the industry slightly over 900,000 tons of steel, which is approximately 3 days' production. Now, that was the cooling off of the furnaces and then bringing them back slowly to full production. Senator FREAR. If that be the case and if the strike continues for 2 or 3 weeks, do you have any idea that that would change your 90percent basis as you had stated yesterday? What would be your performance at the end of the year-that is, production of 90 percent of capacity? Mr. MOREELL. If we had a prolonged strike? Senator FREAR. If we had a prolonged strike of 3 or 4 weeks. Mr. MOREELL. I would say that if there is a prolonged strike and if the economy is turned loose, the demand for steel would pick up. But you never regain that loss, Senator, that you have from the strike. That is a permanent loss. Now, Mr. Elliott tells me that the estimated loss to the industry is 2 million tons a week. Senator FREAR. I think I realize on 1 million tons every 3 days, if you will only be operating at 90 percent of capacity at the end of the year you have that 10 percent of capacity within which to overcome part of the million tons lost every 3 days in this period of seizure or strike. Mr. MOREELL. That is correct, sir, but the period of seizure, or strike, would greatly harm the whole economy and work harm to fabricators so their accumulated demand is not the amount of steel that they did not get during this period. That demand is not backed up because they have suffered losses, you see. Senator FREAR. Then the demand is not there. If they do not get the steel when it is on order, or during this time, then that demand is gone and at the end of that period you would only have the demand as though you had been in operation during that time? Mr. MOREELL. Not exactly; no, sir. There is some backing up of demand, but it is not the full demand. Senator FREAR. What, in your opinion, would have happened last November or December had the wage increase to the steel workers been based on 12.5 cents an hour, effective at the termination of the contract with the steel companies, with another 2.5 cents an hour added July 1, 1952, with the steel companies being permitted to take advantage of the cost in their product by the so-called Capehart amendment, all other points of disagreement being subjected to collective bargaining? Mr. MOREELL. Would you add to that 122 cents an hour those socalled fringe benefits? Senator FREAR. No, sir, just a straight increase of 122 cents an hour plus an additional 212 cents an hour at the end of 1952 and the increase that you would be permitted to charge for your product, that which would come under the so-called Capehart amendment, all other things in dispute being returned to the employee or employer to be settled by collective bargaining. Mr. MOREELL. The 1212 cents an hour would have cost us in direct wage costs about $2.50 a ton, so that if the figure of $2.84, which is mentioned by Governor Arnall, is correct, we would have been more than compensated for the direct cost, but we would not be compen sated for the indirect cost which we know from past experience, Senator, doubles up within a period of 5 months. Now, in these tables which I have presented here, I have assumed 6 months. I wanted to lean over on the liberal side. So we would actually suffer a loss of approximately $2 a ton on that first increase after a period of 5 months. On the second increase we would suffer a loss of $3 a ton, in round figures, after a period of 5 months. Senator FREAR. Do you think the steel companies would have accepted that or rejected that? Mr. MOREELL. That I cannot say, Senator. I think there is a certain price that the steel companies would be willing to sacrifice in the interests of peace and because we are in an emergency. Senator FREAR. Yes, and I think the steel companies would have sacrificed a little bit in their profit column to have maintained possession of their steel mills. Mr. MOREELL. As I say, in the interests of peace. Senator IVES. In your judgment, would the steel companies have agreed to the recommendations of the Wage Stabilization Board with respect to the increase in wages and the benefits, and so forth, if the steel companies in turn had been permitted, or were to be permitted, to have set the prices they might desire? Mr. MOREELL. Do you include the union shop in that? Senator IVES. No, I am not including that. That is something that is a part of collective bargaining, itself. No, I am not including the union shop. I am just talking about the increases in wages and the additional benefits which are recommended by the Wage Stabilization Board. If you were allowed to set the prices, you desired, would you agree to those? Mr. MOREELL. I would not do it without a terrific struggle, Senator, because I think that those recommendations are inflationary and that eventually, once they became fixed in our wage pattern, we would not be able to capitalize on the