Smiting the Foe

The call came at midafternoon from Roger M. Blough, board chairman of the U.S. Steel Corp., in New York City. Said he to a White House secretary: "I would like to see the President on a very important matter concerning steel." Could an appointment be arranged for later that day?

Even in a typically busy Kennedy week --which began with his throwing out the first ball of the baseball season, included some spectacular White House entertainments, and ended with a review of the Atlantic Fleet off the North Carolina coast -- Kennedy could certainly find time to see Blough. The appointment was set for 5:45 p.m.

Flying down to Washington, Blough ar rived right on time. Ordinarily a somber sort, he appeared downright jolly as he entered the White House. Awaiting him, puzzled and just a bit apprehensive, was President Kennedy. For months, Kennedy had been cultivating Blough, allowing him back-door entry to the White House. He had reason to think that his attention to Blough had paid off: less than two weeks before, U.S. Steel had reached a contract agreement with the United Steelworkers that Kennedy hailed as "non-inflationary" and as an example of "industrial statesmanship." So what did Blough want to see Kennedy about now? Bitter Coincidence. The President found out fast. After only the barest exchange of amenities, Blough handed Kennedy a mimeographed statement. As he read it, Kennedy's disbelief turned to fury.

Blough's statement was an announcement that U.S. Steel, the polestar for the nation's basic industry, was increasing its prices by 3 1/2% ($6 a ton).

What Kennedy (and Labor Secretary Arthur Goldberg, who rushed to the White House at summons from the President) said to Blough remains unreported--but it is certain that the U.S. has rarely had a madder President. When Blough left after 50 minutes, he looked far from jolly, yet he remained determined to go ahead with the price rise.

When Blough was gone, Kennedy strode furiously around his office, muttering: "Can you imagine those . . .!" Said an aide later: "I've never seen him so angry." To Kennedy, there was a bitter coincidence in the timing of Blough's announcement.

Just a year before, in the midst of his annual reception for the members of the Congress, Kennedy had learned that the U.S.-backed Cuba invasion had turned into a fiasco. Last week, on the date of Blough's White House visit, Kennedy was scheduled to greet the Congressmen again. Said he, with grim humor: "I'll never have another congressional reception."

The Hater. Kennedy had been unable to recoup the Cuba disaster, and the defeat still rankles deeply. But he was certainly able to fight back against Big Steel --and he meant to do just that. To Kennedy, U.S. Steel's price-hike decision was a personal affront. Through Secretary Goldberg, he had all but presided over U.S. Steel's labor contract negotiations. He had personally urged both labor and management to exercise "restraint." His Administration had persuaded United Steelworkers' President David McDonald to agree to a "noninflationary" contract: it included no wage raise, called for an increase of about 10-c- an hour in fringe benefits. Throughout the meetings with union leaders and Administration officials, the steelmen had given no indication that they planned to boost prices. In fact, they said nothing whatever about prices--and Kennedy mistook their silence for consent to hold the line.

It was, then, just as he was counting the credits for achieving wage-price stability in Election Year 1962 that Kennedy got the word from Blough. He felt that he had been betrayed--and U.S. Steel became an enemy to be smitten at all cost. "U.S. Steel," said a White House aide that afternoon, "picked the wrong President to doublecross. Kennedy can be a hater--and right now I don't think there's any doubt that he hates U.S.Steel."

To exact his revenge, Kennedy called upon all his powers as President, including legal retribution, economic reprisal, public threats and covert pressures. Most of all, he used his great political skills to arouse popular emotion for his cause. His theater was to be his press conference, which had already been scheduled for the next afternoon. Most Americans, upon scanning the morning headlines, had known that Kennedy planned to criticize U.S. Steel's decision. But what they heard and saw on television was one of the most savage sustained attacks ever launched by a U.S. President against big business.

Brandished Threats. Newsmen in the new State Department Auditorium sensed immediately that they were in for a torrid session. Glancing neither to left nor right, Kennedy marched to the stage, grimly be gan reading a statement that had been drafted by Goldberg, rewritten by Aide Ted Sorensen and changed in the last minutes by Kennedy himself. "In this serious hour in our nation's history." said Kennedy, "when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives--and four were killed in the last two days in Viet Nam--and asking union members to hold down their wage increases, at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do. to accept a situation in which a tiny handful of Steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interest of 185 million Americans."

As he spoke, his voice was hard. His hands kept clenching and unclenching; he thumped on the rostrum for emphasis and pointed his forefinger at his audience. He accused the steelmen of "irresponsible defiance of the public interest" and "ruthless disregard of their public responsibilities." There was, he insisted, "no justification for an increase in steel prices." Under the free-enterprise system, he conceded, wage and price decisions "ought to be freely and privately made. But the American people have a right to expect, in return for that freedom, a higher sense of business responsibility for the welfare of their country than has been shown in the last two days.

