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WHY ADD AN INTEREST RATE HIKE ON OUR

STRUGGLING SMALL MANUFACTURERS

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC

APRIL 24, 2002

Serial No. 107–54

Printed for the use of the Committee on Small Business

(
(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman 

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

FELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANIBAL ACEVEDO-VILA, Puerto Rico 

DOUG THOMAS, Staff Director 

PHIL ESKELAND, Deputy Staff Director 

MICHAEL DAY, Minority Staff Director 
(III)

C O N T E N T S

Page 

Hearing held on April 24, 2002 .............................................................................. 1

WITNESSES

Ferguson, Hon. Roger, Vice Chairman, Board of Governors of The Federal 

Reserve Board, Washington, DC ......................................................................... 3

Czinkota, Dr. Michael, Professor of International Business, Georgetown University McDonough School of Business .............................................................. 21

Metz, Don, Owner/President, Metz Tool & Die, Representing the National 

Tooling & Machining Association ....................................................................... 22

Fedor, Edward, President, MASCO Machine, Inc., Representing the Association for Manufacturing Technology .................................................................... 25

Habenicht, Howard, President/CFO, Vibro/Dynamics Corporation, Representing the National Association of Manufacturers ...................................... 27

Garretson, Sara, President, Industrial and Technology Assistance Corporation ........................................................................................................................ 28

APPENDIX

Opening statements: 

Manzullo, Hon. Donald .................................................................................... 39

Vela ́zquez, Hon. Nydia ..................................................................................... 42

Millender-McDonald, Hon. Juanita ................................................................. 44

Grucci, Hon. Felix ............................................................................................. 48

Prepared statements: 

Ferguson, Hon. Roger ....................................................................................... 50

Czinkota, Dr. Michael ...................................................................................... 62

Metz, Don .......................................................................................................... 77

Fedor, Edward .................................................................................................. 82

Habenicht, Howard ........................................................................................... 91

Garretson, Sara ................................................................................................ 100

Additional Information: 

Submission by Donna Harman, Vice-President Congressional Affairs, 

American Forest & Paper Association ........................................................ 104

Letter to Hon. Alan Greenspan from Chairman Manzullo ........................... 109

(1)

WHY ADD AN INTEREST RATE HIKE ON OUR 

STRUGGLING SMALL MANUFACTURERS? 

WEDNESDAY, APRIL 24, 2002 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:05 a.m. in Room 

2360, Rayburn House Office Building, Hon. Donald Manzullo presiding. 

Chairman MANZULLO. The Committee will come to order. We will 

get started, Dr. Ferguson. If you could please have a seat. 

Good morning and welcome to this hearing of the Committee on 

Small Business. I especially want to welcome those who have come 

some distance to participate. 

A little over a month ago I sent a letter to Federal Reserve Board 

Chairman Alan Greenspan encouraging him to resist interest rate 

hikes in the near future. I explained that an important sector of 

our economy, namely small manufacturers, were still in recession. 

I further encouraged him to look at the state of the machine tool 

industry as a key indicator of America’s economic health. 

It now appears, and I am pleased to observe that the Federal Reserve will not raise interest rates at its next meeting on May 7th. 

I do not know if it is in direct relation to the letter we sent, but 

we certainly were beating the drums that we have got a long way 

to go to recover. 

Let me just raise a couple of things, raise eight factors that I believe are extremely important. Before the Washington Post had 

called Rockford, Illinois, which is my home city in the center of our 

congressional district, a ‘‘Barometer In The Heartland.’’ That was 

the headline of a 3-page story in the Post’s March 25, 2001 edition. 

The sub headline says ‘‘Rockford Holds Clues to Shifts in the U.S. 

Economic Climate.’’ The article notes the influence that Rockford’s 

situation should have with the Federal Reserve policy makers. 

Rockford was a national predictor in the early 1980s when its unemployment led the nation at 25.9 percent. More people were unemployed proportionally in Rockford in 1980 than they were in the 

Great Depression. 

There are eight factors that are contributing to tough times for 

small manufacturers, and those will be touched on across the board 

today: stiff foreign competition that is allowing for very thin margins, number one; number two, new steel tariffs that are increasing 

the costs of American production; three, an overvalued U.S. dollar 

making American manufacturers less competitive; four, tighter 

credit standards preventing small manufacturers from securing 
2

needed loans; five, U.S. export controls and unilateral sanctions 

that limit the ability of American companies to compete internationally; six, increased productivity leaving many businesses 

overstaffed and facing job cuts; seven, the heavy U.S. tax burden 

and how it places American companies at competitive disadvantages; and finally, eight, government regulations continuing to 

overburden struggling American businesses. 

We called this hearing several weeks ago because we don’t want 

to add a ninth factor to that. And that would be increased costs of 

doing business through an increase in the interest rate. So we are 

going to have a great hearing today. I look forward to the testimony of all the witnesses. And I now yield for an opening statement from our good friend and colleague, the Ranking Member Ms. 

Vela ́zquez of New York. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you, Mr. Chairman. 

When Americans think of small businesses the first image that 

leaps to mind is the small manufacturer. The entrepreneur takes 

raw materials and produces real, innovative products. Small manufacturers still form the bedrock of our economy, and they deserve 

our support. 

Today we are examining the effects that a potential interest rate 

hike by the Federal Reserve would have on more than 35,000 small 

manufacturers in this country. I think everyone here agrees that 

now is not the time for a Fed rate hike. The economy is not growing fast enough to worry about inflation. I am pleased to learn that 

Chairman Greenspan shares this assessment. 

Given that reality I believe that in addition to examining the impact of a federal hike, it is important to assess the long term and 

substantial barriers that small manufacturers face. By focusing on 

these challenges today and implementing a strategy toward overcoming these challenges, I am sure we can do far more to help 

small manufacturers than the Fed can do to harm them. Small 

manufacturers, even in an economic downturn, are having a difficult time hiring skilled workers to get the job done. 

A long time has passed since Henry Ford reduced manufacturing 

to an assembly line process that could employ practically anyone 

regardless of skill or education. Today manufacturers require a 

highly trained technical workforce. Because the skill barrier is so 

high, often these manufacturers are reduced to paying for worker 

training themselves only to have them leave for bigger companies 

and better benefits. We want to make it easier for small companies 

to pay for worker training and to hold on to those employees they 

train. 

In addition, we know that technical assistance can double the 

success rate of small manufacturers. Programs such as the Manufacturing Extension Partnership can bring small manufacturers together with mentors and experts to increase productivity and profitability. Unfortunately, the Manufacturing Extension Partnership 

is another in a long list of vital small business technical assistance 

initiatives facing cuts under the President’s budget proposal. 

Another major concern to small manufacturers is access to capital. Small manufacturers are not just worried about the costs of 

capital, they are also worried about the supply. When small manufacturers cannot get capital, they cannot buy new equipment. With-
3

out new equipment their productivity falls and so does their competitiveness. One obstacle blocking the path to increased capital 

supply is the 7(a) Loan Program. The recent budget proposal would 

cut this program in half, keeping an additional $5 billion in capital 

out of the economy, capital that could be financing new equipment 

and productivity. Instead it sits in a ledger somewhere at the 

Treasury, in effect a subsidy of the federal government by this 

country’s small businesses. 

I look forward to the opportunity today to examine the Fed’s impact in addition to highlighting other issues and challenges facing 

them. We are beginning the process of examining the challenges 

facing small manufacturers, which are the lifeblood of many communities across the country. I hope we can learn more about what 

we can do to help them thrive. 

Thank you, Mr. Chairman. 

Chairman MANZULLO. Thank you. 

Our first witness, it is a real honor to have Dr. Ferguson with 

us again today. Dr. Ferguson, I want to commend you for the outstanding leadership that you lent to this country after the horrible 

events on September 11th, in helping to spear up the literally 

small group of people involved in the government to pump liquidity 

in the markets to stop a panic. And I just do not think that Americans realize the tremendous job and the wisdom and the insight of 

what that literally handful of people did in that time of crisis. 

Dr. Ferguson holds two doctorates, and he is the Vice Chairman 

of the Board of Governors of the Federal Reserve System. And it 

is a real honor and pleasure to have you here today. 

Matthew, turn off the clock, we do not need that for Dr. Ferguson. 

I look forward to your testimony, and your entire statement will 

be made part of the record. Thank you, sir. 

STATEMENT OF HONORABLE ROGER W. FERGUSON, VICE 

CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE BOARD, WASHINGTON, D.C. 

Mr. FERGUSON. Thank you very much, Mr. Chairman. 

And let me also say it is a pleasure to appear before your Committee this morning to update you on recent economic developments and on the availability of credit to small business. In doing 

so, I want to emphasize that I speak for myself and not necessarily 

for the Federal Reserve. 

When I met with your Committee almost one year ago, overall 

economic activity had slowed noticeably after several years of rapid 

expansion. What looked at the outset to be a gradual cooling of an 

overheated economy became much more serious, particularly in the 

manufacturing sector, for several reasons. First, the shakeout in 

the high-tech sector proved to be not simply an adjustment to slower domestic demand but a more fundamental reassessment by businesses, globally, of the profitability of additional fixed capital added 

to the already high stock of such capital. Besides the plunge in demand for high-tech products, our exports were hit hard by the 

slowdown in economic growth abroad. Lastly, the shock to confidence and spending in the wake of the tragic events of September 
4

11 extended the weakness in the economy that had emerged over 

the first half of the year. 

As the economic slowdown unfolded during 2001, the Federal 

Open Market Committee moved aggressively to counter the weakening in economic activity and to limit the extent of the downturn. 

In the event, I believe that monetary policy substantially cushioned 

the negative forces weighing on the economy. Homebuilding was 

visibly buoyed by lower mortgage rates. At the same time, auto 

makers drew a record number of new car buyers into showrooms 

by offering generous financing deals. Indeed, in contrast to earlier 

economic contractions, consumer spending held up remarkably well 

last year. The favorable effects of lower interest rates on borrowing 

costs and the boost to disposable income from the federal tax cuts 

and falling energy prices largely offset the deterioration in consumer confidence, the decline in wealth from lower equity values, 

and the rise in unemployment. 

Compared with the previous four downturns that we had experienced since 1969, last year’s downturn appears to have been mild 

overall. However, it differed importantly in its composition. Between the first and fourth quarters of last year, real disposable income, real personal consumption expenditures, and real outlays for 

residential construction increased more rapidly than in the preceding four economic downturns. In contrast, because of the particularly sharp retrenchment in capital spending for high-tech 

equipment, firms cut back their capital spending more extensively 

than was typical of earlier business cycles. The inventory correction 

was much more prompt, and as the cycle played out, it became a 

more substantial drag on domestic production than had been the 

case in earlier downturns. 

Because the cutbacks in demand centered on goods, the manufacturing sector was hit particularly hard. Indeed, the contraction in 

manufacturing production began in the second half of 2000, well 

before the cyclical peak in March of 2001, when the inventory correction and retrenchment in capital spending developed. And, 

though the recession in real GDP was mild by historical standards, 

the cumulative drop of more than 7.5 percent in manufacturing industrial production from June 2000 through December 2001 was 

larger than the decline in any of the previous four recessions. As 

a result, capacity utilization in manufacturing dropped over that 

period to 73.1 percent in the fourth quarter of last year, 73⁄4 percentage points below its longer-run average. 

On a more positive note, two other distinctive aspects of last 

year’s recession are important for the longer-run outlook. The economy entered the recent slowdown, first, with a much lower rate of 

inflation and, second, with a noticeably higher rate of increase in 

productivity than during the other recession episodes since the 

mid-1970s. In both cases, the favorable performance has been well 

maintained into the first part of this year and provides a solid 

basis for a return to sustained no inflationary economic expansion. 

As Chairman Greenspan reported in his testimony before the 

Joint Economic Committee last week, prospects for a renewed expansion have now brightened significantly. The economy appears to 

have been expanding at a significant pace in recent months. Household spending is holding up well, business spending on new equip-
5

ment appears to have firmed, and preliminary data suggest that inventories are being drawn down less rapidly than at the end of last 

year. Of course, I should caution that at this early stage the degree 

of strengthening of final demand, which is a key factor in shaping 

the contour of the upturn, is still uncertain. 