large increases in prices which would be necessary to offset those wage costs. Senator IVES. How large an increase in price would you have to have to offset? Mr. MOREELL. Well, I pointed that out, Senator, in the table. Senator IVES. I know you did, but I would like to have it here at this point in the record so we will have it. Mr. MOREELL. I indicated that in the first quarter of 1953, we would have to have a little over $11 a ton to compensate for the full cost. Now, the full effect of the Wage Stabilization Board package would not be felt until July 1, 1953, on the basis of the assumptions which I made and which I mentioned to Senator Frear. That is that the indirect costs begin immediately when the wage package is put into effect, and then reach their maximum 5 months afterward. Senator IVES. However, as you know, this recommendation has been made and I think the very fact that it has been made, even though it does not carry with it the force of the law, is a powerful influence, and I think it is something that you have to reckon with, regardless of what may eventually materialize. I dare say, that you might find some price level that would be less than the $11 and some cents that you indicate, if you had to do it, in order to reach agreement. You would not go so far as to refuse to go along on these wage recommendations and benefit recommendations if it was going to land you in a strike, even though you had collective bargaining and were free to bargain collectively as you desired; would you? Mr. MOREELL. That is exactly the intent of my answer to Senator Frear's statement, that we would bargain, we would attempt to cut down the wage package, and we would settle for something less than the full $11 a ton. Senator IVES. You would attempt that, but if you found you could not do it because the recommendation will be made, you probably would not land the matter in a strike situation, would you? Mr. MOREELL. Probably not. Senator IVES. Well, that is what I thought, and that is very important. I have just one more question. Do you have any idea that you are going to have controls for the rest of this year? I think you said something in your prepared remarks yesterday that controls were not necessary where steel is concerned, either price or wage. Mr. MOREELL. Yes, sir; that is right. Senator IVES. Do you think the price of steel would stay down without controls? Mr. MOREELL. I think the price of steel might rise for a period, for a short period, and then eventually would come down, provided we were not subjected to very large wage and other costs, such as, for example, the materials and services that we buy, including freight. Senator, I must be completely candid with you and state that I have never believed in controls. I do not think they are necessary. I think they are evil. I think they restrict the free economy and eventually do harm to all of us. I think that the only way you can make controls work is to use compulsion, and it gets you into exactly the kind of a fix we are in today, with collective bargaining being superceded by the action of the district court and the court of appeals and now, eventually, the Supreme Court. That is an inevitable sequence and I have made no secret of my stand. I have stated it repeatedly. I stated it in an interview with the United States News and World Report in 1950. I stated it in a statement to this committee in August 1949. I made that very same statement. I think controls are evil. They are evil in the sense that they are not immoral, except as they violate what I call the natural law, that man should be free to work out his own financial destiny. But the ultimate effect on our whole economy is evil. They are restrictive, they keep people from doing what they want to do, which ultimately is best for the whole economy. Senator IVES. You are talking now about a free economy where we are not tied into an emergency period. I agree with you that in a strictly free economy that is correct, but, on the other hand, I do not think you would go so far as to say that the price of steel, if we had no controls at the present time, would be lower than it is at the present time, would you? Mr. MOREELL. Yes, sir. Senator IVES. It would be lower? Mr. MOREELL. Yes, sir. Senator IVES. In other words, you think controls have caused the price of steel to be higher? Mr. MOREELL. I do not say the price of steel, but I say the cost of steel, Senator. Senator IVES. I am talking about the price of steel. Mr. MOREELL. I know, but the cost of steel is the important item. It is not the price of steel. Now, Mr. Arnall bragged, on the other day, that they had held down the cost of scrap for the steel companies, which was a gross misrepre sentation. He did not hold down the cost of scrap. He held down the price of scrap. So, what happens? We have to go out to Timbuktu to buy scrap at the ceiling price, and we have to pay for transportation, and we