Public Policy: Big Steel & Big Government

Every few years the U.S. public is treated to an economic wrestling match in a big steel ring. First, the nation’s steelmakers, usually citing wage increases, begin to talk about raising their prices. Then from the U.S. Senate come powerful protests; Republican Robert Taft led the crusade against one of the first postwar hikes in steel prices in 1948, and Democrat Estes Kefauver fought the last one in 1958 by rising to complain in 13 out of 14 consecutive Senate sessions.

This year the familiar match took a new turn: President John F. Kennedy himself stepped in to warn steelmen that they would only spur inflation and court higher taxes if next month’s annual pay boost in the steel industry should trigger higher prices. Last week, in a steely cold reply, U.S. Steel Corp. Chairman Roger Blough, a onetime schoolteacher, lectured Jack Kennedy like a Dutch uncle.

A Bellwether? Disputing Kennedy’s assertion that steel is a price bellwether for the whole economy, Blough observed that steel prices held level from 1940 to 1944, “but this did not prevent a substantial inflation.” Conversely, he recalled, steel prices rose about 30% between 1951 and 1956, but “there was virtually no net change in the wholesale price index.”

Blough argued that from 1940 to 1960 steel prices went up 174%, while steel labor costs jumped 322% and far outstripped productivity gains. Dismissing Kennedy’s contention that at present prices the steel companies could still earn a 7% to 15% return on the asset value of their outstanding stock, Blough contended that the best way to measure profits is as a percentage of sales, and that on this basis, steel profits have averaged 6.5% in the last five years.

Those Other Forces. Then Blough took the offensive. The causes of inflation, he declared, “are clearly associated with the fiscal, monetary, labor and other policies of Government”—a sharp dig at the Administration’s spending policies and its habit of intervening in labor disputes all the way from the high seas to the Metropolitan Opera. The President’s economic advisers, Blough charged, “seem to be assuming the role of informal price setters for steel—psychological or otherwise. But if for steel, what then for automobiles or rubber or machinery or electrical products or food or paper or chemicals—or a thousand other products?”

Other steel chiefs echoed Blough’s theme. Chairman Arthur B. Homer of Bethlehem Steel, the second biggest producer, wrote the President that steelmen cannot avoid a price upcreep if “other forces contributing to inflation”—meaning the rising price of labor—”are allowed to go unchecked.” President Thomas F. Patton of third-ranking Republic Steel wrote: “Your advisers seek to justify the freezing of current steel prices, regardless of inequities to our company. We are asked, in effect, to substitute their personal judgment for the known efficiency and fairness of the competitive marketplaces. This we cannot do.” Said Chairman Avery C. Adams of Jones & Laughlin: “Your proposal that steel prices be frozen is a major step toward price fixing by Government decree and constitutes a dangerous impairment of our free economy.”

The Problem of “Advice.” Presidential economists retorted that they had no intention of imposing controls, were simply trying to use the prestige of the Administration to persuade both management and labor to stall the wage-cost push. In his warning letter to steelmen two weeks ago, the President was careful to emphasize that if they held prices this fall, it would clearly be labor’s turn to hold down wage demands in bargaining next spring. And last week, in indirect answer to the steelmen’s blasts, the President renewed his implicit promise to put as much pressure on labor as on management. Replying to a letter in which United Steelworkers Chief David McDonald somewhat vaguely promised to “give full weight” to “the public interest” in his next negotiations with the steel companies, Kennedy pointedly expressed his hope for a labor settlement “within the limits of advances in productivity and price stability.”

In all these maneuvers the President was clearly banking on the fact that there are few things the steel companies would rather see than an end to the wage push. But the steelmen were clearly not ready to purchase wage stability at the price of Government intervention in their affairs. And even among businessmen outside the steel industry, few of whom believed a hike in steel prices to be either necessary or desirable, the protests of Roger Blough and his colleagues found many supporters. For by advising steelmen how to manage their affairs, the President had evoked in many an executive the fear that his industry might be the next to get “advice” from the White House.