Business: Trying to Avoid an Unwanted Strike

AMERICA’S steel industry long projected an image of an imperious colossus balancing the rest of the economy on its brawny shoulders. It was the basic industry, pouring out the prime ingredient for countless products from can openers to skyscrapers. Steelmakers’ decisions on prices were often handed down like baronial decrees, infuriating customers and successive U.S. Presidents. Today the steel industry is a troubled giant, no longer smugly certain of its stellar role. Its management has lagged in adapting new technology to help curb flyaway costs and prices. Competitors from abroad and from other industries, including plastics and aluminum, are buzz-sawing into its markets.

The steel industry’s managers will be bringing all these problems with them this week to the labyrinthine Sheraton-Park Hotel in Washington, D.C. There they will enter the economy’s most significant labor-management bargaining session of the year: negotiations with an implacably determined United Steelworkers union. The present contract, covering 350,000 workers, expires July 31. A long strike after that could gravely hurt the industry, the nation’s economy, and President Nixon’s chances of renewing his lease on the White House in 1972.

Union President I.W. Abel, 62, a practiced and canny negotiator, says that he cannot offer his membership anything less than the package that his union wrested in mid-March from the can industry. That settlement included an increase in wages and benefits amounting to about 31% over three years, plus an escalator clause tied to the cost of living. R. Heath Larry, 57, U.S. Steel’s vice chairman, who heads management’s bargaining team, has indicated that a 31% wage boost is too high. The most tenacious sticking point, however, will be the cost of living provision; in the 116-day strike of 1959, the union accepted limitations on the C.O.L. clause and has regretted it ever since. Dilution of the clause is one of the managers’ few triumphs in the past 30 years, and they will be most grudging about restoring it whole. Says one top steel executive: “It’s practically in the Bible. You never give back what you have already taken away.”

Larry will be sitting in the chief negotiator’s seat for the first time. The outcome of the talks could well be shaped by how well Larry and his relatively untested team relate to the union chiefs. Steelmen remember that management’s bargaining team in 1959 was also unseasoned, and its failure to reach a rapport with union men was a prime cause of the 116-day strike that year.

A steel strike seems probable, but it is by no means inevitable. The apparently rigid positions on both sides are part of the bargaining ritual that enables labor and management to play their righteous, hard-nosed roles down to the deadline, even though a settlement might be reached weeks or even months earlier. Already, many executives believe that any settlement will approximate the can-industry package. Some top union officials are saying privately that they do not think that there will be a walkout. After three weeks of examining the issues with both sides, TIME Chicago Bureau Chief Champ Clark reports: “I would place the odds of a steel strike at even money. If there is a strike, it will last less than six weeks.”

The most hopeful fact is that leaders on the two sides genuinely want to avoid a strike. The union’s strike fund is only $32 million, or less than $100 per steelworker. Asks one veteran union official: “How long do you think that fund is going to last in a national strike? About a week!” A threatening factor is that 70% of the union’s members are younger men who have never known the rigors of a rough strike. The steelworkers are also convinced that they have been left behind in the race for higher wages and are determined to catch up now. Still, excluding fringe benefits, Steelworkers earn an average of $4.25 an hour, making them the third highest paid workers among the 22 major manufacturing industries.

One of Abel’s trickiest tasks will be restraining the more volatile bravos within his constituency. Some of them are demanding that the contract restriction on local strikes be scrapped. This would mean that workers at individual plants could walk out over local issues at any time. Abel, who opposes the demand, remembers how that system worked when he was a young steelworker: “We had 39 strikes in my plant in one year. It was strike, strike, strike and no pay, no pay, no pay.”

Washington, Stay Home. Both sides want the Government to take a less active role than usual in their negotiations. The Council of Economic Advisers’ “inflation alert” last month, which specifically mentioned steel and called for a declining wage trend, angered the ordinarily cool Abel. Steelmakers, far from rejoicing at the admonition, reasoned that it could only antagonize labor and make their negotiations tougher. Says one company bargainer: “I wish to God that the White House would stay out of this one and give us a chance, just once, to negotiate among ourselves.”

The steelmen are also at odds with the Government over pricing. Since the start of the Nixon Administration, steel prices have risen by an annual average of 6.7% v. 1.7% during the last three jawboning years of Lyndon Johnson’s term. Since January, the industry has raised its prices on most types of steel. The intervention of the White House earlier this year forced Bethlehem Steel to halve its announced 12% price boost on structural steel, an increase that would have set an industry-wide precedent. Now the companies’ chiefs say that they will need still another round of price hikes this year to pay for the cost of a labor settlement. The Administration, worried about inflation, has threatened to counter such a move by relaxing restraints on imports. In the pukka confines of Pittsburgh’s Duquesne Club, angry steelmen now call President Nixon what President John Kennedy once called them.

Cutting the Dividends. It will take more than grumbling at the club to lift the steel industry out of its trough. Prices for raw materials have risen sharply since 1968; nickel and coal have gone up 40%. Steel’s earnings amount to only 5% of stockholders’ equity—dead last in a field of 22 top manufacturing industries. Most companies have cut their dividends by one-third this year. Even so, the salaries of top steel executives are often huge. U.S. Steel Chairman Edwin H. Gott, for example, last year collected a salary of $300,000.

Cut-rate foreign competitors have been chewing into the industry’s markets. European and Japanese steelmakers often have more modern mills than American producers, partly because they built from scratch after the war.* Labor costs abroad are also sharply below those in the U.S. (see chart, page 77). After gaining a toehold in the American market during the 1959 strike, imports began to pile in, reaching a total in 1968 of 18 million tons, or about 17% of the U.S. market. The Government negotiated a “voluntary” quota, limiting imports to 14 million tons for 1969 and setting a maximum 5% annual increase for the next two years. Since then, the foreigners have increased the percentage of stainless steel, tool steel and other high-priced products in their shipments. U.S. producers of other materials are also pushing into steel’s markets. Using an index with 1959 equaling 100, the output of steel last year was about the same as it was in 1965, but the production of aluminum shapes climbed by 28% and plastics by 62%.

In a belated drive to catch up with the competition, the industry in the past five years has poured $11 billion into modernizing and expanding its facilities. U.S. Steel, Bethlehem, Armco, National and other firms spent many millions on automated hot strip mills, continuous slab-casting machines, and oxygen furnaces. Though productivity among workers actually engaged in making steel improved for a time, there were no comparable economies among other employees. Overall, productivity increased only .7% from 1965 to 1970. Worse, because of shrinking markets, not all the costly new capacity can be used.

Though some of the causes of steel’s plight were beyond the control of its management, many of the ills are traceable to the industry’s refusal to diversify more rapidly into richer fields. In the past two years, some firms have shifted into new fields and scrapped unprofitable product lines. National Steel has entered the aluminum business, Armco has acquired interests in insurance and equipment leasing, and Inland Steel has bought into plastics, computer software and mobile homes. What the industry needs for long-term health is even faster and greater diversification. For now, what it wants is Washington’s approval of steady price rises, a tighter Government rein on imports and a moderate wage settlement. The chances that it will get all of those are indeed slim.

* Speaking of another industry, Henry Ford II lamented last week that the inflow of Japanese cars “is only just starting.” He said that he did not know how Detroit could meet the foreign competition. Added Ford: “Wait until the Japs get into Middle America.”