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CRESAP, MCC0RM1CK and PAGET
NEW YORK- CHICAGO

{Management Ungineers
3 4 2 MADISON AVENUE, NEW YORK 17, N. Y.
MURRAY H I L L 7 - 5 4 5 O

September 25, 1950

Mr^Marriner S« Eccles
Federal Reserve System, Board of Gov.
The Shoreham
Washington, D. ()•
Dear Mr. Eccles:
This pamphlet, recently prepared by our firmf is being mailed
to a representative group of persons who might logically have
an interest in the Hoover Report.
We are confident you are among those who will find just such
a time-saving condensation helpful*
Particularly because so much of the most important legislation growing out of the Hoover recommendations is yet to be
considered by Congress, I hope you will have an opportunity
to read through this Summary and that it will prove useful to
you.




Sincerely,

MARK W. CRESAP, JR.
WILLARD F. MCCORMICK
RICHARD M. PAGET
JOSEPH P. MERR)AM
THOMAS D. MORRIS
JOHN R.SARGENT
MATTHEW L. DEVINE
ROBERT KAYE




Prepared as a public service by

CRESAP, McCORMICK and PAGET

NtW YORK— CHICAGO




Copyright 1950 by Crtsap, McOrmkk snd Pag*




A Summary of

THE HOOVER REPORT

Prepared as a public service by

CRESAP, McCORMICK and PAGET

^Management 'Engineers

NEW YORK—CHICAGO

"...an unprecedented approach to an unprecedented problem.9*







I

N

T

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D

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C

T

I

O

N

There are few matters of national concern on which there is greater unanimity of interest and approval than the Hoover Report . . . today's popular
reference to the extensive studies made by the Commission on Organization
of the Executive Branch of the Government under the direction of the Honorable Herbert Hoover.
The phrase "Hoover Report" has already passed into the language as a
synonym for orderly investigation and constructive recommendation. Despite
this, few except scholars have any clear picture of what the Commission
actually proposed.
Cresap, McCormick and Paget was privileged to execute a major project
for the Hoover Commission. In this capacity, the firm acquired firsthand
familiarity with the work and workings of the Commission, and can testify
that the manner in which the Commission organized its assignment from
Congress brilliantly illustrates how to set about a task of analysis and recommendation. The Hoover Report is today's outstanding demonstration of the
use of objective counsel; of the role of the management engineer.
We recognize the hazard of attempting to condense some 2 million words
into a few pages and we further appreciate that, for better or for worse, conditions in Federal Government are in a constant state of flux. Nevertheless,
for the reasons outlined above, and because the firm of Cresap, McCormick
and Paget has a genuine hope that all the Hoover recommendations will
eventually become effective, this summary pamphlet has been prepared as a
convenient guide for interested citizens.

THE APPROACH




Bipartisan Sponsorship. The Commission on Organization of the Executive Branch of the Government was formed late in 1947 at the direction of
Congress under the authority of the Lodge-Brown
Act. This act called for a survey to induce "economy, efficiency, and improved service in the transaction of public business . . ." It is important to
note that the Commission was not charged with
responsibility for examining the essentiality of any
service—only to ways of increasing efficiency and
economy.
Membership of the Commission consisted of
twelve men, equally divided among the Republican
and Democratic parties. Four members each were
appointed by the Speaker of the House, the President of the Senate, and the President of the United
States. At its first organization meeting, President
Truman, confirming and endorsing the bipartisan approach, proposed 'he appointment of Mr.
Hoover as Chairman, the now Secretary of State
Dean Acheson as Vice-Chairman.
Other members were former Civil Service Commissioner Arthur S. Flemming; Ohio businessman
George H. Mead; the late James V. Forrestal;
Vermont Senator George D. Aiken; businessman
and former Ambassador to Great Britain Joseph P.
Kennedy; Arkansas Senator John L. McClellan;

Michigan professor of political science James K.
Pollock; Ohio Representative Clarence J. Brown;
Alabama Representative Carter Manasco; and former Assistant to the President James H. Rowe, Jr.
Eminent Authorship. Twenty-four task groups were
organized under the leadership of 300 widely-informed, objective-minded citizens who served
without pay. This group, assisted by full-time research staffs, included many of the nation's most
prominent
Industrialists
Scientists
Educators
Statesmen
Publishers
Consultants
Bankers
Engineers
Public Administrators
The task forces, in turn, employed the best-qualified specialists and consultants to unearth and organize facts regarding the strengths and weaknesses
of the Federal Government. These facts and their
subsequent recommendations, determined after
sixteen months of intensive study, were thoroughly
reviewed and evaluated by the task forces and
then by the Commission itself. In total, the Commission's work extended over two years and cost
in the neighborhood of $2 million.

THE PROBLEM




Sixty Years of Futile Attempts to reorganize the
Government fully justified this elaborate approach. Since 1887, the time of Grover Cleveland,
there have been seven unsuccessful attempts to
bring order into the management of the Federal
Government. With but two exceptions, every
President since Cleveland has vainly sought power
to implement such organizational reforms.
The Vast Growth of Government in the past twenty
years has seriously aggravated the problem. The
Federal Government today, after a great depression and a second World War, has multiplied fourfold in size and its expenditures are fourteen times
greater than in 1928. But the basic management
structure has remained unchanged.
The Structure is so involved that it can only be described statistically. Hoover researchers were
appalled by the immensity of
Inventories...

$27 billion in personal property
alone. The actual value of real
property is unknown.
Personnel... 2 million employees — twice the
total employed by the 50 largest
U. S. corporations combined.
Expenditures... $40 billion for government —
one-fifth of the national income.