That said, our estimates of industrial production, which were released last week, indicate that manufacturers have begun to benefit form the pickup in the economy to date. Overall industrial production began to increase again in January, and the indexes for almost 60 percent of the individual series for which we calculate production were by February above their levels three months earlier. 

We estimated another broad-based gain of 3⁄4 percent in IP in 

March. 

Of course, the cyclical recovery in the manufacturing sector will 

be superimposed on the longer-run structural trends in domestic 

goods production. Our manufacturers have over time been a strong 

and steady source of advances in productivity, and thus, the sector 

continues to be a significant contributor to the nation’s overall economic growth. At the same time, because advances in manufacturing have required increasingly less of our economic resources, 

they have implied a noticeable secular decline in the share of jobs 

in the manufacturing sector. 

Furthermore, the increased globalization of goods production and 

the competitive pressures that have ensued have had additional 

consequences for the extent to which worldwide demand for goods 

has been met by U.S. firms and their workers, and those consequences have varied by industry. 

Turning to issues more directly related to small businesses, I 

want to begin by noting that the results of the Federal Reserve 

Board’s Survey of Small Business Finance had just become available when I testified before your committee last May. At that time, 

I discussed with you in broad terms our findings regarding the use 

of credit and other financial characteristics of small businesses. 

As we have discussed before, the Survey of Small Business Finances can be used to examine a range of issues, including the 

study of specific groups of firms. This morning I would like to draw 

on the results of the survey to focus on what they tell us about 

small manufacturing firms. 

According to our 1998 survey, about 8 percent of the more than 

5 million nonfarm, nonfinancial small businesses, that is those 

with fewer than 500 employees, were manufacturing firms. Those 

manufacturing firms were larger than other small businesses: Both 

average employment and average receipts at small manufacturing 

enterprises were about twice those at other small businesses. As a 

result, small manufacturing firms accounted for about 14 percent 

of small business employment and around 17 percent of small business receipts. 

Despite considerable structural change and consolidation in the 

financial service sector and the increased accessibility to capital 

markets by small businesses, commercial banks continued to be the 

dominant provider of financial services to most non-tech small businesses in 1998. These patterns were similar for manufacturing and 

nonmanufacturing firms. 
6

No doubt, the economic and financial environment has become 

less conductive to risk-taking and leverage since the survey was 

conducted in 1998. The economic slowdown of the past year led to 

a deterioration of corporate profits and an acceleration of bond defaults and loan delinquencies. As profits fell and businesses revised 

down their expectations for sales and their expansion plans, investors became less certain about the returns they should expect on 

investments. The dramatic rise in problem credits and the rapid 

pace at which we saw firms fall from stellar ratings to bankruptcy 

also led investors to reevaluate their views about the financial wellbeing of businesses and their creditors. 

Thus far, we have seen few signs of the types of financial 

headwinds that in the early 1990s had played havoc with the ability of many creditworthy small firms to roll over loans and renew 

credit lines. Credit flows to businesses have fallen much more modestly in the recent cycle, even as firms slashed their investment in 

fixed capital and inventories. Moreover, financial institutions have 

maintained their capital and liquidity as delinquency rates of business and real estate loans did not reach the highs witnessed in the 

earlier period. 

As the Federal Reserve aggressively cut the federal funds rate in 

2001, borrowing rates for most businesses dropped sharply despite 

persistently high risk spreads for lower-rated firms. Low interest 

rates prompted investment-grade nonfinancial corporations to issue 

a record volume of bonds, and issuance continues to be strong this 

year. These firms used the proceeds to strengthen their balance 

sheets by repaying short-term debt, refinancing other long-term 

debt, and building up liquid assets. 

Though investors appeared cautious, non-investment-grade companies were also able to raise funds: junk bond offerings have accounted for about one-quarter of total public debt issuance. At commercial banks, rates on business loans declined, but loans at large 

banks fell sharply. In contrast, loans at small banks, which make 

many loans to small businesses, expanded moderately last year and 

have continued to do so this year. 

As you are aware, the Federal Reserve regularly surveys senior 

lending officers around the country, principally at large banks, but 

also at a selection of small banks. The survey, which is administered quarterly, asks banks about their credit terms and standards, 

loan demand, and other issues that may be topical. During the 

market turmoil in late 1998 banks began looking harder at the 

loans they made to large and middle-market businesses. In each 

quarter over the past three years, more banks reported having 

firmed their lending standards than reported having eased their 

lending standards for large and medium-sized borrowers. Not surprisingly, banks have been particularly vigilant during the recent 

economic downturn with 40 to 60 percent, on net, having tightened 

their lending standards. Of particular relevance to this committee 

is the fact that the net portion of banks that reported having tightened their lending standards for small borrowers was about 10 percentage points below the net portion that reported having tightened 

standards for larger borrowers. 

The senior loan officer survey also questions banks about why 

they tightened their lending standards. In 2001 banks commonly 
7

cited uncertainty about the economic environment, worsening industry-specific problems, and a reduced tolerance for risk. The survey further questions banks about their perception of borrower demand. In the most recent survey, about one-half of the banks surveyed reported that the demand for business credit continued to decline, a high fraction by historical standards, but lower than the 

roughly three-fourths that reported declining demand in the fourth 

quarter of last year. 

Banks attributed declines in loan demand to reductions in 

planned investments and diminished financing for mergers. This 

view held by bankers is confirmed by surveys of small businesses. 

According to surveys conducted by the National Federation of Independent Business in 2001, only about 12 percent of respondents on 

average thought that it was a good time to expand, roughly half 

the percentage of a year earlier. Few firms reported financing costs 

as a reason for believing that expansions were not a good idea. 

Indeed, since the beginning of 2001, NFIB respondents have not 

viewed financial conditions as onerous. The percentage reporting 

that they found credit more difficult to obtain has remained moderate and well below the highs witnessed in previous economic 

downturns. In addition, for creditworthy small businesses, interest 

rates on bank loans have declined with the easing in monetary policy. The average short-term interest rate paid by NFIB respondents 

decreased about 3 percentage points to its lowest level in more 

than two decades. 

Though we may take comfort from the lack of angst expressed by 

small borrowers in the NFIB surveys as well as from the lower 

loan interest rates, we must recognize that given the tighter lending standards some small businesses have almost certainly found 

credit difficult and more expensive to obtain. Small manufacturing 

firms, in particular, may have faced tight credit constraints, as 

their profitability fell sharply last year and their business prospects became more clouded. 

Indeed, such constraints are suggested by a recent survey conducted by the National Association of Manufacturers, an association whose membership is heavily weighted toward small and middle-market manufacturing firms. The survey found that 2 percent 

of respondents though it was ‘‘impossible’’ to get credit, a further 

16 percent reported that it was ‘‘much more difficult’’ to do so, and 

another 16 percent reported that it was ‘‘slightly more difficult’’ to 

do so. Of those experiencing difficulty in obtaining credit, 19 percent cited tougher credit standards as the explanation. But nearly 

40 percent of the respondents cited a decline in profits and a slowing economy as the explanation for experiencing difficulty in obtaining credit. 

However, I note that recent data from the Quarterly Financial 

Reports of Manufacturing, Mining, and Trade Firms show that outstanding bank loans to manufacturers with less than $25 million 

in total assets actually increased moderately in 2001. In contrast, 

bank loans to larger manufacturing firms were falling. 

Let me conclude and summarize by saying that obviously 2001 

was a rough year for the economy. And given the nature of the 

downturn it was particularly rough for the manufacturing sector. 

Credit flows did slow, driven largely by the falloff in the demand 
8

for funds as the economy softened and the reduced pace of merger 

and acquisition activity. Overall, the tightening in credit standards 

that occurred was principally a response to the weak economy and 

declining profits, and thus it reflected a prudent pulling back of 

lending. 

The outlook, however, has brightened: Industrial output has 

begun to turn up, and various surveys of business conditions suggest that orders are increasing. These developments are encouraging signs, but they are no guarantee that a sustained solid expansion of final demand has gained traction, and we will be monitoring economic developments closely in coming months. 

Accordingly, the assessment of the Federal Open Market Committee at its most recent meeting was that the risks to the outlook 

in the near term were balanced between economic weakness and 

pressures on inflation. The committee kept the federal funds rate 

at its current level of 13⁄4 percent which implies that monetary policy remains accommodative. The FOMC’s focus will remain on fostering a balanced, noninflationary economic recovery. As you know, 

monetary policy works with one instrument in a national money 

market. As a result, we cannot and should not set policy with an 

eye to the outcome in a particular sector of the economy. However, 

we believe that promoting our longer-run objectives of maximum 

sustainable economic growth and financial stability will produce an 

environment in which the broadest range of businesses and households will prosper. 

Mr. Chairman, that concludes my opening remarks. And I am 

pleased that you already noted that the entire statement will be 

read into the record. So at this stage I am ready to answer any 

questions. 

[Mr. Ferguson’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very much, Doctor. And thank 

you for that excellent testimony that was stated in terms that noneconomists such as myself could understand. I always appreciate 

people that can take complicated issues and make it easier to understand. 

One of the issues here that I like to raise, and we talked about 

it just before the Committee hearing today, and we sent you testimony of the other witnesses, goes to the indicators that the Federal 

Reserve is using. I do not know if you saw a letter that we sent 

to Chairman Greenspan on March 20. You may have but there——

Mr. FERGUSON. Yes. 

Chairman MANZULLO. Are you familiar with the letter, Doctor? 

Mr. FERGUSON. I am generally familiar with it. I am not sure 

that I have all of it. 

Chairman MANZULLO. We have an extra here. 

Matthew, why don’t you take that to him. 

Mr. FERGUSON. Okay, I have it here. Thank you. 

Chairman MANZULLO. You have it there? 

Mr. FERGUSON. Yes. 

Chairman MANZULLO. Okay. Okay, thank you. 

Doctor, on the last paragraph on the second page, we talked 

about various dynamics going on. And then it concludes based upon 

the fact that Rockford, Illinois, is the machine tool center of the 

world. Rockford was settled by the Swedes about 130 years ago. 
9

They brought with them to Rockford the old world craftsmanship 

of carving tools for making furniture, furniture legs, and the 

lathing machines and things of that nature. 

And then when steel took over from wood they took the talents 

involved in making the tools to cut wood to tools to cut steel, metal, 

different parts like that. And that is why Rockford became known 

as the tool center, tool and die center of the world. At one point 

it was known as the leading city in the country for furniture manufacturing. 

So we have that old world tradition of craftsmanship that finds 

its way into cutting tools. And Rockford has a base of about 32, 33 

percent manufacturing which is double that of every other city. 

And in that last paragraph, we encouraged Chairman Greenspan 

and the Fed to use the monthly U.S. Machine Tool Consumption 

Report that is released by the Association for Manufacturing Technology and the American Machine Tool Distributors Association as 

a key indicator of the overall health of the economy. 

Could you comment on that, Doctor? 

Mr. FERGUSON. Let me again say I will speak for myself. My perspective on the way one should think about getting indicators of 

the U.S. economy is to be very expansive and to seek data, both 

quantitative data, data that come from professional economists and 

models, etc., but also to think about and seek data from a wide variety of businesses to understand how the economy is functioning. We have an economy that is $10 to $11 trillion. By definition it 

is unlikely that any single indicator will give you a complete picture of how such a large and complex economy is functioning. And 

so I do think it is important for us to reach out and choose a wide 

variety of data. 

Indeed, we do that already to some extent. We have, as you 

know, 12 Reserve Banks who have boards of directors and who 

have active outreach efforts. And they, through the information 

they provide to the Beige Book and through the information that 

their presence provides when they come to FOMC meetings, give 

a great deal of input for how it feels around different parts of the 

country in this area. 

Certainly we are also always interested in getting anecdotal information of one form or another. And, indeed, I personally have 

often encouraged the staff to look to various sectors that might 

have some sort of capability to be a leading indicator. 

Chairman MANZULLO. Predictor. 

Mr. FERGUSON. Predictor, as you have described it. And there are 

a number that we should be examining closely. And this one, since 

you have sent the letter to us, will obviously be one of the things 

that we will look into and make an effort to examine. And I think 

that, sir, is forthcoming and an appropriate kind of response. 

If this indicator turns out to have what accountants describe as 

information value, then we need to understand that more fully. 

