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You may be interested in this general statement too. He said that it was his understanding that his economists and the economists representing the steel people were in agreement as to these figures.

Mr. ARNALL. That is right. Stated another way, let me say this, Senator Ives, that the steel people-I am going to talk about this with the charts and I want you to listen to me because I want to do it in a very careful way so you can follow the figures—the steel people say that if these entire benefits were put into effect it would cost them $6 a ton plus another $6, which would be a commensurate increased cost of products they buy.

Suppose we gave them a $12 price increase. They could keep only $3.50 of it because $8.50 would go to excess-profits tax.

I mention that to demonstrate how it is that we cannot give a price increase to steel because they are in such a very favored position. There is no way we could do it without doing it by the rule of just saying we are going to give it to them.

Senator BENTON. The tonnage is going up all the time and productivity is going up, and these figures are per-ton figures and thus do not show the effect on the total profits of increased tonnage, and, secondly, because there is no way accurately in advance to estimate exactly at what rate productivity will continue to go up they completely ignore the factors involved in increasing productivity.

Senator FREAR. Now, sir, I do not want to put you on the spot, but I want the advantage of having an answer.

Senator BENTON. I have not had the opportunity to ask a question yet so I yield.

Senator FREAR. This probably is not fair to ask you because you are the price man, but if you are going to use that same formula that you are talking about and you cannot give steel increased price, on what basis does Dr. Feinsinger give an increase in wages?

Now, let Dr. Feinsinger answer that.
Mr. ARNALL. Prices are my business.

Senator FREAR. That is right, but you have a coordinator in Mr. Putnam between the two of you fellows and I am sorry he is not here now.

Mr. ARNALL. Let me say this: I do not criticize Mr. Feinsinger's report or recommendation, but let us assume, just hypothetically, that they are wrong. Let us assume. Does that mean that I have to be wrong, too?

Senator FREAR. If we are going to tell the steel industry that you cannot give them a price increase, then we have the right to tell the CIO unions they cannot have an increase in their wages.

Mr. ARNALL. Prices are my business.

Senator FREAR. It is a little unfair to put you on the spot in that, but let me give you another question then, sir.

Are you going to do anything or do you consider the price of raw materials on any farming materials? Do you do that at all?

Mr. ARNALL. Yes.
Senator FREAR. What did you do about cottonseed oil, sir?

Mr. ARNALL. I have that in this suspension report. I am suspending it.

Senator FREAR. In other words, you had a price on it of about 23.5 cents and it is now down I do not know where, some low figure, but you are going to put it up to 15 cents as the trigger point and then say, “We had a ceiling of 23.5 cents bụt when it reaches 15 cents I am going to set a ceiling at 18 cents.". You are reducing the ceiling from 23.5

cents to 18 cents. Now, under what formula do you do that?

Mr. ARNALL. We are working out in connection with our suspension program the desires expressed by this committee and insofar as agricultural commodities are concerned we also have to take into account this thing called parity which puts it into a little different category.

But let me say this, Senator, we are not too far apart. What I am trying to get across to you really is this: If I wanted to give steel an increase, sincerely I do not see how I could do it.

Senator FREAR. Under your law you cannot give steel an increase, except those coming under the so-called Capehart amendment.

Mr. ARNALL. I do not believe I can. Let me show you why.

Senator FREAR. I think I understand that and I am thankful to the Senator from Connecticut that he has allowed me this time.

I am going to get the answer from Mr. Feinsinger without encroaching

Mr. ARNALL. I would like to present my charts, one at a time, so that you get the continuity and what they mean and then you can question them.

Senator BENTON. You go ahead and present the charts and I will withhold my questions until after we have seen the charts.

Mr. ARNALL. This chart here shows that 1947 through 1949 were the three most profitable years the steel industry had experienced since World War I.

Senator SCHOEPPEL. Governor, could you in testifying demarcate or identify what chart you refer to? You say “this chart.” Is there some definition so we could get it into the record by way of identification?

