We urge your support of legislation which embodies these principles and your opposition to legislation which does not. Major objectionable provisions in H. R. 6042.-Despite the fact that our affirmative beliefs are fully set forth in the accompanying copy of our presentation to the House committee, we feel that some comment on the bill actually passed by the House is necessary. Food products entail problems not necessarily common to all consumer goods; our comments apply primarily to consumer goods other than foods. 1. The attempt of the House bill to guarantee a "reasonable profit" on all products at all levels of production and distribution does not appear to us a proper governmental function, nor would such a guarantee be consonant with the principles of free enterprise. Businessmen believing truly in a free economy must oppose a guarantee of profits as strongly as they would oppose restriction of profits by governmental fiat. A specific proposal for common sense handling of the problem of cost absorption at this time is contained in our testimony before the House committee. 2. We believe it impossible to set by law a precise formula for decontrol, and we recognize the inherent danger of too precipitous decontrol, just as we recognize the danger of control enduring too long. Here again, we have recommended what we believe to be a practical technique for the solution of this problem. Moderation needed at this crucial stage. In conclusion, we believe in moderation. The changes in price control recommended in the attached memorandum, as summarized beginning on page 5 are submitted in that spirit. Very truly yours, Enclosure. NATIONAL RETAIL FURNITURE ASSOCIATION, By Leo J. Heer, LEO J. HEER, Vice President. STATEMENT TO HOUSE BANKING AND CURRENCY COMMITTEE BY THE NATIONAL RETAIL FURNITURE ASSOCIATION, PRESENTED AT HEARING MARCH 20, 1946 We deeply appreciate the opportunity afforded by the committee to the National Retail Furniture Association to present the views of the retail home furnishings industry on the Stabilization Act. Our testimony is presented here today on behalf of more than 7,000 furniture stores, large and small, from all sections of the Nation, urban, and country, who account for approximately 80 percent of the total furniture store sales volume. The recommendations we are about to make represent the consensus of the vast majority in our industry, and our industry is one that has had a great deal of experience with price control from its very inception. Because some of our merchandise forms an important element in the cost of living, we have been subject to price control from the very start. Perhaps to a greater degree than most industries, we have been subjected to the cost-absorption policy in the major phases of our business. As a matter of fact, Stabilization Director Bowles recognizes this for in his answers on wage-price questions issued March 11, 1946, he said, and I quote: 66* * * OPA has already required absorption in many fields to the full extent permitted by its standards-for example, household furniture * * * and a number of household appliances * * (End of quote.) * * * * Throughout these years of control, the retail furniture industry has at all times exerted every effort to cooperate with OPA in the development of regulations. We are thoroughly aware, too, of the great complexities of the problems which have beset OPA, and of the substantially sincere and valiant efforts which the agency has made to solve them. We on our side have endeavored to render a helpful, constructive service in the belief that, in comparison with uncurbed inflation, some form of price control was by far the lesser of two evils. Our appearance today, therefore, comes after considerable experience with the problem and it is in the interest of adapting present-day regulations to the realities of today. We wish to speak concretely, not in vague academic terms, not in fear of what may or may not happen, but in the clear language of an industry that has had the experience, that has devoted careful study to the problem, and that has demonstrated a desire to cooperate in every way possible toward solving a common problem facing our Nation right now. 1. Renewal of the Stabilization Act.-The National Retail Furniture Association favors extension of the Price Stabilization Act for 1 year from now, or until March 31, 1947, on the condition that certain moderate changes are written into the act by amendment. If the act were allowed to expire this coming June, the general price structure might undergo violent and drastic disruptions which ultimately could cause serious financial damage to the entire domestic economy. On the other hand, to continue the act without modification would perpetuate a body of regulations that in many cases bears little relation to circumstances today. Despite existing amendments to OPA regulations, many basic policies now in effect were conceived 3 and 4 years ago when the economy was under stress of war and when conditions were entirely different. We believe that the Congress must now remove from the act the obsolescence that exists in it today and must provide industry with a workable, practical system of control geared to present circumstances. It is for this reason, therefore, that we advocate extension of the act on the condition that certain changes are simultaneously provided. 