THE WAR PROFITEERS
GONZALEZ, HENRY B.
THE WAR PROFITEERS by HENRY B. GONZALEZ Touring a war, it is necessary for a ^ nation to mobilize both its human and material resources—men, arms, equipment, and other supplies. But there is a...
...The forecasting of costs of production becomes impossible except as a matter of guesswork...
...As a result, contractors, in seeking to guard against contingencies and often for less justifiable reasons, skyrocket their costs...
...These agencies include the Coast Guard, Department of Commerce, Tennessee Valley Authority, Bureau of Mines, Bureau of Reclamation, and the Canal Zone Government...
...For example, under the original Act, contractors whose prime contract awards totaled at least $250,000 during the fiscal year were subject to renegotiation...
...As an obvious example, Government procurement reached record high levels in an extremely short period with the outbreak of World War II...
...It is the sudden and tremendous upsurge in procurement that loosens up Government—mainly Defense Department—practices and sets the stage for profiteering...
...Cost-plus-fixed-fee contracts...
...In fiscal year 1964, prime contract awards totaled $28.7 billion...
...This covers a huge range of products and services...
...There is an exemption for "Standard Commercial Articles or Services"—articles customarily maintained in stock by the contractor, the commercial non-governmental sales from which constitute at least thirty-five per cent of the total sales of that article during the fiscal year...
...During such periods the Government's need for supplies and materials increases suddenly to great heights...
...For several years preceding 1966, procurement and prime contract awards by the Department of Defense had remained at a high but a fairly steady level...
...One would suppose that those persons who supply the government with property in time of war would be willing to do it without exacting excessive profits...
...But in fiscal 1966 prime contract awards soared to $38.2 billion, an increase of more than $10 billion or approximately thirty-nine per cent in a one year period—a sudden and tremendous upsurge...
...The court found that the "institutional" advertising consisted in Boeing keeping its name before the public as a producer of commercial aircraft...
...Another item claimed by Boeing as a legitimate expense against its contract was $629,000 for "institutional" advertising, selling expense, and entertainment expense...
...The real question is, how much got away...
...Boeing had attempted to charge, as a legitimate expense on its Government contract for military aircraft, the cost of the design, development, and construction of the prototype of the 707 commercial airliner...
...My bill, H. R. 6792, would bring the floor for contracts subject to renegotiation back down to $250,000, eliminate the all-important standard commercial articles exemption, eliminate the competitive bid-construction exemption, eliminate other exemptions with respect to subcontracts, and place TVA under coverage of the Act...
...If they did there might well be more Boeing-type cases...
...Under the Renegotiation Act of 1942 the Government reserved the right to renegotiate wartime contracts by procurement officials...
...The individual has no opportunity to bargain or negotiate for his pay and benefits...
...In 1956 the floor was again raised, to $1 million...
...But powerful forces are moving to do just that...
...These recoveries, although small, are all the more remarkable in light of what Congress has done to the Renegotiation Board since it was created in 1951...
...None of these items was allowed by the court...
...But renegotiation cases seldom reach the courts...
...escalator clauses...
...A full-fledged Congressional investigation into profiteering, in which the names of contractors and corporations who have taken excessive profits in the past would be revealed, and in which the appropriate officials could be examined, would be both a revealing and an enlightening lesson...
...This amount will be the highest dollar amount in any year since World War II, including the Korean period...
...It could lead to important new legislation...
...But the facts make it clear that profiteering is taking place on a considerable scale and there is evidence that it is on the upswing...
...competition decreases and often disappears...
...In light of the heavy sacrifices made by the men who do the fighting and dying, one would expect that those who do business with the Government would not take advantage of the situation by profiteering...
...The practice of inviting bids for Government contracts is set aside...
...Last year a serious effort was made to kill the Board by not extending the Renegotiation Act...
...The Government's earliest attempts to curb profiteering resulted in the Vinson-Trammell Act of 1934...
...The profiteers who intentionally gouge the Government for excessive profits during a time of war are also guilty of consciously withdrawing efficiency from our industrial capacity...
...But there is a crucial difference in the ways by which men and property are pressed into service for war...