Our staff has been aware of this indicator over many years, and 

I suspect that we will now take a renewed interest in understanding the value that it could provide in understanding how the 

economy is likely to evolve over time. 

Chairman MANZULLO. We appreciate that. In defense of the indicator, what is unique about the machine tool industry, Dr. Fer-
10

guson, is the fact that if there is a decrease in orders for the tools 

that go onto the machines that make the new or improved products, it is my belief that that is the first, actually that is the second 

sign. The first one I look to, is I call our steel producers back home 

and the steel sellers and say what is going on in machine tool 

sales. It is a high specialty steel. We worked and were successful 

in getting that exempt from the new tariffs. And the first indicator 

of a box that there is slowdown in the sale of steel that is used for 

making the machine tools, then that is how this Congressman 

judges the economy. 

And that is exactly what happened in the spring of 2000 when 

the Fed raised the interest rate for the last time. I believe was it 

May or June? 

Mr. FERGUSON. Yes. 

Chairman MANZULLO. Was it June, Doctor? 

Mr. FERGUSON. It was June. It was mid-year. 

Chairman MANZULLO. It was in June. And we had sent a letter 

to Dr. Greenspan a couple months before then, saying please be 

very careful what you are doing because this indicator is showing 

up on our radar screen based on just a couple of phone calls that 

I made from my office. 

So I am just thrilled that the Fed is going to take a look at that 

index. I look forward to working with you on a formal or informal 

basis. I would invite you to come to our Congressional District, 

meet with the small manufacturers, get a feel for what they are 

doing, some hands-on. Get some machine oil on your hands if that 

has not happened in your career. And then the heartbeat of America happens with this very select group of people that I believe is 

the best indicator of what is happening in manufacturing. 

Mr. FERGUSON. Well, personally I do enjoy spending a great deal 

of time—I go out and give speeches and have done other things. 

And I was not in fact in Rockford, but I know where it is. I have 

been to other parts of Illinois, spent a fair amount of time, two 

days actually with a farmer in Logan County, Illinois, which as you 

know is incredibly rich in deep topsoil. And I found that very impressive. And I am sure an opportunity to visit in Rockford and understand more about machine tools and, what that life is like 

would also be beneficial and educational. 

Chairman MANZULLO. Well, take this as a formal invitation. We 

will reduce that to writing. 

Mr. FERGUSON. Fine. 

Chairman MANZULLO. Thank you, Doctor. 

Ms. Vela ́zquez. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. And thank you, Dr. 

Ferguson, for your insightful presentation. 

When we talk to small businesses in our nation and we ask them 

what is the top priority for them, they talk about access to capital. 

And in the current economic climate, Mr. Ferguson, small businesses are having difficulty in obtaining financing. And you touch 

on that in your presentation. 

I would like to ask you, which do you think will have a greater 

impact on small manufacturers’ access to capital, a 25 basis point 

increase in the federal funds rate, or cutting by 50 percent the ca-
11

pacity of the SBA 7(a) Program, loan program, as is proposed by 

the Administration’s fiscal year 2003 budget? 

Mr. FERGUSON. Well, you have managed to put into a question 

areas that I cannot predict and areas in which I am not an expert. 

And so, with all due respect, I know these are important issues, 

but I am not an expert on the SBA program. I know the importance of it. In fact, in the reports that we present every five years 

on small business we do occasionally have a paragraph about SBA. 

But I am really not in a position to give you the tradeoff of the two 

things that you just talked about. 

Ms. VELA ́ ZQUEZ. But, Mr. Ferguson, you do not need to be an expert on the loan programs of SBA. What I am asking you is, what 

do you think would be more harmful to small businesses, an interest rate increase or taking away $5 billion that would allow small 

businesses to access capital? 

Mr. FERGUSON. Well, you are trying to draw me into a discussion 

about fiscal policy because the decisions of where taxpayers’ money 

are being spent are ultimately fiscal policy. And as you well know, 

the Federal Reserve does not and I personally never comment on 

fiscal policy. 

I will say by definition——

Ms. VELA ́ ZQUEZ. I understand. It’s okay. 

Mr. FERGUSON [continuing]. That fiscal policy requires——

Ms. VELA ́ ZQUEZ. I am not trying to put you in a difficult position 

here. 

Mr. FERGUSON. Okay. 

Ms. VELA ́ ZQUEZ. I am just, asking you for a common sense answer to my question. 

Small manufacturers are much more dependent on long-term interest rates because of their need for longer term loans to purchase 

equipment and other fixed assets. Yet Chairman Greenspan and 

former Treasury Secretary Robert Rubin have emphasized that 

long-term interest rates have failed to follow short-term rates because of market nervousness over the government’s long-term fiscal 

position. 

So I ask you now that the administration has spent all of the 

surplus and will soon be back in deficit spending; How will longterm interest rates be affected? 

Mr. FERGUSON. One of the issues and challenges in economics is 

indeed to understand the forces that drive long-term interest rates. 

And the econometric evidence—the research—suggests that longterm interest rates reflect a wide variety of factors. In some cases 

it is supply and demand for the bonds that are sold that have a 

long maturity, and so you get special supply and demand influences. In some cases it is expectations about future policies of one 

sort or another. In some cases one sees what economists call an inflation concern, inflation threat. There are a number of things that 

go into determining long-term interest rates. And it is very hard, 

I have discovered, professionally to sort of parse out how those 

things all come together at any one point to determine what longterm interest rates will be. 

Ms. VELA ́ ZQUEZ. But among those factors we can consider too deficit spending? 
12

Mr. FERGUSON. Well, I think perspectives about the future of policy broadly, both monetary and fiscal policy, play into issues of 

long-term interest rates, certainly. 

Ms. VELA ́ ZQUEZ. Dr. Ferguson, as the economy slowly recovers 

from the recession, how long do you anticipate it will take for 

banks to ease their lending standard towards small businesses? 

Are there policies that the Fed can pursue to improve the situation? 

Mr. FERGUSON. Well, I think the role that we can play as supervisor of banks is to encourage banks to continue to focus on the 

creditworthy and creditworthiness of their counterparties. And I 

think as I have said in my statement, one of the reasons that I believe banks have tightened to some degree their terms and conditions has to do with perceptions about creditworthiness and also 

has to do with perceptions about the strength of the economy. 

And I would presume that as the economy turns, banks will exercise reasonable and prudent judgment, which I think they have 

been doing, and reflect appropriately those changes. And beyond 

that, I think there is nothing more that we can encourage them to 

do other than to exercise reasonable and prudent judgment and to 

reflect, analyze, and understand creditworthiness and the economic 

outlook as best they can and take all of that into consideration in 

determining terms and conditions for loans. 

Ms. VELA ́ ZQUEZ. Thank you. 

Chairman MANZULLO. Congressman Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Dr. Ferguson, let me just indicate that I appreciate your testimony and the insightful information that you have provided us 

with in terms of direction. 

I want to ask, given increases in technology; Do you see a relationship between those increases and the ability of small manufacturers to survive and thrive and do well in this economy? 

Mr. FERGUSON. Let me first talk about the role of small business 

in the U.S. economy by way of giving your answer. 

As you know, small businesses account for about half the private 

nonfarm gross product in the U.S. Small businesses employ about 

half the private sector workers. Small businesses provide about 

three-quarters of net new jobs each year, or did between 1990 and 

1995 based on some Commerce Department information. The reason I say that is that even as our economy has changed and 

evolved, small businesses have been and continue to be an important part of the economy. 

To answer your question more directly, I believe even in a world 

in which technology and increased productivity are an important 

part of the positive benefits that we have experienced, small businesses can and indeed will compete successfully. For two reasons 

I believe that to be the case: first, we have seen that the costs of 

technologies, basic computers for example, hook-ups to the Internet, building a website with the appropriate kind of security, etc., 

all of that has actually quite rapidly been coming down, making 

those kind of investments available to small and medium size enterprises as well as to large enterprises. And I see no reason why 

a well-managed small business cannot participate in some of these 

productivity enhancements as much as a large institution can. 
13

The challenge, obviously, is that one of the impacts of this investment in technology is it requires restructuring, for example, in 

order to get the full benefits. And by definition for many small 

businesses, opportunities to restructure may not be as big as for 

some large businesses. And so they can make the investments in 

technology. Their ability to get the full benefit may vary depending 

on the management skill of the individuals involved. 

So I think I would continue to be optimistic that small businesses, which have been an important part of the U.S. economy, 

can continue to be an important part of the U.S. economy even as 

the economy itself changes, evolves, and becomes more heavily dependent on these new areas of technology because the costs of buying that technology, putting it into place in the small and medium 

size enterprise is becoming more and more manageable over time. 

It is not something that only the big can afford to do. 

Mr. DAVIS. During the past, oh, three, four, five decades we have 

seen a tremendous decline in manufacturing in large urban areas. 

Do you see that have an impact on the overall economy? And do 

you see any way for us to reclaim some of that activity in big urban 

centers? 

Mr. FERGUSON. One of the big things that I think has been driving decisions about the location of business has to do with the education of the workforce, and the second is I think the infrastructure, particularly the kinds of infrastructure that are required to 

make an area compatible with the high-tech kinds of investments 

that we were just discussing. 

And certainly from a longer-term perspective, cities offer the potential to be very attractive. Cities have emerged out of economic 

history because of a natural desire for people to come together in 

certain locations and trade and do commerce with each other, and 

it is quite efficient to do that in a smaller area as opposed to a larger area. So the entire field of urban economics has theories of cities 

arising because they become natural gathering points or recognize 

natural gathering points of individuals who want to engage in commerce. 

I think the challenge now has very much to do with creating an 

environment of a solid, well-educated workforce that is in cities, 

and adding to that the kinds of infrastructure investments that 

will make cities again attractive places to site particularly the 

more high-tech kinds of businesses that are an important part of 

what has made the U.S. economy so strong. 

And so I would argue that one can be, while recognizing the difficulties that a number of cities have faced over the last generation 

or two, and I grew up here in Washington, DC, and I have seen 

things change here, there is some reason to be cautiously hopeful 

that a well-managed city that focuses on education and that focuses on infrastructure can succeed in bringing businesses back to 

the city. 

And, indeed, one can look at Washington, DC. I do not have off 

the top of my head the statistics about businesses in Washington, 

but I do know, having lived here, having grown up here, and now 

again living here, that the city appears to be enjoying a certain 

amount of resurgence indicating that, indeed, a well-managed city 

can bring businesses back into the city and can indeed bring house-
14

holds back into the city and have the population start to rise again 

and bring in individuals who have the kind of entrepreneurial spirit that can take advantage of a well-educated workforce and also 

the kinds of technology investments. 

So there is some possibility that the declines that we have seen 

in cities could possibly be reversed with the kinds of investments 

in what is called human capital and also actual physical capital. 

Mr. DAVIS. Thank you very much. 

Mr. FERGUSON. Thank you. 

Mr. DAVIS. Mr. Chairman, education is as much of a factor as 

much of the other factors. 

Mr. FERGUSON. That is certainly my personal belief. 

Chairman MANZULLO. Thank you. 

Congressman Bartlett. 

Mr. BARTLETT. Thank you very much. I am sorry I could not be 

here for your testimony. We had a mark-up in the Morale, Welfare 

and Recreation Panel, important to our military people. 

When interest rates go up, and I was in another life a small business person, when interest rates go up obviously that increases the 

cost of doing business. If interest rates were to go down, all of the 

things remaining equal, your profits would go up. So if interest 

rates go up, profits then go down. 

Now, if you are a startup company and have no profits and there 

is an increase in interest rates that may simply mean that you no 

longer qualify for the capital that you must have to continue your 

business. 

I have a generic concern about what interest rates do to our 

small business community. But I have a very specific concern about 

women-owned small businesses. As you know, women-owned small 

businesses are growing at twice the rate of male-owned small businesses. And they have, and this surprises many people, they have 

a lower bankruptcy failure rate than male-owned small businesses. 

In spite of that very good track record, availability of capital is a 

very serious problem for women-owned small businesses. 

My concern is that as our small businesses get squeezed with increasing interest rates, how are we going to make sure that our 

women-owned small businesses are not squeezed more than maleowned small businesses. Because of the present, and I am afraid 

for the moment at least, continuing attitude of the lending community that women are not as good a risk as men in terms of managing businesses, when in fact the record shows that they have a 

lower bankruptcy failure rate than their male counterparts. Can 

you comment, please? 