2. Encourage production. At this relatively late stage of your committee's inquiry, there is no need of dwelling long on a subject with which we feel sure you are most familiar, and that is the retarding effect on production of overly tight price controls. If lack of production is in part the effect of certain phases of price control, we would prefer to dwell on causes. Our testimony on behalf of the Nation's furniture stores, however, would be incomplete and inaccurate if we failed to bring to the committee's attention a very serious and increasingly alarming situation that exists in the field of our basic raw material: Lumber. The facts are that lumber sources are telling furniture manufacturers that, under present price ceilings, they can no longer supply raw lumber for furniture end-use purposes. In other words, despite the absorption required, which Mr. Bowles has said represents the limit which retailers can undertake, the end retail price of furniture is not sufficient to support the necessary costs at all prior levels and it does not provide an incentive to the production of the basic raw material in our industry. Parallel conditions exist in the fields of textiles, housewares, radios, and major electrical appliances. It is hardly within our province to suggest techniques of control at the level of the raw-material producer or even the manufacturer, but we submit that it is not in the interest of consumers, nor is it anti-inflationary, to hold prices to an academic line that prevents production from reaching the volume that would promptly fulfill the demand and reduce prices. It is even more aggravating to our trade when we realize that the present form of rigid price control is driving our basic raw material from furniture end-use to other channels which happen to offer greater incentives. We urgently request prompt, careful consideration of this alarming situation in order that this dangerous case of maldistribution may be corrected without delay. 3. Industry earnings standard.-We see no merit for the economy or for consumers in adhering rigidly, for cost-absorption purposes, to the deflationary standards of earnings on net worth equivalent to the average of the years 1936-39. These particular years are not sacred in our economic history. They were not typical of any particular situation. And they bear even less relationship to current conditions than they did when they were first established as a base period. In many cases some of those years were loss years, and to use unadjusted lossyear figures of an industry works an undue hardship on the efficient operator today. We believe, therefore, that the Congress should provide mandatory flexibility in applying standards of a base period by the use of the best 3 out of the 6 years, 1936-41, in determining trade-wide profitability. Heretofore, the 1936-39 standard has been so rigidly used that any potential increase in earnings over that base period average has been looked at askance and with some misgivings by OPA. We submit that conditions today justify and require a change in standards. The volume of business is greater, operating costs are higher, and the entire tempo of commerce is greatly accelerated. Industry must be in a position to change with these rapid developments. A rigid adherence to standards of the last decade will not permit business to adapt itself to these changes and will not provide the larger retail distribution machinery that will be required to market the Nation's increased industrial output. No administrative bureau charged with the responsibility that is now OPA's, can move quickly enough to stave off severe losses that may accrue due to increased wage rates, cost of materials, and other factors. For all these reasons, special study and consideration must be given in computing earnings, capital base, and percentages in establishing the industry earnings standard. We, therefore, urge once again that the act provide maximum possible flexibility. At the moment, the use of the best 3 out of the 6 years, 1936-41, appears desirable in most respects, but we believe that a subsequent change even in these years should be permitted if circumstances later this year warrant a further change. 4. Cost absorption.-Judging our own industry by any standards, apparently Mr. Bowles and we are in agreement, as mentioned before, that we are not in a position to absorb any further cost increases. But, in practice, the process is never ending. On the theory that they play only a small part in our volume, we have recently been required to absorb the entire increases granted manufacturers of linoleum, metal furniture, and numerous other items. So there is urgent necessity for a realistic, clear-cut statement of policy which will once and for all remove cost absorption from the endless realm of argument and debate we have experienced to date. Therefore, we believe that no seller should be compelled to sell any individual product at a price which does not reflect at least his base period dollar margin. We hold this opinion because we contend that the current obstructions to production and distribution are caused by distortions that have unnecessarily been created in the delicate balance between current costs and selling prices. While we hold no brief that a seller should be permitted always to realize a profit on increased costs, we do maintain that a seller should be permitted to pass through the dollar-and-cents amount of cost increases entering pro rata into the product or services he supplies when such increases reduce his actual dollar-and-cents profit below the base period. This technique represents substantial absorption to the seller who must accept lower gross margins, higher direct costs of sales commissions, warehousing, occupancy charges related to volume, insurance, and many other items of expense. But it is simple and understandable and so will engender dealer cooperation, now as always, so important to the success of price control. 5. Low-priced merchandise.