Mr. ARNALL. Yes; this chart is headed "Annual rates of return on stockholders' investment for principal steel companies combined.”

Now, this chart is based upon data which was supplied to my agency by the Federal Trade Commission. Mr. Mead, who is the Chairman of the Federal Trade Commission, will testify as to the verity of the figures.

Now, the general impression which this chart gives requires no comment, actually. However, I want to point out that in the years 1947–49, which are the three best of the four base years, the industry averaged almost 19 cents profit before taxes on every dollar of stockholders' investment, or net worth.

The second best 3-year period since 1918 was the period 1941-43, and during that period, earnings averaged 17.5 cents per dollar on stockholders investment.

During the only two other years, 1929 and 1944, did earnings exceed 11 cents on stockholders' investment. And it will interest you to know that during the 1920's, the return was 8.5 cents on stockholders' investment, and the average of the thirties was only 2 cents return on stockholders' investment. The average of the forties was 15 cents.

After income taxes, the 1947–49 period provided a higher average rate of return than did any single year between 1918 and 1947.

So it is obvious that the base period under the earnings standard was an extremely favorable one for the steel industry. Even if

ANNUAL RATES OF RETURN ON STOCKHOLDERS' INVESTMENT FOR PRINCIPAL STEEL COMPANIES COMBINED

1917-1951

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earnings were to fall to the level of that period the steel industry would still be, according to these figures, unusually profitable.

In order to show you now the immediate prospects of the industry if the wage increases recommended by WSB were put into effect and what it would cost the steel industry, I want to refer you to the second chart.

Now, this chart is headed “Cost of recommended WSB wage settlement,” which I note as my chart No. 2.

Looking first at the cost increase that would arise if the proposed wage increase were put into effect in the steel mills only-and that is the heavy black part, or the solid color on the small charts—it would amount to $2.96 for each ton of finished steel in the first half of 1952. Then beginning next July it would amount to $3.89. For the whole year 1952 it would average $3.43.

Then next year the figure would be $5.05, and the cost for the entire proposed contract period of 18 months would be $3.97.

Senator CAPEHART. That is the direct increase--the result of the wage increase? That doesn't take into effect any other increases in cost that they might have as a result of this?

Mr. ACKLEY. Labor costs only.
Senator CAPEHART. Labor costs only?

Mr. ACKLEY. Labor costs, including the effect on salaried workers, the same percentage increase.

Mr. ARNALL. If you mean increased materials, no; and we are coming to that.

Senator CAPEHART. Or any increase in overhead?

Mr. ACKLEY. Yes; in that the salaried workers are a part of overhead.

Senator CAPEHART. Are you going to the premise that every salaried worker in steel is likewise going to get his wages increased ?

Mr. Ackley. These figures assume that salaried workers would get the same percentage increase.

Senator CAPEHART. Would the Wage Stabilization Board approve that?

Mr. FEINSINGER. We have a regulation which permits that on a tandem basis, if that has been the practice in the past.

Senator CAPEHART. Are there any of you gentlemen in the manufacturing business? Don't you know that in any factory, the overhead on direct labor ranges all the way from 50 up to 300 percent? At times, of course, you are able to absorb a portion of the 200 or 300 percent, or whatever you are figuring, and that at other times you are unable to do so. That it is impossible to run a factory except on the basis of—I don't know what steel's overhead is, but I imagine it is about 150 percent. Invariably it works out that way, and will work out no other way.

Anybody who has tried to run a factory on any other basis would would certainly go bankrupt.

Mr. ARNALL. These figures, as to the effect of the wage increase on employment costs, are agreed figures between the steel industry and our economists in OPS.

Senator CAPEHART. You said that this morning, and we will find that out.

Mr. ARNALL. I will state it now, too. That is true.

[graphic]

COST OF RECOMMENDED WSB WAGE SETTLEMENT

BOLLARS PER TON OF FINISHED STEEL 12

12.00

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5.94

3.89

COAL AND
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