THE NEW ECONOMIC CRISIS
Kefauver, Senator Estes
The New Economic Crisis by SENATOR ESTES KEFAUVER THE REAL SIGNIFICANCE of the Steel strike of 1959 (which will perhaps become known as that of 1959-1960) is that it dramatizes a shift in the...
...Gardiner C. Means, the well-known economist, placed the rate of increase at four per cent...
...Labor lays claim to these gains on the grounds that it is labor which is displaced by technological progress...
...This would represent a splitting between management and labor of the gains in productivity made possible by scientific progress...
...Figures put into the hearings of the Anti-trust Subcommittee by R. Conrad Cooper, vice-president of U. S. Steel, indicate that between 1950 and 1955 steel output per thousand man-hours rose at an average annual rate of 3.5 per cent a year...
...Even though this is the step which would most benefit the national interest, since over the long run it would increase the demand for steel products and thus tend to raise production and employment, and even though the industry's profits are such as to permit a substantial price reduction, the most that consumers can reasonably hope for under present circumstances is price stability...
...Under the present Republican Administration it is clear that consumers can expect no protection from the anti-trust agencies...
...As a result, old solutions are no longer adequate...
...The position of management vis-a-vis the consumer has become so superior that apparently the steel companies feel they have nothing to fear from any price rise, no matter how great, nor from any prosecution under the anti-trust laws, as long as they are not stupid enough to put their agreement into writing...
...Of one thing we can be certain...
...The question of how to bring about an equitable distribution of the technological gains in non-competitive industries is thus essentially a new problem...
...I would like to think that the often tedious and unspectacular work of our Subcommittee has contributed to this greater awareness...
...But it was not always so...
...Issues are arising which transcend what can be accomplished by collective bargaining, conciliation, mediation, arbitration, persuasion, government by admonition, or appeals to patriotism...
...The prospect that the historical process of raising wage costs one dollar and steel prices two may be abandoned this year stems from greater public awareness that it has been the consumers who have been footing the bill...
...Or to put it conversely, at that rate of increase a given amount of steel that it takes 100 workers to produce today could be turned out by 82 workers in five years and by only 68 workers in ten years...
...A four per cent increase in productivity compounded annually means that in five years the same labor force would be producing 22 per cent and in 10 years 48 per cent more steel...
...What of the consumer interest...
...As chairman of the Senate's Subcommittee on Anti-trust and Monopoly, I believe I can say that most of the members of the Subcommittee— indeed, any one who would take the time to read the four volumes of hearings and the report on steel issued by our Subcommittee, as well as other material bearing on steel which I have from time to time put in the record—would pretty well know what the issues are...
...Several days after he had assumed his assignment as head of the President's fact-finding board on steel, Dr...
...In the past there has been no pressing need to concern ourselves with this problem...
...Under the theory of competition, on which our public policy toward industry has been based, the problem simply does not arise...
...Ironically, the steel companies have recently been making their own contribution...
...Against this background, what are the probabilities with respect to the eventual settlement of the strike...
...Of the 22 individual comparisons shown on the table, in all but five the increase was more than a third...
...But is it right and proper that only labor and mangement should be the beneficiaries of technological progress...
...The New Economic Crisis by SENATOR ESTES KEFAUVER THE REAL SIGNIFICANCE of the Steel strike of 1959 (which will perhaps become known as that of 1959-1960) is that it dramatizes a shift in the locus of power that is occurring not only in steel but in other industries as well...
...The power of management is on the ascendancy...
...But the consumer has a claim, too, on the grounds that there is no purpose to scientific progress in industry unless it ultimately results in lower prices or better products...
...This brings to the fore a fundamental issue: how in non-competitive industries, such as steel, can an orderly procedure be devised to bring about an equitable distribution among labor, management, and the consuming public of productivity gains made possible by scientific progress...
...The final possibility is no price rise accompanied by a modest increase in wages...
