Steel: The World's Guinea Pig
CLARENCE B. RANDALL has been with the Inland Steel Company since 1925, and since 1949 has been its President. He was invited by Paul Hoffman to be the Steel Consultant for ECA in its first year. This brought Mr. Randall into close association with the steel masters on the Continent and in Britain, and has enabled him to speak with more than usual authority for the American system of private enterprise. His book A Creed for Free Enterprise was published last summer under the Atlantic Little, Broun imprint.
by CLARENCE B. RANDALL
1
THE was when steel was nothing more than an article of commerce, something produced in furnace, forge, and mill, and then sold for purposes of manufacture. In those days the steel master earned a hearty “well done" from his community when he gave his customers more steel and of better quality than he did the year before, without increase of price.
Beginning with 1900 the American economy demanded more and more steel, and always Pittsburgh, Chicago, Youngstown, and the other steel towns poured it out as needed; longer and heavier rails to carry the swelling output of the new factories, wider beams for bridges to span the rivers and harbors, and mirrorlike sheets so ductile that they could readily be formed into the streamlined bodies of our automobiles. And so it was to a lesser degree with world markets, and with our steelmaking colleagues in Europe.
Then came the two World Wars. In the aftermath, turbulent, social and political ideas have swept across the Western world. Reflect upon this extraordinary situation. West of the Iron Curtain, steel is basic to defense. General Ridgway’s mission of furthering American security by strengthening the military resources of free Europe requires that steel production in the NATO countries be raised to the maximum and be held there; that the producers continue to bend every effort toward fulfilling their historic role of providing more tons and better quality year after year. One would suppose, therefore, that the steel masters would be urged on by every imaginable incentive. Even Russia does it that way. The Soviet steel masters get the best flats, the fastest automobiles, and the pick of the swank villas on the Black Sea.
Not so in the West, however. There, country by country, since the war, steel has been singled out as an amenable guinea pig. The producers of steel have invariably been harassed and coerced by bureaucracy, and in each case they have been expected to submit to some form of revolutionary socia 1 experiment at ion.
The three great areas of production for the free world are Great Britain, the continent of Europe, and the United States, and in each this pattern of social experimentation has been remorselessly repeated. Great Britain, which was first with nationalization, now follows with the separate and still disturbing problems of denationalization; on the continent it was the Schuman Plan, with its crossing of national boundaries; in Germany it was co-determination; and in the United States it was seizure.
Everywhere the grasping hand of government has been laid upon this basic industry in an atmosphere of high drama; everywhere all previous tradition has been broken in a revolutionary manner; everywhere the objectives sought have been political and not industrial.
In no case have the proponents of the government programs been men who have had experience in steel production: on the contrary, they have often been candid enough to declare that production is incidental. Their eyes glow with crusading zeal: they are intoxicated with the power which has suddenly come to them in the post-war world; and in their determination to test their new formulae for social welfare they turn to steel as the most convenient guinea pig. They have no understanding of the production of steel as such, no fear that what they do may affect the production curve. They blissfully assume that workers and management will continue to put forth their best efforts no matter what decrees are issued.
But at all this the harassed steel masters in the various countries grind their teeth and wonder why their industry must always be the one to be the pilot model; why the curse must always be laid upon furnace, forge, and mill; why steel must forever be the social laboratory. And thoughtful, disinterested students of public affairs, such as the social scientists in the universities, or men bearing great responsibilities in the military establishments, begin to wonder whether it is not high time to let the steel masters go back to making steel, high time to ask what happens to production that is so essential to security when private initiative is paralyzed by government interference, and fear substituted for ambition and imagination.
2
TT BEGAN in England. Almost from the moment of their coming to power the Labor Party initiated a war of nerves against the steel industry. Nationalization of steel became the symbol of their objectives, the crowning achievement of generations of Fabian Socialism, the ultimate expression of socialist philosophy. All that remained to be done was the drafting of the law and the fulfillment of Parliamentary procedure; but since this required a period of months and years, it gave ample time for virulent speechmaking by party leaders, and for driving down the market price of the company shares.
Creeping paralysis followed in the privately owned and ably managed British steel industry, and expansion slowed down at the very time that Germany and the United States were leaping ahead. Private investors sold their steel shares if they could, and new capital ceased to flow into plant expansion. The British steel masters performed miracles of production with what they had, hoping to stave off disaster by a convincing show of efficiency, but it was at the expense of the future, and the iron ore mines and ships and mills which should then have been under active development were never started. Paralysis of capital set in when risk-taking was called for. Then some hundred companies were nationalized, their shares being forcibly transferred to a government holding corporation. The private investors were given government securities in exchange, which by many were promptly negotiated to acquire cash with which to buy shares in companies not yet threatened with nationalization. Thus the old values continued to shrink, and the direct unscrambling of the situation became impossible, notwithstanding the campaign pledges of the Conservative Party.