Mr. FERGUSON. There are a couple of comments that one would 

make. First, as you well know, there are a number of laws on the 

books that outlaw discrimination of any sort in extending credit. 

And I think it is quite important for those who are responsible to 

make sure that those laws are fully enforced. 

I would raise a second issue because I think you have touched 

on a very important topic, which has to do with what I would describe as financial literacy. And the point that you have made that 

I find so telling is that financial literacy we often think of as having to do with individuals and households and high school students, etc., but it is equally important for bankers to understand 
15

the credit risk of their counterparties and to judge credit extensions based on a fact-based analysis, not based on any unusual 

agenda or color or things that are inappropriate. 

And so I think raising the degree of awareness, as you have just 

done with the facts that you have brought forth, is very, very useful. So I sense that indeed just having honest discussions of this 

sort about the characteristics of small businesses, what one can say 

about profit, profitability, creditworthiness, etc., all of those factors 

should come into play. 

But when all is said and done a good banker, exercising what I 

describe as basic banking skills, will understand well the creditworthiness of counterparties, price the risk appropriately, deliver 

the appropriate amount of capital, and should be able to overcome 

some of the concerns that you have just talked about. And our job 

in part, back to an earlier question, is to encourage bankers to be 

responsible, to be prudent, to exercise basic banking judgments. 

And if they do that they ought to be able to sort out the creditworthiness of their various sorts of applicants and make the right 

kind of decision. 

Mr. BARTLETT. Mr. Chairman, I would like to suggest that perhaps the best thing that Congress can do to help small business is 

to reduce the size of government and spend less money, which 

means we need to borrow less money, so therefore we compete less 

in the marketplace for borrowing money, and that will drop interest rates. I think there is probably nothing else that we could do 

that would be so helpful to our small businesses as reducing the 

amount of money which we spend. 

Chairman MANZULLO. You don’t expect a comment on fiscal policy from Dr. Ferguson on that, do you? 

Mr. FERGUSON. I think that comment was addressed to his Committee, his fellow Committee members. 

Chairman MANZULLO. That is correct. That is correct. 

Congresswoman Millender-McDonald. 

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman, and 

Ranking Member. Thank you so much for this very insightful presentation by Mr. Ferguson. 

And, Mr. Ferguson, your testimony was quite impressive. I want 

to go back to what you mentioned to my friend on the other side 

there in stating that bankers should be cognizant of their lending 

partner, for lack of how you described that. Have you talked with 

bankers so that they will be sensitive to, i.e. women-owned businesses that are really the growing businesses in this country, and 

whether or not they subscribe to what you have just said in terms 

of making sure that they recognize their partner? Have you talked 

with bankers about this? 

Mr. FERGUSON. I talk to bankers quite frequently in large groups 

and small groups. And, indeed, in almost all the speeches that I 

give I do talk about the importance of what I have described as 

basic banking skills, which includes making creditworthy judgments. 

We should be clear. I want to take a step back because I want 

to bring some science, if you will, some economic science to this discussion I have just had with the two of you. There have been a 

number of economists who have looked at lending, lending behav-
16

ior, particularly with respect to small businesses. And overall the 

evidence on the question of discrimination with respect to lending 

to small businesses is what economists describe as ambiguous, 

which is to say it is really hard in the data to find concrete, consistent support for the comments that have just been made about 

discrimination in lending. 

So you should be aware that economic scientists have been sensitive to the issue, have been looking at this over many, many 

years going back to when I was in school and certainly probably 

even before, and the results are, as I say, quite ambiguous. And 

that suggests obviously some ongoing vigilance and enforcement of 

laws. That’s important. 

Ms. MILLENDER-MCDONALD. Why has it been ambiguous? 

Mr. FERGUSON. Well, I think the reason that it has been ambiguous is, first, depending on how you cut the data there may or may 

not be evidence of differences in prices. While I recognize that 

there are people that feel quite strongly that that is the case, if one 

looks at large panels of data, it doesn’t always show up as quickly, 

as clearly as one might like. 

The second is that one has to really control for all the factors 

that a bank can appropriately take into consideration in making a 

loan. And, indeed, particularly in the world of small businesses, as 

you well know, they come on the scene quickly, and have a relatively large demise as well. So it is often hard looking at a small 

business to have a strong sense of how viable it is going to be. And 

that is a legitimate question for a banker to take into consideration. But it is very hard for an economist after the fact to determine what the banker might have seen at the time that the credit 

decision was being made. 

And then we also discover, for example, that a number of small 

businesses avoid applying for credit just as a general matter. And 

it turns out that minority- and female-owned businesses are more 

likely to avoid applying for credit. And you cannot tell quite 

what——

Ms. MILLENDER-MCDONALD. And why is that? And why is that, 

sir? 

Mr. FERGUSON. Well, that is the point, we cannot tell quite why 

that is the case. We do not know—— Ms. MILLENDER-MCDONALD. And that is why—— Mr. FERGUSON [continuing]. We do not know if it is out of anxiety about the concerns that you have just raised or if there are 

some other perfectly legitimate reasons why they might be avoiding 

it. 

Now, let me get back to this. Recognizing this deep ambiguity 

that exists in the science, I think it is our job to continue to raise 

the importance of enforcing laws that are currently on the books. 

It is our job, I think, to remind banks of the appropriate basic business skills, to look at creditworthiness. I think it is frankly the job, 

as you have done, to ask people about this, to keep this as an important topic so that we can continue to try to make inroads and 

make sure that the credit is extended based on the right kinds of 

criteria. 

So the fact that the science has not yet proven it does not mean 

that we shouldn’t continue to encourage the right kinds of behav-
17

ior, and that certainly means that we should continue to vigorously 

enforce the laws that are currently on the books. 

Ms. MILLENDER-MCDONALD. It seems to me like the ambiguity 

that you have just mentioned certainly should be of some concern 

to the Federal Reserve or at least speak to the banking industry 

as to why is it that women and minorities are not rushing to trying 

to find or trying to seek those loans. And as you said about the control of the data that makes it ambiguous, that is another concern 

that I have. But that is another time I suppose because I wanted 

to ask you some more questions here. 

Mr. FERGUSON. Let me respond to another point you have made. 

One of the other things that the Federal Reserve does is that we 

have very active community development activities around the 

country run by our various Reserve Banks. One of the goals there, 

one of the things that does emerge in those activities, and again 

we are not trying to allocate capital but raise the degree of conversation if you will, is to help bankers understand how to think 

about lending in a variety of different sorts of communities. And 

so, you know, we clearly at our Reserve Bank level have active programs again enforcing laws that are currently on the books but 

thinking through questions of community development. And one of 

those questions obviously has to do with do bankers fully understand how to look at and work with a variety of different types of 

borrowers? 

So I would say that the fact that the data have not been clear 

on this has not in any sense stopped us, either through comments 

that we make, through the enforcement of the law, or through the 

active behaviors of our 12 Reserve Banks, from focusing in on the 

kinds of issues that you are currently raising. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, I have just got to 

ask Mr. Ferguson. You laid out some data here when my colleague 

spoke with you, and you spoke about that data in rounds of small 

businesses. Now, do we differentiate between small businesses and 

small manufacturers? Aren’t we talking about manufacturers today 

as opposed to small businesses or are they all encompassing? Because your data, as I heard, was strictly on small businesses and 

the notion why this interest rate is proposed, increased interest 

rate. 

Mr. FERGUSON. I am not discussing specifically interest rates. 

But the testimony itself attempted to parse out data where we 

know about small manufacturers versus small businesses. So we 

have worked hard to try to do that. 

Now, one of the points I did make in the testimony is that the 

nature of this downturn that we experienced last year was unusual 

for a number of reasons but it hit the manufacturing sector particularly hard. And I think, as I have said in the testimony—— Ms. MILLENDER-MCDONALD. Of course it did. 

Mr. FERGUSON [continuing]. That is an important background 

fact to have as one thinks about credit, credit extension, creditworthiness, is that indeed manufacturing then, small manufacturing——

Ms. MILLENDER-MCDONALD. Of course, yes. 

Mr. FERGUSON [continuing]. Was uniquely influenced by the 

slowdown last year. 
18

Ms. MILLENDER-MCDONALD. And this is the climate by which you 

increase interest rates as opposed to not, given that type of scenario you have just outlined? 

Mr. FERGUSON. I think the Chairman wants to say something. 

Yes, sir? 

Chairman MANZULLO. Well, I would like to get Congressman 

Phelps, make sure his questions are in, and then perhaps we might 

have one or two other questions and wrap up. Okay, but thank you, 

sir. Before you leave, it is obvious that Dr. Ferguson is open to all 

types of data, studies, measurements, etc. And if you come across 

in your journeys a specific type of indicator, bring it to my attention and Ms. Vela ́zquez. We would love to work with you and send 

a letter to Dr. Ferguson because he looks at it. Anything that we 

send him they take a look at. 

Thank you. 

Ms. MILLENDER-MCDONALD. I would do just that, Mr. Chairman. 

I do have a statement for the record. Thank you. 

[Ms. Millender-McDonald’s statement may be found in the appendix.] 

Chairman MANZULLO. That will be made part of the record. Congressman Phelps. 

Mr. PHELPS. Thank you, Mr. Chairman. 

Dr. Ferguson, thank you for your valuable input. Just to follow 

up on one of the themes. And maybe you stated this. I came in a 

little bit after the middle of your statement, and I have not read 

it all. Why do you think the recent recession had a disproportionate 

impact on the manufactured goods rather than other sectors of our 

economy? 

Mr. FERGUSON. I think that in the nature of the downturn last 

year, the slowdown last year, two things occurred. First, early on 

in this process of adjustment, I think businesses decided that the 

outlook in terms of sales was not as optimistic as they had originally thought. And, therefore, they decided they wanted to reduce 

their inventory. Well, by definition, inventory is goods, it is not 

services. We don’t have inventories of services, it is goods. And because it is goods it tends to be by definition manufacturing that ultimately feels the brunt of a decision by any business to reduce inventory. 

The second thing that made last year’s downturn unusual was 

that it followed a period of very rapid investment, particularly in 

high-tech capabilities, in communication equipment, computation 

equipment, etc. And, again, what we saw was quite a change in investment appetite for businesses so that high-tech manufacturers, 

not just manufacturers in general but high-tech manufacturers, 

were heavily influenced by last year’s slowdown. 

And so I think the reason that manufacturers were disproportionately influenced by the slowdown has everything to do with the 

nature of the slowdown being focused on inventory and inventory 

adjustments and also relatively dramatic changes in investment 

and investment intent by businesses. 

Mr. PHELPS. Thank you. Just as something I have run across, 

and it is not a question, just a comment. Many of the smallest of 

the small businesses I have found, especially in small rural areas 

where I represent largely, do not really even attempt to access cap-
19

ital through the banking systems because they are so small that 

many times of course the SBA with their minimal $50,000 program, so many of these businesses return their own profit back into 

the business and circulate that sort of activity to operate. 

So I am not sure we have a system or could how we monitor 

those types of the smallest of the small businesses that are not 

even participating in the banking activity but yet create two or 

three or four jobs there or are self-employed for the most part, pay 

their own health insurance. Those are steaming, they contribute to 

the economy also. But yet, I do not even know how we try to deal 

with them. And I have sat down with many of them in their own 

little mom and pop shops that really contribute to the economy in 

many invisible ways. And I am not sure how we could ever get a 

handle, but they tell me the reason; my point is they tell me they 

don’t try to access capital because many of them are right on the 

margin of growing to another level but what they would anticipate 

in that profit and what they would have to pay in interest rates 

even at the very lowest just does not make it worthwhile. 

That’s a unique phenomena. 

Mr. FERGUSON. It is unique. There is nothing much I can add but 

you are absolutely right. The range of things that we describe as 

small businesses include some that are really, for lack of a better 

word, microenterprises and extremely small. 

Mr. PHELPS. Right. 

Mr. FERGUSON. Many of them as I have thought about this and 

looked into it are self-financed from their own cash flow or from 

relatives and friends, etc., and are not big enough or do not feel the 

need to try to find capital by going into the banking system. 

