ECONOMICS OF DEFENSE POLICY: ADM. H. G. RICKOVER HEARING BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-SEVENTH CONGRESS SECOND SESSION PART 1 JANUARY 28, 1982 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFFICE 92-528 0 WASHINGTON: 1982 For sale by the Superintendent of Documents. U.S. Government Printing Office Washington, D.C. 20402 JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) HOUSE OF REPRESENTATIVES SENATE HENRY S. REUSS, Wisconsin, Chairman ROGER W. JEPSEN, Iowa, Vice Chairman RICHARD BOLLING, Missouri WILLIAM V. ROTH, JR., Delaware LEE H. HAMILTON, Indiana JAMES ABDNOR, South Dakota GILLIS W. LONG, Louisiana STEVEN D. SYMMS, Idaho PARREN J. MITCHELL, Maryland PAULA HAWKINS, Florida FREDERICK W. RICHMOND, New York MACK MATTINGLY, Georgia CLARENCE J. BROWN, Ohio LLOYD BENTSEN, Texas MARGARET M. HECKLER, Massachusetts WILLIAM PROXMIRE, Wisconsin JOHN H. ROUSSELOT, California EDWARD M. KENNEDY, Massachusetts CHALMERS P. WYLIE, Ohio PAUL S. SARBANES, Maryland JAMES K. GALBRASTH, Executive Director BRucE R. BARTLETT, Deputy Director (II) CONTENTS WITNESSES AND STATEMENTS THURSDAY, JANUARY 28, 1982 Proxmire, Hon. William, member of the Joint Economic Committee, pre- Page siding: Opening statement ---------- 1 Jackson, Hon. Henry M., a U.S. Senator from the State of Washington: Opening statement ---- --------------------- 2 Reuss, Hon. Henry S., chairman of the Joint Economic Committee: Open- ing statement -_- -- 3 Richmond, Hon. Frederick W., member of the Joint Economic Committee: Opening statement - _- --- 4 Rickover, Adm. H. G., Director, Naval Nuclear Propulsion Program, U.S. Navy - -4-------------------------------------- 4 SUBMISSIONS FOR THE RECORD THURSDAY, JANUARY 28, 1982 Rickover, Adm. H. G.: Prepared statement, together with an appendix -16 Response to additional written questions posed by Senator Proxmire 67 POINTS OF INTEREST THURSDAY, JANUARY 28, 1982 Efficiency and economy in Government - -5 Title to inventions developed at Government expense - - 5 Cost accounting standards --------- 5 Renegotiation Board and excess profits - - 6 "Say-do - - 6 Influence of large corporations - ----------------------- 7 Need to impose corporate responsibility - - - -------- 8 Shipbuilding claims ---- 9 Apparent fraud referred to Justice Department - -10 Responsibilities of Congress -- ------------- 10 "Creative" accounting -- 12 Complaints about overregulation --- 13 Capitalism -- 14 Debt owed to the Nation ------------------- 14 Value of congressional oversight -- ---------- 15 Defense spending -- ----------------- 42 Excessive rotation in jobs --- - ------------- 42 Nuclear submarines ---- ---------------------------- 42 Weapons redundancy -- ------------ 43 Aircraft carriers ----------------------------------- 43 600-ship Navy ---------------------------------- 44 Qualifications of civilian defense officials -- ------ 45 Political campaign contributions -------------- 46 Poland - -47 Influence of large corporations ----------------------------- 48 Build some ships in Government shipyards ----------- 48 Secretary of Defense -- ------------- 50 Department of Defense ------------------------ 50 Recommendations made to OMB ---------------- 50 Number of senior officers ----------------------- 51 '. U(m) IV Page Shipbuilding and steel industries - 52 Mismanagement ------------------------------------------ 52 Circumstances surrounding retirement -53 Naval nuclear propulsion -- 54 Personal health - 54 Meeting with President - 55 Secretary of Defense -__ 55 Engineering experience - 56 Excessive rotation in jobs - 56 Light gas-cooled nuclear reactor - 57 Department of Defense - 57 Nuclear technology - 58 Shipbuilding fraud cases- 58 Nuclear reactor safety -_ 59 Government role in civilian nuclear power -60 Need for nuclear energy - 60 Radioactivity problem - 60 Prospect of nuclear war -_ 61 Arms limitations - 62 Naval Academy -62 How did you survive so long? - 64 Final statement - 65 APPENDIX Notes for discussion with the Director, Office of Management and Budget 105 Improved efficiency in the Defense Department - 106 BACKUP PAPERS A. Reorganization of the Defense Department - 114 B. Military compensation and retired pay for military and Federal civilian personnel - 118 C. Shortcomings of the Civil Service Reform Act -145 D. Education and training of naval officers -_ 147 E. Shipbuilding claims -------------- 149 F. Resuming submarine construction at naval shipyards -152 G. Independent research and development (I.R. & D.) -153 H. Freedom of Information Act - 175 I. Occupational safety and health -_S 180 J. Atomic energy programs within the Department of Energy - 182 K. Need for profit limiting legislation - 183 L. Consultants - 191 M. Office of Federal Procurement Policy - 205 ECONOMICS OF DEFENSE POLICY: ADM. H. G. RICKOVER THURSDAY, JANUARY 28, 1982 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, D.C. The committee met, pursuant to notice, at 9:30 a.m., in room 318, Russell Senate Office Building, Hon. William Proxmire (member of the committee) presiding. Present: Representatives Reuss and Richmond, and Senator Proxmire. Also present: James K. Galbraith, executive director; Richard F. Kaufman, assistant director-general counsel; and Chris Frenze, pro- fessional staff member. OPENING STATEMENT OF SENATOR PROXMIRE, PRESIDING Senator PROXMIRE. The committee will come to order. Admiral Rickover, the quote most widely