There followed a period of theoretical government operation. Actually the board of the government holding company included no single person who knew anything about the production of steel — a rather stark fact that no responsible military officer could overlook in planning future security in terms of this basic commodity. Not even the steel labor union would name a representative to the board, so unsympathetic were its officers and members to government ownership. Young men, the future leaders, left the industry and went elsewhere. But the older men stayed, and gallantly carried on to the best of their ability, even though their personal incentives had been almost completely wiped out.
Then came the White Paper. After months of delay that caused dismay to many, the Conservative Government announced its plans for denationalization. The White Paper is a document of but six printed pages, yet it will dull the heart of any thoughtful American who wonders whether this could happen here.
The road back from Socialism is rugged indeed. This pronouncement is no about-face, no sweeping return to the dynamism of private initiative and individual responsibility, but a political compromise written in the familiar terms of party expediency. In this matter the Socialists are still governing England even though they art1 the minority party. By one speech in Parliament the Labor Party made the forthright return of the British steel industry to private ownership impossible. They merely said to British investors, from whom risk capital must come, “Go right ahead and buy the new shares of the steel companies when offered to you by the Conservative Government; but remember, when we come back into power, as we surely will, we will take them away from you again, and at a lower price.*’ That single speech was an insuperable roadblock on the trail back, and the flow of private capital was cut off.
So the Conservative Government compromised. They bought off the Labor Opposition with a proposal to establish new social controls over privately owned and operated companies so complete, so final in their ultimate potentiality, that hereafter no Labor cabinet need bother about ownership. They even retained the controversial levy, a means by which high-cost firms are subsidized at the expense of those which by superior management or more favorable location enjoy lower costs.
Returning to power, the Socialists could have all the control they seek without responsibility. So now it remains to be seen whether, regardless of personal incentive, the loyalty of the British steel masters to the flag is still equal to the task of producing more tons and better quality at lower cost in the years that lie ahead.
The continent of Europe was next, with the Schuman Plan. Conceived in the brilliant mind of Jean Monnet, announced to the world in 1850, and established as a functioning institution in Luxembourg in September, 1952, it called for the so-called pooling of all steel and coal resources, and the creation of a single market for those commodities within the six countries of Germany, France, Holland, Belgium. Luxembourg, and Italy. With certain minor exceptions, steel plants in these countries were privately owned, and production was a function of private capital and individual initiative. As thus organized great progress had been made since the war, comparing favorably on a percentage of increase basis with the tremendous expansion which took place in the same period in the United States. Yet suddenly the European steel masters find themselves under the control, not of their own bureaucrats, but of an international body endowed with supranational powers that may be enforced within a particular country without regard to that country’s laws.
Actually, the persons who constitute the new High Authority are as individuals extraordinarily able men, who show an awareness of their great responsibility as pioneers in this awesome undertaking, and an inspiring sense of dedication to the public service. But as Americans we are committed to the principle of government of laws and not of men, and the prudent private investor who is asked to supply the capital for a new blast furnace in one of the Schuman Plan countries would want to know what the chances are that his investment would be safe from expropriation, direct or indirect, and whether he would be permitted to earn a fair return. He would know that scheming, selfish politicians often succeed the able men who are first appointed.
No man could answer those questions now. All Europe is waiting to see. And that includes Great Britain, which is Sending a brilliant team of observers to Luxembourg under the leadership of Sir Cecil Weir.
The Schuman Plan treaty itself, which is the only document that could quiet the fears of the private investor and cause him to risk his money with enthusiasm, will leave him cold. It endeavors to steer a suave middle course between control, or what Europeans call dirigisme, on the one hand, and laissez faire on the other. It reflects compromise in every paragraph. For example, it denounces price agreements and other restrictive cartel practices in ringing tones, and then provides that the High Authority and the Council may declare an emergency and may fix prices and production quotas upon consultation with the industry. It is a political document, not a program for production.
Neither Jean Monnet nor his counterparts in the other governments have any interest in steel as such. They seek global objectives, possibly praiseworthy in themselves, and it is only by accident that steel was chosen as the subject for experimentation instead of textiles, or wine, or agriculture. There could be no stronger proof of this than the amazing fact that when the Schuman Plan Council of Ministers met for the first, time in September the first item on their agenda had nothing whatever to do with either coal or steel, but was rather a call for a new plan for the political integration of Europe as a whole. One wonders whether the steel master is not to be the forgotten man of the Schuman Plan, and whether General Ridgway will find this reassuring in terms of the steel he needs for military security.
The United States is also waiting to see. Our government has appointed an acting chief of mission who is to establish himself in Luxembourg to observe the High Authority. What are his duties to be? If he observes something he does not like, what will he do about it? Are we to tell this new supranational body what it may or may not do? And does this acting chief of mission know anything about steel? Or care? Or is he, too, committed to the theory that the Schuman Plan exists for the advancement of political ideas to which production is strictly incidental?
One thing is certain. The United States should not finance the Schuman Plan. Not by a single dollar should we assume the moral obligation of endorsing this cosmic experiment, to say nothing of the $200 million Monnet is reputed to have requested in advance. Such a blank check would give synthetically to the High Authority a stature which it should earn the hard way, and would give it such power of life and death over individual enterprises that private initiative could not survive. Nationalization of steel in England would pale before the supranationalization that would follow on the Continent. No, Europe to survive must be strong in its own strength and wise in its own judgments. It must breathe its own free air, not. heady draughts from an American oxygen tent.
