Lessons of the Steel Strike

...Lekachman, associate professor of economics at Barnard College, often writes on U. S. economy...

...Therefore, it is perfectly possible that steel prices will go up, conceivably after a Republican President has been safely elected in November...

...To some extent, the union has been presented with a new interest in price stability...

...hold firm against the union-busters...

...The contract will apparently cost the companies somewhere between 39 and 41 cents an hour over a three-year period...

...Back in 1956, Ewan Clague, Commissioner of Labor Statistics, considered the 6.25 per cent increase at that time not very important because the role of steel in consumer prices was "tiny...

...Beneath the exhortation there is an economic truth...

...in this industry since the end of World War II...

...Still more narrowly, should it relate wage demands to productivity achievements in each company...

...The length and the bitterness of the steel strike stem in part from the effort of both parties to insert partial doctrinal elements into their negotiations...

...It is a firm application of the various anti-trust laws...

...For one thing, steel is a much more important part of the cost of capital goods—the machines and tools which produce consumer goods...

...Economists are by no means agreed about the role of steel prices in general price movements...

...The first is the oldest...

...The serious decentralization policies followed by General Motors and other corporate giants can be construed as a recognition of the dangers to efficiency of enormous scale...

...But if hard cases make bad law, it is equally true that economic desperation frequently leads to poor contracts...

...Obviously, the contract seriously modifies the protection against declines in purchasing power which the workers used to enjoy...

...The final lesson of the steel strike is the recognition that major political struggles between companies and unions are not private arguments over economic advantage...

...Thus it is perfectly possible for the two escalator clauses to cancel each other...

...Moreover, it comes after a year of extraordinarily high industry profits and at the beginning of another year which promises rising activity and receipts...

...The injunction is a blunderbuss the timing of whose use cannot fail to favor one or the other of the parties to a given dispute...

...Most observers now agree that any President needs a good deal more flexibility of procedure in handling such troublesome and dangerous episodes in collective bargaining...

...But the possible inflationary impact of the settlement is only one of the uncertainties...

...It is these two questions which I shall discuss in the rest of this article, not because the answers are clear but because it is important at least to identify the real issues...

...The final blow is struck when one asks whether unions should inevitably get the whole of productivity gains...

...If so, how much new capital...

...Is a fair profit a sum adequate to attract new capital from investors...

...They may serve as a cause or at least a pretext for other price boosts, set off speculative movements in the securities markets, and promote an inflationary psychology throughout the community—the feeling that prices are going to go up anyway, so let's raise ours first...

...Although company costs rose immediately because the union won a major point on the issue of non-contributory medical, disability and life insurance costs, the companies secured a possible offset to some of the cost increases in the shape of an amplification of the escalator principle...

...There are economists, including Wil-lard Thorp and the late Sumner Slichter...

...what can be done...

...If the recent strike proved anything it was the inadequacy of the procedures established by the Taft-Hartley Act for the settlement of national strikes...

...Have we elected corporate presidents and union leaders to represent us...

...They demand the construction of realistic criteria of judgment and realistic limitation upon private power...

...Unfortunately, such modifications bring us only to the threshold of the questions posed by this latest example of the major, nation-wide strike...

...This sum compares with the companies' peak pre-strike proposal of 33 cents and the union's counter-proposal of 47 cents...

...in what period...

...Imagine a union so persuaded by the logic of the argument as to endeavor to heed it...

...Even effective public opinion implies some criterion of justice...

...Is this too much power...

...criteria which also win the respect of the contending parties...

...But what meaning does this truism have for the individual industry negotiation...

...From Adam Smith on, conventional economics has gloried in the proposition that it is through the jostling of self-seeking sellers for custom and self-seeking workers for higher wages that efficiency is rewarded, resources directed to their best uses, incomes allocated according to economic contributions, and prices proportioned to the evaluations of consumers...

...Although even the few disinterested students of the problem are far from agreement about the details, there is little question that such modifications of present legislation can do only good...

...We are much better off when economic organizations concentrate upon selfish economic objectives and refrain from acts of general benevolence...

...Suppose a union is convinced of the opposite proposition, that inflation is an unequivocal menace to the general interest...

...What of the case for reasonable gains, even when these imply some price increase...

...A great deal of evidence is available that medium-sized enterprises possess virtues of flexibility and alertness denied to their massive brothers...

...Presidential appeals to industry for restraint seem to imply that price increases should not occur at all, if they lead to other price increases and thus to general inflation...

...In their least sophisticated version...

...If we recognize the fact of oligopoly in much of American manufacturing, any expectation of a decrease in prices is not very sensible...