attributed to you is, "Why not the best?" You have been the best and as far as I can tell you still are the best. Frankly, I believe the Government is making a terrible mistake in letting you go, although why you would want to continue working and carrying the terrific responsibilities of your office is something many people cannot understand. In Japan persons who have demonstrated their worth by a lifetime of productive service are declared officially "National Treasures." By doing so, the government assures itself and the Nation that such individuals can continue contributing their skills and talents. As you know, for a number of years, I have been giving "Golden Fleece" awards to those who have wasted taxpayers' funds. Today I want to declare you a National Treasure for the following reasons: One, you are the individual most responsible for demonstrating the value of nuclear propulsion for naval ships; Two, the nuclear reactor program you have managed is probably the most important factor in our national security; Three, you have proven that nuclear reactor technology can be safe, a lesson the civilian nuclear industry has still not learned; Four, you have devoted the same kind of energy and thought to the elimination of government waste as you have to nuclear proplion; Five, you have been a tireless protector of the taxpayer and the public interest against private corporations and the bureaucracy. That one I want to repeat because it's especially important to me. You have been a tireless protector of the taxpayer and the public interest against private corporations and the bureaucracy; (1) 2 Six, you have treated the institution of Congress with respect, helped many of us perform our important congressional oversight function, and by doing so, shown the value of our system of checks and balances; and Seven, you have proven that it is possible for a government official to be scrupulously honest and to tell the truth. Despite what they say about soldiers, it seems that old sailors don't have to fade away. Your prepared statement is vintage Rick- over. Like you, it is tough, honest and enduring. I look forward to your presentation and I know you will be just as candid and hardhitting in your responses to my questions as you have always been. We are honored to have Senator Jackson drop in. I'm going to call on the chairman of the committee, Congressman Reuss, in just a minute, but Senator Jackson may have other appointments and we are delighted to have Senator Jackson. As we all know, Senator Jackson in the years I have been in the Senate has been the out- standing expert on defense as well as on other things, but particularly on defense. I don't think anybody has worked harder in the Congress to strengthen our defenses and better them than Senator Jackson. Senator Jackson, please proceed. OPENING STATEMENT OF HON. HENRY M. JACKSON, A U.S. SENATOR FROM THE STATE OF WASHINGTON Senator JACKSON. Thank you. Senator Proxmire, Chairman Reuss, and Congressman Richmond, members of the committee, I'm very pleased to be here at your in- vitation this morning to say a word about Admiral Rickover. This is probably his last appearance before a committee as an active duty admiral of the U.S. Navy. When I came to the Senate 29 years ago, Mr. Chairman, I spent a week in this building in connection with the move then being made to let Admiral Rickover go. He had been passed over twice as a captain and with the help of our colleagues, by the end of that week, he became a rear admiral on the merits. The man who had been selected in his place had written a memo saying that nuclear power for the Navy was 25 years away and, you know, "Wouldst my enemy only write a book?" I mention this because I first met Admiral Rickover as a member of the Joint Committee on Atomic Energy in the House in 1949 and he was advocating a program that was distant from most of us, but I learned early on that this man had something which is the most invaluable characteristic of any human being-integrity-and he coupled that with great determina- tion and he said, "It's going to work; we're going to do it step by step by step," and it has worked. I would point out, as the chairman alluded to indirectly, that the Navy today has operational about 161 naval reactors without an incident occurring that would cause any problem for the Navy or for those aboard or for the public. That is a phenomenal record. That's far more reactors, as the chairman knows, than in the private sector. Every one of them have functioned with great precision and to the enduring benefit of the Navy. It's the most revolutionary thing that's ever happened to the U.S. Navy. 3 But what I want to drive home is the fact that people do count. Had it not been for Admiral Rickover, we would not have had the early edge that gave us a nuclear Navy, and he gave us a program that was meticulously managed. Every naval officer with a nuclear capability had to run the test of Admiral Rickover's interview. I don't know how many thousands-8,000 commissioned officers who have had the personal concern of Admiral Rickover. If the civilian side of the nuclear reactor program had the kind of management skill, the integrity, and the commitment, Mr. Chairman, of Admiral Rickover, we would have never had an incident that has occurred from time to time in the operation of our civilian nuclear power program. And above all else, Admiral Rickover