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Fourth International, November 1949

V. Grey

Steel: Achilles of US Industry II

Fate of a Monopoly

From Fourth International, Vol.10 No.10, November 1949, pp.304-307.
Transcription & mark-up by Einde O’Callaghan for ETOL.

The first of these two articles on the steel industry appeared in the October Fourth International.

So far, we have been discussing the steel “industry.” But this is an abstraction: the “industry” must be counterposed to its parts, of which it is not really the sum. The “industry” must be counterposed to the “industries” – the corporations – who are in now quiet, now open competition among themselves, regardless of “understandings.”

In spite of the monopolistic character of the industry there are nevertheless deep conflicts among its parts, and between it and other industries. Suffice to say that the US Steel Corp., though still the leader, no longer controls such a large percentage of total facilities as it did in the past. And Bethlehem, which is supposed to be a part of “little” steel, and did not exist in 1900, now produces as much as US Steel did before the Second World War: 14 million tons per year.

The steel “industry” as a whole well understands what an old man of the sea this business of “capacity” is upon their backs. The “industry” has been the chief fighter against increasing capacity. But yet the corporations who make up the industry have each been increasing their individual capacity – so that the total industry capacity is still growing,” more slowly than before, but growing nevertheless.

So far we have been looking only at the general pattern. As soon as we look closer, we may perceive that the all-important “break-even” point is widely different in different corporations, though it averages out to somewhere between 70-75% nationally.
 

Competition and Capacity

If Bethlehem, for example, has more open water plants to get cheaper delivery of materials and its “break-even” point is hence at 70%, it might be very much to its benefit if general production went down to 80% and cleaned out some company or some of the plants of a company which was not so situated, and Bethlehem gained that company’s customers. Then Bethlehem’s production might go up to 90%, or even 100%.

So Bethlehem and the other companies, looking forward to a scramble for customers, build their competitive fences and improve their equipment. And in so doing, increase their capacity! The very thing they have been fighting so hard against – on theoretical grounds.

For the past two years, capacity .has been increasing steadily as a result of this jockeying for better competitive positions against the time when so much capacity will not be needed. During the same time, industry spokesmen have fought their loyal servants in the government on this question. They have stoutly averred that only 75 million tons of steel a year will be needed in the 1950s.

But in the past two years, they have spent a total of over a billion dollars in plant improvement. And willy-nilly will have increased capacity nearly 4 million tons in 1948 and 1949 – bringing the total to about 95 million tons. Capacity, like a roaring furnace that must be fed with golden coal, rages on, up and up. And while the iron masters see the devil grinning out at them from the furnace they are powerless to tame or to control it.

One must produce cheaper and therefore more than the competitor. It must be made possible for the same number of laborers to produce a greater tonnage of steel. “Then too,” they opine, “while steel is in such great demand let us patriotically fill the shortage and cash in on the demand, by all means! At the same time we may reach out for new customers against the time when customers will be hard to get.” So, knowing that a surplus will develop, knowing that increased capacity is their greatest enemy – they increase their capacity!

It is quite true, however, that they do this in a certain way. The expansion, if anarchic and “unlawful” from an industry-wide point of view, is planned and purposeful within the individual corporation. This planning is first marked, as previously stated, by the utter absence of plans to build any new plants: There are economic reasons for this, equally as significant as their general fear of increased capacity, reasons which we will examine in a future chapter of this story.

Even within the individual plants there is very little extension of basic facilities, that is, building of new blast furnaces (which make the iron from the raw ore), and only a few dozen open hearth steelmaking furnaces. But the engineers have turned again to the already existing equipment, with the aim of making it more productive. In the seeming renaissance of recent days, they have introduced every kind of technological improvement possible.
 

Technological Improvements

They have remodelled the finishing end: the rolling mills, which turn out rails, bars, sheets, structural, etc. They have made it possible for still less men to run them than before. When you enter a rolling mill the size of an armory, you see the red-hot blooms and billets sliding over the rolls like logs down a swift river. You see a monumental mass of machinery in the red glare of the steel – and, if you look well, perhaps five or six shadowy figures you may identify as men.

If the engineers have built few new furnaces they have done much to increase production in the old ones. Republic Steel, for example, reports from its Cleveland plant that the new “top pressure” used in their blast furnaces gives an increase of 200 tons of cast iron per day per furnace and with a smaller total of coke than before.

Another interesting, and very important development is in open hearth steel production. High pressure oxygen is induced to the “bath” (the boiling steel) in order to absorb the carbon more quickly from the liquid, blast-furnace cast iron, and thus quicken the “heating” time. If two hours can be cut from a nine-hour heat, production may be increased proportionally.