have to pay for bundling, and when we unwrap the scrap we find a big chunk of concrete on the interior, and it is bed springs and baby carriages, and this and that, and it is all at Mr. Arnall's price, but eventually it is a very costly scrap for us. That is what I mean when I say the cost is high. The price is low. Senator IVES. The cost is high, but the end price is not quite so high? Mr. MOREELL. No, sir; it is higher. The end price is higher by virtue of the fact that you have these restrictive controls which prevents the free economy and the free market from operating. That is exactly how I feel about it, Senator. Senator FULBRIGHT. Your time is up. Senator Moody. Senator MOODY. First, I would like to thank Senator Fulbright for installing this new system. I am sure all the new members of the committee will feel better about the whole situation. Admiral, is it your position that you cannot pay any increase in wages without an increase in price? Mr. MOREELL. Senator, that depends on a definition of the word "can." It depends on what will happen to the financial stability of our company. For me to say we could not pay a half-cent per hour wage increase without very serious harm to our company, would be wrong, and I would not say that. But, for me to say that we can pay, 12.5 cents, compounded, which would reach say 15 cents, without any price increase, I could not say that, because I think we will be seriously hurt. Senator Moopy. Of course, you are well aware of the wide divergence of the statements that have been made by the industry and the union, which is natural, and also by the Government. Some of us have been trying to find out what the real economic facts in this situation are. You have criticized the Eric Johnston formula. Mr. MOREELL. Yes. Senator MOODY. You understand, do you not, that this is based on the excess-profits formulas written by the Congress? Mr. MOREELL. Yes, I do. I understand that, but I pointed out, Senator, I believe in your absence, that there is one vital difference, and that is that the excess-profits tax is calculated after all costs are included, including the accelerated amortization. Senator MOODY. Of course, all costs are included in your grossprofits statement, including wages and all other costs of doing business before any tax is deducted, and the position of the Government has been that they should calculate any wage increase before taxes for that reason. Now, the steel companies, as a whole, according to the statements of the Government, are making $13 a ton in profits. I believe the Government took these figures from the Iron and Steel Institute Reports— over and above their industry's earnings standard which was the same standard that the congressional excess profits calls for. That is the steel companies are making $13 a ton excess profits, as defined by Congress, as against a base period of years which happens to be higher than any period that the steel companies have had since 1918, as Senator Sparkman pointed out earlier. Now, as I understand, it has been agreed that the so-called package of the Wage Stabilization Board would cost about $6 a ton, or less. Is that correct? Mr. MOREELL. No, sir, it varies, depending upon the period you select. If you take the ultimate, which calls for the 17.5 cents wage raise, plus the fringes, compounded-and by "compounded," I mean social security, the pension fund, insurance and so on, and so forth-it will amount to about 30 cents an hour so that our ultimate cost on that, Senator, will be $12 a ton. Senator MOODY. When you say compounded, I believe you also defined the word "ultimate" as bringing in possible increases in the cost of things you buy and so forth through the economy? Mr. MOREELL. That is correct, sir. Senator MOODY. So if there were no increase in the price of steel and prices were not forced by the situation, those increases in the economy would not take place, would they? The initial, direct cost to the steel companies of this wage increase, plus fringe benefits, would be in the neighborhood of $6 a ton. I have heard it argued less. I have not heard it argued more. Mr. MOREELL. That is correct. ton. The direct cost would be $6 a Senator MOODY. Assuming there was no increase in general price levels which therefore did not increase your cost, that would leave the steel companies, according to this set of figures, with a $7 a ton excess profit without the increase that you would be entitled to under the Capehart amendment, which would be $3 a ton roughly; would it not? Mr. MOREELL. It varies from company to company, Senator. I want to say this: There has been a good deal of disussion about this doubling-up of the direct cost. I want to say that we made a very careful study of that and our actual figures in the past indicate that it is there; it happens. Now, it does not happen because the price of steel increased; it happens because a general wage lift comes about. |