• U.S.

Steel: The Price Fight

5 minute read
TIME

“I’m not fighting steel,” insisted President Johnson. “I’m fighting inflation!”

That was undoubtedly true—though the fact was of small solace to the steel industry, which once again found itself publicly cast as villain in a U.S. economic melodrama. It began on the last day of 1965, when the Bethlehem Steel Corp. announced that it was raising its prices on structural steel by $5 a ton, to an average $119. Poor “Bessie.” No sooner had the word hit the wire-service tickers than Gardner Ackley, chairman of the President’s Council of Economic Advisers, denounced the increase as inflationary; he later charged that Bethlehem was profiteering from the Viet Nam war. And from his Texas ranch, President Johnson called Bethlehem’s move “unnecessary” and “unwarranted.”

The Summons. The nation’s second largest steel company, Bethlehem is the leader in structural shapes, with 38% of production. But structural steel itself comprises a mere 7% of total production—and Bethlehem’s hike would have added only one-fourth of 1% to the Government’s steel price index. Moreover, Bethlehem pointed out, because of new, stronger, lighter structural steels, construction users now pay less than they did five years ago for equivalent jobs.

Such explanations seemed to go unheard. Bethlehem Board Chairman Edmund Martin was summoned to Washington for a confrontation with Ackley and White House Aide Joseph Califano. After 90 minutes, Ackley called in newsmen to repeat his foregone conclusion: Bethlehem’s price move was unjustifiable. Meanwhile, other Administration officials warned executives of other steel companies against following Bethlehem’s line. Labor Secretary Willard Wirtz, for one, tried to persuade Chicago’s Inland Steel, next only to Bethlehem and U.S. Steel as a producer of structural shapes, to stand pat. Wirtz had every reason to believe that Inland and its Chairman Joseph L. Block would cooperate: after all, it had been Block’s refusal to go along with a proposed across-the-board price increase that forced the rest of the industry to knuckle under to Jack Kennedy in 1962.

Not this time. Bethlehem’s move, said Block, would not be a cause of inflation; rather, it was “the result of inflationary forces already let loose. It seems most unfair to relate higher living costs to steel prices when the average steel price has remained steady for several years.” Block thereupon announced that Inland too was raising its price on structural steel by $5 a ton; little Colorado Fuel & Iron followed by posting a $3-per-ton increase on structurals.

The Pressures. The Johnson Administration stepped up its attack. Part of the Administration’s pique, it developed, came from the fact that Bethlehem had not informed the White House in advance of its plans—though no law or custom yet dictates such action by U.S. businessmen. Lacking stockpiles such as it employed last fall to roll back aluminum and copper prices, the Administration now ordered key Government agencies to buy structural steel only from companies that held the price line. On top of that, Pentagon officials hinted that Bethlehem might lose $50 million in contracts to build two ammunition ships.

By this time, it was apparent that whether Bethlehem could make its increase stick depended upon the action of U.S. Steel, which produces 36% of the nation’s structurals. In 1962 it was U.S. Steel Chairman Roger Blough who had led the industry’s effort to raise prices—and was forced into a humiliating backdown by the Kennedy Administration. Now Blough warily tested the temperature in the capital before taking action.

Flying to Washington, Blough talked first with Treasury Secretary Henry Fowler, then with Defense Secretary Robert McNamara. Volatile Viet Nam, a swelling federal budget and a sprinting economy, the two Secretaries argued, meant that this was no time for price increases in big industries. They insisted that they did not fear a $5 raise on structural steel in and of itself; what did worry them was the psychological effect that such an increase might have on labor, and the chance that it might set off a chain reaction of other price hikes.

Blough listened, flew back to Pittsburgh—and next day announced that U.S. Steel would raise its structural steel price by $2.75 a ton, and at the same time cut by $9 a ton the price of cold-rolled sheets produced at its Pittsburg, Calif., plant. As it happened, the rollback would merely bring the California product into line with the price of cold-rolled sheet throughout the rest of the country and would help U.S. Steel meet increasing Japanese competition on the West Coast.

The Grumbles. Everyone involved denied that there had been any sort of a “deal” between U.S. Steel and U.S. Administration, but within minutes after U.S. Steel’s announcement, Gardner Ackley raised his voice in praise. He pointed out that the $2.75 increase on structurals, coupled with the California cutback on cold-rolled sheets, would raise company revenues by “less than 0.1%”—which he called “inconsequential” as far as inflation was concerned. As for President Johnson, he swiftly let it be known that he was “pleased.”

Other structural producers had no choice but to fall in step with U.S. Steel —not without some grumbling. “It is interesting that only $2.25 a ton on 7% of steel output is the difference between inflation and noninflation in this country,” snapped Inland Vice President William Caples. Even amenable Roger Blough, noting that steel prices have remained nearly level since 1958 while the industry’s labor costs have climbed by more than 20%, offered the tart comment that steel prices “cause inflation like wet sidewalks cause rain.” The real reasons for inflation, he said, “are higher wages and excessive credit.” Michigan’s Republican Governor George Romney, former head of American Motors, criticized the Administration for standing by while wages go up, then “clubbing companies into the ground” when they try to put through compensatory price increases. The U.S. Chamber of Commerce called business “the scapegoat for inflationary pressures,” labeled Administration pressures on steel as “blackmail.”

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