A curious article appeared in the Fourth of July issue of the New York Times, apparently prompted by U.S. Steel Corp.s transfer from the S&P 500 index to the mid-cap index with stocks of similar market capitalization. The article carried the byline of Floyd Norris and appeared under the provocative headline, Todays Titans Can Learn From Fall of U.S. Steel.
The author replayed the steel strike of 1959 and the now-famous confrontation in 1962 between President John F. Kennedy and U.S. Steel chairman and chief executive officer Roger M. Blough. That ground has been plowed many times before, but the reporter apparently claimed to see something in the outcome of this controversy that is a teachable moment for todays chief executive officers. I agree that it is a teachable moment, but not the same one Norris sees. Fifty years later, a lot of perspective is now available that did not exist at that time.
When a labor agreement was finally reached and U.S. Steel tried and failed to raise steel product prices, politicians and their economic advisers trumpeted the outcome as a victory in the fight against inflation. Inflation was the bogeyman of the moment. The union had agreed to a noninflationary settlement, while the Pittsburgh-based steelmakers proposed price increase was definitely inflationary--therefore, the work of the devil. The government proclaimed itself judge and jury on the question of what was inflationary.
The thrust of the July 4 article seems to endorse the New York Times spin on the Kennedy-Blough confrontation in 1962, as though nothing has changed in the ensuing 52 years. Indeed, much of the article could have been lifted from the papers archives. Whether the strike, the subsequent labor contract and the failed attempt to raise prices account for the following decline in U.S. Steels common stock price--that requires more imagination than most people can muster.
When the confrontation occurred, Kennedy was at the peak of his popularity, the United Steelworkers union was a political powerhouse and U.S. Steel was the undisputed leader of the American steel industry. Blough, who also was a courtly lawyer, was an unlikely villain, but that was his assigned role. With the passage of time, it is now clear that Kennedy had poor economic advice (although it was indeed expedient), the USW has suffered a decline comparable to U.S. Steel and Blough has emerged as the stalwart defender of elementary capitalism. In response to the battle cry that a price increase in steel would be inflationary, Bloughs reply was that this was tantamount to arguing that wet streets cause rain. Although inflation is still the bogeyman today that it was 52 years ago, no self-respecting economist would argue that its roots lie in any actions in the private sector. Inflation and the debasement of the currency are a result of federal action.
So what is it that todays titans have to learn from the events in the 1960s? First and most importantly, many titans have learned to make steel in a union-free environment; indeed, more than half of the steel produced in the United States is so defined. Second, those that do produce steel with a unionized work force have learned to develop a relationship with the union that is continuous--not dependent totally on end-of-contract negotiations that result in great pressure on both parties in the glare of publicity. Third, the federal government has wisely elected to stay out of contract negotiations. Fourth, the U.S. steel industry in the 1980s was beset by a veritable firestorm of destructive import volumes and the beginning of a national decline in all manufacturing. The fallout from this period saw more than 30 steel producers enter bankruptcy and reorganize under Chapter 11. U.S. Steel emerged from this era as a stronger--but smaller--company and is today a vigorous and respected competitor. Finally, the New York Times, which has its own problems with declining circulation and adapting to new technology, would have been better advised to ask steel industry analyst Michelle Applebaum to author the whole article rather than selectively quote her.
So it was indeed a teachable moment--just different lessons for different students.
Thomas C. Graham is a founding member of T.C. Graham Associates. He is a former chairman and chief executive officer of AK Steel Corp., president and chief executive officer of Armco Steel Co. LP, chairman and chief executive officer of Washington Steel Co., president of the U.S. Steel Group of USX Corp. and president and chief executive officer of Jones & Laughlin Steel Co. His column appears monthly. He invites readers comments and can be contacted at firstname.lastname@example.org.