-OPA has developed a number of programs aimed at stimulating the production and distribution of lower price line goods, but once again OPA adheres to a base period that now has little relationship to present circumstances. The latest OPA order in furniture grants to manufacturers certain additional price incentives for producing essential low-end items and a graduated scale of increases favoring the lower brackets of prices in effect in March 1942. The plain facts are that March 1942 represented no ideal situation at that time, that the vast changes in the past 4 years have long since destroyed any present-day relationship with March 1942, and that the actual adjustments provided by the present order are unrealistic. As a result, furniture stores are still not in a position to offer really low-priced furniture because manufacturers cannot afford to produce goods in these brackets. We urge that the subject of low-priced merchandise be completely restudied, that the low-end cut-off points be liberalized, that present cost-absorption "decentives" be removed from low-priced merchandise, and that some year having a more direct relationship to March 1946 be used as a base period. 6. Decontrol.-The Stabilization Director has assured you that decontrol as speedily as possible is his objective. We realize, however, that the transition from tight wartime controls to a free economy cannot be achieved overnight and that some interim machinery must be provided. We conclude, therefore, that in this transition period Congress should provide for a system of progressively more selective control for a limited time, with over-all decontrol as the ultimate objective. The mere existence of such a policy, spelled out in the act, is, in our opinion, a primary requirement for the resumption of normal production and distribution. Essentially, the real guide to decontrol must be business judgment, carefully exercised between business and Government. We propose, therefore, that the Congress state decontrol as a policy objective to the Administrator, that the Administrator continue to be granted discretionary authority, within limits, necessary for the proper discharge of his responsibilities, and that the Administrator be required to consult with, and to give due consideration to the recommendations of, industry advisory committees. The Administrator should not possess authority to overrule his properly selected advisers without first making available to those concerned and to Congress, if need be, all the pertinent facts on which he based his decision. In order to provide the required mechanics for this all-important phase of the transition period, we urge (1) the appointment of a congressional committee to conduct continuing investigation of price decontrol progress; and (2) a mandatory bimonthly report from the Administrator to such committee on the progress of decontrol, including a listing of all cases in which a majority of any industry advisory committee present at an official meeting had been overruled on affirmative decontrol recommendations, together with supporting reasons for failure to follow affirmative counsel. In our opinion, such a device would create a practical means for careful study, forthright action, and a prompt return to a free economic system. 7. Individual hardship relief.-Present OPA regulations do not permit any relief to an individual retailer who is placed in an impossible operating position. This is not true of manufacturers, and the distinction is most unjust. OPA contends that the administrative difficulties involved in granting relief to retailers, comparable to that received by manufacturers, preclude the proposition. We submit that no administrative situation, and that no regulations based on average performance should be permitted if they force a citizen to operate at a loss without recourse to some form of relief escape machinery. The only action taken resembling relief in our trade is an order which establishes the cost of doing business as a floor for margins in certain goods. It is interesting to note that OPA told Congress in March 1945 that this so-called expense floor regulation would be issued, that it was not issued until February 1946, that it has been necessary to revise the order to conform it to practical trade conditions, that the revised order is not yet released, and that it is now promised in a few days. Further, a preliminary estimate of the order indicates that its involved calculations may make its use impossible by the average small dealer. Confronted as we are with situations hardly fair or equitable to retailers, with prolonged delays in relief orders for the general trade, and with all the uncertainties inherent in the new wage-price policy, we believe it only right that the retail trades be provided access to individual relief processes. 8. Inequities to individuals.-An inevitable outcome of a highly complex system of price control is the unintentional discrimination or inequity worked upon indididuals. Here are some examples. In the past, OPA has determined upon preticketing certain items in our trade which never before were sold at a uniform established retail price. This action has resulted in undue hardship in a large number of cases. For the future, we strongly recommend eliminating the preticketing of any products not normally priced for sale at retail by the manufacturer. In another instance, the technicalities of a particular regulation discriminate against stores that are far distant from their sources of supply because of the manner in which the item of freight has been handled. In the field of enforcement and compliance, perfectly plausible, unintentional errors in pricing by a retailer have been followed by