Structure . . . A total of some 1,800 organizations scattered throughout the
world.
Specifically, the major structure involves 12 cabinet-level departments, 104 bureaus, 12 sections,
108 services, 51 branches, 460 offices, 631 divisions,
19 administrations, 6 agencies, 16 areas, 40 boards,
6 commands, 20 commissions, 19 corporations, 5
groups, 10 headquarters, 3 authorities, and more
than 275 miscellaneous units of governmental
machinery.
Bigness and even complexity in government are
not necessarily evil. The important thing is to be
sure that the machine functions according to twentieth century standards.
In any comprehensive analysis of this sort, before recommendations for improvement can be
made, it is necessary to isolate the deficiencies and
faults. Since these sometimes assume more dramatic proportions than the recommendations, it
should be remembered that the Committee's aim
was not to carp at the established order, but simply
to diagnose before prescribing. The fact that we
can thus so frankly criticize our own government
and that we will voluntarily take steps to correct
our own faults is one of the healthiest and most
important essentials of American democracy.

1 Strengthen Top Management
THE CONSTITUTION
THE ELECTORATE

EXECUTIVE BRANCH

LEGISLATIVE
BRANCH

THE PRESIOENT

2 Sharpen the Tools of Administration
MANAGEMENT CONTROLS
PERSONNEL ADMINISTRATION
FINANCIAL ADMINISTRATION
ADMINISTRATIVE SERVICES

OPERATING DEPTS.
AND AGENCIES (70)

FEDERAL
BUSINESS
ENTERPRISES

THE SIX GREAT PROGRAMS OF THE GOVERNMENT




3 Eliminate Waste, Duplication, and
Confusion in the Administration of
the Six Great Programs

1

THE BASIC FINDINGS

a three-part program
of improvement




Strengthen Top Management

"Top Management," in this case, refers to the
executive branch of the government. The Act creating the Hoover Commission specifically restricted the study to this area. This means the
Office of the President which includes the President, the White House staff, and the President's
Cabinet composed of appointed heads of 12 executive departments. It also involves those agencies
and staffs which exercise control over personnel,
finances and the various administrative services
such as purchasing. Lastly, there are the operating
departments concerned with, as the chart on the
preceding page shows, the six major programs of
Federal Government.
It is in these areas, then, that the Hoover
Commission suggested a three-part program of
improvement.
The President and his key assistants, said the
Commission, lack authority to organize and administer the executive branch effectively. The
President cannot delegate power of attorney, is
bound by law to completely outgrown management practices designed and effective in the days
of George Washington. Peculiar as it may seem,
the President does not possess a standing invitation

from Congress even to request changes in law in
order to create sounder management.
2

Sharpen the Tools of Administration

Not only are virtually all management controls
antiquated, but means are lacking to provide
leadership either in improving the performance or
reducing the cost of government. The rigidity of
law and tradition have kept to a minimum the
adoption of modern techniques of administration
in such basic areas as employment, budgeting, and
purchasing.
3

Eliminate Waste, Duplication, and Confusion

The major programs of Government are riddled
with waste, duplication, confused organization,
and inadequate supervision.
Here are some examples:
29 agencies make loans
34 agencies acquire land
16 agencies are involved in wild
life preservation
28 agencies administer welfare
14 agencies are concerned with forestry
12 agencies participate in home and
community planning.

These conditions result in an avoidable waste
of some $4 billion annually.

STEP

ONE:

Strengthen Top Management

RECOMMENDATIONS




The Hoover Commission formulated 27 specific
recommendations to clarify and expand the role
of the President in the management of the Executive Branch. These center around four principles,
each requiring Congressional endorsement.
1. Grant the President Permanent Reorganization
Powers. Realizing the tedious process of legislative
machinery, the Commission suggested that when
the President submitted a plan of reorganization,
such plan should become effective within 60 days
of its submission unless voted down by a majority
of both Houses. Modified authority was granted in
1949, specifying that either House could veto, but
terminating the authority in 1953.
2 . Remove all Restrictions on the Organization of
"The President's Office." This involved four basic
assertions: (a) that all authority be vested in the
President, not his staffs; (b) that key appointments
should be made by the President; (c) that funds
for employment of consultants from outside of
Government should be provided; and (d) that

new staffs, assistants, and committees should be
established to meet change as the President elects.
Also urged was the appointment of a staff secretary who would keep fully informed on all matters requiring the day-to-day attention of the
President.
3< Liberalize the Authority of Department and
Agency Heads as to (a) the selection of principal
subordinates; (b) the assignment of functions and
internal organization; and (c) the assignment of
funds. Thus, give them the power in their own
names to appoint, assign, and pay their key assistants. No longer would a Cabinet member be responsible for subordinate Chiefs reporting by law
to Congress rather than to him.
4 . Inaugurate a Broad Program of Reform, aimed
at (a) sharpening the tools of management in the
fields of personnel, budgets, accounting, and general administrative services, and (b) re-grouping
government functions by major purpose. Means
must be found to reduce these agencies from 74
to about 20.

I
ADVISERS
• CONSULTANTS

THE PRESIDENT

|

L

THE WHITE HOUSE
OFFICE
STAFF SECRETARY

THE PRESIDENT'S OFFICE

OFFICE OF
ECONOMIC
ADVISER
Replaces
Council of
Economic
Advisors

OFFICE
OF
PERSONNEL

OFFICE
OF
BUDGET
Provides policy,
advises on
administrative

BOARD OF
IMPARTIAL
ANALYSIS

NATIONAL
SECURITY
COUNCIL

Screens oil
engineering and
architectural
projects

NATIONAL
SECURITY
RESOURCES
BOARD

Top policy and
mobilization planning
Cabinet committees

DEPARTMENTS AND AGENCIES
(REDUCED TO ABOUT 1/3 OF PRESENT NUMBER)

DISTRIBUTION OF MANAGEMENT AUTHORITY
THE PRESIDENT

THE CONGRESS

Regarding Organization

Develops and proposes plans

Right of veto

Implements, assigns responsibility-

Regarding Funds

Prepares and submits budget

Appropriates

Assigns and controls expenditure

Regarding Policy Executives

Nominates

Senate confirms

Regarding Other Executives

Selects for his own office




DEPARTMENT HEAD

Selects for his own department

t
STEP

TWO:

Sharpen the Tools of Administration

THE PROBLEM

PERSONNEL
ADMINISTRATION


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Federal Reserve Bank of St. Louis

The hiring, promotion, and dismissal of personnel
is rigidly controlled by centralized, ritualistic procedure based in large part on a Statute enacted
in 1883.
Government executives in hiring a new employee are restricted by law to a choice of three
candidates selected by an outside agency (Civil
Service Commission) from a list of individuals who
were examined and graded on the basis of a test
which may have had no bearing on the job being
filled. Candidates for appointment apply and are
examined on an average four to fourteen months
prior to their consideration, and at the time of
their examination they have no idea in which of
the 74 major agencies they may work or at what
time in the future an opening may occur. The
chances are that no one interviews them. These
and other such impersonal and unimaginative practices make Government unable to compete for the
best qualified personnel.

