Kennedy (80 page)

Senator Robert Taft of Ohio, in Senate hearings of 1948, scolded the industry for raising its prices, predicting that such an increase would force up other prices and encourage further wage demands by labor. His scolding was in vain, but his forecast was unfortunately accurate. Between 1947 and 1958 steel prices more than doubled, increasing more
than three times as fast as other industrial prices. Economists estimated that the largest single cause of the rise in the Wholesale Price Index prior to 1958 was inflation in steel.

Labor was partly to blame. Because of the dominant influence of a comparative handful of companies, both sides in steel labor negotiations privately assumed that management would be able to adjust its prices to pay for whatever wage bargain was reached. As a result, steel wages had been rising between 1947 and 1958 faster than productivity, and steel prices had been rising even faster than labor costs.

Since 1958 steel prices had been stable, and so had wholesale prices as a whole. But, as earlier noted, our balance of payments and gold supply were far from stable. American steel prices having risen in earlier years far more rapidly than those of our competitors overseas, this country’s share of world steel export markets had steadily declined, while foreign imports into this country more than tripled, accounting for nearly one-fourth of the rise in our payments deficit between 1957 and 1961. American machinery, machine tools, equipment and vehicles, which comprised the bulk of our durable goods exports, also depended on steel products and prices—as did our exports of most other important commodities—and it was clear to President Kennedy in 1961 that another major price rise in steel could potentially spark not only a new inflationary spiral but a disastrous payments deficit and gold outflow.

His immediate concern that year was an automatic increase in steel wages scheduled to take place on October 1 and the growing talk in the steel industry, as reported in the press, of a price increase at that time. The October 1 wage rise was the third and final increase promised under a 1960 settlement which had ended the longest steel strike in history. That settlement, under the auspices of Vice President Nixon, was accompanied by solid rumors that the companies had agreed not to increase prices until after the election. Kennedy asked Goldberg, who had helped negotiate the contract, whether the Steelworkers Union should be asked to forego the October 1 wage increase in the national interest. But this would have been a dubious precedent for the stability of collective bargaining contracts, and analysis by the Council of Economic Advisers showed that the October 1 step was within the range of rising productivity and could be absorbed without a price increase. Labor costs per ton of steel, said the CEA, in figures the industry would later dispute, were no higher than they were in 1958. The real problem, warned Secretary Goldberg, would be the 1962 negotiations for a new contract.

On September 6 the President wrote an open letter to the presidents of the twelve largest steel companies, urging that prices not be increased on October 1 or thereafter, detailing the damage higher steel prices
would do to the nation’s balance of payments and price stability in general and to steel exports in particular, pointing out the excellent profit and income position of their stockholders, and reminding them that the restrictive monetary and fiscal measures required to halt any inflationary spiral they started would retard our nation’s recovery from recession and steel’s hopes for greater capacity utilization. He then made this key point:

Some of the replies were thoughtful, some were rude, none made any promises—but prices were not raised. A week later the President wrote an old friend, President David McDonald of the Steelworkers, emphasizing the need in 1962 for a steel-labor settlement “within the limits of advances in productivity and price stability…in the interests of all of the American people.” Republicans protested that Presidents should concern themselves with “inflation,” not with price rises in particular industries. But no one misunderstood the President’s desire that the 1962 settlement neither necessitate nor lead to a price increase.

To lessen disruptive stockpiling of steel by customers who thought either a strike or a large price increase was inevitable, the President requested both parties, through Secretary Goldberg and in a press conference, to accelerate their negotiations. With his approval, the Secretary talked first with the industry’s chief negotiator, R. Conrad Cooper, then with Steelworkers President McDonald, and subsequently with others on both sides, including a telephone conversation with U.S. Steel Chairman Roger Blough. On January 23, 1962, Kennedy met privately with Goldberg, Blough and McDonald at the White House, having also met with Blough the previous September.

In all these talks both the President and Goldberg emphasized their interest not only in an early settlement, which by itself was not of great importance, but in a settlement which would make a price rise unnecessary. More specifically, President Kennedy’s considerable influence with the union and the good offices of the Secretary of Labor were offered
as a means of helping achieve such a settlement if both sides were agreeable. No formal pledge from the industry to hold prices steady, if the President succeeded, was “requested, and none was forthcoming. For the government to have asked for such a commitment, the President said, would have been “passing over the line of propriety.” But, while Blough and other industry spokesmen grumbled on each occasion about rising costs and the profit squeeze in what was assumed to be the usual “poor-mouthing” that opens labor negotiations, the industry accepted the administration’s help without any illusion as to the President’s only purpose and without any indication that it intended to raise prices no matter what settlement was reached.

While Roger Blough would later claim that all kinds of public hints about a pending price rise had been made—hints which no one else in either industry or the press seemed to have grasped—he and other industry officials in direct contact with the administration made no use of those opportunities to inform the President of such an action. On the contrary, the industry voluntarily made itself party to what was in effect a tripartite transaction clearly based on the President’s premise that steel price increases were undesirable and, unless necessitated by a wage increase exceeding productivity increases, not to be attempted.

