Man of Steel
(See Cover)
Every few years, in early summer, the U.S. is treated to an old, familiar spectacle. With flourish and fanfare, the representatives of the U.S. steel industry's management and labor sit down to negotiate a new wage agreement, working against the steadily approaching threat of a strike deadline. Labor cockily demands a fat wage hike--and management just as cockily turns it down. Eight times since World War II they have fought their suspenseful duel; five times it resulted in strikes, three times in an early agreement. This week the U.S. was up against the old deadline once more. But this time there was a vital difference.
Before and during the ten long weeks of marathon bargaining, President Eisenhower had warned both management and labor not to make an inflationary settlement, i.e., one in which wage increases would be so big that they would force price increases. To prove how serious he felt about the dangers of inflation, Ike last week vetoed a housing bill because he considered it inflationary. His words--and a torrent of warnings from every quarter--had awakened the nation to the perils of new inflation. As it met with labor last week in Manhattan's Roosevelt Hotel, steel management was keenly aware of that peril--and of a second danger that followed directly from it: a growing threat to American steel in world markets from foreign competitors.
Whether the negotiators reached a last-minute settlement or allowed a strike to tie up 90% of U.S. steel production, those facts had already brought about a dramatic and significant change in the climate of U.S. labor relations. For the first time in 23 years, the nation's third most powerful union (after the teamsters and the autoworkers) had run--to its shocked surprise --into a stone wall. After years of giving in to union demands for wage raises, the steel industry this year met labor with a hard new line, refused right up to this week to give the union a penny that would raise overall wage costs.
Change of Climate. Management's firm policy was publicly expressed by R. Conrad Cooper, executive vice president of U.S. Steel Corp. and the industry's chief negotiator. But the man who devised it --and directed industry's strategy from the background -- is Roger Miles Blough, 55, chairman of U.S. Steel Corp. Big Steel's Roger Blough (rhymes with now) is perhaps the foremost advocate of a new look in U.S. labor-management relations. He feels that the U.S. is no longer a "laboristic society," that U.S. business, after sweltering for years in a climate that considered labor invincible, can and must check the unions' power, simply because it can no longer accept the high costs of labor demands. Looking over the whole economy, Blough knows that when it comes to inflation, foreign competition and other new factors in the economy, labor and management are in the same boat; what hurts one also hurts the other.
Management was willing to make some concessions, but only in return for others on the union's part. Many in and out of the industry felt that the companies were willing to give perhaps 10-c- an hour (TIME, June 29) if the union permitted them to reclassify jobs, eliminate featherbedding to take full advantage of automation, make other changes to improve efficiency. Such an exchange, the industry figured, would not boost overall payroll costs, thus causing a rise in steel prices. But the union rejected the swap, arguing that management's talk of featherbedding was "pure, unadulterated bunk."
Strikebrinkism. To try to bring pressure for a settlement, David J. McDonald, boss of the 1,250,000-member United Steelworkers union, had slipped away last week from bargaining sessions, flown to Pittsburgh for a private talk with Vice President Nixon. McDonald pleaded for government help to break the deadlock. He remembered the record 62 1/2-c- , three-year wage package won by the steelworkers in 1956 after Labor Secretary James Mitchell and Treasury Secretary George Humphrey pressured management, knew that this time both Nixon and Mitchell were anxious to see a no-strike settlement. But the Administration stuck firmly to its hands-off policy. When President Eisenhower later renewed his earlier plea for an indefinite extension of bargaining, Dave McDonald wearily turned it down, announced that the union would strike this week if it did not win a new contract.
As the deadline neared, industry's Cooper summed up management's case in calm, assured tones, basing it heavily on the state of the economy and management's "complete conviction as to the merit in the public interest." In reply, Dave McDonald attacked management's position as "a mock crusade against inflation," called its whole stance one of "strikebrinkism." Said McDonald: "They say to the union: Surrender unconditionally, and then we will dictate our terms for your acceptance."
