by Ted Sorensen
The price of scrap, iron ore and coal, the three major materials used by the steel industry, were below their 1958 levels. Under the new labor contract, which did not even go into effect until July 1, employment costs per ton of steel would continue to decline. In the years of general economic slack since 1958, the profit position of several companies had improved and others had worsened, making it impossible to justify a uniform price decision by all. “We should be trying to reduce the price of steel, if at all possible,” President Edmund Martin of Bethlehem Steel was quoted as telling his annual meeting on April 10, “because we have more competition, particularly from foreign sources.”2
On Tuesday, April 10, the last major contract having been signed, the President was surprised to note that his appointment calendar included a 5:45 P.M. appointment for Roger Blough. O’Donnell said Blough had requested it that afternoon. Goldberg said he had no idea what Blough might have in mind but agreed to stand by in his office.
What Blough had in mind was soon clear. Seated on the sofa next to the President’s rocking chair, he handed him U.S. Steel’s mimeographed press release announcing a $6-a-ton price increase, four times the cost of the new labor settlement. The President was stunned. He felt that his whole fight against inflation, his whole effort to protect our gold, was being reduced to tatters. If the industry in which he had made his greatest effort for stability, an industry plagued by foreign competition and underutilization, could make a mockery of his plea for self-restraint in the national interest, then every industry and every union in the country would thereafter feel free to defy him.
Above all, he felt duped. The man sitting across from him had personally, knowingly accepted his help in securing from the workers a contract that would not lead to an increase in prices. The prestige and powers of the Presidency had been used to help persuade the Steelworkers to accept less from the companies in the interest of price stability, and now the contract had no sooner been signed than the industry was announcing a large, across-the-board price increase for all products. “The question of good faith was involved,” as the President said later. “The unions could have rightfully felt that they had been misled”—and no other union would ever listen to his plea for self-discipline again. “I think you’re making a mistake,” he coldly told Blough, who would not learn until later the enormity of his mistake.
Angry but contained, the President sent for Arthur Goldberg, who was less contained. The Secretary, learning that Blough’s press statement had already been distributed to the wire services and networks for 7 P.M. release, harshly rejected the U.S. Steel Chairman’s explanation that as an act of “courtesy” the President of the United States had been handed a mimeographed press release about an accomplished fact. Goldberg called it a “double cross,” an act of bad faith, contrary to what was obviously understood by all concerned in the negotiations, contrary to the best interests of both the nation and the industry, and contrary to the assurance Goldberg had given the President that both Blough and McDonald could be relied on. Blough expressed his regrets, attempted to justify his action as necessary for his stockholders and departed. “They were not willing to accept my explanation,” he said later with some degree of understatement.
The President’s next scheduled appointment was a review of questions for the next day’s press conference—an extra session, before the usual breakfast, which Assistant Press Secretary Andrew Hatcher had scheduled in Salinger’s absence. Hatcher, Walter Heller, McGeorge Bundy and I were waiting for this meeting in Ken O’Donnell’s office outside the President’s door. When Blough left, the President asked us to come in and told us the news. His own anger was rising. His trust had been abused, his office had been used. He had intervened only with the industry’s consent, with the unmistakable intention of holding the price line, and that intervention was now being made to appear at best weak and at worst stupid to the workers and to the American people. “My father always told me,” he said, recalling the Ambassador’s brief service in the steel industry and his fight with its leaders while on the Maritime Board, “that steel men were sons-of-bitches, but I never realized till now how right he was.”
Little time was spent on recriminations. A price rise at that time and in that context was not only an economic setback—it was an affront to the office of the Presidency and to the man who held it. “If I had failed to get a rescission,” he said later, “that would have been an awful setback to the office of the Presidency.” No President should have accepted it without a fight; no one could have thought that John Kennedy would. “U.S. Steel,” one of those present would remark later, “picked the wrong President to double-cross.”
The steel industry had successfully defied Presidents, however, for more than half a century. Its challenge to Kennedy was in an arena where he had few weapons and no precedents. Had it not been for the fact that the industry, in addition to its economic defiance, also accepted his good offices and then failed to honor his trust, history might well have been different. But the first question the President asked us after breaking the news was: “What can we do about it?”