Mr. PHELPS. Which says something for the management skills at 

the same time. If all of us were that good, we probably would not 

need the banks then we would have another problem, wouldn’t we. 

Thank you very much. 

Mr. FERGUSON. Thank you. 

Chairman MANZULLO. I am going to exercise my prerogative as 

Chairman and ask a concluding question. 

Doctor, we, several months ago we had a roundtable discussion 

with small business people that are concerned about the lack of 

credit. And we discovered an interesting phenomenon going on, and 

that is that the small business people, who are really the entrepreneurs of the world, are financing their business operations on 

credit cards, on introductory rates of .9 percent for three months 

or six months, then they roll it over to the next one, pay it off. And 

it was some phenomenal testimony as to this unique system of financing which works all the time because of the abundance of credit cards. 

Is there any indicator that exists as to the amount of credit card 

debt that would be attributed to entrepreneurs getting capital at 

very low prices? 

Mr. FERGUSON. Well, as I said, we do these surveys of small business finance, and that survey does have some information on it 

with respect to types of external financing services used, as that is 

called. 

Chairman MANZULLO. External financing? 
20

Mr. FERGUSON. Right. And that includes checking accounts. It includes credit cards, as you just talked about. It includes loans of 

one sort or another. So, indeed, as we go out and do the surveys, 

we do try to track the kind of information that you have just talked 

about. 

If one looks at the sort of periodic information on credit cards, 

there is obviously more frequent information on cards, but the ability to tell from the sort of the week to week information about credit outstanding, how much of revolving credit, which is credit card 

credit, is being used for small business purposes versus individuals, 

that is hard to say. 

So our survey data is the place where we find most of the information on credit cards. And we take those surveys periodically and 

then that is the best information we have. 

Chairman MANZULLO. Thank you very much. Again, I want to 

thank you on behalf of the Full Committee for your taking the time 

to be with us this morning and look forward to working with you 

and look forward to hosting you in Rockford, Illinois, where we can 

show you the sweet smell of machine oil. 

Thank you, Dr. Ferguson. 

Mr. FERGUSON. I am looking forward to it. Thank you. 

Chairman MANZULLO. Appreciate it. Thank you. 

The second panel is here. And I would like Congressman Davis 

to introduce a constituent of his, who is with us today. 

Mr. DAVIS. Thank you very much, Mr. Chairman, and Ranking 

Member Vela ́zquez. It is my pleasure to present to the Committee 

Mr. Howard Habenicht, who is President and CEO of Vibro/Dynamics in Broadview, Illinois. Of course Vibro/Dynamics, which 

was established in 1964, manufactures vibration isolation devices 

and other machinery, installation systems for metal forming, metal 

cutting, forging, can making, die casting, plastics, woodworking, 

and textile industries. 

It is a delightfully small community where his plant and facility 

are located. They are a thriving industrial-based community. And 

we are just delighted that he is able to be here today representing 

the National Manufacturing Association. 

Welcome and thank you so much. 

Chairman MANZULLO. Okay. The first witness will be Dr. Michael Czinkota. Your name is Polish, mine is Italian, all right? I 

will do the best I can on these names. I appreciate that, Matt, but 

my gosh. We could call you Dr. Smith. I mean that would make it 

a lot easier. 

Dr. Czinkota is professor of international business at Georgetown 

University, McDonough School of Business in Washington, D.C. 

And he has been a special advisor to a project that we have been 

working on ever since we got it back from China called America’s 

Jobs First, sitting in on meeting after meeting making sure that we 

stay on course in order to increase America’s exports. 

Dr. Czinkota, look forward to your testimony. We have the red 

light here. When it gets to yellow, that is one minute to go. When 

it gets to red, that means time to conclude. So we would appreciate 

if you could follow that. Look forward to your testimony. 

The complete statements of all the witnesses will be made part 

of the record. 
21

If you could pull the mike a little bit closer to you, Doctor, I 

think it would be a lot easier to hear. Thank you. 

STATEMENT OF MICHAEL CZINKOTA, PH.D., PROFESSOR OF 

INTERNATIONAL BUSINESS, GEORGETOWN UNIVERSITY 

McDONOUGH SCHOOL OF BUSINESS, WASHINGTON, D.C. 

Mr. CZINKOTA. Thank you very much, Chairman Manzullo, distinguished members of this Committee. I appreciate your inviting 

me to testify here today on U.S. exporters in the global market 

place. I base my comments on the more than two decades that our 

international marketing team at Georgetown University has systematically tracked the activities of international firms. 

The news for the U.S. trade position and for small to medium 

size U.S. exporters is not good. Large trade deficits, which in 2001 

reached $426 billion for trade and goods, are unsustainable in the 

long run. That makes it increasingly critical to achieve an export 

performance that matches and exceeds our imports. 

Exports are also an important contributor to national employment. Over eight million jobs are sustained by the exports of manufactured goods. In Illinois alone, for example, more than 360,000 

jobs are linked to exports. 

U.S. exporters are vulnerable in their export performance and expansion. Small and midsize U.S. manufacturers encounter four 

major problem areas: financial issues, supply chain management, 

regulatory issues, and market contact difficulties. 

On the financial side, international transactions are more costly 

than domestic ones. This is due to the time lag between shipping 

and payment receipts as well as to the need to offer credit to buyers. At the same time as they need more funding, our exporters are 

encountering a tighter credit market and the threat of higher interest rates. 

Unlike larger firms, our smaller companies cannot boast of access 

to global capital markets. Their transactions are too small and 

their collateral processes are too limited. As Mr. Ferguson already 

has stated, typically they are reliant on local financing alternatives, and therefore they suffer from local interest rate inefficiencies. 

Exchange rate changes also make smaller manufacturers vulnerable since they are not prepared to adjust to such shifts by serving 

new markets. The low value of the European currency, the euro, 

makes it easy for importers but tough for exporters to compete. 

Please consider that there is an increasing commoditization of 

goods where price is the decisive criterion in getting the order. Any 

upward swing in price, be it due to exchange rate changes or interest rate shifts, even if seemingly minor, can have a major effect on 

a firm’s performance abroad. 

Government regulations, such as export controls and customs 

rules, often extract a high price of compliance from smaller size 

firms. 

Firms are also exposed to a double-whammy from trade policy. 

For example, in the steel case, many of our smaller firms must now 

pay higher prices for their steel-based input while at the same time 

their export efforts are exposed to retaliatory action by trading 

partners. 
22

Due to the threat of terrorism, our firms also need to be much 

more vigilant in their supply chain management. Security measures require them to redesign their just-in-time systems. Higher 

transportation and insurance costs force them to revamp their way 

of transporting supplies and bringing them to market. 

All these shifts make it difficult for firms to compete abroad. It 

bears remembering that any firm that newly enters an international market must not only match but must by far exceed the 

capability of the local competition in order to be successful. We 

need to provide our firms with a stable financial environment both 

domestically and internationally. Low interest rates empower our 

firms. A responsible relaxation of some of the stringent credit criteria would also be of help, as would encouragement and support 

of marketing and distribution based investments. Unless our firms 

can make such investments into the international presence and 

processes, they will not compete successfully. 

We need to have more work done on generating data-driven insights so that we know which policies help and which ones hinder 

the performance of firms. The development of a globalization index 

which measures the extent to which countries are linked to the 

world could be of major use to firms. Increased collaboration of federal agencies with trade and professional organizations is also important in supporting the tough tasks that our exporters face. 

Overall our smaller size manufacturers still have many hurdles 

to overcome on the way to increased exports. They need to be able 

to fight and win the battles of competition in the international 

marketplace. 

On the policy side we need to ensure that our firms have a 

strong, healthy, and competitive platform from which to launch 

their international ventures. After all, economic performance and 

success are the key foundation to our global position and our national security. 

Thank you for your attention. 

[Mr. Czinkota’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. 

Our next witness, it is my pleasure to introduce is my constituent. Don Metz is Vice President of Metz Tool and Die Works 

in Rockford, Illinois. And Don and I have known each other for a 

long period of time. He represents the old world manufacturing 

base that I referred to, but I left out the fact that it is not only 

the Swedes that settled the area, but it is the Germans. 

Mr. METZ. That is right. 

Chairman MANZULLO. With their high-technology and the families going back for different generations. 

Don has worked with us. And I don’t know how many government people that he has met in efforts to expand his horizons and 

to keep the shop profitable, keep the people employed. And, Don, 

we are honored you came all the way from Rockford, Illinois, to testify to us today. We look forward to your testimony. 

STATEMENT OF DON METZ, OWNER/PRESIDENT, METZ TOOL & 

DIE, ROCKFORD, ILLINOIS 

Mr. METZ. Thank you. 
23

Good morning. Good morning to all of you, Mr. Chairman, members of the Committee. I am here today to represent and testify to 

you on behalf of the National Tool and Machining Association and 

our 2,500 members spread across this nation. I want to talk to you 

for just a few moments about the negative impact that raising interest rates would have on our industry. 

It was June of 1976, and I was introducing President Ford to a 

meeting of the National Tool and Machining Association in Illinois. 

And that night, the country was gripped in a recession, and these 

people were despondent, discouraged, and a little bit fearful. And 

President Ford stepped to the microphone in front of that group 

and he said, ‘‘I am absolutely convinced that this country, because 

of its people, because of its structure of government, because of the 

policies we pursue, will meet and conquer this challenge.’’ Well, the challenges for Metz Tool & Die began 55 years ago 

when my parents, Jim and Betty Metz, left their family-owned 

farms on the Missouri-Arkansas line to come to northern Illinois to 

seek their version of the American dream. They were armed simply 

with a faith in God, a willingness to sacrifice, and a belief that 

hard work would pay dividends. My dad started as an apprenticeship mold maker, and the Swedish and Italian mold makers were 

his role models. And after years of hard work and working two jobs 

and saving his money, he opened the first Metz Tool & Die in the 

garage behind our house. 

I joined the workforce at the age of six and worked for 40 cents 

an hour. And believe me, I was overpaid. But as time went, with 

loyal customers, fair competition, and dedicated workers, the next 

40 years brought prosperity and expansion to that industry and to 

that business. 

But mold making is a business of precision machining. And if 

you ask; what is a mold maker? A mold maker is a sculptor. He 

is the artist in steel. He is the visionary that takes your dreams 

of a new product and turns it into reality. Mold making is everything that is mass-produced, from the first rattle you shake as a 

baby to the decorative hardware on your casket when you are laid 

to rest, begins in our industry. 

And our industry meant more to me than just a business. My 

son, Matthew Metz, only lived 16 years. And those 16 years were 

spent in a wheelchair because he had Duchenne’s muscular dystrophy which is, of course, the disease Jerry Lewis does a telethon 

for. Now, in that time you need lifts, wheelchairs, special beds, all 

sorts of special equipment. And I always turned to my dad, the 

mold maker, to tell us how to adapt that equipment to Matt’s 

handicap. 

One day I was agonizing over how to fix a particular bed for 

Matt’s use. And Matt said to me, ‘‘Don’t worry about it, Dad, 

Grandpa will figure it out, he’s a mold maker. They can make anything.’’ But mold making, die making, our industry has faced a new 

enemy in the millennium. It’s offshore. 

Companies have been lured offshore by the promise of cheap 

labor, low taxes, few environmental regulations, and they have left 

our markets. Motorola is the classic example in our district. Motorola came in with the promise of many jobs and millions of dollars 

in subcontract work. Well, now Motorola has chosen to go offshore, 
24

the jobs are gone, and the millions of dollars of subcontract work 

are now gone. 

Our community suffered through the 1980s with a 25 percent 

plus unemployment. And we feel like we are moving back into that 

same range again. 

I have had in the last two years the opportunity to travel and 

talk with some of my constituents and contemporaries. I walked 

down the halls of one shop, and the man showed me that there was 

a $100,000 CNC machine sitting empty for lack of work. Farther 

down the hall was a $300,000 machining center sitting empty for 

the lack of work. The walls were lined with the benches that used 

to house the tools of mold makers and die makers and machinists, 

but because business is off 30 to 40 percent, they were no longer 

working. 

One man related the story to me of how he raised his business 

up from the very beginning. And he built it into a prosperous business. And he told his sons, you go off to college and get an education and when you come back take my business to the next level. 