The steel industry had good reasons for believing that its new line was not only hard but realistic and well timed. It was well prepared for a strike; steel customers had enough inventory for seven weeks or more, would still be there as a clamoring market for steel once a strike was over. Steelmen also counted on the fact that U.S. steelworkers, already the highest paid of the Big Three unions, are aware that a wage-and-price boost might bring more inflation to nullify a pay rise, give a boost to foreign competition, and eventually cost jobs in the mills. The most remarkable point of a new Gallup poll out this week is not that 51% of those polled said that steelworkers should get no pay raise, but that 40% of the families of union members felt the same way. For all these reasons, it was clear that Dave McDonald would walk away this year--after either a contract or a strike--with far less than the "even greater agreement" than 1956, which he promised his workers at the start of the bargaining.
That McDonald's dream would not become reality was a measure of how badly he had misjudged the temper of the times --and how well it had been judged by Roger Blough.
Give & Take. A sinewy (6 ft., 175 Ibs.), hard-muscled man with a slightly bulbous nose and brown hair etched with grey, Blough had not only devised the industry's new policy but would have the most say in whatever settlement the steel industry would make. He is no rough-and-tumble, up-from-the-mill steelman but a lawyer who got into steel via a Wall Street firm, thoroughly learned the business by hard-slogging homework.
Blough believes that collective bargaining is a matter of give and take, and that industry has been doing most of the giving. As head of Big Steel's $3.7 billion empire and 232,000 employees, he presents his reasons for crying "halt" as if he were preparing a legal brief. Says he: "The results of collective bargaining between the companies and the steelworkers' union have been characterized by unsustainable cost increases, major strikes and government intervention. It is time to raise the question as to whether nationwide wage policies, industry-wide strike power, the ability to shut down industries and bring economic America to its knees are necessary or right."
The Grand Alliance. The entire atmosphere in Big Steel's union relations has changed since Blough took over the company from Benjamin F. Fairless in 1955. Unlike Ben Fairless. who used to tour the steel mills with McDonald, Blough believes in keeping the union brass at a distance, never hesitates to take on the union in public. His hard new line is no quickly thought-up policy; as long ago as last fall, he met with other steel executives to work out the strategy for holding the line on the union.
Blough was well aware that he had to fight a two-front war. He not only had to fend off McDonald but, like any man who has put together a grand alliance, also had to keep the other steel companies united behind him. Both Blough and McDonald knew that if one company broke from line and made a private settlement, all the others would have to follow. McDonald has scurried about in search of an opening in management's ranks, tried time and again to sit down with the heads of individual steel companies. But Blough, skilled in negotiating, has kept his alliance together. He went to great lengths to avoid appearing to run the show--though everyone knew that he did. He kept the other steel companies happy by seeking their opinions through Conrad Cooper.
New Realities. The new line in steel is based on what Blough deeply believes are the changing realities in the U.S. steel industry and the whole U.S. economy. One of these is the great danger of a never ending inflationary spiral from continuous boosts in wages and steel prices. But more important to the steel industry itself is the threat, for the first time in this century, of serious competition from abroad.
The U.S. steelworker, argues Lawyer Blough, is not only far above the wage scales of the industry around the world but--at $3.10 an hour--is also well above the U.S. industrial scale. Since the war the union has won four healthy wage settlements totaling $1.31 an hour, and average hourly wages in the industry have risen 142%, three times the rise in the cost of living. Wage costs now account for 38% of every dollar paid by the customer for steel. To keep up with rising wage costs, steel companies have raised the price of steel twelve times--or 148% --since the war. But Blough nonetheless claims that the increases have not fully covered the increased costs, have not given industry all the profits it needs to expand.
Blough is well aware that the steel industry, though it is no longer the wage pacesetter that it was right after the war, still exerts a strong symbolic effect on the nation's wage patterns. More than that, he knows that right now the effect will be stronger than ever, since any wage hike--even without a price rise--will set a mark for unions to shoot at in upcoming negotiations. Some 32,000 aluminum workers represented by the steelworkers union will expect their contracts to measure up to any steel wage hike. After them will come new contracts for railroads, longshoremen, shipbuilding, aircraft, meatpacking, and containers--covering, in all, 1,455,000 workers.
