The MacNeil/Lehrer Report; Helping the Steel Industry

ROBERT MacNEIL: Good evening. America`s hard-hit steel industry got a small Christmas present yesterday. The U.S. International Trade Commission ruled that unfair trade practices by foreign steel makers may have injured this country`s steel industry. The news may not mean very much to the 60,000 steelworkers now laid off by the slump in their industry, but if the Commission`s preliminary findings were upheld, it could lead ultimately to stiff import duties on some foreign steel. The case was brought by the Reagan administra-tion as one of several steps to help the ailing industry. The government has also eased tax and pollution control laws to save the steel industry money. But there is another side to the steel picture these days. The industry in being subjected to mounting criticism for investing its profits in buying other businesses instead of modernizing its own plants to become more competitive. Critics are asking, is Pittsburgh diversifying because it is writing off its own future? And that`s the question we ask tonight. Jim?

JIM LEHRER: Robin, the American steel industry contributed mightily to the effort that defeated Germany and Japan in World War II, a defeat that left the steel industries in those two countries in ruins, and America the world`s dominant giant of steel. A spectacular 57% of all steel sold in 1947 came from the United States. But shortly afterward, that percentage began to slip, and has continued to do so ever since, particularly and ironically as the Germans and Japanese rebuilt from scratch their steel industries with new and modem equipment that won them a competitive edge over the aging U.S. industry. The slip is down to a point now where last year, American steel accounted for a mere 14% of the world market. The decline has triggered this newest trend among steel companies -- the trend toward diversification, diversification into other things besides making steel. National Steel, for instance, bought two large savings and loan associations. Armco branched out into the insurance and aerospace businesses, among other things, and dropped the word steel from its name. And now there`s United States Steel, the biggest of all. It`s already in chemicals, and now it`s trying to go into the oil business. Robin?

MacNEIL: Some of the loudest criticism of this diversification has come from the Institute for Imported Steel, a trade group representing American steel importers. In a recent press release they charged that American steel producers have abandoned their traditional steel manufacturing commitments in favor of diversification. Fred Lamesch is vice president of the Institute, and president of Trade Arbed, a steel importer. Mr. Lamesch, why is your organi-zation opposed to diversification by the domestic industry?

FRED LAMESCH: Well, Robert, we are really not opposed to the diversification per se. In fact, we are very much in favor of a strong domestic steel industry. What we object to is that the steel industry first blames all its problems on imports, then goes to Washington, gets a variety of protectionist measures which allows it to sell at higher prices than it ordinarily would, then uses -- or appears to use -- those funds to invest in diversification, although the commitment at the start was that funds derived from those protectionist measures would go to rebuild the steel industry -- to modernize.

MacNEIL: In other words, the money that they have not had to pay out in tax breaks or easing pollution control restrictions, and so on, your argument is, is helping to finance the diversification, when they had promised it would go to expanding their own plant. Is that it?

Mr. LAMESCH: That is correct.

MacNEIL: Or modernizing their plant.

Mr. LAMESCH: We would still not object to that if it weren`t on the back of -- if it were not all blamed on the importers.

MacNEIL: But yesterday, the International Trade Commission said that there was evidence that imported steel produced in a subsidized manner may have hurt the American steel industry. Do you deny that?

Mr. LAMESCH: Well, in a way, you can say that any competition hurts an industry. But what the International Trade Commission really decided on yesterday was merely that there was no evidence, in the short time that they had to investigate this question, that there was no evidence to prove that there was no injury. In other words, it is not really -- they have not come up with the determination that there was injury. It is only a likelihood of injury.

MacNEIL: Keeping the matter open, you mean?

Mr. LAMESCH: Yes. It allows the investigation to go forward into the next steps.

MacNEIL: In your view, are imports hurting the American industry?

Mr. LAMESCH: Imports are not the cause of the domestic steel industry`s problems. They are the result of their problems. Imports are a necessity. Without imports, the steel demand in this country could not be fulfilled. We fill the gap that is left by the domestic industry.

MacNEIL: What are the principal problems of the American steel industry that are resulting in the need for these imports?

