All Commentary
Saturday, October 1, 1960

A Time of Decision


Mr. Slough is Chairman of the Board of Di­rectors, United States Steel Corporation. This is a condensation of his remarks before the Greater Philadelphia Council of Churches, May 16, 1960.

Moral principle is the foundation of all business credit and contract. Yes, our political freedom and our whole free enterprise system—in fact our whole Western civilization—rests upon the promises men can trust, upon the confidence that men have in each other because they live by, or at least try to live by, moral principles.

But our security as a nation and our freedom as individuals de­pends upon more than moral prin­ciple. It also depends upon our ma­terial strength.

The two are interdependent. Naturally, the moral strength comes first. All the material wealth in the world will not save a nation whose moral foundations rot away.

On the other hand, morality alone will not save a nation whose material strength has been permit­ted to dwindle far below the strength of a powerful and pagan enemy determined to destroy it. I would like to discuss some aspects of that material strength which we, as a nation, must have if we wish to earn the good life for our families and to defend ourselves against possible aggressors.

I recently returned from a jour­ney to far away places and I have had an excellent chance to compare the progress in many other lands with the progress in our own.

What a transformation is going on around the world! Ore boats and blast furnaces in the land of the sacred cow! Steel plants rising in the land of the fig tree and the camel. Strip mills humming on shores once filled with sampans. Strip mills, incidentally, that can compete with the best we have in Pittsburgh or Chicago. The changes taking place around the world since the last great war are revolutionary on a scale that dwarfs all previous conceptions of the word “revolution.”

Permit me to paraphrase Mr. Churchill. Never have so many na­tions tried to do so much so quickly.

Our Competitive Position

Where do we stand in respect to this economic challenge in this changed and changing world? One way to check our position is to compare our steel capacity with that of the rest of the world. Steel capacity is a fairly reliable indi­cator of the relative industrial strength of nations. How do we stand?

Although the steel industry in the United States has added 56 million tons of ingot capacity since World War II and is still growing, many foreign countries have greatly expanded their steel ca­pacity. Total world capacity has now reached almost 450 million net tons of steel. Where the United States once had more than half of the world’s steel capacity, we now have about one-third. No longer will the United States have the preponderance of world steel pro­duction it enjoyed in the past. Since World War II, at least twenty nations have more than trebled their production of steel, and some seventeen countries have begun or are beginning modern steel production for the first time. It would be extremely unwise for us in the United States to as­sume that these developing na­tions will not one day loom much larger on the industrial horizon. The great industrial strides of Europe since World War II are well known to you. Japan has also done a most remarkable job indus­trially in the last ten years. Its rate of industrial growth has far exceeded our own—a significant accomplishment.

We thought we were quite ad­vanced when we installed punched card programming of production in our new structural mill in Chi­cago. But Japan has an ultramod­ern steel plant being similarly equipped. Japanese steelmakers have underbid American producers on ship plates and sheet for the use of the U.S. Navy Department, and on locomotives for the Panama Canal. And last year foreign pro­ducers sold about one-third of all the nails and staples marketed in the United States, while their share of the barbed and twisted barbless wire market was more than 60 per cent.

So, we enter this new decade facing foreign competition revital­ized and expanding, and competing with the advantage of an employ­ment cost substantially lower than our own.

Capital Requirements

Now competing against lower labor costs is nothing new for us. The United States has always been able to compete with overseas producers. But we have been able to do so by accumulating capital and investing it at a faster pace in more modern tools and machinery—and our superior output of those tools more than offset their lower employment costs. It was the greater output per man hour, made possible in large part by better tools, that in turn made possible the payment of better wages in America.

Today, our major foreign com­petitors have tools as good—or sometimes better—than ours. And, although their raw materials in some instances may cost more, they still pay wages which are only one-third to one-seventh as much as we pay in the United States.

Many people define our present international predicament as an “unfavorable balance of payments”—and describe it as a serious pub­lic problem. Well, I happen to think it is a private “unfavorable balance of payments” problem as well as a public one—yours and mine.

As I understand it, the only pro­tection a nation has against a loss of its gold reserves is to be steadily receiving from its debtors as much as it pays out to its creditors. In other words, our income from for­eign countries must equal or ex­ceed our outgo to foreign coun­tries, lest we have to ship out our gold to pay our debts and so dan­gerously deplete our gold reserve.

Our international payments ex­ceeded our receipts by 3.4 billion dollars in 1958 and by 3.7 billion dollars in 1959.

If we continue to lose gold, the international value of the dollar will decline. This would require a lowering of the gold content of the dollar, or a lowering of our legal reserve ratio. That would mean a new and significant step toward more inflation.

Balance of Payments

Why all this struggle to get our international payments back into balance—a struggle in which we appear lately to be making a bit of progress?

For some strange reason or other this balance of payments problem only seems to be discussed when it arises between nations. It never seems to get much notice be­tween individuals. As long as I pay my grocer for the goods I buy, I have no unfavorable balance of payments with him, and that goes for my butcher and baker, too. The money I “sell” to each one of them is balanced by the goods he sells to me in return. Our trade accounts are balanced—that is, I’m sure yours are and I hope mine are. But if I squander my money at the race track to the point where I can no longer pay my grocer, it will do me no good to say that I have an unfavorable balance of payments.

We never hear of an unfavorable balance of payments between the good people of Philadelphia and those of New York. They do busi­ness together constantly, but there is an automatic discipline that keeps their trade in balance. If New York is a high-cost area and Philadelphia is a low-cost area, New York will lose business to Philadelphia, thus setting the forces in motion that will tend to correct the cost disparity. This is the discipline that exists between cities and states in our country. It is the sort of discipline that oper­ates between me and my grocer.