...Obviously there is not a single, convincing doctrinal basis for restraint...

...Contract agreement fails to resolve problems of inflation, machinery for strike settlement and the public's interest in collective bargaining Lessons of the Steel Strike By Robert Lekachman THE INITIAL jubilation which greeted the settlement of the steel strike last month has yielded to some sober second thoughts...

...But the relevant questions are how real is this corporate conscience, and what are its contents...

...For like it or not, a relatively small number of large companies and powerful unions have the power not only to cause inconvenience to the community but seriously to damage its operations...

...In somewhat more sophisticated forms, the exhortation is designed to make the companies content with some reasonable return on their operations...

...The odd part of this hazy search for criteria of restraint is the unperceived contradiction between the search and the conceptions of free enterprise which some of the searchers appear to cherish...

...The repeated and repetitive appeals of the President to exercise restraint both in wage demands and pricing policy leave entirely unanswered two central questions: What does restraint in collective bargaining mean...

...It does not help the case that this power has grown out of the pursuit of economic objectives...

...The very able board headed by George Taylor had its hands tied by the clause in that Act which denied it the privilege of making recommendations...

...inflation must be halted here...

...Now the fact of the matter is that such generally accepted guides to decision do not exist...

...Is it not much more in accord with the canons of efficiency, and even of justice, that the highly efficient earn premiums for their enterprise and that the slothful or unintelligent pay in losses the price of their shortcomings...

...It is not easy to understand why believers in free enterprise object to its manifestations...

...Something, of course, would depend upon its size...

...The subtle arguments of discriminating monopoly are likely to have less impact than the realization that other union members in other plants enjoy higher wages for identical jobs...

...If frequent journeys to the very brink of economic disaster are to be averted, more flexible procedures are not the complete answer...

...Which event is the more likely depends upon specific conditions of market demand and market organization...

...How inflationary would such an increase be...

...It is a sign of this re-evaluation that Vice President Richard Nixon, that astute student of the political weather, has been notably quiet and cautious in the remarks he has been making on the peace, in whose achievement his part was apparently substantial...

...Questions of this variety suggest that there are as many definitions of fair profit as there are persons to define the term...

...Such strikes become at some point more than the nation can bear...

...What does restraint mean...

...On the other hand, a contract based upon the operations of the least efficient firm would imply huge windfall profits for the firms which had kept their costs low...

...The better part of three-quarters of a century's experimentation with public utility regulation has demonstrated a continued absence of agreement on the meaning of a fair profit on a legitimate investment...

...A skeptic might wonder how much this corporate conscience is a public relations creation rather than a genuine shift in attitude...

...Should it demand an increase justified by the improvements registered by its own industry...

...They are clashes which deeply engage the puilic interest...

...It is a good deal more difficult to compromise the slogans of ideology (give management the right to manage...

...Nevertheless, the contract does represent an industry commitment greater than the maximum declared by its leaders to be non-inflationary...

...Competitive economic theory is not hostile to the clash of selfish economic egotisms...

...The meaning of managerial restraint is equally obscure...

...At this juncture, they are somehow settled...

...Add to these complexities the lack of precision in productivity measures, the relation of productivity to changes in output levels, and the unpredictability of productivity over the life of a contract, and it is apparent that the magic word, productivity, is a good deal less than a magic solution to the equities of wage negotiation...

...Not only are cost-of-living increases limited to six cents an hour, as compared to a possible 17 cents in the old contract, but the companies can deduct from such adjustments any increase in the cost of the insurance they carry on behalf of their workers...

...Is it a sum large enough to finance expansion from retained earnings, a current objective of many enterprises...

...Some hard thinking is demanded about the identification of the practices which require control and the manner in which the control should be exercised...

...Apparently neither Democrats nor Republicans are quite sure whom the steel settlement helped...

...Can it be sure that its restraint will be matched by that of other unions, or of employers...

...What restrains the worker is not a nice regard for the interests of his fellows but the apprehension that if he forces wages too high he will lose his job...

...Eventually, increases in their costs raise the prices of consumer goods...

...Seldom is discussion reasonable about the word "reasonable...

...The most generally cited model is the Massachusetts act drafted by the late Sumner Slichter which would enable the Chief Executive to employ at will conciliation, mediation, and boards endowed with various powers...

...Is it the average of in-dustry in general...

...If it is...

...Why should unions and companies restrain themselves...

...We should wonder whether as a community we really want big companies and big unions to have the power to make even statesmanlike decisions about wage rates and prices...

...There are three major lines of approach to the problem...