Mr. LAMESCH: Well, first, it`s obsolete plant and equipment, probably the result of many years of neglect -- non-investment; secondly, low productivity; and, thirdly, high labor cost. The numbers that analysts have come up with are in the vicinity of 60%, 70% or even 80% higher than average manufacturing wages [that] are earned by the domestic steelworker.

MacNEIL: Well, thank you. Jim?

LEHRER: Here to speak for the American steel industry is William J. De Lancey, chairman of Republic Steel and of the American Iron and Steel Institute -- his industry`s major trade organization. First, Mr. De Lancey, is your industry giving up on steel?

WILLIAM J. DE LANCEY: It certainly is not.

LEHRER: How do you explain the diversification, then?

Mr. DE LANCEY: Well, I think the diversification is a natural aspect of the industry in the sense that there is a need in our industry to have a fairly level base of earnings that can withstand the dips that the industry faces when it, as a very high-cost, high-fixed-cost, cyclical industry, goes into a recession such as we`re in now. And there`s a very natural need to have that kind of a base to fill in the valleys of the earnings so that during the recession the industry will have the financial strength to build the facilities that it needs to build. And I think that`s a very understandable and a supportive reason for going to the extent that companies do into diversification.

LEHRER: And, in effect, your position is that it actually helps the steel industry, rather than hurts it.

Mr. DE LANCEY: Yes, it certainly does.

LEHRER: Now, what about Mr. Lamesch`s point? You heard what he said -- that your industry blames the problems that you have on imports, and you come to Washington; you get the government to help you out, and then you take the money and go and diversify. How do you answer his complaint?

Mr. DE LANCEY: Well, I think that we have to start back to where we were not too long ago, when the industry was responding very favorably to the change in the economic initiatives that had been established in Washington by the administration and by Congress. And I think the most tangible and most significant indication of that is that there has now been an announcement of over $6 billion of steel modernization projects that have been estab-lished. But our concern is that, as we move into this recession, and particularly with its effects greatly accentuated by the imports that have arisen in the country -- and during this year they`ve gone up on a stair-step basis, quarter after quarter, until in October they`re about 22 1/2% of the domestic industry, domestic market. The result has been that our profitability, which is the key to any ability to invest in the future, is being threatened.

LEHRER: Well, you -- as Mr. Lamesch said, all competition obviously hurts. The question here is, in your opinion, in your industry`s opinion, is the competition from foreign com-panies unfair competition, and if so, why?

Mr. DE LANCEY: Oh, yes. I think it is, and I think that`s a very fundamental point that needs to be examined as we look particularly at the European Community. And I might say that the European imports in the latter part of this year have gone up very dramatically. Third-quarter imports in 1981 were about 68% higher than those in the same quarter in 1980. And we in the products that we`ve been focusing on, I might say we`ve excluded in that focus the highly active energy market. But we particularly focused on the European Community because the producers there operate under different ground rules from our ground rules. They have substantial governmental subsidies and, in some instances, are owned by the govern-ment. And in addition, this entity, this group, functions as a cartel. In the last six years, the European Community governments have provided $30 billion in financial aid to their steel companies. They have also had subsidies which are going into their product costs on a very high level. If you look at it just in terms of a per-ton basis, Italsider, which is an Italian steel company, has subsidies equivalent to $184 a ton. Now, that just happens to be about equal to our employment costs per ton in this country.

LEHRER: Let`s bring Mr. Lamesch back in. Mr. Lamesch, is that fair what Mr. De Lancey just laid out -- the subsidies, etcetera? You heard what he said.

Mr. LAMESCH: Well, subsidies take different shapes, different forms, in different coun-tries. Take the trigger-price mechanism instituted by the U.S. government a few years ago. When you figure that possibly the trigger- price mechanism has kept prices at a level --

LEHRER: I`m not sure I understand what you mean by "trigger-price mechanism." Can you explain it so I can understand it?

Mr. LAMESCH: The trigger-price mechanism is, in effect, a minimum import price device that is monitored by the U.S. government. It is based on Japanese costs -- supposedly the world`s most efficient producer -- and, any time imports come in at less than that minimum price, it may provoke an investigation by the U.S. government as to the fairness of the pricing of those imports. If we assume that, because of this device, domestic prices were able to be kept up, say, a mere $50 a ton -- and there are those who say that it is much greater than that -- then you are talking $4 1/2 billion gift to the domestic industry. That is a subsidy.