Salaries, except in the lower grades, are insufficient to attract and hold executive and specialized
personnel. Adjustments in pay scales to meet
changing economic conditions lag far behind those
in industry, and when such adjustments are made,
clerical employees are increased in much greater
proportion than executive personnel, since a standard dollar increase is applied to everyone.
Supervisors are discouraged — indeed, actually
prevented by law — from demanding good performance from employees due to the maze of regulations which govern promotions, dismissal, and
efficiency ratings.
Little organized training in the field of management is provided by Government. The principal
means by which career executives rise is through
long years of service rather than demonstrated
executive competence.
Personnel administration is vested in a threeheaded commission which lacks executive direction. Thus, aggressive direction is lacking.

THE SOLUTION IN PRINCIPLE

1. Decentralize the recruitment, selection, and
placement of employees to operating agencies under general standards. Encourage a personalized
approach so that Government can be competitive
in seeking the best talents.

THE PRESIDENT

2. Raise pay levels in the upper brackets and authorize the President to keep pay scales adjusted
to economic conditions. Some action has been
taken in this regard, but Congress limited the number of positions which can be paid top salary to
only 400 out of 2,000 positions, all of which compare in importance to the presidency of a major
commercial enterprise.

DIRECTOR, OFFICE
OF PERSONNEL

CIVIL SERVICE
COMMISSION
Sets standards
Inspects compliance

3. Revamp procedures governing promotion, retention, and dismissal of employees so as to reward
good performance and penalize poor performance.
4. Permit employee participation in the formulation of personnel policies and practices. The Government's own labor relations need strengthening.

DEPARTMENT 8 AGENCY HEADS

5. Reorganize the central personnel agency under
single administration and emphasize its leadership
role.




Technical
assistance

I

AGENCY DIRECTOR
OF PERSONNEL
Staff supervision of
person**/ administration
throughout

agency

PRINCIPAL 0PERATIN6 SUPERVISORS
(Assisted by personnel officers as needed)

11

STEP T W O :

Sharpen the Tools of Administration

THE PROBLEM

FINANCIAL
ADMINISTRATION




The Federal budget and accounting system is an
accretion of practices based on laws dating back
to 1879.
Financial administration suffers above all else
from the absence of a single authority with legal
power to develop or install a comprehensive system. Today, there are no less than three highly
autonomous agencies, each responsible for some
phase of budgeting and accounting.
One of these, the General Accounting Office,
is completely outside the executive branch, reporting directly to Congress, not the President. The
GAO has authority over administrative accounts,
far exceeds its designated role of auditor. This
office, though not responsible to the Treasury,
still prescribes the form in which administrative
accounts shall be kept; establishes volumes of rulings under the guise of interpreting the law, which
rulings have the effect of law itself in so far as
the payment of salaries and procurement of

goods and materials are concerned.
The Treasury Department actually has a small
role in financial administration, being mainly concerned with the collection of revenues and the
maintenance of revenue accounts.
Budgets and accounts do not reveal the work
accomplished. This is due to the fact that current
expense and capital outlays are intermingled plus
the fact that some agencies procure their funds
from as many as twenty-seven different Congressional appropriations. It is virtually impossible to
compile a current and complete statement for such
an agency since accounts are kept by individual
appropriation.
The fact underscored by studies is that budgeting and accounting has been relegated in Federal
management to a lowly position, and there seems
to be a total lack of interest among top management in a precise knowledge of the use of the
budget as a management tool.

THE SOLUTION IN PRINCIPLE

1. Adopt a "performance budget" setting forth
how funds are to be spent in terms of functions,
projects, and services.
2. Simplify the appropriation structure and establish a uniform system of accounts for use by all
agencies so that comparisons between agencies
would be facilitated and meaningful consolidations
of agency expenditure figures possible.
3. Establish an Accountant General in the Treasury to prescribe accounting methods and procedures. Reorganize the Treasury to exclude such
nonfiscal functions as the Coast Guard, Narcotics
Control, and General Purchasing. Include such
related functions as the RFC, the Export-Import
Bank and the FDIC
4. Limit the General Accounting Office audits to
spot checking documents by the decentralized
field offices. By confining the GAO to its logical
role of post audit and by proper administration of
a spot check system, not only would millions of
dollars of payroll be saved, but it would no longer
be necessary to transport millions of expenditure
documents to Washington each year.




THE PRESIDENT

THE CONGRESS

TREASURY
DEPARTMENT

ACCOUNTANT
GENERAL

Approval of
* . GENERAL ACCOUNTING
and
OFFICE
procedures

I
I
Prescribes and
enforces methods
and procedures

Audit of
admtmstratire accounts

I
I
DEPARTMENT 8 AGENCY*
1
HEADS
«•—J
Technical
Guidance

¥
_ AGENCY FINANCIAL
OFFICER

BUREAUS AND OPERATING DIVISIONS

Note' Ttm President's staff control over budgets is exercised
the Bureau of tha Budget as at present

through

13

STEP

TWO:

Sharpen the Tools of Administration

THE PROBLEM

ADMINISTRATIVE


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Federal Reserve Bank of St. Louis

SERVICES

. . . in re Purchasing. There is no standard catalog
or file of specifications which Government purchasing agents can use to determine what is or is
not a fair price or which could serve as the basis
of interagency comparison. The Navy began work
on such a record in 1914 but it is said that only
"limited progress" has been made toward preparation of a general United States Commodity Catalog covering both civilian and military purchases.
Due to excessive paper work, half of the purchases
made by Government cost more to process than
the value of the materials purchased.
Even more alarming is the fact that storerooms
and warehouses throughout the Government are
overstocked by 70 per cent. This is due to the absence of adequate planning and control of requirements and to the custom in Government to spend
all funds remaining at the end of thefiscalyear for
furniture, equipment and supplies in order to avoid
returning any money to the Treasury.