has always been forthright and truthful in his presentations to the committee. We don't always have to agree with him, but he's a breath of fresh air on Capitol Hill on both sides of the Capitol, and I just want to say that his leaving is the Nation's loss. I know he will be available to continue to help because this man is committed to his country as he has been during his long service in the Navy, which is the longest active duty time of any man, to my knowl- edge, in American history. So I'm very pleased to be here as he testifies before the Joint Economic Committee. Senator PROXMIRE. Thank you very much, Senator Jackson, for a most moving statement. Chairman Reuss, would you care to make an opening statement? OPENING STATEMENT OF REPRESFENTATIVE REUSS, CHAIRfANI Representative REUSS. Thank you, Senator. It was good to hear Scoop Jackson, who's been around here a good many years himself, recall some history. And I suppose this is history day, because later on we're going to celebrate FDR's 100th birthday. There were giants in those days, and it's good that we have one of them with us today, looking as young and handsome as ever. Our defense experts, Senator Proxmire and Senator Jackson, have Admiral RICKOVER. I admit to the young, but not to the handsome. Representative REUSS. Senators Proxmire and Jackson have talked about Admiral Rickover's contribution to our national defense. I'm no defense expert, but I appreciate what he's done there. For me, I suppose his greatest contribution has been in his enriching and in- vigorating our language. I recall a few months ago finding myself on the trolley between the Capitol and the office building with you, Admiral, and I muttered something about, "Let us sit upon the ground and tell sad stories of the death of kings," and you were still going on with Richard when the trolley reached its destination. I don't know if you know all of Shakespeare, but based on that trolley ride Admiral RICKOVER. I have tried but I haven't succeeded yet. Representative REUSS. I feel sad, too, about your leaving your Admiral's barge, but this committee, you know, is sort of a Privy Council, as close as we come to havin one in this country. And you know that you're always not only wefcome but wanted here on any of the wide pantheon of subjects which are always in your mind. 4 So while you're technically retiring, I won't really accept that word. We love you, Admiral, and we are honored that you are with us today. Admiral RICKOVER. Thank you, sir. Senator PROXMIRE. Congressman Richmond, may we have your opening statement, please. OPENING STATEMENT OF REPRESENTATIVE RICHMOND Representative RICHMOND. Thank you, Senator. Admiral, to me, you're one of the great legends of our time and I'm just very happy and grateful to be able to hear you this morning and get your ideas on our defense budget and defense expenditures and listen to you and get some advice about what this great country should be doing in the area of defense, and I'm certainly looking forward to your testimony. Admiral RICKOVER. Thank you, sir. Senator PROXMIRE. Admiral, go ahead, sir. STATEMENT OF ADM. H. G. RICKOVER, DIRECTOR, NAVAL NUCLEAR PROPULSION PROGRAM, U.S. NAVY Admiral RICKOVER. First, I would like to thank you very much for inviting me to testify. I look back with fond memories on my dealings with Chairman Reuss over the years, particularly on your work with the House Banking Committee, sir. You were very helpful in con- nection with the problems we had under the Defense Production Act. You were always a firm supporter of legislation that would help expose excesses of business. Although most of your efforts were focused on the banking industry, as the chairman of the House Banking Com- mittee, you always seemed to have time to help with problems like providing for the recovery of excessive profits on defense contracts, strengthening the Renegotiation Board, and supporting activities of the Cost Accounting Standards Board. It has been an honor to know you, sir, and I thank you for all your help. The major lesson I have learned when you are taking on big business, where money is involved, is that it is practically impossible to make a dent. I think the time will come when the United States is not as prosperous as it is today and when citizens will be forced to think through what is going on. Then your words will be heeded. But today life is too easy. It is also easy to run up the public debt. Nobody realizes what is going on. Actually, the increase in the public debt does not hurt poor or moderate income people as much as it is ultimately going to hurt the rich people. Because the interest rates are going up it has to be the rich people who will pay in the end. So if they were as wise, as much as they are rich, they would support you in what you're trying to do. Now I witl start, if I may, with my formal statement. Senator PROXMIRE. Go right ahead, sir. Admiral RICKOVER. Over the years the Joint Economic Com- mittee has done an outstanding job educating the Congress, the executive branch, and the public regarding the important economic issues confronting the Nation. 