...Any fact-finding board armed with the power to recommend, and any mediator, conciliator or arbitrator requires standards to guide him...

...Such choices imply considerably different consequences...

...If tons of literature and masses of litigation have not served to clarify these concepts for telephone companies, electrical utilities and gas companies which enjoy monopoly positions and exceptionally stable earnings, how little must be the prospect of success to be anticipated from defining a fair rate of profit for United States Steel, a company whose market is much less stable, and whose certainties are much fewer...

...Is the compromise, nevertheless, inflationary...

...Properly Without Power, in which he appeals to the evolution of a corporate conscience...

...Is it therefore the patriotic duty of unions to press for very high wages and of companies to elevate their prices to new highs...

...If prices are not free to vary, resources which ought to shift will stay where they are...

...Since firms within a given industry differ in the efficiency of their operations, a contract based on the performance of the most efficient unit might bankrupt the less efficient...

...If the union relies upon industry-wide productivity estimates, difficulties still persist...

...Even if a fair profit were adequately defined to the satisfaction of all, one might ask why should every firm earn a fair profit...

...What is a reasonable gain...

...The heart of the difficulty remains when these words have been said...

...As in most settlements, the final result represented a compromise between the contending parties...

...In either formulation, the notion of restraint is a concept full of pitfalls for the companies and for the public...

...If we break up large enterprises, problems of power vanish when power itself is widely dispersed...

...All of this is natural market behavior...

...Finally, the first increase in hourly rates does not occur until December 1, 1960...

...A functioning price system directs resources to places where demand is high and away from places where it is low...

...The reason is exceedingly simple...

...Moreover, steel prices may set a pattern—although they have not always done so...

...Should that union restrict its demands according to some national productivity index...

...If prices are not allowed to rise in response either to increasing demand or increasing costs, then the primary al-locative role of prices is suspended...

...Happy to sweep so troublesome an issue under the rug, Congress has been silent on legislation which might diminish the possibility of a recurrence of such an episode, and the President has made no recommendations...

...Much reputable economic opinion holds that the gains of productivity benefit the community most when prices are lowered rather than wages raised...

...Recognition of this condition identifies the next job, the development of mixed political and economic controls over the performance of the major private centers of power...

...than it is to reach concrete technical agreements on some pragmatic basis...

...If wages rise 4 per cent throughout the economy and per capita output increases only 3 per cent, then either prices must go up or employment must go down...

...There is more fiction than fact in the judgment that efficiency and large scale run hand in hand...

...If so...

...whatever its meaning, why should either unions or managements settle for less than their economic strength can win for them...

...Hence division of General Motors into eight or more parts and of Ford into five might promote rather than diminish technical efficiency...

...Other experts have taken less cheerful views...

...in his latest study...

...Where he has led others have followed...

...In democratic politics, silence usually implies doubt about which way an issue cuts...

...In each of these cases, should it formulate its objectives by reference to the immediate past, the tendency of recent years or a projection into the future...

...In short, unions and companies have only imperfect and biased visions of the general interest, they lack the mechanisms to give effect to these visions and they probably should not have the chance to acquire the power to enforce these partial views...

...But even if companies and unions were disposed to act in the general interest, they might have trouble identifying what that interest is...

...A recently popular alternative approach emphasizes the development of internal criteria of organization and performance, after the fashion described by Adolf A. Berle Jr...

...There is much to be said for this approach...

...If national productivity figures were employed, then in industries where productivity gains exceeded the national average, companies would enjoy exceptionally high profits, since some of the productivity gains would be retained by them rather than paid out as higher wages...

...The location, investment and pricing choices which these large companies make create joy or gloom in the communities favored or rejected by the locators, powerfully influence the general level of economic activity and critically restrain or promote inflation...

...What restrains the merchant's greed is not Christian ethics but the pressure of other merchants...

...In the first place, it is the smallest gain won by the union The general relief that greeted the steel settlement has obscured some searching questions, which Robert Lekachman raises here, about the long-range economic consequences of future labor-management conflict...

...One of the reasons for this general moratorium on discussion is uncertainty about the effect of the agreement on the general course of prices...

...Unions have been frequently urged to restrict their wage demands to the amounts justified by increases in productivity...

...Finally, we can recognize the fact that in our big corporations and national unions are political as well as economic agencies which exercise significant power over the lives and properties of most members of the community...

...If the union endeavors to discriminate among the companies according to their relative profitability and efficiency, the resulting differences in wages and benefits would be certain to cause serious political troubles for any union leader...

...who have argued that mild inflation stimulated economic activity, encouraged growth and kept average rates of unemployment low...