Aside from this, wage and price hikes in steel have a way of rippling like a wave through the whole economy. When steel prices were raised 4% in 1957 after a 6% rise in steel wages, a major steel consumer had to pay $420 more for the steel that went into a power shovel. But the manufacturing company also had to give a wage hike prompted by the steel industry's wage rise. The wage cost of producing the shovel jumped $3,444, or more than eight times the price increase.
To such arguments, Dave McDonald and his union have their own rebuttal. Steelworkers deserve a wage increase this year, says McDonald, because productivity in the mills has risen an average 4.7% per year in the last two years, and above all, because industry can well afford it. The steel industry's profits for the first quarter this year reached a near-record $374 million, an 11.7% return on stockholders' investment on an annual basis, slightly better than the returns of all U.S. industry. Second-quarter profits will be even bigger.
Realistic Nightmare. But the industry insists that inflation at home has already cost the U.S. steel industry some of its foreign markets, opened the gates for foreign industries to undersell U.S. steel right in its own backyard. Said Editor-in-Chief Tom Campbell of Iron Age: "Foreign steel is now the realistic nightmare of the American steelmaker." What has really shocked U.S. steelmen is that in December, for the first time since early in this century, the U.S. imported more steel from foreign nations than it exported. Every month since then, the gap has widened--while at the same time U.S. exports for the first four months dropped 27%. One big reason: U.S. steel prices range as much as 10% above world steel prices for many products.
Says Republic Steel's President Thomas F. Patton: "First the foreign manufacturers took our foreign market. Then they went after our coastal markets. Now they're invading our inland markets. Everyone in the industry feels that foreign steel is a growing menace." Roger Blough has strong ideas about how that menace can be stopped. Says he: "A fundamental law of business is 'compete or die.' The only practical way to keep foreign-made products from overcrowding our markets at home is to compete in quality, price and service; and the only practical way to reach foreign markets successfully is to keep our costs--which means, primarily, our wage costs--competitive."
Bloody Strikes. This shift in imports has come with what seems like lightning speed, especially to a nation that dominated world steel production for so long. Only 34 years after the age of steel was born with the invention of the Bessemer process in England in 1856, the infant U.S. steel industry began to outstrip the other major producing countries. When Banker J. P. Morgan founded U.S. Steel Corp. in 1901 by merging several companies, the U.S. produced 37% of the world's steel--and Big Steel produced the lion's share of the U.S. total from birth. By 1920 the U.S. share of world production had risen to 59.1%.
Almost from the start, the U.S. industry was scarred by a series of violent, bloody strikes. Labor did not succeed in organizing the industry until 1937, when the door was opened by U.S. Steel. President Roosevelt persuaded the late Myron C. Taylor, then Big Steel's board chairman (and later Roosevelt's personal representative to the Vatican) to make a contract with the United Steelworkers, the first in the industry.
Under Ben Fairless, Big Steel underwent its biggest expansion--and a growing friendliness with the unions. After Roger Blough went to U.S. Steel in 1942 from the Manhattan law firm of White & Case, he became experienced in labor negotiations. But he was a different sort of man from Fairless, and his attitude toward the union gradually stiffened in the face of its growing demands. He was hardly more than a year in the chairman's chair when the union in 1956 won its biggest wage victory. Blough has never forgotten that defeat. Says he blandly: "We would like to do better than we did in the 1956 negotiations."
Dutch Stubbornness. Blough runs Big Steel with the quiet confidence and sure hand of a man who thoroughly knows his job. He is a prodigious worker who still puts in twelve hours a day at the job of keeping tabs on every aspect of his business. He gets up at 5 or 6 a.m., jots down ideas and reads newspapers and magazines before arriving at the office around 8. He has half a day's work done before most of his executives come in, sometimes embarrasses them by assuming that everyone keeps his hours and calling their offices before they arrive. He divides his time between his Park Avenue apartment in Manhattan and Pittsburgh (where his living quarters are right in the Mellon-U.S. Steel Building).