Nor was it a passive acceptance of minimal help. Goldberg did not even talk to McDonald until Cooper had advised him, after talking with his colleagues in the industry, that they were agreeable. A series of wires, calls and visits from the Secretary on behalf of the President helped to get the negotiations started several months early in February, helped get them resumed when they had broken up in March and, most importantly, helped persuade McDonald to accept the industry’s most modest settlement in postwar history. “They did it in part,” concluded the President later, “because I said that we could not afford another inflationary spiral, that it would affect our competitive position abroad—so they signed up.” The agreement provided for no general increase in wage rates at all, and fringe benefit improvements costing about 10 cents an hour, or 2.5 percent.

This over-all figure—well under the 17 cents originally sought by the union, well under the 1960 settlement, less than one-third the cost of the average steel settlement for twenty years, and based on an earlier Council of Economic Advisers analysis—had been presented by Goldberg to Blough in a private conversation on March 6 as a figure well within the capacity of the industry to absorb without a price increase, a conclusion which neither Blough nor other industry leaders disagreed with. Goldberg then urged the same figure upon McDonald in a private conversation on March 12 as appropriate to price stability. Negotiations were resumed on March 14 and concluded on March 31.

The 1962 steel settlement, the first without a strike since 1954 and the first clearly and completely within the bounds of productivity increases in memory, was hailed throughout the nation. The President, in identical telephoned statements to management representatives and union headquarters, praised the agreement as “responsible…high industrial statesmanship…obviously noninflationary…a solid base for continued price stability. I…extend to you the thanks of the American people.” The union members, he remarked to me as he put down the phone after the second call, had cheered and applauded their own sacrifice, while the management representatives had been “ice-cold.”

But neither side expressed any disagreement with his conclusions on price stability. Newspapers and magazines representing every shade of opinion breathed a sigh of relief that steel price increases were no longer a danger. The following week, as the individual companies executed their formal contracts with the union, the President telephoned Goldberg that Charlie Bartlett had a tip from steel sources that a price rise was imminent. The Secretary scoffed at the report. Nothing had happened to alter the cost picture of the industry in the preceding months. On the contrary, the competition from low-cost foreign producers, competing metals and other materials, and the higher profits which could be realized from greater sales and capacity utilization, would cause any normally competitive industry at such a time to be considering price decreases.

The price of scrap, iron ore and coal, the three major materials used by the steel industry, were below their 1958 levels. Under the new labor contract, which did not even go into effect until July 1, employment costs per ton of steel would continue to decline. In the years of general economic slack since 1958, the profit position of several companies had improved and others had worsened, making it impossible to justify a uniform price decision by all. “We should be trying to reduce the price of steel, if at all possible,” President Edmund Martin of Bethlehem Steel was quoted as telling his annual meeting on April 10, “because we have more competition, particularly from foreign sources.”
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On Tuesday, April 10, the last major contract having been signed, the President was surprised to note that his appointment calendar included a 5:45
P.M.
appointment for Roger Blough. O’Donnell said Blough had requested it that afternoon. Goldberg said he had no idea what Blough might have in mind but agreed to stand by in his office.

What Blough had in mind was soon clear. Seated on the sofa next to the President’s rocking chair, he handed him U.S. Steel’s mimeographed
press release announcing a $6-a-ton price increase, four times the cost of the new labor settlement. The President was stunned. He felt that his whole fight against inflation, his whole effort to protect our gold, was being reduced to tatters. If the industry in which he had made his greatest effort for stability, an industry plagued by foreign competition and underutilization, could make a mockery of his plea for self-restraint in the national interest, then every industry and every union in the country would thereafter feel free to defy him.

Above all, he felt duped. The man sitting across from him had personally, knowingly accepted his help in securing from the workers a contract that would not lead to an increase in prices. The prestige and powers of the Presidency had been used to help persuade the Steelworkers to accept less from the companies in the interest of price stability, and now the contract had no sooner been signed than the industry was announcing a large, across-the-board price increase for all products. “The question of good faith was involved,” as the President said later. “The unions could have rightfully felt that they had been misled”—and no other union would ever listen to his plea for self-discipline again. “I think you’re making a mistake,” he coldly told Blough, who would not learn until later the enormity of his mistake.

Angry but contained, the President sent for Arthur Goldberg, who was less contained. The Secretary, learning that Blough’s press statement had already been distributed to the wire services and networks for 7
P.M.
release, harshly rejected the U.S. Steel Chairman’s explanation that as an act of “courtesy” the President of the United States had been handed a mimeographed press release about an accomplished fact. Goldberg called it a “double cross,” an act of bad faith, contrary to what was obviously understood by all concerned in the negotiations, contrary to the best interests of both the nation and the industry, and contrary to the assurance Goldberg had given the President that both Blough and McDonald could be relied on. Blough expressed his regrets, attempted to justify his action as necessary for his stockholders and departed. “They were not willing to accept my explanation,” he said later with some degree of understatement.

The President’s next scheduled appointment was a review of questions for the next day’s press conference—an extra session, before the usual breakfast, which Assistant Press Secretary Andrew Hatcher had scheduled in Salinger’s absence. Hatcher, Walter Heller, McGeorge Bundy and I were waiting for this meeting in Ken O’Donnell’s office outside the President’s door. When Blough left, the President asked us to come in and told us the news. His own anger was rising. His trust had been abused, his office had been used. He had intervened only with the industry’s consent, with the unmistakable intention of holding the price line, and that intervention was now being made to appear at best weak
and at worst stupid to the workers and to the American people. “My father always told me,” he said, recalling the Ambassador’s brief service in the steel industry and his fight with its leaders while on the Maritime Board, “that steel men were sons-of-bitches, but I never realized till now how right he was.”