A similar discipline exists in trade between nations. A high-cost country loses business to a low-cost country; and since this re­duces the ability of the high-cost country to meet its foreign finan­cial commitments, it is under pres­sure to ship gold to fulfill those commitments. This compels the high-cost country to correct its in­flated costs or suffer even more serious consequences—a devalued currency that will buy less and less in the international as well as in the domestic markets.

Collective Follies

As individuals we readily sub­mit to the domestic disciplines that balance our internal trade; but when we cease to operate as in­dividuals, and function as collec­tives—especially as governments—we try to pursue policies which, if we were functioning as indi­viduals, the discipline I have de­scribed would make us correct—and quickly—but which, collec­tively, some of us think we can pursue without ever meeting up with the same consequences.

Thus, if a government wants to persist in operating on an unbal­anced budget, it can print the money to make up the difference in its own internal “unfavorable balance of payments.” If it wants to subsidize farms and factories it can do so by exacting the resultant higher cost from the pockets of taxpayers and consumers. If it wants to confer on a minority group the power to impose un­economic wage costs and thus bring about increased prices for all to pay, it can do so. And, finally, if it wants to appear to be aiding any one special interest group, it does so at the expense of all other taxpayers.

Now the apparent ease with which a government seems to do these things continues to blind us to the fact that not even a powerful government can keep on doing them indefinitely without paying a price. We may imagine we can ig­nore the inflation brought about by a series of unbalanced budgets, or the depressing effect of a mounting tax burden that handi­caps our industry, our transporta­tion, and our agriculture.

We may forget temporarily that labor can price itself out of jobs, just as readily as any business­man or farmer can price himself out of markets—forget, that is, until the day we begin to suffer the consequences. And that day is here. For we have been outstand­ingly successful in pursuing econ­omic policies which have made our country just about the highest-cost country in the world. In more and more areas of trade we simply are not competitive with the rest of the world—and the trend con­tinues in the same direction.

The Role of Business

Now what has this to do with our international balance of pay­ments or our private balance of payments or with you and me as businessmen? Simply this:

Business has a major role to play and a major stake in this in­ternational balance of payments problem because basically we are responsible for the production which supports the payments.

So if a balance of payments is to be achieved, it is business, in one way or another, that balances the “balance of payments.” We can and must do our share. We can in­crease our research, make better products, improve our marketing and work harder at selling—both here and abroad. We can do our best to endure protracted strikes—if they are forced upon us—in order to keep our costs in line. We can work to better our relations with our fellow-employees, and to improve our service to customers. I’m all for that effort 100 per cent plus!

All of this will help to build our export markets and thus help to restore balance in our interna­tional payments. But American business cannot do this alone, and it cannot do it with one hand tied behind its back competitively.

Bear in mind that these com­peting nations are our friends. They want to do business with us, and we want to do business with them. That way we will both bene­fit because we will both produce more than if we tried to go it alone. Therefore, the solution we work out must be geared to the long pull and must consistently look toward greater production and international trade all around.

One solution, sometimes offered in an attempt to neutralize the ef­fects of overseas competition upon home producers, is to increase tariffs or tighten import quotas.

This may offer temporary help in particular industries. But such help is, at best, a temporary ex­pedient which does not go to the heart of the problem. And, at worst, it can seriously narrow our ability to compete.

We are, in terms of many raw materials, a “have not” nation. For example, we have to import all of our tin and natural rubber, most of our nickel, bauxite, and newsprint. Many of our industries would be severely handicapped without imports of such things as manganese. These imports, like the imports of our coffee, tea, and sugar, must be paid for by exports, or we will, as I said, get out of balance.

A Fresh Appraisal

I would like, therefore, to sug­gest—for what it may be worth—a way of looking at this unfavor­able balance of payments problem. If we look at it as a matter of pro­ducing and selling—energetically and competitively—I think we will be making a good start toward understanding how to keep in bal­ance.

As far back as I can remember, it was always an axiom of Ameri­can industry to mind its own busi­ness. This is basic to a lot of things, including the solving of an unfavorable balance of payments. For it is upon the private, produc­tive machines of our nation that the country must rely for the goods and services, the selling of which abroad is essential to a solu­tion of the problem. We cannot continuously buy things produced abroad, as we want to, and give aid abroad as our national policy now provides, unless we can pro­vide for the payments involved with a greater production, com­petitively self-sufficient both in America and off-shore.

Remove Our Handicaps

Is it not proper, then, as a start toward making the decisions which will count in the next decade, to look first to see what is really handicapping us in international competition?

If corporate taxes are higher than those of foreign competitors, and they are in many instances, and if our depreciation allowances for plants and tools are lower, as they usually are, would it not be wise to reconsider the matter?

If, by following what appears, at the time, to be the pursuit of political popularity, we promote the concentration of unreasonable powers in labor unions, does this not result in uneconomic wage settlements and do not these, in turn, result in pricing products out of markets and union members out of jobs? And should not these con­sequences be examined in the interest of the nation and of union members themselves?

If, by lack of economic under­standing, we suffer a continued at­tack upon the profits earned by business—if we fail to achieve a popular understanding that profits are the source of our industrial strength and that profit at work in the form of tools and factories is the most inviting sight that a man looking for a job, or a nation seeking industrial strength can be­hold—will we not run the risk of undermining the material strength that is necessary to give support to any moral purpose?

These and many other like questions need answering. And none of the answers will be easily found—or, when found, univer­sally accepted. Answers to tough questions never are easy.

But whether we like it or not, this is certainly a time for deci­sion. The choices we make or fail to make in the next few years could determine, for many decades to come, whether this nation shall decline to secondary influence in the world’s affairs, or whether we shall go forward—as I believe we can—to greater achievement in a world that is at peace because our nation is strong.