The sons went off to college, they got an education. And they 

came back. But when they got back, there was very little business 

there because the business had gone offshore. But yet understand, 

even when business drops off mortgage payments, interest payments, principal payments, workers’ comp medical insurance, fire 

insurance, all these things keep coming. Suppliers don’t sell there. 

Rubbish people don’t pick up there. People don’t bring uniforms 

there because business is off 30 and 40, 50 percent. 

How can you help us? One, pass the Association Health Plan bill. 

That would give us insurance for our people at a competitive rate. 

Give a Skilled Workforce Enhancement Act to bring the apprenticeship training back to our industry, a $15,000 tax credit. 

Low cost equipment loans. 

But most important, keep interest rates at their current levels 

because when interest rates are low, then we have the opportunity 

for new products. And new products create jobs. And when interest 

rates go up, new products are shelved, are forgotten, and then we 

lose jobs. 

You have heard it said that the economy is rebounding. I hope 

you understand that I am saying our industry has not made it back 

yet. And our industry needs more time. 

Last but not least, think America first for all your subcontract 

work. 

Thank you very much. 

[Mr. Metz’s statement may be found in the appendix.] 

Chairman MANZULLO. This has been one of the finest hearings 

that we have had in many—we have had, what, 45, 50 hearings together. And I tell you, you guys are making an impact, you ladies 

and gentlemen are making an impact. You know, from the Midwest 

we all say guys. I don’t know why we do it. 

Thank you for your testimony, Don. 

Our next witness is, is it Fedor? 

Mr. FEDOR. Fedor. 

Chairman MANZULLO. Fedor. He is the President of MASCO Machine, Incorporated, testifying individually and on behalf of his as-
25

sociation, the Association for Manufacturing Technology. I look forward to your testimony. 

STATEMENT OF EDWARD FEDOR, PRESIDENT, MASCO 

MACHINE, INC., CLEVELAND, OHIO 

Mr. FEDOR. Thank you. Good morning. 

Let me begin by thanking you, Mr. Chairman, for your strong 

leadership along with Congressman Neal of Massachusetts of the 

House Machine Tool Caucus, which has provided invaluable support and encouragement for our industry. 

I would also like to thank you and the members of your Committee who supported the economic stimulus package recently 

signed into law by President Bush. The 30 percent expensing provision included in the package gives my industry a real shot in the 

arm that we so desperately need right now. 

Masco Machine, my company, is a small, family-owned designer 

and builder of custom metal cutting machinery. We have 60 employees. And we provide production equipment to the automotive 

industry, their suppliers, heavy equipment, agriculture, aerospace 

and other industries. 

It is a cause for concern that the U.S. machine tool industry, an 

industry critical to national security and economic stability, is experiencing the worst market conditions in its domestic market 

since the Great Depression. Orders are off more than 50 percent 

since their peak in 1997. Import penetration has shot up nearly 20 

percentage points in the past three years due to the Asian financial 

crisis and the weakening of the euro and the yen. Moreover, we 

have seen increased overseas and domestic outsourcing by some of 

our largest U.S. customers. 

Since the slowdown in manufacturing started in late 2000, my 

company’s sales dropped off by as much as 50 percent compared to 

our sales in the late 1990s. We have had to lay off 16 percent of 

our workforce, reduce hours, reduce employee benefits and cut 

costs in other areas. And it looks like, Lord willing, hopefully we 

won’t have to lay off more people but we will see. 

Unfortunately, almost all of our peers have had to do the same 

or more simply to stay in business. And we have lost a number of 

our very important peers in the last couple of years. 

Over the past year-and-a-half, the Federal Reserve has responded to the economic downturn by cutting interest rates 11 

times. And this policy is starting to show results. However, tight 

bank regulatory standards have resulted in credit being diverted 

from privately held companies, and many banks have raised their 

fees or their collateral standards or both, which has the effect of 

negating the effect of lower interest rates from the central bank. 

To compound this credit crunch the dollar has been at record 

highs. This has had a devastating effect on my industry, effectively 

adding a 25 to 30 percent tax on U.S. machine tool products. This 

is an added cost that no degree of cost-cutting or productivity can 

overcome. 

Recently my company participated in an online reverse auction 

for an automotive customer where we were competing with two 

German companies and two U.S. companies. Our equipment was 

priced absolutely as low as we could go. The overvalued dollar, un-
26

dervalued euro permitted our European competitors to undercut 

our pricing by 30 percent. There is no way for us to compete with 

such price advantages. 

Once market share is lost, it is very difficult to regain it. In almost every case our foreign competitors are strongly supported by 

their government. At times it seems our government is working 

against us. U.S. export control policy, particularly with regards to 

China, is a good example. Repeatedly over the last decade the 

United States Government has taken a negative approach toward 

machine tool sales to China while our allies have not. The result 

has been that the Chinese have been denied nothing in terms of 

high-technology while U.S. firms have lost out in a crucial market. 

My company bid on a piece of equipment for legitimate end user, 

and the export licensing process took 11 months to complete. The 

whole process appeared to me to be biased toward refusing a license without ground. This effectively shuts us out of many potential orders in China and deters potential customers from even contacting us in the first place. 

Mr. Chairman, our industry was hit extremely hard by this economic downturn. It battered manufacturers first. And the downturn has been sustained for nearly two years. We only see modest 

relief coming and not until well into the second half of this year. 

I would note, Mr. Chairman, that if the United States were to 

use our domestic core of the machine tool industry we would become wholly dependent on our allies and trade competitors for the 

industrial production machinery that fuels our productivity and 

keeps our industries on the cutting edge of the latest technology. 

Without sensible government policies, the U.S. machine tool industry, which is critical to America’s continued leadership, may be lost. 

Our industry supports your work and hopes to continue to work 

with you in your efforts to build a stronger America. 

So we thank you, Mr. Chairman. And I would be happy to respond to questions. 

[Mr. Fedor’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. 

Our next witness has already been introduced. You would think 

I would be able to pronounce his last name after hearing it several 

times. Is it Habenicht? 

Mr. HABENICHT. That is correct. 

Chairman MANZULLO. That is Italian for ‘‘good food’’? 

Mr. HABENICHT. That is German for ‘‘have nothing.’’

Chairman MANZULLO. We need a more positive spin on it, you 

know? 

Mr. HABENICHT. Right. I have had to live with that name all my 

life. 

Chairman MANZULLO. What would be German for ‘‘abundance’’? 

Mr. HABENICHT. I am not German. I do not know. 

Chairman MANZULLO. Oh, okay. 

Mr. HABENICHT. I am an American. 

Chairman MANZULLO. We look forward to your testimony. Thank 

you. 
27

STATEMENT OF HOWARD HABENICHT, PRESIDENT/CFO, 

VIBRO/DYNAMICS CORPORATION, BROADVIEW, ILLINOIS 

Mr. HABENICHT. Thank you, Mr. Chairman. I appreciate the opportunity to testify before your Committee today. 

As you said, my name is Howard Habenicht. I am President and 

Chief Financial Officer of Vibro/Dynamics Corporation. We are a 

member of the National Association of Manufacturers, an association with 14,000 member companies. And included in that are 

10,000 small manufacturers. 

Vibro/Dynamics is located in Broadview, Illinois, which is just 

outside of Chicago. And we manufacture mounts and mounting systems for the installation of industrial machinery. We have about 30 

employees but we are recognized as the leader, technological leader 

in the installation of metal forming presses in the United States. 

About 80 percent of our business is in the United States and Canada with about 20 percent exports. 

As has been repeated today, the manufacturing sector was hit 

much harder than the rest of the economy during last year’s recession. In fact, the manufacturing downturn actually began fully six 

months prior to the official start of the recession in March of 2001. 

It is the first time such a thing has happened since the end of 

World War II. And in setting the stage for a recovery in 2002, one 

of the most important elements is to be able to maintain low interest rates. This is especially important for small manufacturers like 

Vibro/Dynamics. While large firms have wide access to capital 

through bond and equity markets, small firms rely almost exclusively on the banking system for capital. 

The 2001 manufacturing recession was caused in large part by 

a combination of high capital costs and zero pricing power. Belatedly, the Federal Reserve cut interest rates aggressively in the beginning of 2001. And as I speak now the federal funds rate now 

stands at a 40 year low. But any move by the Federal Reserve to 

increase interest rates at this point could derail the recovery that 

hopefully is just beginning to emerge. 

Adjusting for inflation the real cost of borrowing for firms, measured as the nominal prime rate less inflation, is actually still 20 

percent above its 40-year average. And we do not need it to go any 

higher. Moreover, no meaningful signs of inflation exist. 

With inflationary pressures absent this is the wrong time to 

argue for higher interest rates when manufacturers are just emerging from the worst recession since 1982. 

Now let me talk about the effects of the overvalued dollar which 

is decimating much of U.S. industry and certainly has hurt our 

company. In my company we have had to reduce our workforce by 

30 percent and impose 10 percent pay cuts to everyone else. Last 

year was the first time in our 36-year history that we lost money. 

In the last 10 years we have seen a significant decline in our customer base which is the U.S. machine tool manufacturers. In December of 2000 the only surviving U.S. builder of large presses, and 

at that time our largest customer, went bankrupt. The large press 

builders, and I am talking about builders of machines that weigh 

in excess of 4 million pounds up to as much as 10 million pounds, 

these builders are now found in Germany, Japan, and Italy. There 

are none in the United States. This has shifted our focus to over-
28

seas markets and manufacturers as these machines now are imported in the United States. 

Because of the overvalued dollar, we find that we simply cannot 

match the prices offered by our overseas competitors and are now 

actually looking at purchasing some of our component parts overseas at costs much less than what it costs us to purchase in the 

United States. And this kind of action will lead to even more lost 

manufacturing jobs in the United States. 

I believe in fair trade and fair competition. We have the best 

workers in the world right here in the United States, and our productivity continues to outpace that of other countries. Unfortunately, we cannot make up for a dollar-induced surcharge of 30 

percent. And we are not alone. The National Association of Manufacturers using U.S. Government data has found that U.S. manufactured goods exports have fallen $140 billion in the last year-anda-half. This is astonishing. In effect, our association estimates that 

this decline, principally due to the overvalued dollar, is so large 

that it has accounted for two-fifths of the entire decline in U.S. 

manufacturing employment, four out of every ten unemployed factory workers. 

I am not a monetary economist. I am trying to run a company. 

But I know it is time for the U.S. Government to stop extolling the 

virtues of a strong dollar at any cost and start advocating and 

working for a realistically valued dollar. 

Thank you for your attention. 

[Mr. Habenicht’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very for your testimony. 

The next witness is Sara Garretson from the Industrial & Technology Assistance Corporation. And we look forward to your testimony. 

You might want to pull your mike a little closer to you. 

STATEMENT OF SARA P. GARRETSON, PRESIDENT, INDUSTRIAL AND TECHNOLOGY ASSISTANCE CORPORATION, NEW 

YORK, NEW YORK 

Ms. GARRETSON. Thank you, Mr. Chairman and Vice Chairman 

Bartlett. And I hope we will see the Ranking Member Vela ́zquez 

coming back. 

I am Sara Garretson, the President of ITAC, the Industrial and 

Technology Assistance Corporation. We are a not-for-profit economic development organization located in New York City. Like all 

of the 60 Manufacturing Extension Partnership or MEP centers 

across the country, we help small manufacturing firms in our locale 

to be more productive, competitive, and profitable. 

The manufacturing sector is important to our nation’s economy. 

It contributes 16 percent of the gross domestic product. Employees 

earn $44,778 average annually, which is 27 percent higher than 

the U.S. average for all industries. 80 percent of U.S. export revenue is manufactured goods. 

The small manufacturer is a key component of our nation’s industrial base. There are over 355,000 of them in the U.S., making 

machine tools and molds, but also making parts for Boeing and 

G.M., producing food for our markets and products for our retail 

stores as well as for export. 95 percent of all U.S. manufacturers 
29

are small firms. They provide employment for 11.3 million Americans, two-thirds of total manufacturing employment. 

Almost ten years ago, I participated in a National Research 

Council Study entitled ‘‘Learning to Change: Opportunities to Improve the Performance of Small Manufacturers.’’ The study identified five barriers to manufacturing performance improvement in 

small firms. One of these was the scarcity of capital. The study 

found that small manufacturers lacked access to operating capital 

and investment funds for modernization. 