LEHRER: So, in other words, your point is that the U.S. steel industry is getting its own subsidy from the U.S. government. Is that right?

Mr. LAMESCH: Every steel industry in the world gets subsidies to a greater or lesser degree.

LEHRER: Well, let`s ask Mr. De Lancey -- let me get a response from Mr. De Lancey on that. Do you concede that the U.S. government is giving your industry a form of subsidy as well?

Mr. DE LANCEY: No. The U.S. steel industry really receives no subsidies whatsoever, and I think that`s the basic point that we have to recognize in assessing the damage that`s been done here, that we are up against a very deadly adversary when we are competing, in effect, with sovereign foreign governments. We are operating in this country as private enterprise companies. We succeed or fail depending on whether we can make a profit or not. In the European Community, in large measure, the companies there are supported by their govern-ments for political and economic purposes. They pump in billions of dollars. I`ve said they`ve given them $30 billion of financial aid.

LEHRER: Well, Mr. Lamesch, do you want to say anything more about that? I mean, that`s true, is it not?

Mr. LAMESCH: Well, I cannot confirm or deny the exact number that Mr. De Lancey has just cited, but let`s assume it is true. With that aid that the European governments give to their steel industry come quite a few obligations. For example, what do you make of the situation where a government forces a steel industry to maintain 1,000 workers that normally would be redundant, that normally would be laid off, on its payroll, and then it reimburses half the cost of keeping those people on the payroll. In effect, you might be saying that the steel industry subsidizes the government.

LEHRER: Well, obviously, we`re not going to clear that one up. Let`s go to another point, Mr. De Lancey, that Mr. Lamesch made. He says that foreign imports are really not the cause of the American steel industry`s problem, they`re the result. The cause has to do with obsolete plants -- you heard the litany of problems. Would you agree with that?

Mr. DE LANCEY: No, I certainly would not. I think there has been a combination of factors that have hurt the U.S. steel industry in the last, really, two decades: we`ve had a price control of one kind or another; we`ve had very heavy environmental requirements; we`ve had inadequate tax provisions. But we have also had a flood of imports during every weak phase of the economic cycle, and that, in combination with these other factors, has impaired our ability to invest as we would like to invest, and that`s really why we`re so pleased with the -- had been so pleased with the outlook that came from the new Washington approach to the private enterprise sector.

LEHRER: You don`t like the new Washington approach, I assume, Mr. Lamesch?

Mr. LAMESCH: No. We are totally in favor of all the things that Washington has done for the industrial environment in general, and for the steel industry in particular. As I mentioned earlier, we like a strong domestic steel industry because, without a strong domestic steel industry, there can be no strong domestic metalworking industry. And the metalworking industry is our customer as well. If we lose the steel base, we lose the metalworking base.

LEHRER: Thank you. Robin?

MacNEIL: The perspective, now, from the investment community on what troubles the steel industry. Charles Bradford is a vice president and steel industry analyst with Merrill Lynch Pierce Fenner Smith. Mr. Bradford, what do you see as the steel industry`s main problems? You`ve heard two quite different views here.

CHARLES BRADFORD: Well, we believe that the main problem is a labor problem -- excessive wage rates and low average productivity. Let me give you an example. 1970, the American steelworker had wages 25% above average.

MacNEIL: Above other countries` average?

Mr. BRADFORD: Above the U.S. average. Above the manufacturing average. That figure is now 65% above the U.S. average.

MacNEIL: How did it get like that?

Mr. BRADFORD: Some of it was given away, frankly, by the managements; because they were so afraid of imports, the union was able to convince them that by avoiding a strike they would be better off by paying up. But, at the same lime, because wages going up is great; I love it, too. In fact, we`re trying to get more wages all the time. The problem has been productivity has been substantially below average.

MacNEIL: Whose fault is that?

Mr. BRADFORD: A combination of industry wont rules. A combination of inadequate investment. In some ways, it`s the lack of volume growth. But frankly, the Japanese have had the same problem in volume growth. In other words, they peaked out also in the `73 or `74 period. In other words, that was their high point in production. Yet, according to the U.S. Department of Labor, their productivity, which in 1972 was -- Japan versus the U.S. -- was equal to ours. It is now possibly as much as 55% greater.