Such fantastic conditions exist because, up to
now, there has been no staff service to assure that
the vital contracting, traffic and warehousing functions involving 127,000 employees are properly
conducted.
. . . in re Building Maintenance. The Government
occupies some 60 million square feet of space and
spends $200 million annually on rent and utilities.
This does not include military or post office buildings. It is said that no one knows precisely what
buildings the Government owns or leases.
. . . in re Records Maintenance. Government records occupy about 18 million square feet of office
space and are housed in $ 154 million worth of filing equipment. The striking fact is that one-half
of these records are no longer active but due to an
unplanned program of weeding out and transfer
of inactive records, valuable space and first-rate
filing equipment are being used to house them.

THE SOLUTION IN PRINCIPLE

The Hoover Commission proposed and the Congress has acted upon the creation of an Office of
General Services to exercise central coordination
over supply, building maintenance, and record
maintenance. This new agency will have as its first
over-all duty that of staff research to develop modern practices with respect to contracts, traffic management, warehousing, and stock control.
It will also supervise the care and operation of
office buildings and the storage and destruction of
obsolete goods.
Somewhat more specifically, this agency would
make all purchases "in common use" by government agencies; operate a nationwide system of
integrated storehouses; check the propriety of
shipping charges; build up a master set of specifications for buying; complete the "single commodity
catalog," and perform many similar functions.
A unit of the office, the National Archives and
Records Service, would set up policies and control
records offices for all civilian agencies, except the
Post Office.




THE PRESIDENT

To coordinatt

SUPPLY POLICY
COMMITTEE

FEOERAL
SUPPLY
SERVICE

t

common to
military and
civilian
procvrommf

w0m

GENERAL SERVICES
ADMINISTRATION

NATIONAL
ARCHIVES
AND RECORDS
SERVICE

PUBLIC
BUILDINGS
SERVICE

n» G—rol Sonic* » Admin, ttration alto contain tm Uaw4*Ham
Sonic* mme» it chargod wit* tmo ditpeml at turp
t
Ttilt met formorly Tin War Attott Admimttratton

OPERATING DEPARTMENTS
AND AGENCIES

Tin erganaation mas crtatod by CiMf-f am Jmm 30.1949.
It it tttimafd tkot ttit coordmatic* of off art mill ramlt
In vmuai taring* of ftSO million or morn.

15

STEP


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t*
Federal Reserve Bank of St. Louis

THREE?

Eliminate Waste, Duplication, and Confusion
in the Administration of the Six Great Programs

NATURAL RESOURCES

conservation and development of water, land,
mineral, and forest resources.

COMMERCE A N D INDUSTRY

aids to and control over transportation, labor, and
agriculture.

SOCIAL WELFARE

administration of veterans'benefits, social security,
public housing, public health and education.

B U S I N E S S ENTERPRISES

the postal service, electric power plants and the
lending and guaranteeing of funds.

FOREIGN AFFAIRS

international diplomatic relations and foreign aid
and occupation programs.

N A T I O N A L DEFENSE

training, equipping, and regulation of the Army,
the Navy, and the Air Force.

The Hoover Commission did not evaluate the policy aspects of these programs,
but examined only into the efficiency and economy of their administration.

DEPARTMENT OF THE INTERIOR
BUREAU OF
RECLAMATION

Natural
Resources
A study in Overlapping
and Duplicating
Functions




These two agencies are bitter rivals in
the building and operation of multipurpose dams for flood control, navigation, irrigation, and domestic water
supply as well as hydroelectric power.
Their duplicate surveys continually bid
for Congressional support.
The annual cost of administering all
projects is about $1 billion. Projects
now authorized will cost nearly $13
billion.
According to the Commission, at
HelPs Canyon, Idaho, both the Engineers and the Department of the
Interior drew up plans for the same
project at a cost of approximately
$250,000 each. The estimated costs
differed by some $75 million.

I

\

DEPARTMENT OF THE INTERIOR

MINERAL RESOURCES
SERVICE

WATER DEVELOPMENT
a USE SERVICE

Give major responsibility for development
of the nation's water and subsoil resources
to the Department of the Interior. Since
these projects involve large public works,
place public works management here also.

DEPARTMENT OF AGRICULTURE

BUREAU OF LAND
MANAGEMENT

FOREST SERVICE

These two agencies operate precisely
adjacent range and forest areas. In
some cases, the areas are actually
intermingled. Where this happens,
ranchers and loggers find themselves
dealing with and subject to both the
Department of the Interior and the Department of Agriculture. This is especially difficult because each agency
has its own set of fees and standards.
At this writing, the Government has
between 750 and 800 million acres
under its own title.
In Ogden County, Utah, the Commission claims ranchers use grazing
lands owned by themselves in the
valley, by the Forest Service in the
highlands, and by the Department
of the Interior in the middle lands.

I

I

DEPARTMENT OF AGRICULTURE

AGRICULTURAL RESOURCES
CONSERVATION SERVICE

Group aU major land agencies in the
Department of Agriculture with the aim
of eliminating the present extensive
overlapping of personnel, facilities
and management practices.

STEP

THREE:

Commerce and
Industry
TRANSPORTATION


18


Eliminate Waste, Duplication, and Confusion

Possibly the most notorious situation uncovered by
the Hoover Commission is that which exists in the
Federal organization for the development and safeguarding of transportation. This can be characterized as a study in uncontrolled dispersion. The Act
of 1903 declared that the Department of Commerce should be the central Federal agency concerned with transportation. Today, only the Coast

A Study in
Dispersion
DEPARTMENT OF
COMMERCE

MARITIME
COMMISSION

and Geodetic Survey and the Civil Aeronautics
Administration are in the Department, while
outside of it are all the other agencies shown on
the chart of proposed reorganization below.
To reduce the $1 billion now spent by these
agencies, the Commission recommended the establishment within the Commerce Department of a
single Consolidated Transportation Service.