prolonged investigations, unfair publicity, and entirely unreasonable prosecution of minor violations. While we support wholeheartedly legal action instituted in cases of serious or willful violation, and while we do not suggest any reduction of valid enforcement or compliance activity, we do submit that there is now no adequate or reasonable protection against unduly harsh or injurious handling of unintentional violations of a minor nature. Among the 7,000 retailers we represent, there is a large number of small store owners to whom the proper interpretation and application of this vast body of economic regulations represents a very serious problem. We propose that the act should direct that noncompliance with regulations of a nonwillful nature be first dealt with by private interview, with a reasonable time allowed for correction. On price cases, some margin for error should be allowed, enabling those subject to control to correct mistakes or to make refunds without legal involvements before OPA institutes formal enforcement action or publicizes proceedings. 9. Conclusion.-To summarize our specific recommendations, (1) On the condition that certain reasonable modifications are provided by amendment, we favor extension of the Price Stabilization Act for a limited period, preferably not to exceed the first quarter of 1947. (2) We urge prompt correction of unbalanced price controls which are curtailing production of lumber and other basic raw materials of our trade, or are diverting them from furniture end-use to other channels. (3) We urge modification of the industry earnings standard to provide for greater flexibility, to adapt it to current conditions, and to establish certain limits. (4) We urge that OPA's cost absorption policy be corrected to remove current obstructions to normal production and distribution. (5) We urge a complete restudy of the low-priced merchandise problem. (6) We urge the establishment of a clearly defined policy of decontrol and other safeguards. (7) We urge provision for individual hardship relief to the retail trade. (8) We urge elimination of individual inequities and discriminations and the allowance for a margin of error. Respectifully submitted. Hon. E. P. CARVILLE, NATIONAL RETAIL FURNITURE ASSOCIATION, By W. E. S. GRISWOLD, Jr. M. I. BEHRENS, Jr. L. S. BING, Jr. TEXTILE FABRICS ASSOCIATION, Senate Committee on Banking and Currency, Senate Office Building, Washington, D. C. DEAR SENATOR CARVILLE: Enclosed you will find copy of a resolution adopted by the board of directors of the Textile Fabrics Association on April 30 which recommends the extension of effective price control without nullifying amendments for 9 months from June 30, 1946. The conclusions set forth in the resolution were arrived at after careful and mature analysis of the issues involved in this matter and we trust that you will give our viewpoint proper consideration in connection with the legislation now pending to extend the Price Control Act. We have sent a copy of the resolution to Senator Wagner with the request that it be inserted in the record of the proceedings now occupying the attention of your committee. Sincerely, W. P. FICKETT, President. EFFECTIVE PRICE CONTROL MUST BE CONTINUED The House of Representatives recently passed a bill extending OPA until March 31, 1947, but with a number of amendments to the present Emergency Price Control Act which many believe are so drastic that effective price control after June 30, 1946, will be impossible. The problems implicit in the extension of OPA have developed conflicting opinions among leaders in all industries and many are warning that the removal of price control or its continuance with the nullifying amendments contained in the bill passed by the House of Representatives will seriously affect our entire industrial economy. The Textile Fabrics Association, which represents upwards of 150 firms in the cotton-converting industry and whose members do an aggregate annual volume of business in excess of 500 million dollars, has, through its board of directors, given serious consideration to this important and complex problem. It believes that all industries should be freed from the shackles of unnecessary "control" and "regulation" at the earliest possible date. It feels that the administration of OPA has permitted unnecessary and unjustifiable delays and has been unduly restrictive in many respects. It is firmly of the opinion that OPA would have more nearly achieved its objective if it permitted a closer relationship to exist between industry and Government and if each operating unit of OPA not only maintained sufficient representatives of industry on its staff but heeded their advice and recommendations. However, the prevailing opinion appears to be that despite these shortcomings, OPA in its broad aspects has done much to stabilize the economy of America. Run-away inflation must be avoided at all costs and industry must not risk the economic chaos which will inevitably result from prematurely removing effective price control. Accordingly, the board of directors of the Textile Fabrics Association in meeting assembled unanimously Resolved That the statutory authority of OPA be continued for 9 months from June 30, 1946; that the bill extending the life of OPA recently passed by the House of Representatives which contains so many restrictive amendments that effective price control would be impossible, be defeated; that OPA should affirmatively and realistically proceed as quickly as possible with the removal of controls from those commodities not essential to basic standards of living or critical in reconversion, or which show an approximate balance between demand and supply; |