The Grey Settlement

The band struck up Happy Days Are Here Again at a United Steelworkers rally in Buffalo one day last week as silver-maned President David McDonald, a grin of victory on his face, slowly made his way toward the speaker's platform along an aisle jammed with jubilant steelworkers. Crowed McDonald from the platform: "Victory is yours!"

Just about everybody else, from newspaper pundits to steel industry magnates, agreed with Dave McDonald that the steel strike settlement worked out by Vice President Richard M. Nixon and Labor Secretary James P. Mitchell (TIME, Jan. 11) was a victory for the union. Said a top steel executive: "We took a hell of a licking."

Ammunition Shortage. At the outset of their struggle with the union the steelmakers had plenty of backing in their campaign for a noninflationary settlement. In mid-1959 the public was fed up with price upcreep, and so was the Administration. Steelworkers themselves were far from eager to strike for wage increases that would probably be nibbled away by price increases. And with U.S. steel companies losing markets to foreign competition, the industry had a strong new argument for holding down labor costs.

But the industry overreached itself by demanding authority to change plant work rules, succeeded only in uniting the rank and file behind Dave McDonald and his war cry that the bosses were out to "bust the union." When President Eisenhower's Taft-Hartley board met in October, after the strike had dragged on for three months, the fact finders discovered that the steel industry spokesmen, headed by Chief Negotiator R. Conrad Cooper, were unable to present a convincing case on the work-rules issue. "It's very distressing at this stage," said Chairman George William Taylor, "that we are still having trouble defining issues." Taylor's verdict that the industry arguments were "bogged down in generalities" led to a shift in the attitudes of both the U.S. public and the Eisenhower Administration. The President, who had firmly backed the industry's campaign for a noninflationary settlement, began to see that he was fighting beside allies who were short on both ammunition and marksmanship. He began leaning toward the view that it made a lot more sense to head off the economic damage of a prolonged steel strike than to fight out the battle against inflation on the steel industry's thin line.

Grim Alternative. In November Labor Secretary Mitchell escorted Dave McDonald to a secret meeting with President Eisenhower at the White House. McDonald apparently convinced the President that management's terms were so tough that the union would have to go out on strike again when the 80-day Taft-Hartley injunction ran out on Jan. 26. Bent on preventing a renewal of the strike, Ike summoned Vice President Nixon and Secretary Mitchell to the White House shortly before he left on his around-the-world tour, instructed them to push hard to get a settlement.

With the President's authority, Nixon kept prodding industry leaders during December with two big reasons for settling: 1) it seemed certain that the Steelworkers would overwhelmingly reject the companies' last offer in the Taft-Hartley election scheduled for mid-January, thereby weakening the industry's bargaining position; 2) if the strike erupted again, Congress might vote a drastic compulsory-arbitration measure that would be costly to the industry. Finally, just before Christmas, both sides agreed to consider Nixon's recommendations for a settlement. Explained a top steel executive last week: "The alternative was too grim--losing the vote on our last offer, and then running into an arrogant and cocky McDonald, an angry Congress, an angry President and an angry country."

Double Jolt. Under the final settlement based on Nixon's proposals, the union won two 7-c--an-hour wage boosts over the next 30 months, plus hefty increases in insurance and other fringe benefits, bringing the overall 30-month cost to about 39-c- per hour per worker, as against the last-offer package of about 30-c-. Work-rules were turned over to a joint union-management committee. Delighted with the terms--substantially fatter than those he would have settled for when public opinion was against him last summer--Dave McDonald risked his standing in the Democratic Party by publicly declaring that "Vice President Nixon would make a good President."*

If Democrats were dismayed at the possible vote-getting value of Nixon's coup, many conservatives were jolted by the spectacle of a Republican Administration intervening in the steel dispute to push a settlement that amounted to a victory for the union. Especially when, on the face of it, the settlement seemed inflationary--increasing the steel industry's labor costs by roughly 3.5% a year, as against an expected productivity increase of about 2.7% a year.

Top businessmen and bankers complained that the settlement would stir a new round of price upcreep and might well shake foreign confidence in the future of the dollar. American Motors President George Romney denounced the settlement as "a national catastrophe." Columnist Walter Lippmann rapped it as a "political fix." And Columnist David Lawrence warned that it could lead to "devaluation of the dollar some time in the 1960s."

How Inflationary? The steel industry itself was a lot less gloomy. The settlement's terms, said U.S. Steel's Chairman Roger M. Blough, "appear less inflationary, at least, than any which the steel industry has actually experienced since the end of World War II." During the postwar years, hourly labor costs in the steel industry climbed by an average of 8% a year. As the steel industry viewed it, the shift from 8% a year to 3.5% a year was progress of a sort. "The settlement is neither black nor white," said Inland Steel's Board Chairman Joseph Block. "It's grey." With a grey settlement that postponed the first wage boost until next December, with their 1959 ledgers showing hefty profits despite the strike, and with demand for steel running heavy enough to assure high output during 1960, the steel companies had no pressing need to raise prices, hinted that they might hold off until year's end--and maybe beyond, if the United Steelworkers really cooperate in upping productivity. So whether the settlement proves to be inflationary, and whether it will damage U.S. industry's capacity to meet foreign competition remains to be seen. The longer-term answers depend largely on whether steel-industry productivity increases at a faster rate than the 2.7%-a-year average of the past decade--and specifically, whether the union representatives on the new work-rules committee prove willing to make some concessions.

Thorny Challenge. But the grey outcome of the steel strike leaves a deep, dark question unanswered: How can the U.S. make the reality of Big Union power fit in with the other realities of the U.S. economy in the 19605? During the 1950s, Big Union power became a chronic source of cost-pushed price upcreep. Despite McDonald's public relations triumph over steel, the nation is still tired of that upcreep and is groping for ways of halting it. And ahead looms the newer, more urgent problem of competition from the rebuilt industries of Western Europe and Japan. The power of Big Labor to keep pushing up labor costs beyond gains in productivity has dulled U.S. industry's once-keen competitive edge in world trade --and the competition will get tougher in the decade ahead.

Under the prod of growing foreign competition, the U.S. steel industry set out on its crusade against inflation. The defeat of that crusade, however qualified the defeat may be, thrusts upon the U.S.

public and the U.S. Government the challenge of curbing the perennial upthrust on labor costs in some way that is fair to labor--but also fair to the public and in keeping with the interests of the nation.

* McDonald only partially redeemed himself in Democratic eyes by adding that "Jack Kennedy and maybe Hubert Humphrey and a lot of other people would make good Presidents."In what appeared to be an effort to give Democratic Hopeful Kennedy some reflected credit for the settlement, McDonald stunned Mitchell & Co. with an out-of-the-blue pronouncement that Financier Joseph Kennedy, Jack's multimillionaire father, "did a great deal down in Wall Street to bring about this settlement" by talking to "the banking interests."

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