MacNEIL: Come back to wages for a moment. You just heard Mr. De Lancey say that American labor costs are about $184 a ton. I don`t know whether you agree with that figure, but how does American labor cost for a steel ton compare with the foreign competitors?

Mr. BRADFORD: Well, compared to Japan, American labor costs could very well be double. Compared to Europe, if you use current exchange rates, and convert their hourly wage rates, there is also a very, very substantial advantage. The U.S. Department of Labor put out a study -- an unpublished study, I might add -- in September, and it shows Japanese unit-labor costs to be only 41% of the U.S.

MacNEIL: Okay. If Japanese and other foreign labor costs are below ours, and their productivity is higher than the American, let`s move to the other point. Have imports hurt the U.S. steel industry? Or are they the result of its problems, as Mr. Lamesch said.?

Mr. BRADFORD: Oh, I think it`s both that would be true. Clearly, competitors hurt. And imports have been strong competitors. In some cases - - for example, for most of this year the major product where imports increased was pipe. Pipe is a product in short supply in the U.S. And there are other products where imports have also increased, but pipe is by far the largest category of increase. Any competitor does hurt you. And I don`t want to belittle the competi-tion from imports. What worries us a bit is that I personally believe that the focus on imports gets away from the more important focus, and that is that labor costs represent close to 40% of the cost in making steel, with energy another 20%. And that would be, in my opinion, the more useful area to focus on -- getting productivity up, controlling the rate of increase. Automobiles are a great example that we should compare steel with. Ten years ago, auto workers and steelworkers had about the same wages. According to the Bureau of Labor Statistics, steelworkers are now 20% higher, yet the auto worker has had five times better productivity growth. That`s just not logical.

MacNEIL: Well, thank you. Jim?

LEHRER: Finally, a look at the ailments of the steel industry from a representative of the people who work in it. He is Jack Sheehan, assistant to the president and legislative director of the United Steelworkers Union. Are high labor costs a problem, Mr. Sheehan?

JACK SHEEHAN: Well, of course, I`m not going to deny that steelworkers have gotten good wages, and that`s because of their union activity. But I do really feel that this focusing on wages as almost a single cause of the industry`s problem is really throwing this completely off focus. First of all, I think I should say mis: mat wages as a percentage of sales have actually gone down over the last 10 years, so steelworkers` wages, as a percentage of the volume of sales or revenue for the steel industry, have been decreasing. Secondly, I think I should point out that as far as the relative height of steelworkers` wages, both here and domestically, steelworkers in all countries are probably the most highly paid of industrial workers.

LEHRER: But do you agree with Mr. Bradford`s figures of a big gap between labor costs of the steel industry in the United States versus those in other countries that Mr. De Lancey was --

Mr. SHEEHAN: Yeah, and that`s the point I want to get at. If you`re looking just in terms of the dollar volume of the wages, that`s one thing. Dollar volume of American steel wages are higher than, let`s say, Korea, Germany, Japan. But you have to also look at the worker as he works in that industry and what is his productivity.

LEHRER: Well, he says it`s below.

Mr., SHEEHAN: And that`s the fact that I want to correct in this show tonight because the impression is that the American steelworker is not productive. As a matter of fact there are figures that I have right here in front of me that shows that the American steelworker, in terms of man-hours per ton of steel, remains far in advance of our competitors. So the American steelworker, relative to the actual facts, is more productive than our counterpart. But a second point, and I think this has to be drummed in here, is productivity is not the result of wages but the result of the utilization of those facilities. I think Bradford there mentioned a volume growth. Well, what did he mean by volume growth? He meant, is the steel industry producing steel? And if it`s producing it below its capacity, then everything drops and productivity drops. And that`s what we`re concerned about. We`re concerned about a na-tional policy, if you wish, involving taxes, involving other items, but involving imports so that we can produce more steel. The more we utilize those facilities, the higher is our productivity. But despite a very poor production rate here, we remain higher.

LEHRER: All right, if it`s not labor costs and productivity, then what is the problem with the steel industry -- this volume growth problem? Who is the villain?

Mr. SHEEHAN: Well, the villain --

LEHRER: In your perspective?