NAT'L ADVISORY
COMMITTEE
FOR AERONAUTICS

CIVIL AERONAUTICS
BOARD

Cotst and G*o00tic
Owl Aarofoufics
Admmittrotro*

PROPOSED INTEGRATION

CONSOLIDATED
TRANSPORTATION SERVICE

Car mnfet,
smHty
FEDERAL WORKS
AGENCY

INTERSTATE

COMMERCE
COMMISSION

OFFICE OF DEFENSE
TRANSPORTATION

COAST
•UARD

LABOR

AGRICULTURE

REGULATORY
AGENCIES




The Department of Labor presents an interesting
study in disintegration. During the past decade,
^ o u r °^ *ts P r m c ip a l functions have been transferred out to other agencies. Today, with 3,400
employees, it is the smallest of the executive departments. Its top management is geared to super-

vise an agency about 100 times its size. The Hoover
Commission proposes that the original stature of
the department be restored by the return of functions it formerly possessed, including the employment service, employee compensation activities,
and selective service.

This $834 million department with 82,000 employees suffers from a loosely-knit organization
structure in which authority and responsibility are
widely diffused and the Secretary is expected to
exercise close supervision over no less than 20 independent major activities. The consequence is duplication internally and unjustifiable confusion. To

eliminate the resultant confusion, waste, and irritation, the Hoover Commission recommended that
the Department be reorganized into eight major
divisions instead of 20 and that a single state council be established in each state to replace the present numerous advisory committees. Importantly,
an overall conservation agency was proposed.

There are now nine regulatory agencies such as
the Federal Trade Commission and the Federal
Communications Commission which possess wide
discretionary powers to make and enforce rules
affecting commerce and industry. Since these bodies are created by law, their membership and functions are largely independent of any control by
the President. The Commission found these agen-

cies lacking leadership, characteristically preoccupied with details and uncoordinated consideration
of individual cases. The Commission suggested
that one man in each agency be designated the
chief executive for internal administration and that
all purely executive functions, such as safety, car
service, and route planning be transferred to the
regular operating departments.

19

STEP

THREE

Eliminate Waste, Duplication, and Confusion

THE NEED

Social
Welfare
PUBLIC HEALTH
AND MEDICAL
SERVICES


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THE SOLUTION

There are 24 million beneficiaries in the United
States currently eligible for Federal medical care.
Some 40 agencies and 4 major departments spending $2 billion per year now administer such service.
Evidence of mismanagement is found in the duplication of hospital facilities. The Commission
found that 35 per cent of Federally-financed bed
capacity —or nearly 100,000 beds —were idle.
Yet, over $ 1 billion additional capacity is planned.
Construction costs were found to be excessive,
ranging from about $20,000 to $51,000 per bed
compared to about $16,000 in private hospitals.
Even discounting for special circumstances surrounding veterans' care, the spread is too great.
Hospital administration is poor with an excess
of service being rendered. In Army and Navy hospitals, for example, appendectomy cases are kept
20 days, compared to less than 8 days in private
hospitals.
According to the Commission, the Veterans'
Administration has not taken advantage of existing
legal machinery which approves Federal aid to
non-Federal community hospitals.

Although the decision was not unanimous, the
Commission recommended that Congress authorize a United Medical Administration to bring the
general hospitals of the armed forces in the continental United States under central management.
This would also include the hospital functions of
the Veterans' Administration, as well as the facilities and personnel of the Public Health Service.
An Administrator would supervise the operation, assisted by an Advisory Board, composed of
the Surgeons General of the armed forces and the
Administrator of the Veterans' Administration.
The commission suggested that highest priority
go toward greater emphasis on research and prevention as a means of reducing the necessity for
hospitalization.
Steps were recommended to compel the use of
non-Federal hospitals on a reimbursable basis, particularly in smaller and more remote communities.
Finally, among the basic recommendations to
curtail waste, the Commission unanimously urged
Congress to define the rights and priorities of those
entitled to Federal medical care.

VETERANS1 AFFAIRS

SCIENTIFIC RESEARCH

SOCIAL SECURITY




While the Commission admitted that the Veterans'
Administration had been put under a tremendous
and sudden burden by the addition of nearly 15
million World War II veterans eligible for its services, the fact is that the Veterans' Administration
came in for most severe criticism.
It has been said that the VA represents "bureaucracy at its worst."
The Report contains many phrases like "conflicting lines of authority," "excessive number of
staff officers," and "the entire structure has become
too complicated... an excess of voluminous writ-

ten instructions on internal methods and procedures which defy intelligent execution." At the
time of the survey, the VA was employing
192,000 persons and spending $5.3 billion yearly.
The vast VA insurance program was singled out
for failing to use mechanical office equipment, for
taking five times as long to pay a death claim as
private companies, and using four times more personnel to maintain the accounts.
The Commission recommended a thoroughgoing internal reorganization including the mechanization of methods.

In view of a survey made just prior to the Hoover
survey by a group of eminent scientists, the Commission did not make a thorough study of this increasingly important area. The report does say that
no satisfactorily coordinated research program
has yet been realized. It did endorse the desira-

bility of creating, under the President, a National
Science Foundation to coordinate all Federal research efforts, including atomic energy development, as well as developments in agriculture, public health, and the armed forces. Such a foundation
will be created.

The old age and survivors insurance program requires normal collections of $3 billion and disbursements at present of about $550 million. To
this, add $800 million for grants-in-aid for education, for old age assistance, for the blind, and for
dependent children. Five separate programs bear
upon support in old age. Education, including that
for veterans, costs over $2.5 billion every year.
Due to the importance of these programs, the
Commission proposed the creation of a new De-

partment of Social Security and Education with
full Cabinet status. Under this proposal, the Federal Security Agency would be abolished with its
labor functions going to the Department of Labor,
with the Food and Drug Administration going to
the Department of Agriculture, and the Public
Health Service to the proposed United Medical
Administration. Supervision over the welfare of
the Indians would be transferred to the new Department from the Department of the Interior.