"Some time ago I asked each American to consider what he would do for his country, and I asked the steel companies. In the last 24 hours we had their answer." The Vast Arsenals. Kennedy continued the assault. Struck by the fact that five other companies had already followed U.S. Steel's lead, he hinted darkly of illegal collusion. And he brandished aseries of possible retaliatory measures against price-hiking steelcompanies--scrutiny by the Justice Department and the Federal TradeCommission, loss of Defense Department business, investigation by congressional committees, possible discrimination in the Treasury'sforthcoming revision of tax-depreciation schedules.

During the next two days, the President showed that these threats were backed by power and a willingness to wield it. Set in 24 motion by Kennedy's anger, the vast administrative arsenals of the Federal Government rolled into battle against the offending steel companies. FBI agents from Bobby Kennedy's Justice Department waked newsmen in the early morning to check on a reported statement by a steel company president (see PRESS). FBI men armed with subpoenas descended on the executive suites of steel companies to interrogate officers and carry off possibly incriminating documents (seven patrolling the U.S. Steel offices in Pittsburgh).

The Justice Department announced that it would start a grand jury investigation to see whether the steel industry had violated antitrust laws through collusive pricing. Bobby Kennedy declared that the Department of Justice was going to consider whether U.S. Steel ought to be "broken up" on the legalistic grounds that it had monopoly power to set industrywide prices.

The Council of Economic Advisers set oft" on a round-the-clock push to get out a "white paper" that would smother the steel companies' arguments for price increases. Administration lawyers got to null drafting an Emergency Steel Act that would roll back the announced increases for go days.

Congressional Democrats joined in the hue and cry. Brooklyn's Representative "Manny" Celler said that his Antitrust subcommittee would hold hearings on steel pricing beginning in early May. Tennessee's Senator Estes Kefauver, that intrepid investigator, said that his Antitrust and Monopoly subcommittee also would probe the steel industry.

Dried-Up Source. The Administration's massive attack brought a countereffort by U.S. Steel. But it was too late, and too little. Kennedy had already corralled public opinion; even among businessmen, there was an overwhelming sense that U.S. Steel, in its timing and its tactlessness, had been fantastically stupid in its public relations.

Attempting to answer Kennedy's charges. Roger Blough appeared at a televised press conference. A lawyer turned to corporation management, he was the farthest thing in the world from the robber-baron sort that Kennedy was making Big Steel's management out to be.

But in his reedy-voiced sincerity, he was no match for the President. He argued important but prosaic things--like the principles of free enterprise and the facts and figures of steel economy. He was constantly badgered by hostile reporters (most of them from television and radio). In a series of have-you-stopped-beating-your-wife questions, they asked why he was "defying" the President and heading on a "collision course" with the national interest.

Blough was plucky. He awaited each new question with obvious anxiety, but kept plugging away at defending the case that U.S. Steel had presented in its original announcement of the price increase. That case:

From 1958 to 1961. U.S. Steel had "experienced a net increase of about 6% in our costs." During that period, the company's profits had "dropped to the lowest level since 1952." The cost-price squeeze (see chart) had "dried up a major source of the funds necessary to improve the competitive efficiency of our plants and facilities." And that, over an extended span of time, could be fatal to U.S. Steel. "If the products of U.S. Steel are to compete successfully in the marketplace, then the plants and facilities which make those products must be as modern and efficient as the low-cost mills which abound abroad and as the plants which turn out competing products here at home." But Blough did not persuasively show how Big Steel could better meet increased competition here and abroad by raising prices (see BUSINESS).

Blough argued that the inflationary effect of the announced increases in steel prices would be almost negligible. He ticked off some examples of how little the boosts would add to the costs of the steel in familiar consumer items--a refrigerator, 65-c- ; a toaster, 3-c- ; a standard-size car, $10.64. But Businessman Blough must have known that prices do not behave that simply in real life. There is many a step between the raw steel and the finished refrigerator in the retail store, and the original price of the steel gets marked up all the way along the line. *In practice, the steel price increases would have a far greater inflationary impact than Blough indicated--and would give any American manufacturer or dealer who needed an excuse, a way to raise prices while using the steel companies as scapegoats.

Even while failing to make any appreciable dent in the public opinion that Kennedy had so ably marshaled to his cause, Blough provided the enemy camp with some vital intelligence. A reporter, noting that some major steel companies had not yet gone along with U.S. Steel, asked Blough whether U.S. Steel could hold out if important competitors balked at upping prices. "It definitely would affect us," Blough candidly admitted, "and I don't know how long we could maintain our position."