Has this situation changed? Well, recently the National Association of Manufacturers completed a survey on credit rationing. One 

of the survey’s conclusions was that, and I quote, ‘‘More than a 

third of small and medium size manufacturers are finding it more 

difficult to obtain credit from their longstanding bank lenders—a 

trend that threatens to undermine our economic recovery.’’ Why does this matter? If we are to recover from the current recession, then we need small manufacturing firms to improve their 

productivity and to develop new products and markets. These firms 

can drive the recovery, but only if we give them the means to do 

so. 

Investments in productivity improvement and in product development pay back year after year. Would firms actually invest in 

productivity improvement if they could access the financing at a 

reasonable cost? Another recent NAM survey showed that over 75 

percent of small manufacturing firms want to invest in their future, including marketing and sales, manufacturing process improvement, product development, and workforce training. 

At ITAC, as with other MEP Centers, we frequently witness the 

payback of these investments. In my written testimony, I gave two 

examples from Congresswoman Vela ́zquez’ District. I think I have 

time for one today. 

Grand Processing Inc., formerly known as Tony’s Brushing and 

Processing, services the local textile knitting industry by dyeing 

and drying textiles. They employ 75 people. In today’s market they 

are expected to provide high quality and 24-hour turnaround. They 

came to us for help in reducing their very high energy costs and 

to reduce turnaround time. 

We worked with the company to apply microwave technology in 

a whole new way to drying for textiles. When the installation becomes operational, the company will have energy costs at one-fifth 

the current level; the machine will dry the textiles in one-fifth the 

time, using one-fifth the labor. 

The project cost $350,000 but, fortunately, we were able to help 

the company to access financing through a New York State government agency. 

Before I close I want to say a few words about the Manufacturing 

Extension Partnership. As I am sure you are aware, the program 

is in danger of elimination because the proposed Administration 

Budget for fiscal year 2003 reduces funding from $106.5 million to 

$12.9 million. MEP is a cost-beneficial investment for the Federal 

Government. We return $4 in federal tax revenue for every $1 invested in the program. For fiscal year 2000 only, our client firms 

reported $2.3 billion in increased and retained sales, cost savings 

of $483 million, and more than 25,000 jobs created or retained. 
30

In sum, our small manufacturers are an important part of our 

economy, past, present, and future. Our country and our economy 

need to make sure they have the means and the knowledge to invest in their future success. The MEP provides the technical support the firms may need to invest wisely and successfully, but the 

manufacturers also need to be able to access reasonably priced financing. Keeping interest rates low during this critical phase of the 

economic recovery will help to make the means available for these 

investment in the future. 

Mr. Chairman and Ranking Member Vela ́zquez, I thank you and 

the Committee for the opportunity to appear before you today. And 

I will be happy to answer any questions. 

[Ms. Garretson’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you very much. Excellent testimony 

of everybody. 

I have a question I would like to ask of Mr. Habenicht. And, Professor, perhaps you could help us answer this question. 

Appearing on page 5 of your testimony, right at the bottom, it 

says ‘‘one of the European press builders.’’ Are you talking about 

newspaper press or what type of presses. 

Mr. HABENICHT. No, no, metal forming equipment. 

Chairman MANZULLO. Oh, okay. 

Mr. HABENICHT. Punch presses. 

Chairman MANZULLO. Punch presses. Okay. 

‘‘Had been telling their customers that if they used Vibro/Dynamics mounting systems for installing their presses, they would not 

honor their warranty.’’ And even though this is not government action, Professor Czinkota, do you detect any type of violation of any 

trade laws by that type of activity taking place? 

Mr. CZINKOTA. Well, it is always difficult to tell outside of having 

been there at the specific situation. But clearly in terms of procurement code which would encourage transparency and equal access 

to contracting, one could and possibly should look at that more 

closely. 

Chairman MANZULLO. But this was a private company here. 

Mr. CZINKOTA. Nonetheless, we like to think that the procurement code, even though it focuses on government procurement, also 

tacitly expanded to reasonable actions on part of the private sector. 

It is the type of thing where you cannot bring down the brunt 

of trade law but you certainly can bring down the force of persuasion in trade discussions. 

Chairman MANZULLO. Did you want to comment on that? 

Mr. HABENICHT. Well, we thought it was very mean-spirited, if 

nothing else. 

Chairman MANZULLO. At the bottom, right. But that happens, 

but it sometimes means there are things illegal. 

Mr. HABENICHT. But that is, yes, that is something that happened several years ago. And since that time we worked very hard 

with this company. And as I indicated in the written testimony 

they do now allow us to quote on their machines. So that particular 

negative thing that was happening is not happening anymore. 

Our big problem today, as I said, is the surcharge that we are 

faced with because of the inflated dollar. 
31

Chairman MANZULLO. Okay. Then let me go right back to Dr. 

Czinkota. This is a tough one. You know, five years ago we were 

commending the Chinese for not devaluing their RMB during the 

Asian crisis. Now for five years it has been stuck at I think 8.7 to 

the fixed U.S. dollar. 

Dr. Czinkota, how do you go about, I don’t want to use the word 

devaluing the U.S. dollar, because that is what it is, but making 

the U.S. dollar more competitive overseas? Is the solution harder, 

or is the remedy harder than what the problem is? Appreciate your 

comments, it is a tough question. 

Mr. CZINKOTA. Well, it sure is. And let me tread very lightly 

here. 

First of all, obviously we need to keep in mind that if we are 

talking about currency change, there are different players. How 

you like it depends on where you sit. Importers, for example, are 

absolutely delighted about the low prices they are able to obtain 

abroad because of a strong dollar. 

Now, our focus today is on the other side, namely exporters, and 

how can they penetrate international markets? And they are clearly inhibited by a strong dollar. 

Now, the last policy occasion that we have had where there was 

a meeting and a subsequent decline of the dollar was really the 

Plaza Agreement in the late Eighties at which time the major trading players met, the secretaries of finance, in our case Treasury, 

met and looked at the world and tried to formulate a longer-term 

vision as to where do we go from here. And to some degree their 

pronouncements, even though backed up by some funds flow, also 

had a lot of psychological effect on the markets. 

One problem we are facing today, if you want to call it a problem, is the U.S. has a very powerful attraction as a market and as 

a safe haven for money. So as a result, a lot of people abroad believe in our country, which is actually nice to know. But they accompany that belief by sending money here. And as they send 

money here and purchase dollars that means the value of the dollar remains very strong. 

Chairman MANZULLO. You did not answer the question. Do you 

want to take a stab at it? 

Mr. HABENICHT. I could take a stab at it. 

Chairman MANZULLO. Is the remedy worse than the cure? Anybody. Okay. 

Mr. HABENICHT. I think, I don’t know a lot about how this stuff 

works, but I think one of the things that happens is when the dollar starts to fall in relation to foreign currencies, the Treasury Department goes in and starts buying U.S. dollars on the market to 

prop it back up. That is a simple answer and it may be oversimplified, but that is about the extent of my knowledge of how that 

works. 

Chairman MANZULLO. Well, that says when the dollar starts to 

fall. But that has not happened. 

Mr. HABENICHT. Well, you don’t know it has not happened because when it does start to happen they take this action that raises 

it, they start to buy the funds. 

Chairman MANZULLO. Well, there is another dynamic. It is not 

just that strong dollar is not just making it more difficult for Amer-
32

ican manufacturers to export, but it is direct competition for American manufacturers like Don Metz and Ed Fedor and Howard 

Habenicht to compete domestically because the people to whom 

they would ordinarily sell are buying the stuff on the open market 

internationally, displacing the domestic market on it. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, would you yield? 

Chairman MANZULLO. Please. 

Ms. VELA ́ ZQUEZ. Following the same line of question, Professor, 

could you answer, would most of the options for devaluing the dollar produce negative impacts on the domestic economy? 

Mr. CZINKOTA. When the Fed has difficulties answering precise 

cause/effect relations then I am not sure I am the right one to 

present you with direct causality. Clearly you have different sectors 

being affected in almost diametrically opposed ways by a changing 

currency value. 

Right now, of course, we import more than we export. That is 

why we have a trade deficit. So that would indicate that a larger 

sector, segment is affected. But at the same time, as the Chairman 

pointed out, there will be an effect on domestic producers as well 

due to the relief of pressure on them from imports. 

But far be it from me to precisely delineate the outcome of that. 

Ms. VELA ́ ZQUEZ. Thank you. 

Ms. Garretson, you spoke about the budgets proposed part of 89 

percent to the MEP. And can you clarify or expand a little bit more 

in terms of that budget cut and would your center or most of the 

other 60 or 61 centers nationwide would have to be shut down? 

Ms. GARRETSON. I think it is a combination of shut down and severely diminished capacity. The federal funding is structured in 

such a way that it requires a two to one match, which most of us 

receive through our states and also through local company cost 

share.

Some of that state funding is contingent on the federal money. 

So the federal money leverages a system that then puts 2,000 people out working with companies. You take that away, you are going 

to have some of that state money taken back as well. 

For our organization, we have 12 ‘‘feet on the street’’ at this time, 

and I would suggest that means engineers and manufacturing professionals working with companies. We will cutback to two or three 

at most. Now, we have 10,000 manufacturers in New York City, so 

you can imagine that that then severely diminishes our ability to 

work with them. 

Ms. VELA ́ ZQUEZ. Could you talk to the Committee about the experiences that the manufacturers in Brooklyn and Manhattan have 

been facing after September 11? And, also, what have been the 

largest challenges that they have faced after September 11? And 

what do you think in terms of economic relief would be more beneficial for them, grants or disaster loans? 

Ms. GARRETSON. Okay. I think there are two things that happened. One is that the economy had already slowed down. For the 

New York City firms, the economy just sort of plummeted on September 11. So one issue is the amount and the sudden occurrence 

of economic contraction. So many of the businesses that we are 

dealing with, are seeing a temporary reduction in sales, others ex-
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perienced a permanent reduction in sales because they had customers who were in the World Trade Center. 

Some firms were actually located in Ground Zero. And we are 

just starting to actually help a printer who has lost his facility and 

is having to relocate and start up again. 

I think the other thing is a less tangible issue which is fear. It 

is a psychological issue: ‘‘Do I have enough confidence in the future 

of this city and of this location that I will invest in my firm’s future?’’ And our sense is that we have seen great reluctance to do 

that. I am hoping that we are now beginning to see some changes 

in that. But companies who we have been working with for a long 

time have said, ‘‘No, right now I am not doing anything, I am waiting to see what is happening here.’’ So I see A) declining business, B) declining willingness to invest, 

C) uncertainty and the psychological impact. 

Accessing the loan programs have been very difficult. Most of our 

businesses do not like giving a personal guarantee, particularly in 

an era when they are not confident in the future. They do not want 

to pledge their homes in this kind of uncertain environment. So 

that has been a tremendous barrier to people stepping up to the 

various 9/11 loan programs. 

So the answer is, ‘‘it depends’’. There are cycles of impact, there 

are companies who lost their location and who really need grants, 

and there are others where if you loosened up the guarantee requirements, the financing might be adequate. These are the ‘‘secondary impacts’’ companies. 

The ‘‘primary impact’’ companies are at all levels. Whether they 

are a retail store or a Law firm, the impact has been tremendous. 

We lost our space for a month and were forced to work ‘‘virtually’’. But it was more than a month’s worth of impact. We are still trying to recover from that. 

Ms. VELA ́ ZQUEZ. But I think that you will agree with me that the 

same way that we bailed out the airline industry we could provide, 

the Federal Government, some grants assistance—— Ms. GARRETSON YES. Ms. VELA ́ ZQUEZ [continuing]. To small businesses? 

Ms. GARRETSON. Yes. 

Ms. VELA ́ ZQUEZ. Mr. Metz, can you talk to us about how has the 

lack of skilled workers impacted your business? And how do you 

think it has impacted the entire tool and machining industry? 

Mr. METZ. The skilled worker problem is a problem of confidence. 

In order to train a new skilled worker the National Tool and Die 

Association tells us it takes four years and about $200,000. So as 

margins are being cut and profits are not there, immediately one 

of the first things people begin to give up on, of course, is the apprenticeship training. Unfortunately, our industry is getting older. 