5 :,- EFFICIENCY AND ECONOMY IN GOVERNMENT One of these issues is how to promote greater efficiency and economy in the Defense Department. As you know, I have testified often before congressional committees, including yours, on various aspects of this problem. In some cases, Congress implemented my recom- mendations for reforms. Eventually, however, defense contractor lobbyists have generally learned how to get around them or have them rescinded. Former Congressman Chet Holifield, working with the House Armed Services Committee, was instrumental in enacting the Truth- In-Negotiations Act of 1962. I helped him a great deal with that effort. Today, however, there are still contractors who are not in compliance with the act. TITLE TO INVENTIONS DEVELOPED AT COVERNMENT EXPENSE In the late 1950's, Senator Russell Long insisted that the statute authorizing the National Aeronautics and Space Administration, which at that time was at the forefront of advancing American technology, preserve for the American taxpayer title to inventions developed by government contractors at the public's expense. This was consistent with the general government policy as embodied in various statutes including the Atomic Energy Act. I remember I had many sessions with Senator Long and he was quite helpful. In this respect, I don't think there's been another Senator who has tried to do more for the United States than Senator Long. In 1980, Congress reversed this longstanding government policy by giving universities and small businesses title to inventions de- veloped at government expense. I testified against that because I recognized what would happen and it has happened. Now patent lobbyists are pressing Congress to extend that giveaway practice to large contractors. This would generate more business for patent lawyers but, in the process, will promote even greater concentration of economic power in the hands of the large corporations which al- ready get the lion's share of the Government's research and develop- ment budget. COST ACCOUNTING STANDARDS In the late 1960's, Senator William Proxmire, Congressman Henry Gonzalez, and former Congressman Wright Patman were instrumental in enacting legislation requiring the establishment of cost accounting standards for defense contracts and a Cost Accounting Standards Board to set these standards. In 1980, Congress eliminated the Cost Accounting Standards Board by cutting off its funding. And today, defense contractor lobbyists are promoting legislation that would give the Office of Management and Budget authority to waive or amend the standards. I predict that within a few years the standards estab- lished by the Cost Accounting Standards Board will have been watered down to the point that they will be worthless. 6 RENEGOTIATION BOARD AND EXCESS PROFITS In the late 1960's and early 1970's Senator William Proxmire, Con- gressman Jack Brooks, and Congressman Joe Minish were at the verge of getting congressional approval of legislation which would strengthen the Renegotiation Board and make it an effective means of recouping for the U.S. taxpayer any excessive profits made on defense contracts. By 1976 defense contractor lobbyists had persuaded Congress to let the Renegotiation Act expire. Three years later, in 1979, Congress cut off funding for the Renegotiation Board which promptly went out of business. This left only the profit-limiting provisions of the Vinson-Trammell Act as legal authority for recovering excessive profits under defense contracts. In the fiscal year 1982 Defense Authorization Act, Congress rescinded the profit-limiting provisions of the Vinson-Trammell Act, leaving nothing in its place to protect the public except a few weak and wholly inadequate provisions which apply only during war or national emergency. Today the defense contractors have carte blanche. They can do anything they wish. All the safeguards so painfully and meticulously passed through Congress were all thrown away. Perhaps it is not possible to make significant improvements in defense pro- curement. It is an arcane subject in which defense contractors, who have a strong financial interest in such matters, tend to be most influential. I have attached, as an appendix to my prepared statement, a list of recommendations for improving efficiency and economy in the Defense Department. Not all of my recommendations are procure- ment related. The organizational structure of the Defense Department itself promotes inefficiency as do many of the policies and practices of the military. My recommendations for improvements in these areas are also provided for your information. I gave these recommendations to the Director of the Office of Management and Budget last spring when I met with him. I have seen no evidence of action within the executive branch to implement any of these recommendations. Once again, it will have to be Con- gress that takes the initiative. ''SAY-DO77 I have invented an expression of "Say-Do." All you have to do is say that you will do something and you get lots of applause. You hear that all the time from the executive branch. You do nothing, yet you get the credit. It is a very interesting phenomenon that nobody ever follows up to see if the action has been taken. I see this petty trick going on all the time. People say something. The news- papers laud them before they have done a single thing. Then they never do it and go on to some other "Say-Do" thing and get more credit. Pretty soon they become important public figures who are always saving taxpayers' money; yet they have never produced any product or effected any saving. I am like Diogenes. I have been looking vainly for those who actually do what they say.