...HENRY B. GONZALEZ, a Democratic member of the House of Representatives from Texas, has been in the forefront of the fight in Congress to curb wartime profits...
...So the impact upon the Board's activities as a result of the huge step-up in Defense procurement for Vietnam has not yet been felt...
...It will also find a Board seriously reduced in manpower...
...Other limitations now include an exemption for construction contracts let by competitive bidding, a five year carry-forward loss provision, and elimination from the Act of a number of Government agencies which were originally covered...
...In fiscal 1965, the figure even declined, to $27.9 billion...
...The Renegotiation Act of 1951 made the Board independent for the first time...
...The best estimate projects about a twenty per cent increase for the full year, which will place prime contract awards for 1967 at $45 billion...
...In light of the heavy sacrifices by those who go to war, those who do not fight but who benefit from the war by doing business with the Government should at least be expected not to take advantage of the situation by profiteering...
...The requirement for speed in production eliminates the opportunity for often long, cautious negotiations, careful surveys, and other steps which sound purchasing policy otherwise requires...
...The Board's activities are conducted today with less than twenty-five per cent of the personnel it had during the Korean War...
...Property, on the other hand, is purchased, much of it through the awarding of contracts by the government, usually at great profit to corporations...
...And a $10 million refund of excess profits was obtained from General Motors in 1958, as a result of a Congressional investigation into the production of the F081F airplanes...
...Even the independent Renegotiation Board, established in 1951 to beat back the profiteers during the Korean War, prefers the term "excess profits...
...Unfortunately, neither the Vinson-Trammell Act nor subsequent attempts to restrict excessive profits by building safeguards around the contract itself worked as intended...
...stated to the House Ways and Means Committee: "This association is convinced that expiration of the [Renegotiation] Act would not harm the nation's defense effort and would not increase the cost of procurement...
...Vinson-Trammell contractors simply padded their costs to defeat the statutory percentage limitation on profits...
...But how well-equipped is the Board to do a thorough job...
...War profiteering" apparently is an unmentionable subject in Washington...
...Inevitably these increases will add a greater workload to the Renegotiation Board and will hopefully result in large recoveries of excess profits...
...The reason that profiteering increases in time of war is easily understood...
...The latest Congressional investigation of the Board was as recent as 1962...
...This money was returned to the U.S...
...A North American Aviation, Inc...
...The court determined that Boeing owed the government not $9.8 million, but $13 million in excess profits, underscoring the weakness, or at least the moderation, of the Renegotiation Board...
...By confining the Board the way it is restricted at present, we have, in effect, locked up the policeman on the beat in the middle of a crime wave...
...The 1954 amendments raised the floor to $500,000...
...But the Act is temporary and must be renewed every two years...
...In addition, $23.2 million was received by the Government through "voluntary refunds" and "voluntary price reductions" in connection with renegotiation proceedings...
...Treasury by private contractors...
...The civilian who is conscripted into the military sacrifices the comforts of his family, his home, his job, his security, and possibly his life...
...Vietnam, until recently, has been somewhat different...
...There was a time when war profiteering was a more glamorous and a more newsworthy issue...
...What we ought to be investigating is not the Board, but profiteering itself...
...It is no surprise, then, that there is a movement to abolish the Renegotiation Board, or that among the strongest members of the movement are the aerospace industries...
...Beginning in 1954, however, a series of amendments was pushed through Congress with the intent of reducing the ability of the Board to do the job intended...
...The Act was extended, until 1968...
...case, decided by the Board in 1962, held that the company had received excess profits in the total amount of $16.5 million...
...When it does hit, it will confront a Board hamstrung not only by statutory limitations and with its jurisdiction narrowly defined...
...Then Senator Harry S. Truman wrote in The Progressive in 1943 of parallel abuses in World War II, and pointed out that "the advertising costs the corporations practically nothing because the taxpayer foots the bill...
...There is no excuse for not taking proper safeguards against profiteering...
...No better example of the taking of "excess profits" exists than the one documented by the case of Boeing Airplane Co...
...and letters of intent to negotiate a formal contract were all tried without material success...