3
WHILE the Schuman Plan was in the planning stage, there was also shaping up in Germany the third case of social experimentation where again the steel industry was the guinea pig. Co-determination it is called, and all too few Americans have taken the trouble to inform themselves about it. It is the concept that responsibility for the administration of a particular company should be shared between labor and management through the medium of equal membership on the board of directors.
The long and tangled history of this proposal in Germany is too complicated to be discussed in detail here, but it may be said that German industry in the post-war period seems to have been ripe for its development. The two-fisted resistance which it would meet from American industrial leaders was lacking. German management was vulnerable. Steeped as they were in the tradition of the cartels, of closely held trade secrets, and of sharing rather than expanding existing markets, they feared the political power of the German labor unions. Over there, collective bargaining as we know it does not exist. The unions do little at the local level, and do not concern themselves particularly with economic questions, but press with great vigor for political and social objectives.
Out of such a background (he German state created this new social compromise in which private ownership is preserved in name, but with the substance greatly weakened. Every thoughtful American businessman would oppose it because we believe that production suffers from divided authority. We make one man the boss, but keep his job and all other management jobs open to the individual worker on merit.
Co-determination is again a political and social program which is being superimposed on industry without regard to what it does to production, and sooner or later the world will have to make up its mind which is the more urgent, politics or steel.
This brings us to the United States. Here during the steel strike, in a sudden move that shattered every tradition of the private ownership of propertv within the American form of government, the President purported to seize and take possession of everv major steel plant in the United States. No South American dictator could have done it faster. I will not discuss the political motives which seemed to underlie that action. But the circumstances should be reviewed again and again in the minds of thoughtful citizens, and the full implication sensed in terms of their own lives and interests.
As in Europe, it was just by accident that it was steel. And when the average citizen does review those circumstances and reflect upon them, and when he compares them with government action in the European areas to which I have just drawn attention, he will sense in his heart a new respect, a new reverence for those inspired men who wrote the Constitution of the United States.
For myself, I happen to believe that when the history of our times is written it will be said that the lurnaway from the paralysis of Socialism in our country came with the brave decision by Judge Pine. I feel certain that his words will take their place in the future beside those of Jefferson and Marshall. The tragedy is that in no other country in the world could that have happened. In Britain and the Schuman Plan countries the steel masters have been at the mercy of Parliamentary majorities and those temporarily in power. The redress afforded by our Constitution is denied them.
As I have thought about these four separate and simultaneous areas of social experimentation with steel, these four sudden and revolutionary intrusions of government into the same basic industry with reckless disregard for the consequences on production, at a time when so clearly production of steel is of paramount importance to the security of the free world, I have searched my mind for some common thread running through them. It is loo early perhaps to attempt that, but one frightening thought does stand out. It is the doctrine of emergency as a source of power, and this seems to be the occupational disease of the present generation of politicians in all countries, It is the one universal language which they all speak.
In England the Labor Government proclaimed that a social emergency existed which not only justified but required the violent taking of enormous values in private property through the nationalizat ion of steel. Their action was as far removed from Magna Carta and Runny made in spirit as the post-war period was in point of time. Likewise, under the Sehuman Plan a few men may enlarge their own powers almost indefinitely, without a new grant of power from their electorates, by simply declaring that a crisis exists. I admit that the treaty includes certain checks and balances, but in substance what I have just said is true. In the United States the President boldly declared that by his proclamation of an emergency, from which he asserted there was no appeal, he could enlarge his own powers. He based his action upon a military emergency (proven not to exist by subsequent events); bill had that doctrine been sustained by the Supreme Court, ihe next step could just as easily have been seizure of the steel industry by the President to resolve a social emergency which he might have proclaimed.
In all this, freedom is at stake. In the name of freedom, the United States is putting forth the mightiest effort in our history, vet the world around, pious, well-meaning men, their eyes alight with the pursuit of ideals, are threatening freedom. Actually our economic effort at times supports their suppression of freedom. Having rejected, for example, the concept of authoritarian social and economic planning in our own country, we encourage and even demand it in Europe. We sometimes give positions of great responsibility in the field of aiding European production to men who have never themselves participated in production at home, and who are openly hostile to our way of doing it. I find this all very baffling.
To my simple mind those truths are fundamental. Steel is not rolled by a treaty, nor blast furnaces blown by bureaucrats. If the world needs highquality steel, in great volume and at low cost, the job must be given to men who know steel. And society must create a climate in which men work hard because they want to. They must be given hope for their own futures.
The warning in all this for the American businessman is obvious. Whether we are in steel, or cosmetics, or candy, l.he time has come when we must know what is going on in the world, and appraise the significance in our own lives of the great events that are happening outside our immediate spheres. Far away no longer exists. What happens in Luxembourg today may influence what happens in Pittsburgh tomorrow.