And the average mold maker in this country right now or die 

maker is 50 years old. 

And these are high paid individuals who have made an awful lot 

of money in their lives, so at this point in their life, they are not 

as interested in still working at the same pace or the number of 

hours they used to. So you have a twofold problem: On one end you 

have your most skilled workers reaching a point in their life where 

they have the money and the kids are through college and they 
34

want to reduce their workload, but yet at the other end, you are 

not training new people because you do not have a lot of confidence 

in the future to go into that sort of an investment program. 

So we need to jumpstart the apprenticeship program. And literally thousands of young men and women who qualify to be apprentices and to get that kind of training are being rejected not on 

their merit but on the lack of confidence that the industry has in 

its future. 

Ms. VELA ́ ZQUEZ. Can you tell us how the Skilled Worker Enhancement Act will benefit workers? 

Mr. METZ. Well, I by no means believe that this act is going to 

answer all of the problems that the company has. But by giving a 

$15,000 tax credit per employee that you train, you give an incentive to the company owner to begin that process. 

These people are astute enough to realize they are going to have 

to train somebody sometime. This is not going to be able to go on 

like this forever. And I think it sends a really positive signal to 

these company owners that the government understands their pain 

and is doing their best to address it. And you get more of a cooperative feeling that the government is in this with me, the government has confidence in me and in the future of my industry and, 

therefore, let us get back to the training program. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. METZ. Thank you. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Chairman MANZULLO. Thank you. 

Mr. Bartlett? 

Mr. BARTLETT. Thank you very much. 

In a former life I was a small business person so I listened with 

great interest to your testimony. 

Dr. Czinkota, you mentioned that our trade deficit last year was $426 billion. Now, more than 100 billion of that I think was with 

China. And most of the stuff that I see we are buying from China 

is going to be on the county landfill by the end of the year. It is 

not durable goods. 

Help me understand how at least a large part of this $426 billion 

is not simply a transfer of wealth from our country to our trading 

partners? 

Mr. CZINKOTA. There are several things to keep in mind with the $426 billion, which is the merchandise trade deficit. You are absolutely correct, a large portion of that is with China and with Japan 

as the second largest trade deficit country. 

First of all, one hopeful benefit we are going to see with China 

is that now that the country has joined the World Trade Organization, its own market will open up much more and, hopefully, that 

means we can penetrate it. I am saying hopefully because I know 

that it will be more penetrated if they comply with the rules, but 

I hope it is not just European firms then who benefit from that. 

I am hoping that U.S. firms will be very strong in that penetration. 

So that should account for more evenness in the exchange rather 

than what you call transfer of wealth. 

The second issue to keep in mind is also that we are looking at 

an increasing proportion of intra-firm trade. What that means is 

U.S. firms are going to countries, setting up operations, producing 
35

there, and then importing from abroad into the United States. So 

the instigator if you will or the primary profit taker is actually a 

U.S. firm or a multinational firm from some other country, not necessarily just a Chinese firm even though foreign investment, of 

course, triggers domestic benefits. 

And, finally, firms are responding to customer demands and to 

demands by their supply chains. If you look at, for example, our 

leading retailers who very specifically tell their suppliers that consumer goods have to be very low priced otherwise we won’t carry 

your products, we carry someone else’s. And that, of course, in 

itself triggers a lot of the imports from Asia. 

Mr. BARTLETT. Our industry, of course, is moving from a manufacturing industry, which was our great strength for many years, 

it is now moving to a service-based industry. Now, if you push that 

to an absurdity you can see that we cannot survive. If all we did, 

for instance, was cut each other’s hair, obviously that is not a basis 

for a viable economy, is it? At what point do we finally recognize 

that our economy cannot survive without returning to a vigorous 

dependence on a manufacturing base? 

You know, there are only a few industries that produce wealth. 

Farmers produce wealth. Service-based industries are consumers of 

wealth. I used to be a producer of wealth, now I am a consumer 

of wealth. And manufacturing is one of the big producers of wealth 

and now that is progressively moving offshore. When are we going 

to understand that moving electrons around the country and cutting each other’s hair and cleaning our clothes cannot be the basis 

of a viable economy? 

Mr. CZINKOTA. Well, sir, first of all I am in full agreement with 

you that manufacturing is a terribly important sector of the economy. And I, for one, do not wish to see any kind of hollowing out 

of that sector. 

Having said that, one blessed condition we have in the U.S. is 

that we do rely on market forces. And I would be happy to supply 

you with the data from, stemming from the turn of last century 

where we had about something like 60 percent of our domestic employment in farming which has now declined to about 2.5 percent. 

And the outcome, of course, is not that now we have all these unemployed farmers, but we have a tremendous shift in employment 

figures and lots of people are now employed in occupations different than farming. And this is not because anyone told them to 

or government told them to but because market forces have created 

new opportunities in other sectors. 

Now, you are very correct in your statement on services. We have 

become a service-driven economy both in terms of percentage of 

GDP as well as in terms of employment. It is, of course, not just 

not all cutting hair. You also look at service jobs in the banking 

industry, in the construction industry. 

My wife, for example, is an architect, and her work increasingly 

is global where she takes on architectural products, redesigning, restoring hotels in Singapore which would not have happened ten 

years ago. So in that sense there also is wealth generated by 

knowledge, by intellectual property. And I wouldn’t give up on the 

services sector just yet. But the manufacturing sector clearly is and 

should remain a very important component of our economy. 
36

Mr. BARTLETT. Thank you.

Mr. Chairman, traditionally our service-based industries have 

been supporting those industries that produce wealth. Today if 

they are supporting industries that produce wealth, they are supporting industries overseas that produce wealth, not in this country. Thank you. 

Chairman MANZULLO. Let me if I could do a follow-up on that. We have about an $80 billion surplus in services. Under the WTO, 

under the U.S.-China WTO accords, the opportunity for exports 

and services to China is just, I mean it is wide open for everything, 

life insurance to banking to having American money managers 

manage portfolios in China. And for the first time that agreement 

is one-sided. That type of agreement is one-sided in favor of the 

United States. 

When I was in China in January, there was an interesting article 

in the paper about the beginning of China importing foreign automobiles because the tariffs on those were going down by almost 75 

percent. And the tariffs on manufacturing goods were down by the 

same amount. And that the Chinese rules on domestic content are 

going away with that accord. And that the foreign and national 

treatment of corporations has to be the same. 

So China is really under the gun in complying with the WTO. 

They are painfully aware of the fact. When we were there, they 

talked about patience and everything. And I said, look-it, you wanted to get into this thing for 15 years. I’m going to be the first one 

to tell you there is no squeeze room. If you do not comply, there 

will be sanctions filed against you. And China is in the process now 

of they have to open up to more markets. 

And, lastly, whenever the United States exports services, the 

merchandise factor follows. It is always that way. For example, the 

exporting of architectural services such as we do, such as what 

happens with Trade Development Agency. Whenever we design 

overseas systems, they are conveniently designed to accommodate 

American manufacturers. So that is why there is a lot of emphasis 

now. 

We had an interesting discussion with Chen S’ing-he, who is the 

38-year-old Vice President of the Shanghai Stock Exchange. Now 

Americans will be allowed to buy what are called Class A Chinese 

stocks as the Chinese state-owned enterprises become privatized. 

And I said how does somebody age 38 become the vice president 

of the Shanghai Stock Exchange? 

He said, well, the president is a year younger than me. He said, 

Congressman, he said, anybody in China over the age of 40 does 

not understand how the stock market works. And I thought that 

was an astounding statement to see what is going on there in 

terms of that type of investment. 

One of the reasons for this hearing or the reason is to make 

American manufacturers more competitive. I think it is extremely 

significant that even though Dr. Ferguson was not able to stay and 

listen to your testimony, he has all of your statements. And if you 

listened very closely to his testimony, which was nothing less than 

compelling, you will note that things that each of you said worked 

their way into his statement, where he addresses these various 

issues. 
37

And now as a result of the letter that we sent, as a result of the 

work of the organizations that are represented here today, and as 

a result of your testimony about how sensitive machine tooling is 

to interest rates, the Fed, I can guarantee you, is going to be taking a different look at the manner in which they raise interest 

rates. 

The opportunity for Dr. Ferguson to come to our district, and 

Don, I think you know of a good facility you would like to have him 

visit. We will make sure that he doesn’t wear white shirts when 

he visits. I think the openness of Dr. Ferguson to travel the country, to listen to the people impacted, to me, that is the best indication of a public servant. He has a jurisprudence doctorate from 

Harvard——

Mr. BARTLETT. And a Ph.D. from Harvard. 

Chairman MANZULLO [continuing]. And a Ph.D. from Harvard. 

This man is truly a public servant who has the interests of this 

country at heart. 

And we will bring him out to our district as soon as possible because he needs to come up to speed as to what is going on in the 

area of machine tools. 

Well, this has been nothing less than exemplary hearing. Lynn 

Martin, who is my predecessor and the former Secretary of Labor, 

furnished us with a 4-page statement that is going to be made part 

of the record. She would have been here today testifying with you 

were it not for the fact that she had a prior engagement. 

Chairman MANZULLO. Did you have any concluding remarks you 

wanted to make, Mrs. Vela ́zquez, and we will wind it up? 

Ms. VELA ́ ZQUEZ. No, just to thank all of you for being here today. 

This was an important hearing. And we will continue to work in 

a bipartisan way to help, you know, strengthen small business, especially small manufacturers. 

Chairman MANZULLO. Thank you for your leadership. 

Mr. Fedor, you wanted to say something? 

Mr. FEDOR. Yes, sir. Well, I just had a couple of comments as you 

were making your remarks. One of the things that came to mind 

when we talk about China’s increased willingness now to open 

their markets now that they are part of the WTO, as it regards 

companies like mine and small manufacturers, I think that the 

U.S. Government can be more of a friend to U.S. manufacturers in 

that regard if we continue to allow the machine tool market to open 

up regarding not putting unilateral controls on certain kinds of machine tools that we can export to China. 

It seems to me that we are being maybe unintentionally hostile 

to small manufacturers like ours in putting unilateral controls on 

those kinds of products when really they can get that same technology from companies in France or somewhere in Europe quite 

easily. 

I wanted to also make another comment. You had a comment, a 

question regarding the strong U.S. dollar and what you can do 

about that. I am not sure. I am not an expert in this area. It does 

not seem like you can necessarily legislate a change there but what 

we see is——

Chairman MANZULLO. Thank you, I appreciate that statement. 
38

Mr. FEDOR [continuing]. Mr. O’Neil and the Treasury Department talking up the dollar and extolling the virtues of a strong dollar in itself almost creates a perception of a government policy toward a strong dollar. And I think that if we were to moderate the 

tone of the comments regarding the strong dollar perhaps that 

would have an effect. And also have the dollar float more with the 

strength of the U.S. economy. I am not sure how you do that, but 

with the strength of the economy have the dollar follow I think 

would be more appropriate. 

Chairman MANZULLO. Congressman Bartlett, you had a concluding remark? 

Mr. BARTLETT. I am on the Armed Services Committee and there 

we have a major concern with, obvious concern with exports to 

China. I guess that on that committee I am kind of politically incorrect because my position has been that we need a military industrial base in this country. We have a shrinking one. Part of that 

industrial base can be supported with foreign sales. 

And my view has been that if the foreign country can buy the 

product or the service anywhere else in the world, we ought to be 

able to compete. It is good for our economy. Ultimately it will be 

essentially, I think, to our national security because we cannot depend on foreign countries to build our ships and build our airplanes 

and so forth. 

The difficulty is deciding what in fact can be bought from any 

other place or from some other place in the world. But my general 

view is that if you can buy it anywhere else why can’t our guys 

compete? And I noticed in your testimony you were concerned 

about limitations on exports to China. Nobody wants to export to 

a country technologies that will put them at a military disadvantage relative to us. But also I do not want to deny any export to 

them that will assist our manufacturing base. And, we are not now 

doing a very good job of reaching that balance. And, I appreciate 

your interest and your concern. 

Chairman MANZULLO. Thank you very much. This Committee is 

adjourned. 

[Whereupon, at 12:15 p.m., the Committee was adjourned.]
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