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Government Corporations and Federal Funds*

Published online by Cambridge University Press:  02 September 2013

John McDiarmid
John McDiarmid
Affiliation:
Princeton University
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Extract

The increasing use of the government corporation in the conduct of governmental business enterprises is one of the most significant of recent trends in public administration. Indeed, the corporate device represents one answer to the charge that government is so poorly organized and so beset by red tape that public operation of economic enterprise is inevitably sluggish and inefficient. Most notably during the mobilization crisis of 1917 and the depression years following 1929, when speedy and vigorous action was needed, the federal government has relied heavily upon government corporations which could cut through red tape and “get things done.” Also in more normal times, however, particular enterprises somewhat isolated from regular governmental activities have been carried on in corporate form.

Type
American Government and Politics
Information
American Political Science Review , Volume 31 , Issue 6 , December 1937 , pp. 1094 - 1107
Copyright
Copyright © American Political Science Association 1937

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References

1 For a full account of United States experience with the wartime corporations, see Van Dorn, H. A., Government-Owned Corporations (1926)Google Scholar. A list of the more important “recovery” corporations would include: Reconstruction Finance Corporation, Tennessee Valley Authority, Home Owners' Loan Corporation, Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, Commodity Credit Corporation, Electric Home and Farm Authority, Export-Import Banks, Federal Subsistence Homesteads Corporation, Federal Surplus Commodities Corporation, R.F.C. Mortgage Company, Federal Farm Mortgage Corporation, Tennessee Valley Associated Coöperatives, Federal Prison Industries, Inc., and the banks for coöperatives and production credit corporations within the Farm Credit Administration structure.

2 For example, the Panama Railroad Company, the federal land banks, the federal intermediate credit banks, and the Inland Waterways Corporation.

3 The T.V.A. and the Merchant Fleet Corporation particularly have become involved in serious disagreement with the Comptroller-General over the proper interpretation of statutory provisions relating to the manner of expenditures, the utilization of earnings, and the nature of the audit required. However, the financial powers of corporations created by executive officers under general statutory authorization to create necessary “agencies” are even more uncertain. Comptroller-General McCarl in effect destroyed the Public Works Emergency Housing Corporation by refusing to sign a warrant transferring funds to that agency. (Decision of January 11, 1934.)

4 49 Stat. 4.

5 Mr. McCarl's contention that the E.H.F.A. earnings must be covered into the Treasury and withdrawn only on accountable warrants is contained in an unpublished letter of December 14, 1935. A similar dispute with the Export-Import Banks was settled when Congress expressly sanctioned the position taken by corporation officials (49 Stat. 4).

6 Wehle, Louis B., “Government-Controlled Business Corporations in America and Europe,” 10 Tulane Law Review (1935), p. 94Google Scholar.

7 See the convincing testimony of General [then Colonel] Ashburn, before the House Committee on Interstate and Foreign Commerce, Hearings on H. R. 6647, 68th Cong., 1st sess., 1924.

8 See Dimock, M. E., Developing America's Waterways (1935)Google Scholar. Eloquent tribute to the relative success of the I.W.C. is the admission of an avowed opponent of government operation that a “new formula” has been found by which government can be successful in business. See Corey, Herbert, “Uncle Sam Finds a Formula for Competing with the Carriers,” Public Utilities Fortnightly, Vol. VIII, No. 7 (1931), p. 389Google Scholar.

9 For example, consider the following statement of Paul M. Warburg, vice-governor of the Federal Reserve Board, with respect to the proposed War Finance Corporation: “I would like to make it as emphatic as I can that I think this is only an emergency institution for this war, and that it would be a very unfortunate thing if an institution of this kind were to be permitted to exist after the conclusion of peace, and that is one of the reasons why I think these powers are better lodged in the corporation than in the government, because the corporation automatically ceases to have power to operate, yet upon the conclusion of peace the government could go on.” (Hearings before House Committee on Ways and Means, February, 1918, pp. 41–42.)

10 77 Congressional Record, p. 2569.

11 See Beck, James M., Our Wonderland of Bureaucracy (1932), p. 128Google Scholar; McGuire, O. R., “Government by Corporations,” 14 Va. Law Rev. (1928), 186CrossRefGoogle Scholar; cf. views of the late Mr.Buchanan, , 79 Cong. Rec., p. 3261Google Scholar, and the late Senator Schall, ibid., pp. 1546 ff. Comptroller-General McCarl always deplored the fact that many government corporations were “not subject to the statutory restrictions or safeguards which experience has taught are necessary in the expenditures of public funds,” and repeatedly recommended “remedial” legislation by Congress.

12 The Comptroller-General's decision was rendered on January 11, 1934—that of the Attorney-General on February 7, 1934. Both are interesting commentaries on the creation of government corporations by executive officers.