Mr. SHEEHAN: Yeah. The villain -- it`s kind of hard just looking for one particular cause here, and that`s what I think that maybe this dialogue here could try to dramatize. We`re faced with a chronically ailing industry now for quite a number of years, and yet we do not yet have a national policy affecting the steel industry. We only look at it in short-term spurts. What we should be looking at is a policy whereby we could be moderating those steel imports that are coming in so that this industry can get about the job of modernizing. It`s the modernization of the industry that the union is committed to. To the extent that imports eat away at capital formation, well, then those imports ought to be taken a look at because it`s one thing to say the industry hasn`t modernized, and then it`s another thing to come around and say the imports are not the cause of the problem.

LEHRER: What is your union`s position on the diversification trend?

Mr. SHEEHAN*. Well, the diversification, I think, is one in which we`re looking at it to the extent that, number one, is there any diversion of funds out of the steel industry into non-steel activity? It`s our understanding that, as a matter of fact, this recent steel effort to divert did not use any of the steel holdings to move into the purchase of the oil company. Now, what we`re really concerned about, though, is not so much diversification as transfer of assets out of the steel industry. That`s the problem.

LEHRER: Okay. Thank you. Robin?

MacNEIL: Yes, quickly, Mr. Bradford, Mr. Sheehan just disagrees with you. He said that wages are down over a decade as a percentage of steel companies` revenues, and that, in man-hours per ton, American steelworkers` productivity is ahead of the foreign competition.

Mr. BRADFORD: The data that we have shows quite the opposite, and some of it does come from the U.S. Department of Labor, generally considered to be on the union side. They show the Japanese, as an example, to be as much as 55% more productive, and the Germans 9% more productive.

MacNEIL: How do you explain that discrepancy, Mr. Sheehan?

Mr. SHEEHAN: Well, I would explain it from the point of view -- and we`d have to see what he`s reading from. But secondly, it might have to -- it would probably be a factor in terms of the utilization of the capacity of the steel works or the companies that he`s looking at. If productivity -- if production is high, then you`re going to get a higher rate of pro- ductivity per worker.

MacNEIL: Let`s come back to the diversification where we started since, obviously, we can`t in the few minutes left solve all these disagreements. Back to you, Mr. De Lancey. Is the diversification effort a sign, as some people take it, that you are gradually getting out of the steel business?

Mr. DE LANCEY: No, I would think not. I think that the diversification moves have to be looked at in the light of the operation of the private enterprise system and the responsibilities of a board of directors to make the most effective use of the corporate resources. I think that the diversification moves have the indication that there is an interest on the part of directors in various companies to obtain a better return on their assets. And I think that`s a matter that`s a proper concern for them.

MacNEIL: Mr. Bradford, how is that viewed on Wall Street in the investment community? Which view do the investors take of the diversification? That it`s a way of gradually getting out of steel, or that it is to fund further investment?

Mr. BRADFORD: I would concur completely with Mr. De Lancey. It doesn`t make any sense for us as individuals, also, to invest what free money we do have available in a low-profit area like a passbook savings account when much higher return businesses might be available. That would be very bad economics. We`d have buggy manufacturers all over the country if we would keep all money of an industry within that industry.

MacNEIL: Is that a good analogy -- because there aren`t any buggies around anymore?

Mr. BRADFORD: It may not be the best analogy, but in some ways it is appropriate.

MacNEIL: And, finally, then, Mr. Lamesch, you haven`t commented on this, coming back to you. What do you say to the argument that the diversification is for the purpose of raising funds to invest in the steel industry and strengthen it?

Mr. LAMESCH: Well, if that is the case, I couldn`t agree more, and I follow completely the argument that Mr. De Lancey made. Again, the only objection that our institute has is that imports are being blamed for the problems -- that money is being generated out of Washing-ton as a result of this, through artificially high prices, through artificial barriers, and that then that money is taken and used to diversify.

MacNEIL: I`m afraid we have to leave it there. Obviously there are many points and many disagreements. Mr. De Lancey and Mr. Sheehan in Washington, thank you very much. Mr. Bradford and Mr. Lamesch in New York, thank you. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We will be back tomorrow night. I`m Robert MacNeil. Good night.