Push-Button Profits?

More in sorrow than in anger, steelmen stomped into the Senate caucus room last week. They were not there, as one of them said, to defend the latest boost in the price of steel (TIME, Dec. 26); they didn't think they had to. But they wanted to explain it to the Joint Committee on the Economic Report.

Appropriately, the first witness was U.S. Steel Corp.'s beet-faced President Benjamin F. Fairless, who had been the first to raise his prices. Adjusting his brown bow tie and his horn-rimmed spectacles, Fairless summed up his story at the start. "There is no mystery about our price increases," he said. "They were made necessary by heavy increases in our costs."

"A-Fair Return." The steelworkers' new pensions and insurance alone, said Fairless, would cost U.S. Steel $3.88 a ton "and more than offset the $3.82 per ton which we hope to obtain from our price increase." Other costs were also up. Big Steel's annual fuel and freight bill, for instance, had risen by $33 million.

"When you are earning 5.2% on sales and 6.5% on investment," said Fairless, "you cannot go very far in absorbing still greater cost increases. U.S. Steel has not made a fair return on either its sales or investment at any time during the last 20 years."

That was enough to start Wyoming's Democratic Senator Joseph C. O'Mahoney off in full cry. He charged that in 1948 U.S. Steel had earned 10.2% on its total investment after taxes. Would Fairless challenge that figure? Fairless certainly would--but neither he nor Enders M. Voorhees, chairman of U.S. Steel's finance committee, could, or would, say why their figures were lower.* And what, asked O'Mahoney, did Fairless consider "a fair return"? Hedged Big Steel's Fairless: "Well, that is a variable . . . The profits are not something you can push a button and say that is it." Snapped O'Mahoney: "Well, that is what we are fearful of, that some of the big fellows here can push a button and get the profits."

"Damned If I'm Not." Other steelmen showed that it takes more than the push of a button to get results. Even with higher prices, said Jones & Laughlin Steel Corp.'s President Ben Moreell, his company expects lower profits per ton this quarter than in the first nine months of 1949. As for dividends, said he, over the past 27 years they have averaged only 1.6% of the asset value of J. & L. stock. To give stockholders a fair return of 8% under present tax allowances for depreciation, Moreell figures that J. & L. would have to boost prices another $17 a ton. (He told newsmen later that he was not thinking of raising prices at the moment, but "just as soon as competition will permit it, damned if I'm not going to do it.")

Even Bethlehem Steel Corp., which last week reported a record net of $99.3 million for 1949 (v. $90.3 million in 1948), was not satisfied that it was making enough. "To keep its existing plant and equipment efficiently producing by replacing and rebuilding worn-out and obsolescent capacity," said President Arthur B. Homer, "Bethlehem should, on the average, procure at least $117 million each year." Added National Steel Corp.'s Chairman Ernest T. Weir: "Management men are not price gougers."

For all this testimony, the C.I.O.'s United Steel Workers had nothing but scorn. Said the steelworkers' Research Director Otis Brubaker: the price rise was not justified either by low profits, higher labor costs, or increased material prices. The union, he said, was "tired of being a public whipping boy."

Just what the hearings had accomplished was doubtful. They were probably not much more than a warning to the steelmen to go slow on price rises. For in a free market, they still had a right to charge what the traffic would bear, whether or not it was good public relations to do so. Last week, with steel operations at 93.9% of capacity, it looked as if the traffic was still bearing up mighty well.

* Probable reason: O'Mahoney's earnings figures included the huge sums laid away by Big Steel each year for accelerated depreciation, which the company does not list as profits though it pays taxes on them.

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