This improvement is probably cheaper than most of the other recent technical changes, some still in the earlier experimental stages. But just as the tiny super-hard carbide-cutting tools, introduced several years ago, could cut so fast they called forth a revolution in the structure of the big machines to which they were fastened, so the innocent oxygen pipe will play a tune to make the old furnace-floor machinery dance at an unaccustomed pace.

There will have to be bigger charges of materials into the furnaces to get the full value of the oxygen process. Hundred-ton charging machines will have to be junked and redesigned. Furnace doors must be enlarged, larger steel ladles made (present ladles hold 80-120 tons) and new furnace-floor procedure devised.

More important metallurgically: engineers have to be set to work figuring how to reduce the sulphur in the boiling metal as rapidly as the oxygen absorbs the carbon. The average mild steel must be pretty free of both the carbon and the sulphur. The sulphur reducing agent, when it is discovered, may perform still greater wonders in increasing production. But at what greater cost in new equipment? At what new investment, that wears golden wings when steel can be sold and leaden shoes when it cannot?
 

Struggle of the Giants

What is of more pressing importance financially to the immediate future, however, is the manner in which the actual improvements, the capacity-increasing improvements, have been put into effect, and by what companies. It is clear that these inventions have increased the total capacity. Are the companies, therefore, not in the same relation to one another that they were before, but now only on a higher level of production?

Not at all. Different companies have specialised each in different improvements. Bethlehem Steel is experimenting feverishly with the oxygen process and is the only company so far actually to build a special plant for the production of oxygen. It has left the top-pressure field clear for Republic. US Steel, on the other hand, claims it has increased production over half a million tons a year, and possibly a million later on; by virtue of its special coal-washing process. (Mechanically mined coal is much cheaper, but often inferior, for the making of coke for steel. Hence the coal “washing.”)

Each of these three big corporations, with the corner of its eye no doubt on the others, has gambled highly on its “own” process. Each process obviously increases the respective company’s capacity. But at what rate? And at what rate as against the others? It is too early to answer this question but not too early to pose it.

The following table of figures reflects the changes in the financial strength and competitive ability of two corporations. No iron-clad conclusions can be made from the figures since they represent investments that have not yet begun to pay off on a normal “going” basis. But it may be seen that the respective rates of profit vary widely. And the variation itself changes from year to year.

It is quite possible that the giant US Steel company which appears at a disadvantage in the above table, may be still digesting the huge investments it has recently made, before it can make the “proper” returns – and get out and eat up Bethlehem Steel also.

It is possible that Bethlehem’s $6.55 income on an investment of $55.58 is a flash in the pan. US Steel’s increase of $10 per ton investment over 1947 may pay off bigger next year or the next, and put it way beyond Bethlehem in every way. But these “possibilities” are not vague whimsies of the gods of chance. They are definite variables directly determined by:

1. the increased productivity gained per dollar by the money spent (in the extreme left hand column) and
    
2. the amount of future sales of each company as compared with its capacity to produce.

The fluctuations in the above table already indicate that all is not well among these “friendly competitors’’ and “beneficent monopolists,” as they are sometimes called. In fact, if the above differences are not ironed out artificially by compromise – and this is hardly likely at present – they must be wiped out by battle between these giants.
 

“Death in the Midst of Life”

But let us look again now at the totality of the pushes and pulls, the stresses and strains, as they all add up to make an entirely different pattern from anything anyone or any group ever intended. Let us speak of the “industry” as a whole again, while keeping in mind its inner conflicts. In looking more closely now at the figure of 100% of capacity for the first three months of this year, we may recognize it not as a sign of strength, but a sign of weakness.

Even the proud round figure of 100% of capacity conceals a few limps below the average in some areas and individual figures of 105% and 110% in other areas as furnaces are strained and pushed to the maximum. But this is not the decisive factor here. What is decisive is this: that while competition for the present market forces them to expand, the general decline forces them to contract. And the decline is the greater force.

In previous periods of prosperity, increased business was an increased lure for capital to build plants ever faster. And consequently production never caught up with capacity. They now refuse to build, although they ride the old horse to a stop. Real expansion does not get under way. The increase in capacity is both relatively and absolutely slower than after World War I. “In the midst of life,” to employ an ecclesiastical phrase, “we are in death.”

We have established the total of production the industry must turn out to “break even” as slightly over 70 million-tons. Perhaps the economy can continue indefinitely to consume capitalistically at least that much steel? It is that “perhaps” the steel barons have in mind when they bring out their charts and graphs and predict the average production in the 1950’s (assuming peace) as about 75 million tons. It is a wish-figure. A wish-figure tempered by a little bit of pragmatic pessimism.
 

Commentary on Capitalism

What percentage of capacity can they expect? Let us make a chart of our own. The following table gives an interesting commentary on capitalism. It shows what percentage of steel was turned out as against a possible 100. We have compiled the “averages” ourselves and they do not refer to a percentage of the total production for the period but – as each year’s capacity varies, and each year’s production varies – to the average of the percentage figures, year by year for each period.

