ONE MAN'S PRICE IS ANOTHER'S INFLATION

WHEN the steel industry reached agreement with the United Steelworkers of America last week on a new labor contract providing for annual wage-and-benefit increases of 6%, Federal Labor Mediator William B. Simkin lauded the settlement as "an outstanding achievement of bargaining." When Bethlehem Steel Corp. followed with price increases, Washington's reaction was far different. Labeling Bethlehem's price hikes "unreasonable," Lyndon Johnson said that they "should not be permitted to stand." To that end, his Administration took action to limit U.S. Government purchase of steel for defense purposes to those companies that hold the line on prices.

The first to raise its prices was U.S. Steel Corp., which announced increases on the price of its tin-plate products. The President, summoning reporters to the White House, said he could countenance such "selective" increases. By contrast, he said, Bethlehem's across-the-board boosts of almost 5% would have "dire economic consequences." Said the President: "Inflation in steel is inflation for the nation."

Appealing to other steelmakers for restraint, Johnson expressed hope that they "will not join this parade." Bethlehem insisted that its action, if adopted by other producers, would raise the cost of an automobile by only $12, a refrigerator by 720. Not so sanguine, the Administration estimated that across-the-board increases of the magnitude announced by Bethlehem would cost the nation's consumers $600 million, minimize the economy-cooling effects of the new federal income tax sur charge and, by raising prices of U.S. exports, further strain the nation's balance of payments.

Echoing the President's opinion that sweeping price increases were unwarranted, White House aides claimed that the higher cost of the steel settlement could be partially made up in higher productivity. They also noted that labor accounts directly for only 40% of the price of steel. In any event, suggested one Government economist, steel companies could help combat inflation by absorbing at least part of the cost of higher wages instead of "asking the American people to pay 100%."

Please Go Home. Although he considered Bethlehem's response excessive, the President granted that the cost of the industry's new labor contract was "high." Ironically, one consideration facilitating settlement was the knowledge that a steel strike, with its inevitably depressing consequences for both the economy and the Viet Nam war effort, would have provoked White House intervention. Union representatives and Chief Industry Negotiator R. Conrad Cooper of U.S. Steel shrouded their meetings in unaccustomed secrecy, avoided the usual inflammatory statements. When Federal Mediator Simkin showed up to offer his assistance, he was politely told to go home. He did so, and settlement was reached 28 hours before the strike deadline.

United Steelworkers President I. W. Abel allowed that he was "not totally happy" with the agreement, and a number of union locals showed their own displeasure by staging a series of wildcat strikes. Even so, the $1 billion-plus settlement was the biggest in the union's history. The contract will add at least 900 to the $4.93 the average steel-worker now receives in wages and benefits. By comparison, total compensation back in 1950 amounted to $1.91. Be sides a three-year pay increase of 440, the new pact calls for broadly improved pensions, a new $30-a-week vacation bonus and an eighth paid holiday. The two sides agreed to submit one of the thorniest problems, a union demand for expanded incentive pay, to arbitration. For the 400,000 steelworkers affected, the contract was especially lucrative when compared with the wage-and-benefit gains of about 3.5% won in the last steel negotiations in 1965. Since then, the Johnson Administration's onetime 3.2% wage-price guidelines have taken a beating. Although the White House has urged labor to hold its new contract gains to 5.5%, wage increases in recent months have approached or exceeded the 6% level in the building trades and the automobile, aluminum, copper and aerospace industries. Indeed, Abel could hardly have faced his workers with any gains much below 6%. The wave of generous settlements demonstrates the Johnson Administration's inability to deal with spiraling wage-and-price inflation, a failure that obviously emboldened Bethlehem to raise its prices.

Duly Noted Profit. Besides higher costs and White House antipathy, Bethlehem and other steelmakers also face a severely restricted market for their products. The reason is that steel users, having stockpiled a record 36 million tons in anticipation of a strike that never came, will be working off their inventories before placing new orders. The rush of hedge buying, of course, did give the industry a big lift during the first half of 1968. U.S. Steel last week reported earnings for the first six months of $128.5 million, an increase of 52% over 1967. Bethlehem's six-month profits were up 41%, to $93.6 million, a fact duly noted by the President.

The industry seems certain to face a far rougher second half. New orders had begun tapering off even before last week's settlement, and some steelmakers expect second-half shipments to decline by more than 20% from their first-half level of 53 million tons. The industry is also concerned about competition from foreign steelmakers, who increased their inroads into the U.S. market by taking advantage of the abnormally high domestic demand for steel earlier this year. Steel from abroad is expected to account for at least 15% of the nation's total 1968 shipments.

Less Clout. In threatening to divert Government orders from steelmakers adopting across-the-board price increases, President Johnson was brandishing one of the weapons that John F. Kennedy used in his 1962 price showdown with U.S. Steel.* While Government purchases account for about 8% of the steel industry's total output, it is questionable to what extent Government contractors can be forced to switch suppliers. Kennedy succeeded in beating back U.S. Steel's price hikes by persuading Inland Steel Co. to hold the line, but L.B.J.'s lame-duck status leaves him with far less clout than his predecessor enjoyed.

If all else fails, Johnson is counting on the realities of the marketplace to force a rollback in steel prices. After all, higher prices figure to make it even more difficult for the industry to compete with low-priced foreign steel. Nor will they help steelmakers in their efforts to drum up business during the general economic slowdown expected during the next six months. "We hope," said Johnson, "the competitive factors will, as they have in the past, bring about a readjustment on the action that the Bethlehem company has taken."

For the time being, however, that remained nothing more than a hope. Within hours after the President's press conference, Republic Steel Corp., the industry's third-biggest company after U.S. Steel and Bethlehem, announced price increases on "principal" steel products of 4.5%. Armco Steel Corp. and Inland followed with broad-based price hikes of their own, and U.S. Steel extended its original increases to several other lines. National Steel Corp. and Youngstown Sheet & Tube Co. weighed in with selective price boosts. Bethlehem, meanwhile, showed no signs of budging. "In our opinion," said Chairman Edmund F. Martin, "our price increase is absolutely necessary, and we do not intend to withdraw it."

* A confrontation that prompted J.F.K. to blurt: "My father always told me that all businessmen were sonsofbitches, but I never believed it till now."

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