 1917...
...Connick as a very able man...
...We felt that, with the smaller men, we could get them t* make the very rapid advances in organization that were necessary, without that kind of stimulation...
...He has great force and great executive ability...
...that this enterprise was a completely new creation, in which the Government furnished the basic idea of fabrication, all of the capital, paid all the salaries, except for these few supermen that were to be put into a new organization...
...Did you discuss with him (Admiral Capps) this particular pending contract...
...Do you know the amount of compensation under that contract...
...THE CHAIRMAN...
...4 WHAT made my associates and myself in the Shipping Board hesitate and ask for further figures was this: We could not see, as we talked with Mr...
...The 6 per cent mentioned in the letter for the completed ship meant 10 per cent for the work actually supervised by the men from the Vanderlip corporations...
...Now, I would like to show how early the Shipping Board had matured the idea of using the Diesel engine...
...I simply have a part of it here, Mr...
...but when you take into consideration the Cost of the plant, which the company also super-Vises and for which they are not paid, and then the cost oi the ships, it would pot amouni fc> so jfauch...
...The Shipping Board was willing to spend any amount of money to get tonnage...
...Connick's proposition was an acceptance of Gen...
...To a complete anderstanding of Mr...
...SENATOR N ELSON...
...You had to take the cost of other kinds of ships and base your estimate partly on that, did you ? MR...
...Apparently that gentleman has the very idea to which you have just referred...
...THE CHAIRMAN...
...I am now drawing a distinction between the work to be done in the Government assembling yard and the work to be done by other contractors outside, in the fabricating yards, and in the plants manufacturing machinery, boilers, and equipment for the vessels...
...and, furthermore, it was to furnish it (The International Corporation) commandeering power, so that what even the greatest organizations of capital themselves could not do, this group of five men would be able to do...
...If I could judge by the other contracts under the Shipping Board, 1 would expect it to be carefully drawn...
...Those detailed figures Should all have been ready, you see...
...Goethals and the Shipping Board, and that, as an innocent bystander, he gracefully withdrew to permit the contestants to indulge in their fracas without his interruption or interference...
...Vanderlip had perfected behind all of this—or his associates had perfected—of the steel fabricating yards that were to furnish the material, had already been entered into...
...And the truth of the matter is that those of us who were in the shipping Board, and especially those of us who came from the West and South, had a deeper understanding of the labor situation than our general manager...
...I have always felt that he would drift to Wall Street and make a success there...
...Is it not inevitable that that should happen...
...We asked Mr...
...It is greatly to the credit of the gentlemen who have succeeded us that a very much lower and fairer figure waR fixed on for the acquisition of this skill that these men had to give...
...Was that done through the government, or was it done by these "know-how" men...
...and that is the only class of labor tha't has gone through the war without a strike.THE CHAIRMAN...
...Connick...
...and that instead of getting us more ships and faster ships, this kind of overloading of profit at the top would impede thf: progress of the work, by starting strikes and labor disputes up and down the scale of labor organization...
...Had Better Understanding...
...MR, DENMAN...
...My impression is—I say "nnr impression" because the plans came to me front Gen...
...Connick with reference to the Hog Island contract and the negotiations leading to the contract, I felt that, probably unconsciously, nn erroneous impression has been created as to Mr...
...Goethals himself has iut made public...
...We had signed up to this dozens of contracts, giving very large and stimulating profits to small steel shipbuilding yards...
...Chairman, in reading over the testimony of Mr...
...As a matter of fact, I think the costs are going to be higher than they were estimated at that time...
...Ask About "Know How Men...
...Denman's testimony in part is as follows: "Mr...
...But some of the witnesses before this committee have testified that jt is 3 and a fraction per cent, and others have testified that it is a 5 per cent fee...
...That is already printed in the record...
...The fact is that Mr...
...The contract is in the record...
...As we seem to be embarked in a long war, these vessels will have a war as well as a postwar use...
...The letter was published in the press at that time...
...Bat as to that you will find—and I will later insert In the record a letter that I have from Gen...
...There never had been a question about the profit to be allowed to thess small and new yards to stimulate them to invest further capital and to expand their ways and get their enterprises running...
...General Goethals who was at the head cf the Emergency Fleet Corporation was willing that the Vanderlip group should have $12,-000.000 of profit for supervising $125,000,000 worth of work...
Vol. 10 • April 1918 • No. 4