Each of the first three periods, includes “good” times and “bad.” And the first two include war and peace. If the 1950s are to be anything like the past fifty years, the sales of steel in any given year would be about 69% of the capacity of that year. And 69%, you must remember, is considerably lower than the ‘’break even” point of 75 to 80%.

But it would be too formal, too schematic to take even a fifty year period as a determinant. This is to be regarded as a tendency. It would be possible, on the basis of this table, to predict the inevitable and automatic doom of the steel industry. But such a prediction would be unscientific.

First because, as Lenin said, “there is no absolutely hopeless situation for capitalism,” and second because figures themselves lie. The 69% is no more a permanent figure than the formerly “unshakable” 6% interest rate was. It represents a certain relationship under capitalism. It reveals that the steel industry, while expanding at varying rates, caused steel capital to be optimistic in just about the same rough proportion as business was expanding, and hence to reinvest to just that extent. It must be remembered too that this average rate of 69% is only established as a mean percentage and the actual figures fluctuate widely. But it must also be remembered that the first quarter of this year was the first such period that steel production hit the 100% mark. This alone indicates a serious change in the outlook of the steel capitalists.

Even if times continue to be “good” the steel barons are expanding at a rate much lower than the earlier part of this fifty year period. The contradiction in the table of course is that, while the rate of expansion is constantly lower, the percentage of capacity produced constantly averages out the same. But the big boys know of these statistics too. And they are out to beat them.

Thus, if in the past they had expanded more slowly, they believe that their sales, though the same absolutely, would have been higher than 69% of capacity. It is clear to them that even the 75 million tons they see as “normal” for the industry in the 50s would fall well below 69% of capacity, if the “normal” enlargements of capacity continued to be made in the 50s.

So now they are determined, not to expand at all, or to expand much more slowly. If the rate of expansion has been slowing down due to the play of unconscious, economic forces, now the brake must be put on consciously. And if this can be done, the present bonanza sales will continue to bring in bonanza profits.
 

The Markets Are Shrinking

But even this is a fantasy. The recent big sales of steel aid not represent real new business or new investment so much as they merely replaced old equipment, filled up the consumer’s vacuum created by war, constructed the buildings delayed by war and took over markets vacated by the vanquished. The domestic market is shrinking. But our steel colossus bestrides a world that is shrinking too. The French, Belgian, Polish, Italian, Swedish and Hungarian steel industries are back to their pre-war output. The English, Russian and Czechoslovakian have well surpassed their pre-war position. Iron Age reports: “Such a good job has been done rehabilitating the steel industry in Europe that steel from the US may have a tough time competing.” And even this, is not the end of it, since the West German industry, which can potentially supply the world with an additional 10 million tons a year, above its present output, is being revived more and more each year. As after World War I, Germany has already surpassed its old rival, France.

So the hoped for figure, 75 million tons, based on a general rate of expansion, is just as unreliable from the optimistic side as the figure 69%, based on the same general rate, is from the pessimistic side.

For steel production even to stand still today, the rest of the economy must be expanding. The ribs of new ships, the skeletons of new buildings, the bodies of new machines, are made from the ordinary production of steel. Years ago steel bounded forward a thousand leaps in order to equip thousands of others for a single leap. Then, in its prime it provided for the exuberant youthful expansion of the others. When these others are in turn grown up, steel grows quickly old.

From all this we must conclude that steel is, even, at this favorable moment, in decline. And that the pressure on steel to sell and sell, will be more tremendous than ever before. The incentive to produce with less labor will be great, but due to the monumental concentration of constant capital, its realization small. The drive to cut wages, however, will be ruthless.

But worst of all, the tendency to close down whole plants at a time will become more pronounced. Should production fall below the “break-even” point – that is, the given percentage of capacity – then capacity itself must be cut. The more inefficient plants will have to go. No plant will be operated for long at a loss.
 

Who Will Pay for Steel?

“There is no absolutely hopeless situation for capitalism” – and that includes the steel industry. The steel corporations are not without hope. They have their solution. The workers must be made to pay for the sickness of their master. They must work for less in some cases, not work at all in others. They must go to war. They must grovel under the Iron Heel of fascism. They must suffer more than they ever did before. Or they must take the industry over, socialize it, save” it and themselves from annihilation.

Socialization is not only a defensive measure, but is also the first prerequisite for the rebirth of steel and its expansion on a basis comparable to that of its youth. And then the piddling estimates of the Murrays, Reuthers, Beans, and Trumans will give way to the socialist planning of a liberated class and the performance of a liberated industry. Producing for use not profit, the workers can then produce at 100% of capacity and forget about the old “break-even” point. Or they can be producing at 20% or 10% of capacity because they are constantly enlarging their capacity beyond Andrew Carnegie’s wildest dreams.

 
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