...For the six companies for which profits per ton shipped can be computed, the increase was from $9.07 to $17.46...
...They seem to have recognized the absurdity of trying to argue that an increase in the price of the nation's basic material has no appreciable effect on inflation...
...More likely than a price reduction, though somewhat less likely than in the past, is a price increase...
...It is a problem which the whole Congress must face up to in the not too distant future...
...the effectiveness of competition, the force presumed to protect consumers, has lapsed into a state of innocuous desuetude...
...so improved that labor does not feel that any union, worthy of the name, can possibly accept what management has chosen to offer...
...To the first half of 1959 the annual rate of increase is more than four per cent for any period beginning with 1951 or later...
...In any event the pioneering company gains the reward of increased business at least for a time, while the consumer receives the benefit of the innovation in the form of a lower price...
...the power of labor is on the wane...
...The head of one of the agencies manifested no concern whatever on the grounds that the increase stemmed from a wage increase and that his agency had no jurisdiction over a wage increase...
...And where there is no price competition, as in the steel industry, the theory is simply not applicable...
...In defending the industry's price increase of $6 a ton in July 1957, Roger Blough, when testifying before our Subcommittee, went to considerable lengths to minimize the effect of a steel price increase upon the economy, and stated at one point that the price advance would affect the average family's budget by "less than one cent a day, or not even enough to buy one cigarette...
...As a group the average profit rate for these eight companies rose from 11.3 per cent to 16.2 per cent on net worth and from 5.9 per cent to 9 per cent on sales...
...There will be no price reduction...
...In hearings before the Anti-trust Subcommittee I referred to the industry's "history of identical price increases made by different companies with different costs at a time of substantial unused capacity and in an industry in which one firm clearly exercises a position of leadership...
...The position of management vis-a-vis labor has ESTES KEFAUVER, Democratic Senator from Tennessee, has become one of the nation's foremost authorities on the steel industry as the result of his intensive work as chairman of the Senate Judiciary Committee's Subcommittee on Anti-Trust and Monopoly...
...Apparently Blough and the other members of the steel industry are now mindful of the spurious nature of that type of estimate...
...The improved position of management over labor has come about primarily as a result of three underlying economic trends: the increase in productivity, the existence at present price levels of sizable excess capacity, and the reduction in the "break-even" point...
...Confronted with the demand for a wage increase, the steel companies have become almost evangelical in denouncing the evils of inflation...
...But all this presumes the existence of price competition...
...It is assumed that as soon as any firm in a competitive industry makes an improvement which reduces its costs, it will make a corresponding reduction in price...
...I then asked, "How could this recent steel price increase have occurred without there being a conspiracy, either express or implied, or monopoly control over the industry, or both...
...Less well recognized but equally ing product definitions and classifications, etc...
...The other firms will either have to make the improvement themselves or lose their business to the innovator...
...Management bases its claims on the grounds that the installation of new and better machinery and equipment requires greater profits...
...The accompanying table shows, for each of the industry's eight largest producers representing 78 per cent of total ingot production, their profit performance for 1953 and the first half of 1959, both periods of high operations (95 per cent in 1953, 88 per cent in 1959...
...George W. Taylor complained that even at that late date no one knew what the issues were...
...Profits are compared on the basis of three measures: as a percentage of net worth, as a percentage of sales, and per ton of finished steel shipped...
...The head of the other agency agreed that the circumstances were suspicious but felt that he had no basis for a case unless he came into possession of a formal written agreement to fix prices—something which the industry's lawyers have been zealously avoiding for a long time...
...That the steel companies could well afford to lower the price is indicated by the fact that on an annual basis the industry's rate of return on net worth after taxes was 15 per cent in the first half of 1959, which is higher than for any other year since 1920, with the one exception of the Korean conflict year of 1950...
...It is a problem for which there is no existing public policy...
Vol. 24 • January 1960 • No. 1