Blough is an alloy composed of shyness (he is still not well known in the steel industry on a personal basis), unpretentiousness and Pennsylvania Dutch stubbornness. He likes to sing hymns and old folk songs, browse in art galleries, cook in the old-fashioned kitchen of the Victorian, Hawley, Pa. house where he and his wife spend their weekends. He has two married twin daughters. He has the temperament and patience of an experienced trout caster (which he is), the fascination for things mechanical of an engineer (which he is not). He rarely goes on vacation, but likes to stroll the streets of Hawley in khakis, stopping to visit friends or make small purchases.
Blough guided Big Steel through a major reorganization to keep it up with the times. He transformed the corporation from a sprawling holding company with dozens of subsidiary corporations into an integrated corporate unit, spun off businesses, e.g., shipping, that did not fit into the company's basic pattern. To get Big Steel on a lean, efficient basis, he vigorously pushed a standard-cost system for evaluating every job in the company. He increased the company's incentive system until it now covers 75% of all employees. (Blough, whose salary is $265,000 a year, also picked up $L,985,623 worth of Big Steel stock through options.)
A man with his eye on the future as well as the present, Blough has vigorously pushed U.S. Steel's expenditures for research, built the world's largest ferrous-metallurgy laboratory at Monroeville, Pa. With the rest of industry, U.S. Steel's scientists are studying the behavior of ores to make the most effective use of raw materials, working on special steels needed in rocketry and nuclear weapons, and turning out such new consumer products as aluminum-coated steel sheets for the automobile industry, vinyl-covered sheets in many colors for TV cabinets, wall panels, doors.
From the Ashes. Unlike many of his predecessors, Blough is also a man with a world view of steel. Though the U.S. steel industry is fat this year, Blough asks himself whether the steel industry can afford a wage hike in terms of world-market trends. His answer is no, and his reason is the great change that has taken place in world steel production. At World War II's end, the U.S. accounted for 54% of the world's steel production. But the war, in cruelly efficient terms, had proved a blessing in disguise for many foreign steel industries. Their bombed-out plants were built anew with equipment more up to date than most U.S. steel plants', often with the help of U.S. aid.
West Germany's steel industry rose from the ashes to surpass its prewar record in steel production, has raised its capacity to 29.3 million tons yearly. Led by the huge combines of Alfried Krupp and August Thyssen-Hutte, the German industry is flexing its muscles, reconcentrating once more to make itself more efficient, aggressively seeking out new markets from India to South America. In Great Britain, heavily bombed in the war, the steel industry is now among the world's most modern. Britain's biggest steel company is United Steel Companies Ltd., whose chairman, Sir Walter Benton Jones, 78, is the elder statesman of British steel. Says Sir Walter: "I think of nothing during the week but United Steel, and on weekends I think of my garden and my home."
France has one of the best and most buoyant steel positions in its history, raised production to a record 16.2 million tons last year. The industry is modern, research conscious and anxious to win new markets. Though Japan is still considered a high-cost producer of iron and steel--mainly because it has to import raw materials--it also manages to compete actively abroad, is moving into South America at the expense of the U.S. industry. Japan's steel industry is dominated by six big firms led by Yawata Iron & Steel, under President Arakazu Ojima, who wants the industry to curb its headlong overexpansion, work at more economy.
Second place in world steel is now held by the Soviet Union, which produces as much steel as Britain, West Germany and Italy combined. Last year's production of 60 million tons was double that of 1950, or 70% of the U.S. total. The Russians are working feverishly to catch up, plan to equal U.S. production by 1972. Lumped together with China and the satellites, Russia's steel industry will gradually become a formidable challenge to the West, though for many years it will be devoted mainly to supplying Russia's own appetite for steel.