...The War Contracts Price Adjustment Board, predecessor to the present Board, recovered more than $11 billion dollars in "excess profits" from private contractors doing business with their Government during World War II...
...v. U. S.} decided by the United States Tax Court in 1962...
...More than $800 million was recovered in the aftermath of the Korean War...
...These private-businessmen profiteers are in reality guilty of sabotage...
...It is a peculiar system of national values when young men are vilified and sent to the penitentiary for refusing conscription—a method of coercion the opposition to which was responsible in large part for the formation of the United States—while contractors and corporate executives are permitted to stay home and profiteer off the people in a time of war...
...His compensation is fixed by law and it is pitifully low...
...Contracts for "durable productive equipment," meaning machinery, tools, or other productive equipment with a useful life of more than five years, are exempt...
...War profiteers grow fattest and richest when elected public officials, the press, and other news media ignore the issue...
...The 1951 Act was strong and sound...
...Boeing had appealed a $9.8 million determination of excess profits by the Renegotiation Board...
...Men are drafted...
...In the Boeing case the selling expenses were incurred in connection with its commercial business, and the entertainment expense was in part for the purchase of meals and the general entertainment of visitors and business associates...
...Both the law and the Board have been examined and investigated several times...
...It is the level of procurement and the relative rate of procurement that determines the profiteer...
...lumpsum contracts...
...For Vietnam there was no sudden upsurge until last year...
...This law, as later amended, fixed profits on shipbuilding at ten per cent and on aircraft at twelve per cent...
...Our history has been one of rampant war profiteering, and I am convinced, as even the limited annual reports of the Renegotiation Board reveal, that profiteering is going on now, is increasing, and will continue to increase unless something more realistic is done to stop it...
...THE WAR PROFITEERS by HENRY B. GONZALEZ Touring a war, it is necessary for a ^ nation to mobilize both its human and material resources—men, arms, equipment, and other supplies...
...permitting price adjustments in accordance with fluctuations of labor and other costs...
...There is a time lag of about eighteen months between the awarding of prime contracts and the time they come before the Renegotiation Board for review, if they ever do...
...In the meantime, an investigation of the Renegotiation Act was authorized...
...The figures for the first six months of fiscal year 1967 show a twenty-eight per cent increase over the 1966 figures...
...It is in the absence of public attention today that the profiteer can successfully push his special interest legislation with one hand while pocketing "excess profits" with the other...
...Some of us can recall the headlines made by the then Senator Harry S. Truman with his extensive Senate investigations into profiteering during World War II...
...It enabled the Government to recover more than $800 million in connection with contract awards during the Korean War, in addition to large voluntary refunds...
...An even more serious effort to kill it will surely be made next year...
...These changes would restore the Board to approximately the condition it was in and the strength it had at the outbreak of the Korean War...
...An even more serious limitation on the Board's ability to police the profiteers is the multitude of exemptions that have been inserted into the Act...
...This is not a new practice...
...Thus, a contractor may be called upon to refund to the Treasury that portion of his profits for the fiscal year examined—on contracts with Government departments named in the Act—which are determined by the Board to be excessive...
...If they are in the prescribed age bracket and otherwise qualify, they are mobilized, willing or not...
...Nevertheless, the Board made determinations of excess profits in the amount of $24.5 million in fiscal year 1966...
...For this reason, I have introduced legislation to put some meaning into renegotiation...
...A similar situation occurred with the Korean War...
...With the experience of World War I, when profiteering reached a zenith, and the failure of Vinson-Trammell, still fresh in Government circles, the principle of renegotiation was introduced at the outset of World War II...
...It is during this crucial time, when the nation's need is greatest but its ability to proceed with caution is least that negligent and unscrupulous dealings are widely practiced...
...Senator William Proxmire of Wisconsin, chairman of the Economy in Government Subcommittee, recently said that when he found out how the Defense Department is currently spending its enormous budget—an annual average of $1,600 for each American family—it "shocked me out of my chair...
...In a letter dated March 23, 1966, the Aerospace Industries Association of America, Inc...
Vol. 31 • August 1967 • No. 8