21

STEP

THREE:

Eliminate Waste, Duplication, and Confusion

There are over 100 enterprises in which the Federal Government has invested $20 billion
and for which it has authorized another $14 billion. There are three principal groups.
TO LEND, GUAtANTEf, AND INSUIE

Federal
Business
Enterprises


22


There are 40 agencies employing 35,000 people in this
category. This includes the
numerous farm credit entities, such as the Federal Crop
Insurance Corporation and
the Commodity Credit Corporation. Also, the many
housing activities: Federal
Housing Administration,
Public Housing Administration, and others. Also, the
Reconstruction Finance Corporation, the Federal Reserve Banks, Veterans' Life
Insurance, and still others.

TO SUPPLY ELECTtIC POWE*
AND IMIGATION

The Government now operates 46 hydroelectric and ten
steam power plants. In 1947,
thirty-seven more were under way and there are 79
more planned for construction by i960. This was an
area in which there was
considerable difference of
opinion among the Commissioners. Generally, the Commission opposed Government production, transmission, and sale of electric
power.

MISCELLANEOUS

IUSINESS

ENTEIPRISES

This includes a wide variety
of activities, by far the most
important of which is the
Post Office. However, it also
includes such diverse elements as the Washington
National Airport, the Alaska
Railway, The Panama Railroad Company, The Virgin
Islands Corporation, Federal
Prison Industries, Inc., the
U. S. Maritime Commission,
and the Puerto Rico Reconstruction Administration.

The above should not be confused with the activities of either the Department
of Commerce or the many regulatory agencies such as the Interstate Commerce
Commission. Separate studies and recommendations were made for each ofthese.

FINDINGS

RECOMMENDATIONS




Probably because Government production of electric power cannot be considered apart from the
question of policy (which the Commission was
not charged to consider), the 40 agencies dealing
with lending, guaranteeing and insuring received
more concentrated attention.
The impact of these agencies on our economy is
partially attested by these figures: Today, the
Government guarantees about $90 billion worth
of deposits and mortgages and writes approximately $40 billion in life insurance.
Widely diverse organizations have been created

to carry on these business-type functions. Some
are incorporated, others not. Even those with
corporate forms differ greatly with respect to borrowing powers and the number and duties of
directors.
The many and varied financial and accounting
practices greatly concerned the Commission.
Some of the organizations invest in Government
securities and are paid interest, the Government
thus paying interest on its own money. Frequently,
prices or interest charges are insufficient to permit
recovery of operating costs.

The Hoover Commission strongly advised that if
Federal business enterprises are to be continued,
they should be placed, in so far as possible, on a
straight business basis. Here are five of the more
specific recommendations.

cover interest, on its own investment losses, and on
its operating expenses.
3. The RFC should be limited to guaranteeing
commercial loans and prohibited from making direct loans except in times of emergency.

1. Incorporate all straight-line business activities
such as Veterans' Life Insurance and the Washingtion National Airport. In this connection, establish
uniform corporate requirements including like
borrowing powers.

4. The Commission, feeling that single administration was essential for the Government's numerous
housing activities, suggested a unified housing and
home finance agency.

2. Discontinue hidden subsidies and require business enterprises to pay their own way. Fees and
interest charges should be made to cover operating
expenses. Each enterprise should publicly report
annually on the extent to which it has failed to

5. Establish a single, unified "Agricultural Credit
Service" in the Department of Agriculture to consolidate some 37 corporations now engaged in
loaning to facilitate the production and marketing
of agricultural products.

23

STEP

T

H R E E : Eliminate Waste, Duplication, and Confusion

Federal
Business
Enterprises


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24
Federal Reserve Bank of St. Louis

THE POSTAL
SERVICE

Since the Post Office is by far the largest of the
Federal business enterprises, the Hoover Commission made this the subject of a special study.
The Commission reported that the Post Office is
One of the Nation's Largest Businesses
Its revenues
It employs
It has
It owns
It operates
It handles

are $1,300,000,000 annually
. . . .
500,000 people
42,000 branches
24,000 buildings
. . . .
10,000 vehicles
. 37,000,000,000 pieces of mail
per year

Moreover, it performs a banking service for four
million depositors who have placed over $3.4 billion on deposit with the Government. And yet,
says the Commission, the Post Office is
One of the Most Poorly Managed
of the Nation's Businesses.

Potentially, the Post Office is a business which

should make its own way. Actually, this is far
from true today due to failures in organization,
methods, and management.
The chief executive of the Post Office (the
Postmaster General) and 22,000 of his subordinate postmasters are political appointees. It takes
little imagination to visualize the quality and continuity of management which can be achieved
under such a system of choosing executives. Not
the least of the evils is the loss in morale among
career employees.
In business, the top executive rarely directly
supervises more than five to fifteen subordinates.
In the Post Office, 42,000 subordinates report to
Washington. The consequence is an unbelievable
bottlenecking of routine transactions.
Methods, equipment, and controls are generally backward and outmoded. There has been
little basic change in ways of doing business since
1836 despite continued efforts by Presidents over
a period of 40 years. This is only partly due to
rigid and outdated legislative restrictions.




A non-party official
mlth authority to
sot br»ak-tv*n
rafts for
special services

I

1

1 ADVISORY
BOARD

POSTMASTER GENERAL

I

L

J

Part timo, unpaid
group to adust
on methods
and policies

DIRECTOR GENERAL
OF POSTS

Caroar optrolmg toad
of Pott Office. Appointtd
without fixed form
by President.
Confirmed by Stmato.