Low Wages. Many nations that once produced no steel or very little have begun developing their own industries, often with U.S. aid. India, for example, is modernizing and expanding its steel plants under the leadership of Steel Baron Jehangir Ratan Dadabhoy Tata, who has expanded his huge plant to a capacity of more than 1,500,000 tons of salable steel annually. Canada, once a prime market for U.S. steel, has steadily supplied more of its own needs from its growing steel industry.
Employment costs among foreign steel producers give them a valuable leverage in competing on world markets with the U.S. Compared with U.S. steel wage costs (including fringe benefits) of $3.22 an hour in 1957 (the latest year for which foreign comparisons are available), the Japanese steelworker cost his employer 46-c- an hour, the French worker 96-c-, the Italian worker 81-c-, the British worker 90-c-, the West German worker $1.01. Once, the U.S. could have made up the difference through its technical superiority, but that advantage is being rapidly whittled away by technical advances abroad.
Turning Tide. The result of the change in world steel is that the U.S. share of world-market production last year dropped to 28%, less than at the turn of the century. U.S. exports to Italy fell from $13.5 million to $8.1 million within two years, not because of Italy's steel-production gains but because other nations made better offers. Great Britain bought 450,000 tons of U.S. sheet-steel exports for her auto industry in the mid-19505, but the price she paid caused shudders in the industry; she has now cut her U.S. sheet imports to 100,000 tons. U.S. steel has been virtually cut out of South Africa, is slipping in Argentina, where imports from Japan and West Germany are taking over.
The tide of imports has swept back to the U.S.'s own shores. The Japanese steel industry buys scrap on the West Coast, hauls it to Japan to make reinforcing steel bars, then ships the bars back to the West Coast and sells them for $29 a ton less than the U.S.-made product. Republic Steel has practically stopped trying to sell wire on the West Coast because of foreign competition, is hard pressed to compete with foreign bar producers in Florida. When U.S. Steel's American Steel & Wire Division built a plant in Cleveland, nearer to a major consumer, it was shocked to discover that German steel producers 4,500 miles away could sell the same product to its customers at a much lower price. U.S. imports of barbed wire now amount to more than 50% of domestic consumption, imported nails and staples to more than 30%, reinforcing bars to 19%.
Hope for the Future. But the picture is not all black. Imports of foreign steel still amount to only about 3.6% of the U.S. domestic market, and the recent upsurge was partly due to U.S. stockpiling in anticipation of a steel strike. It is the trend more than the present size of imports that frightens U.S. producers. They are being besieged at home by rising competition from such materials as aluminum, glass and brick. And they are acutely aware of the hard lesson belatedly learned by the auto industry. A few years ago, automen laughed off the foreign cars as a kind of toy with a limited snob appeal; yet in seven years, imports of foreign cars have jumped from 20,000 to 400,000--and are still rising.
Both the industry and the unions agree on one thing: import quotas are not the answer. Foreign nations would almost surely retaliate. The U.S. industry's hope is that the growing economies of other nations will require more of their own steel, and that demands for higher wages abroad will help equalize pay scales with the U.S. But that is a hope for the future. Meanwhile, U.S. producers must face the fact that the St. Lawrence Seaway will open the heart of the nation to low-cost transportation, make it easier for foreign competitors to reach new U.S. markets.
Mail It Back? Foreign steelmen do not agree that their plants are the threat to U.S. steel that the industry makes them out to be. Says a German steelman: "We feel that despite increased labor costs, the U.S. industry is still very competitive. Their wage level is much higher, but everything else--coal, ore, scrap--is cheaper. And if you count what we have to pay our workers in social benefits, the difference is not so great." Even some U.S. steelmen are unconcerned by foreign competition, point out that most imports are products with comparatively small markets, made to specifications that entail much hand work and advantageously low wages. Foreign producers, say some U.S. steelmen, cannot compete in the U.S. with the highly automated output of the bread-and-butter products of U.S. steel companies. Foreign steel also often fails to come up to U.S. standards of quality. Says Mel Verson, vice president of Verson Allsteel Press Co. of Chicago: "We bought some foreign steel four years ago, and the experience soured us. If we get foreign steel that is not up to our standards, what are we going to do? Mail it back?"