Our primary hope was to create a climate that would discourage other companies from joining in the increase and encourage U.S. Steel to rescind. We recognized that market pressures would force the price leaders to back down if only one or two important companies refused to go along with the increase. Our primary obligation was to ascertain whether the ability of a powerful company to announce an unjustifiable price increase, with confidence that it could be sustained despite all the obvious economic pressures against it, reflected a violation of the laws against monopoly. With these two courses in mind, the President promptly telephoned for press statements from the Attorney General and the chairmen of the Senate and House Anti-Trust Subcommittees, similarly discussed what the government was doing for or with U.S. Steel with his Secretaries of Treasury and Defense, and directed Goldberg, Heller and me to prepare a statement for his Wednesday afternoon press conference. He could not meet with us later that night, he complained, because of the annual White House reception for all members of Congress. Recalling that the previous year’s reception had been similarly marred by the Bay of Pigs fiasco, he said with a rueful smile, “111 never have another Congressional reception.”
Moving to my office, Goldberg, Heller and the latter’s colleague from the Council of Economic Advisers, Kermit Gordon, discussed with me the information needed for the next day’s statements. Through the long night that followed, the Council and the Bureau of Labor Statistics worked to produce the necessary data on why the industry needed no increase and how it would harm the whole nation. At the Congressional reception the President, in between smiles and handshakes, talked action with the Vice President, with Senator Gore and with Goldberg and me when we arrived. Earlier, by telephone, he had talked almost apologetically to David McDonald, who assured him that the Steel Union members would not feel the President had intentionally misled them.
The press conference breakfast the next morning, Wednesday, was devoted almost entirely to steel. Arthur Goldberg, who attended, told the President that he intended to submit his resignation, that he could no longer preach wage restraint to any union, and that he wished to acknowledge publicly his failure in exposing the Presidential office to such abuse. The President deferred this request, and he also agreed finally to defer his own suggestion for an immediate message to Congress seeking legislation, and to concentrate instead on mobilizing public opinion in his press conference opening statement.
Presidential anger, Arthur Krock has written, “must be reserved for those rare occasions when the office and the nation as well as the man are basically offended.” This was one of those rare occasions. With the economic data before me, with continuous news announcements of other steel companies raising their prices by identical amounts, and with considerable alterations by both the President and the Attorney General, the opening statement for that press conference was written and rewritten. Each new version re
flected more strongly the President’s by then wholly unemotional determination to impress upon the industry and the public the seriousness of the situation. It was completed only as we rode over to the State Department Auditorium in his limousine.
His voice was ice-cold but calm as he read, sounding more like Roosevelt indicting the Japanese for Pearl Harbor than a man displaying “unbridled fury” as some of those not present would later claim:
The simultaneous and identical actions of United States Steel and other leading steel corporations, increasing steel prices by some six dollars a ton, constitute a wholly unjustifiable and irresponsible defiance of the public interest.
In this serious hour in our nation’s history, when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end, and servicemen to risk their lives—and four were killed in the last two days in Vietnam—and asking union members to hold down their wage requests, at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans.
Seated in the audience, I heard a gasp from the reporters around me as the President continued:
If this rise in the cost of steel is imitated by the rest of the industry, instead of rescinded, it would increase the cost of…most…items for every American family…businessman and farmer. It would seriously handicap our efforts to prevent an inflationary spiral… make it more difficult for American goods to compete in foreign markets, more difficult to withstand competition from foreign imports, and thus more difficult to improve our balance of payments position, and stem the flow of gold….
Price and wage decisions in this country, except for very limited restrictions in the case of monopolies and national emergency strikes, are and ought to be freely and privately made, but the American people have a right to expect, in return for that freedom, a higher sense of business responsibility for the welfare of their country than has been shown in the last two days. Some time ago I asked each American to consider what he would do for his country and I asked the steel companies. In the last twenty-four hours we had their answer.
The words italicized above were among those added to the statement by the President just prior to the conference or inserted spontaneously as he delivered it. Less pointed remarks, he was convinced, would have been noted, answered and then forgotten.
The statement also cited convincing and detailed facts on the industry’s strong economic position without an increase, on the widespread damage the increase would cause and on the various branches of the government already looking into the matter; and it was followed by equally harsh comments in answer to all questions. Example:
… the suddenness by which every company in the last few hours…came in with…almost identical price increases…isn’t really the way we expect the competitive private enterprise system to always work.
Even answers to unrelated questions on service wives and Vietnam were related by the President to the actions of the steel companies. From the moment of that press conference on, he had the initiative in the fight.
But as we discussed the situation back in his office, the steady parade of companies rushing to imitate precisely U.S. Steel’s increase cast gloom over his hopes for a rescission. Nevertheless he was determined to fight on, and he asked me to call a meeting for him in the Cabinet Room early the next morning to coordinate the various efforts needed or already under way, some of them initiated the previous evening.