REGIONAL DIRECTORS
OF POSTS

Fiftoan regional managers
supported by district
superintendents. Full
supervision over 42,000
Post Offices

HEADOUARTERS
STAFFS
Dovotop good
business and
accounting techniques

DISTRICT SUPERINTENDENTS'

Career, non-political
officials

POST OFFICES

POTENTIAL SAVINGS OF $140 MILLION THROUGH
BETTER METHODS AND CONTROLS

25

STEP

THREE:

Foreign
Affairs
THE PROBLEM


26


Eliminate Waste, Duplication, and Confusion

The Commission prefaced its findings on foreign
affairs by saying that efficiency and economy were
of minor importance compared to the task of marshalling the total machinery of Government to
discharge our present global responsibilities. The
complexity of the problem is illustrated by the fact
that Congress, the President, and 46 of the 74
major agencies of the executive branch are active
participants in foreign affairs.
1. Foremost among management's problems is
nursing the difficult relationship between Congress
and the executive branch. This has been traditionally bad, due to the extremely touchy problems involved, and to the fact that the State Department must conduct certain negotiations in secret without the prior knowledge of Congress.
2. Within the executive branch itself, the most
critical problem concerns the President, who although the nation's principal spokesman, today
lacks adequate staff to keep him fully informed on
foreign affairs and national security.
3. The Secretary of State, as the President's top
adviser in this field, is likewise in a difficult position. Involved in the study and analysis of highly

complex and delicate issues, and similarly overloaded with routine, he is responsible for operating
a major agency of Government having worldwide facilities. The Commission found this responsibility an impossible task today, further complicated by the Secretary's frequent absence from
Washington to attend international conferences.
4. The State Department is largely an aggregation
of specialists. Frictions are inevitable. Hostility
and jealousy between those located in Washington
and those overseas is ill-concealed. Some of the
frictions stem from the traditional aloofness of the
diplomatic service and its system of selection.
5. The State Department has been deflected from
its primary role of policy-making by the detailed
administration of the many special post-war programs involving such matters as food, oil, ECA,
and European rearmament.
6. Relations with the other 45 non-State agencies
are confused, due to an awkward system of organization within the department, under which a number of geographic and economic divisions may be
independently working on identical matters.

#

THE PROPOSALS




THE CONGRESS

THE PRESIDENT

Avoid delegating
for*ign affairs
potters to now
or subordinate

NATIONAL SECURITY
COUNCIL

agencies. Preserve
predominant prestige
and outhonty
of the President.

NATIONAL SECURITY
RESOURCES BOARD

Precise membership
and functions to be
prescribed by the
President instead
of Congress.

DEPARTMENT OF
STATE

Expand top-management by
addition of four secretarial
pests and employment of
persons of highest calibre
to represent U.S. at
international conferences.

Primary role to be
policy formation and
coordination of all
federal programs as
to choice and timing

FOREIGN AFFAIRS
SERVICE
Consolidate departmental and foreign
service personnel into a
"Foreign Affairs Service"
whose members ore interchangeable
Require all agencies to consult with
Stata Deportment on foreign
import of major programs

45 OTHER AGENCIES
1 0 0 , 0 0 0 EMPLOYEES

Cmader creation of a new 'Administration
of Overseas Affairs" to relieve
state and military deportments
of non-diplomatic responsibilities and develop a
corps of trained foreign administrators

27

STEP

T

H R E E : Eliminate Waste, Duplication, and Confusion

National
Defense

THE PROBLEM


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28
Federal Reserve Bank of St. Louis

The direct expense of our defense program takes one out of every three tax dollars. This amounts
to about $100 for every man, woma?i, and child, compared to $2.25 per person before World
War I. Many feel this burden is inescapable, but all agree that much can be done to make the
necessary dollars go farther.
The Hoover Commission could summarize its
studies of the national military establishment by
stating that the armed services are wasteful, torn
by rivalries, and not subject to firm top leadership.
With respect to waste, the Commission claimed
that the armed services are "far too prodigal with
Government funds." A large number of appalling
examples were cited.
The basis of appropriations is the budget. The
Eberstadt Committee, which conducted the defense survey, found itself "justified in saying that
our military budget system has broken down."
The Committee discussed such basic matters as the
realistic relation of military strength and national
policy; as the balance between needs and economic
capabilities; and adequate budget control after
appropriation.
It further analyzed programs for standardizing,
cataloguing, and inventorying property, and also
criticized standards of maintenance for military

establishments, as well as methods of keeping
accounts.
With respect to the Secretary of Defense, the
Commission's task force found that his authority
was insufficient and that, instead of unification
there existed a sort of loose confederation of the
three services. As a consequence, there is no strong
central control over budgets, expenditures, personnel or organizational matters. The Secretaries of
the individual services continue to go their own
ways, each having the privilege of reporting directly to the President.
The Commission contended that interservice
rivalries, the result of many years of tradition and
training, continue unabated. The result is uncoor dinated action and insistence upon duplicated
facilities such as those mentioned earlier in connection with hospitals. Such conditions help produce
an annual waste of at least $ 1 billion in administrative costs.

THE PRESIDENT
COMMANDER-IN-CHIEF

SECRETARY OF DEFENSE

THE

Full statutory authority
O¥tr budget, txpuidituris,
procurtmtnt,
ptrsonntl,
poll cits, programs

PRINCIPAL
PROPOSALS




UNDER SECRETARY
3 ASSISTANT
SECRETARIES

CHAIRMAN
JOINT CHIEFS OF STAFF

UNDER SECRETARY
NAVY

UNDER SECRETARY
AIR FORCE

UNDER SECRETARY
ARMY

1. CREATE REAL UNIFICATION WITH FIRM CIVILIAN CONTROL
2. ESTABLISH MEANINGFUL BUDGET AND ACCOUNTING SYSTEM
3. ESTABLISH POSTS OF UNDERSECRETARY AND 3 ASSISTANT SECRETARIES
4. ESTABLISH POST OF CHAIRMAN, JOINT CHIEFS OF STAFF
5. INTEGRATE MILITARY PERSONNEL ADMINISTRATIONS
6. COORDINATE RESEARCH IN PUBLIC WORKS AND HOUSING
7. MAKE GREATER USE OF CIVILIAN ADVISORY BOARD

This is a simplified chart of the National Military Establishment. There are, within this area,
half a dozen basic instruments which were also
analyzed. The Joint Chiefs of Staff, the National
Security Council, and the Central Intelligence
Agency, being more concerned with policy, were
not studied as intensively as those having an operational dimension: the Munitions Board, the Na-

tional Security Resources Board, and the Research
and Development Board.
In each case, the final proposals came to essentially the same conclusions: vest full power, including power over preparation of the budget, in
the Secretary of Defense, subject to the President;
overhaul the budget system and set up performance budgets emphasizing objectives and purposes.