"Good! Good! Very Good!" If Jack Kennedy and his warriors had not already known the place to concentrate their fire, they knew it then. Every New Frontiersman who had a friend, old college mate or former colleague in the steel industry was summoned to join in an all-out campaign to persuade the holdouts to keep on holding out. "Everyone in the Administration who knew anyone called him," said a White House aide.

One of the biggest companies that had not yet announced price increases was Chicago's Inland Steel, the eighth biggest producer. With a solidly established position in its own market area, Inland could afford to go its own way; furthermore, Inland's Chairman Joseph L. Block is a member of Kennedy's Labor-Management Advisory Committee. So Inland was an obvious target for Administration phone calls. Commerce Under Secretary Edward Gudeman called his longtime friend Philip D. Block, vice chairman of Inland. Labor Secretary Goldberg called his old acquaintance Leigh B. Block, an Inland vice president. The day after Blough's press conference, Inland Steel Co. announced that it had decided not to raise prices "at this time." Said John F. Kennedy when he heard the news: "Good! Good! Very Good!"

With Bewildering Speed. For Roger Blough, the news was bad, bad, very bad. Inland's decision just about wrecked any hopes he had of winning the fight. But even with the outcome all but decided, the Administration kept bludgeoning away. Defense Secretary McNamara announced that he had directed his department to give procurement preferences "where possible" to steel companies that had not raised prices. Providing a persuasive example of what that could mean, the Navy's Bureau of Ships announced that a $5,500,000 order for steel plate for Polaris submarines had just been awarded to Lukens Steel Co., a firm that had not upped its prices. (Ordinarily the order would have been divided between Lukens and the nation's only other producer of that type of steel--U.S. Steel Corp.). Prices on the New York Stock Exchange that afternoon showed how traders felt the struggle was going: Inland Steel was up, U.S. Steel down.*

The end came with bewildering speed. Only 48 hours after Kennedy's press-conference onslaught, Bethlehem Steel Corp., the nation's No. 2 producer, announced that it was rescinding its price increases "in order to remain competitive." A few hours later, a thoroughly beaten U.S. Steel announced that it, too, had decided to withdraw its increases "in the light of competitive developments today and all other current circumstances." The other six steel companies that had raised their prices joined in a precipitous rush to surrender.

Like Milquetoasts. The President was magnanimous in his moment of victory. In canceling their price increases, he said, the steel companies "are serving the public interest, and their actions will assist our common objectives of strengthening our country and our economy." But Ad ministration insiders let it be known that the Justice Department was not calling off the grand jury investigation -- even though Inland's decision to refrain from raising prices, and the swift collapse of the U.S. Steel camp, would appear to demolish any argument that U.S. Steel wields monopolistic power to set prices.

The victory was not all gain for Kennedy by any means. The ferocity of his at tack on steel alienated and angered many a businessman who had come to believe that John F. Kennedy was not really hos tile to business after all. And by crushing steel in the name of economic stability, Kennedy had deprived himself of a perfect rationale for any future inflation. As it is, Kennedy's own governmental spending may well create an inflationary spiral. And whomever or whatever Kennedy blames for that, it certainly cannot be Roger Blough.

There could be no doubt that John Kennedy had won a popular victory. Be yond question, the great majority of Americans reacted angrily to U.S. Steel's price-increase announcement. That reaction was instinctive, and Kennedy exploited it skillfully. But the popularity of Kennedy's cause, and the dazzling swiftness of his triumph, obscured the almost totalitarian thrust of his attack. In his press conference, the President accused the steel companies of being ruthless; by his own tactics, he made the steelmen look like Milquetoasts. He demonstrated in unforgettable fashion that any organization or group or person that thwarts him can bring down upon itself the overwhelming might of the Federal Government.

*If Blough grossly understated the impact of the steel price boosts, Defense Secretary Robert McNamara, who also should have known better, grossly overstated the impact. He passed on to President Kennedy a wild estimate that the steel price increases would add $1 billion to defense costs. That figure was arrived at by assuming that a 3.5% increase in steel prices would result in a 3.5% increase in the price of everything the Defense Department buys, whether it has any steel in it or not. *Along with recording ups and downs of steel prices, the Dow Jones ticker carried a report that Chicago's huge, 18-story Merchandise Mart was planning to boost rents 3% to 5% because of "higher operating costs, principally labor and taxes." Owner of the Merchandise Mart: Joseph P. Kennedy, father of the President.

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