13 Mr. Oliver P. Field's suggestion that Congress enact a general statute under which all federal corporations could be created calls attention to the unsatisfactory and haphazard legislative treatment of such agencies. However, one is inclined to wonder whether a statute drawn in the detail recommended by Mr. Field would not impose upon all corporations a dangerously rigid uniformity. Certainly, at the present time Congress could advance far in the development of guiding principles without danger of rigidity. See Field, O. P., “Government Corporations: A Proposal,” 48 Harvard Law Review (March, 1935), p. 775CrossRefGoogle Scholar.

14 See Reconstruction Finance Corporation Act, With Amendments, currently compiled in R.F.C. offices, passim.

15 See Pub. No. 389, 74th Cong.

16 As an illustration, the United States Grain Corporation, in financing the purchase of the 1918 wheat crop, was able to borrow $385,390,000 upon its own credit. See Surface, Frank M., The Grain Trade During the World War (1928), p. 444Google Scholar.

17 The occasional magnitude of these borrowings may be seen in the fact that through 1934 H.O.L.C. bonds totalling $2,416,980,025 had been issued. Second Annual Report of the Federal Home Loan Bank Board, 1934, p. 87Google Scholar. As of September 30, 1935, notes of the R.F.C. totalling $4,072,574,166.67 were outstanding. Quarterly Report of R.F.C., September, 1935.

18 Notably in the case of the R.F.C., the H.O.L.C., the Farm Mortgage Corporation, and the T.V.A.

19 R.F.C. (47 Stat. 6), Federal Deposit Insurance Corporation (48 Stat. 94), Farm Mortgage Corporation (48 Stat. 172), H.O.L.C. (48 Stat. 132), Federal Savings and Loan Insurance Corporation (49 Stat. 298).

20 For a thorough exploration of this question, see Chairman Morgan's testimony before the House Military Affairs Committee, Hearings on “Tennessee Valley Authority,” 74th Cong., 1st Sess., May, 1935, pp. 557 ffGoogle Scholar.

21 This division annually purchases over $5,000,000 worth of merchandise for resale to the government, the Canal, and individuals and companies within the Canal Zone. In purchasing articles for resale, the Panama Railroad Company must consider their attractiveness to its customers, and must satisfy the whims and desires of such prospective purchasers rather than the bare requirements of a specification.

22 After years of experience in the management of one of England's public enterprises, Mr. Frank Pick made the following statement:

“Private enterprise may buy whatever it pleases and on whatever terms it pleases. A public utility undertaking, being open to challenge on preferences, on favouritism, on even baser grounds, protects itself by going to tender and accepting the lowest tender, other things being equal. Yet this is maybe the least efficient way of buying.” (Public Admin., Vol. XIII, p. 135Google Scholar). Italics mine.

23 Annual Report of the Tennessee Valley Authority, 1935, p. 51Google Scholar.

24 See, for example, Annual Report of the Comptroller-General, 1932, p. 15Google Scholar. While making this concession in theory, the Comptroller-General continued to disallow expenditures which a reasonable application of the theory would seem to justify. See infra, note 36.

25 See Dimock, M. E., Government Operated Enterprises in the Panama Canal Zone (1934)Google Scholar.

26 See, for example, 48 Stat. 259, 263.

27 Annual Report of the Panama Railroad Company, 1935, p. 6.

28 See Van Dorn, op. cit., p. 220.

29 The annual dividend to the government is 10 per cent, and the total paid into the treasury since 1904 is over $12,000,000.

30 Report of the President's Committee on Administrative Management (January, 1937), pp. 20 ffGoogle Scholar.

31 Hearings before House Military Affairs Committee, May, 1935, p. 574Google Scholar.

32 Report (January, 1937), p. 23.

33 For the differences between private or business auditing and the ordinary governmental audit, see Smith, D. H., The General Accounting Office, Service Monograph, Institute for Government Research (1927), p. 111Google Scholar.

34 In the case of the Fleet Corporation, the fact that the statutory mandate was for the Comptroller-General to make an audit “in accordance with the usual methods of steamship or corporation accounting” apparently had little effect, and the corporation officials rightly complained that Mr. McCarl's audit was conducted along regular governmental lines, and with his usual approach. For example, exception was taken to such transactions as the following: compromise settlement of claims against the corporation when it had not been proved that “the action could be sustained at law”; expenditures for insurance on property in spite of the “long established policy of the Government not to carry insurance”; purchases of automobiles for use of corporation officials; and payment of premiums on fidelity bonds required of corporation employees. These practices, all quite common and legitimate for a private corporation, were nevertheless condemned by Mr. McCarl as being illegal for a governmental agency. See House Doc. 111, 71st. Cong., and House Doc. 217, 72d Cong.

35 49 Stat. 1081.

36 43 Stat. 360. It should be noted that in practice the I.W.C. makes annual reports to the Secretary of War and has its accounts audited once each year by certified public accountants.

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