29


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30
Federal Reserve Bank of St. Louis

THE OUTLOOK FOR FAVORABLE ACTION
A few first steps have been taken. These consist primarily of removing statutory obstacles.
But already potential savings of $i billion have resulted.

STEPS TO

ACCOMPLISHMENT TO DATE

Strengthen
top
Management

The President has been granted power to realign executive agencies, although either
House can negate a plan by majority vote within 60 days.. The Security Council and the
National Security Resources Board have been transferred to the President's office, giving
the President more control over these vital functions. While important, these early steps
do little to augment authority by removing senseless restrictions on key executives and
their ability to choose their own assistants, to organize their own internal establishments
and sub-allot funds provided by Congress.

Sharpen the
Tools of
Administration

The most significant step has been creation of the General Services Administration to
supervise purchasing, records maintenance, and building maintenance. A small start has
been made in personnel administration by improving salaries and making possible the
designation of a single administrative head in a central personnel agency. These moves
support sweeping changes recommended by the Hoover Commission, but without the
grant of specific authority, these may prove to be of small consequence. In the area of
financial management, no progress has been made except giving authority to the Secretary
of Defense to introduce businesslike budgeting and accounting practices in his immediate
departments.

Eliminate
waste,
duplication
and
confusion

It is in this area that the big dollar savings of the Hoover Commission Reports will be
realized. Progress and savings are being achieved by strengthening the position of the
Secretary of Defense. A beginning has been made by expanding the top management of
the State Department and the Post Office. One step has been taken toward creating a
Consolidated Transportation Service in the Commerce Department. But the vast majority
of the reforms advocated have yet to be authorized.




1950 M A Y DECIDE THE SUCCESS OR FAILURE OF THE EFFORT
Twenty-five Presidential plans and five major bills were in the foreground of Congressional debate during the 1950 session of the 81st Congress. A score or more had
been introduced and many others are being prepared. Most of these will be considered
during the calendar year. Here are some of the most urgent:

SENATE

BILL 2 2 1 3 . . . T o take the Post Office out of Politics

SENATE

BILL 2 1 1 1 . . . T o overhaul the Federal Personnel System

SENATE

BILL 2 2 1 2 . . . T o provide modernized financial control
of the Post Office

SENATE
HOUSE

BILL 2 0 5 4

. . . T o establish A c c o u n t i n g Management

BILL 5 1 8 2 . . . T o provide a United Medical and
Public Health Administration

The importance of these measures is self-evident. Their
results can be far-reaching. Their acceptance is vital.

31

Every Citizen can help...

1. Actively support pending legislation. Congress
still is in the mood to act on the findings of the Hoover
Report. Strong pressures have been built up opposing recommendations, particularly in relation to such matters as veterans' affairs and personnel modernization. A forthright
expression of sentiment on the part of the public will undoubtedly bolster the interest and courage of Congress in
this period of decision. Surely all can profit if we bear in
mind the nonpartisan nature of the Hoover Commission
and approach the legislative program in the same constructive spirit of interest in Government.
2 . Participate on advisory committees and commissions. It is of great interest that the Hoover Commission
frequently took occasion to propose that the President, as
well as the heads of major departments and agencies, reach
for the counsel and advice of qualified private citizens. There
is no major agency of Government which could not profit
greatly from the use of such help. Business and industrial
leaders render a valuable service by giving their time when
such an opportunity arises.
3 . Support the National Citizens' Committee for the
Hoover Report. Following the expiration of the Hoover


32


Commission's term of life, several of its principal members
organized a voluntary nonprofit organization known as the
Citizens' Committee for Reorganization of the Executive
Branch of the Government. The organization is under the
leadership of Dr. Robert L. Johnson, President of Temple
University. Dr. Johnson served on the Hoover Commission
personnel task force. A contribution to the support of this
committee will bring any interested citizen up-to-the-minute
information on the progress of the Hoover Report, and will
aid this organized effort which is designed to educate the
public and the Congress.
4.

Participate in your local citizens' committees.

Under the sponsorship of the National Committee, local
chapters of the Citizens' Committee have been formed in
every state, in a great many communities. These groups are
sponsoring community meetings at which well-informed
speakers appear to discuss the findings of the Hoover
Reports. This represents an opportunity for citizens to participate within their own community to engender the
widest possible understanding and consideration of the
Hoover recommendations. It is essential that prominent
men and women take the leadership in their own spheres
and communities.


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" * © . In U. S. A.
Federal Reserve Bank of St. Louis

ABOUT THE PUBLISHER
OF THIS

SUMMARY

Cresap, McCormick and Paget is a firm of management engineers
who have been retained by industry, government, and institutions to counsel on problems of organization, administration, and
business procedures and development.
r

>

i

u

r

•

J

TI-

T J T - J

Primarily, the firm serves industry. Its clients include Ford
Motor Company, The Pennsylvania Railroad, Westinghouse
Electric Corporation, American Cyanamid Company, American-Hawaiian Steamship Company, The Champion Paper and
Fibre Company, P. Lorillard Company, Chas. Pfizer & Co., Inc.,
Duke Power Company, and many others of this caliber, including leaders in the fields of retailing, banking, and publishing.
In addition to the Hoover Commission, the firm has also been
retained by the Department of the Army, Department of the
Navy, Department of the Interior, and the Treasury Department, as well as by state governments.
Similarly, the firm is consultant to some of the nation's foremost schools, colleges, hospitals and philanthropic institutions.

This summary of the Hoover Report has been prepared as a public service by

C R E S A P ,

M C C O R M I C K

342 Madison Avenue
New York 17, N. Y.

A

N

D

P A G E T

100 West Monroe Street
Chicago 3, Illinois