One good reason why U.S. markets abroad are shrinking is that the steelmakers, like many other U.S. manufacturers, are not aggressive enough in selling. U.S. steel companies offer few credit plans, insist on payment in dollars, are often uninterested in working out deals with soft currencies. "When a Brazilian writes a letter to a German and an American steel firm," admits a U.S. steelman, "he gets back a letter from the American firm--and a salesman from the German firm." Says a Belgian steelman: "For countries like us, exporting is a matter of living, but the U.S. incentive for export is much smaller, because of its big internal market. They are not really trying the way we do."
Dramatic Change. The best hope for the U.S. steel industry in holding its own against foreign competition is the dramatic change that has taken place in the industry since World War II. Steelmen have spent $12 billion for new plant and equipment, poured millions into research. Once a prince-and-pauper industry that lost money at a downturn in the economy, the steel industry has become so efficient that it was able to report healthy profits during the recession (1958: $877 million), while operating at only 60.6% of capacity. So much has the industry changed its complexion that steel stocks, once considered a risky speculation in a cyclical industry, are now considered attractive growth investments. As a result, they have been steadily moving up in the stock market until many of them are selling at alltime highs.
Despite its swift progress, the industry is on the verge of new breakthroughs in steel manufacturing and processing that could mean substantial cost cuts. The most important development in steel in decades is the basic oxygen process, developed in Austria seven years ago, in which a jet of pure oxygen is blown into molten steel held in a special converter. The oxygen accelerates the refining action of the metal, burns out impurities, uses less scrap metal. An oxygen vessel costs only about one-half of open-hearth facilities, turns out steel ingots in 35 minutes, v. ten to twelve hours for the open-hearth process. Kaiser Steel (which holds the U.S. rights to the patent for the process), Jones & Laughlin, McLouth Steel and Acme Steel have installed direct-oxygen furnaces. U.S. Steel and all other major companies are studying the process. Steel experts predict that by 1965 it will account for 35% of world steel capacity, 25% of U.S. steel capacity. Meantime, the industry is adopting the use of oxygen in its open-hearth furnaces, which account for more than 85% of U.S. steel capacity, and is boosting steel-production rates from 10% to 20% for dozens of firms.
Punch-Card Production. To produce stronger and more ductile steel, 17 U.S. companies have adopted another new innovation called vacuum melting. The entire process of melting and pouring steel is carried on in a huge vacuum chamber, operated by remote controls that resemble those in an atomic "hot lab." On a more modest scale, many U.S. companies are also pouring molten steel from their furnaces into a vacuum chamber, producing high-quality, high-stress steel.
U.S. companies have not confined themselves to the more spectacular improvements. They have adopted automation widely in their mills, can now get a steel ingot of any desired size and quality simply by inserting an IBM card in a machine. Republic Steel is reducing iron ore directly into steel through the new "RN" process, which eliminates the blast furnace and reduces open-hearth time by almost 50%.
Roger Blough and other U.S. steelmen are convinced that the best way to keep the U.S. steel industry healthy and competitive is to develop and adopt new processes faster than the rest of the world, continue rapid modernization of their plants and equipment. The U.S. has no monopoly on progress; foreign steel tycoons are also fully aware of the need to forge ahead, are engaged in a race whose stake is bigger markets, more efficiency, lower costs. The race requires enormous amounts of money, especially for the U.S., which carries the front runner's burden of keeping the world's biggest steel industry up to the times.
Blough and his colleagues realize that the question of wage hikes in the steel industry is no longer merely a domestic problem, but one that affects the whole U.S. position in world steel. This year the U.S. industry has received a warning that it cannot isolate itself from the realities of world steel without suffering the consequences. If it does not heed the warning, it must pay the consequences in smaller sales and, eventually, in fewer jobs.
This file is automatically generated by a robot program, so reader's discretion is required.