Days later, when it was all over, several Republicans—who had remained discreetly silent during the fight, refusing to approve either the price hike or the President’s opposition to it—would term these various administration efforts an example of “overreacting,” “tyranny” and “executive usurpation.” Roger Blough spoke of “retaliatory attacks,” and said that “never before in the nation’s history had so many forces of the Federal Government been marshaled against a single industry.” Clearly there was at the time an atmosphere of mobilization and crisis, much of it more apparent than real, based on words rather than actions, and deliberately designed to encourage rescission. But once the smoke of battle had blown away, it should have been clear to all—as it had been clear to the group which met Thursday morning in the Cabinet Room—that the only concrete governmental actions available were two rather modest steps, neither representing “Illicit coercion” or “intemperate retaliation”:
First, the Defense Department sought to meet its obligation to the taxpayers to purchase steel at the lowest available price. Secretary McNamara reported to the President that the steel industry’s action could increase the cost of national defense by one billion dollars, not, as widely reported, merely because of increased steel costs, which were but a fraction of that total, but because of increased costs in all other sectors of the economy which followed steel. “To minimize the effect of the price increase on Defense costs,” McNamara directed, the use of alternative materials would be studied, and “where possible, procurement of steel for Defense production shall be shifted to those companies which have not increased prices.”
Any prudent steel customer would have done the same. McNamara, whom the President had called regarding this approach after Blough’s visit, underscored his intentions by announcing the award of a small Polaris armor-plate contract to the tiny Lukens Steel Company, which had not raised prices. He noted publicly that U.S. Steel and Lukens were the only producers of this kind of high-strength steel. Similar announcements were planned for the General Services Administration, the Agency for International Development and others. But this was not a massive weapon. It was insufficient by itself to persuade the few holdout companies not to join the price increase parade and wholly useless once they did. The Lukens award, in fact, was announced after the fight was almost over.
Second, the Justice Department sought to meet its obligation to law enforcement by initiating an inquiry as to whether a series of simultaneous and identical price increases, justified neither by cost nor by demand, and undertaken by companies in totally different financial positions, reflected normal free market behavior, coincidence, collusion or monopoly. Whatever the answer, I doubt that any self-respecting Antitrust Division under any administration could have sat back and idly watched this occur, given the long history of price conspiracies in steel. In no fully competitive industry could one company raise its prices in confidence that virtually all others would follow. The Federal Trade Commission, which had ordered the industry in 1951 to halt certain monopolistic practices, also announced a reopening of its inquiry. “Steel,” said an eminent scholar commending the President’s action, “is not really a competitive market. It’s one big company.” And a leading professor of antitrust law wrote us:
Price leadership without overt collusion is inevitable in tightly organized oligopolies, schooled to habits of cooperation, afraid to discriminate, without possible new entrants…. Using the latent powers of the Sherman Act…the Courts have plenty of power…to reorganize industry leaders.
No such reorganization was attempted. Those who assailed the Kennedys for immediately summoning a Grand Jury investigation, however, had less to say when seven major antitrust indictments for secret price-fixing conspiracies were returned against the steel industry in the two years that followed. The largest indictment was returned in April, 1964, by a Grand Jury receiving information from its predecessor organized by the Kennedys.
One of the items that particularly interested the trust-busters in April, 1962, was the statement by Bethlehem President Martin, made shortly before the Blough announcement, that this was no time to raise prices. Bethlehem was the first to join U.S. Steel in the increase. Was this evidence of conspiracy, monopo
ly power, deliberate deceit or, as claimed, a misquotation? The Antitrust Division had an obligation to find out. Federal Bureau of Investigation agents, in their normal role as investigators and fact-finders for all divisions of the department, interviewed not only all company officials (U.S. Steel’s General Counsel told them that he and his associates were “too busy” to talk to them then) but also the three reporters who had covered the Bethlehem meeting (all of whom stood by their stories).
Unfortunately, two overzealous agents, misunderstanding either their role or their instructions, called and visited one of the reporters in the middle of the night to check his story, and telephoned another who put them off. The latter, as well as the third reporter, were interviewed at their offices, although subsequent reports talked of “state security police” swooping down unannounced to grill all three in their beds. Some members of the newspaper fraternity—who never, as the President pointed out, showed the slightest hesitation in waking anyone else up at night—encouraged violent Republican talk about “Gestapo tactics,” “press suppression” and accusations that the Kennedy brothers had personally ordered a 3 A.M. “third degree.” As always, neither of the Kennedys would publicly blame the career men responsible, but the Attorney General’s deputy had in fact specified to the FBI that all those to be interviewed should be telephoned at their place of business, not their homes, for an appointment in the usual hours. No orders were ever given to awaken anyone or to obtain the information by 7 A.M., and neither Kennedy knew about the calls until the next day.