Pressuring the Steel Companies
On January 11, 1962, Kennedy delivered his state of the union address. In it, he stressed the importance of focusing on a strong economy. America was an example to the rest of the world that a free economy could also be a stable economy. The economy was in a fragile position, so Kennedy took great interest in the rise in steel prices. Steel prices had consistently risen, but a 40 percent increase in the Wholesale Price Index, the index used to measure the change in the price of commodities prior to its sale in the retail market, between 1947 and 1958 was a direct result of the unorthodox rise in steel prices. In comparison to the average increase of other prices, steel prices had climbed at a much faster rate. Kennedy believed a further rise in steel prices could threaten overall price stability. When Walter Heller, the chairman of the Council of Economic Advisors, informed him that an increase in steel prices could result in a rise in inflation and an economic slowdown, Kennedy quickly took note.
Background on the Steel Industry
After Kennedy learned of an upcoming renegotiation between steel companies and the Steelworkers Union, he quickly went to work securing the cooperation of the parties. Kennedy feared that a sharp rise in steelworker wages would threaten the stability of the economy. In the past, increased steel prices often coincided with wage increases. In fact, it was U.S. Steel's president Benjamin Fairless in 1948 who openly confessed that higher employment costs called for increased steel prices in order to meet the new cost of business.
However, a wage increase would most likely come after a strike. It was anticipated that a strike by steelworkers would result in a half a million workers walking off the job. Without the workers, steel production, a critical cornerstone of the American economy, would come to a crippling halt. Steel was in high demand and was used in such areas as the defense industry and by automobile and appliance manufacturers. “Steel,” Walter Heller explained to Kennedy, “bulks so large in the manufacturing sector of the economy, that it can upset the applecart all by itself.”
For Kennedy, it was a matter of national interest, and he hoped that the steel industry would place the interest of the nation above its own. In September 1961, he had sent out letters to the union and the steel companies asking them not to raise prices and seeking their cooperation in negotiating a reasonable wage increase. In October, Kennedy was content when the price of steel remained the same. He had another victory when U.S. Steel began negotiation with the union. A deal was made on April 6, 1962. No wage increase was agreed upon, but steelworkers would enjoy an increase in their pension contributions. Within days, the other steel companies also adopted similar contracts.
A Crisis in the Steel Industry
Kennedy was immensely pleased that a strike had been averted and that national interests had won out. Nevertheless, it was only a temporary victory. On April 10, he received an unexpected visitor to the White House. Roger Blough, the chairman of the board at U.S. Steel, delivered devastating news. U.S. Steel had just released a press statement that it planned to raise the price of steel by 3.5 percent. Kennedy was shocked and unable to contain his anger. He felt that he had been double-crossed. Blough's only response was that the company had never agreed to keep prices the same.
“[A]t 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.”
In a matter of hours the situation worsened. Five other steel companies announced their intent to raise prices. In a public statement on April 11, Kennedy condemned the steel companies for their lack of commitment to the nation's best interest. When Blough decided to respond with his own press conference the next day, Kennedy inundated reporters with hard questions to ask him. Blough was subjected to questions regarding the motivation for not raising prices under the Republican administration and was also grilled about why he never denied the prior news reports that an agreement had been reached not to raise prices.
Kennedy took further action against the six defiant steel companies. The government had contracts with U.S. Steel and Lukens Steel to provide $5.5 million in steel for the Polaris submarines. He immediately gave the order to Lukens, which remained among the steel companies that had not yet raised prices. It was decided to place pressure on the five other steel companies that intended to increase prices; 9 percent of steel's total business came from the U.S. government, so the government's remaining steel orders would go to the six companies that refused to raise prices.
Next, Bobby Kennedy became involved, his interest piqued by a news story in the Washington Star that indicated U.S. Steel had pressured Bethlehem Steel to raise its prices. Bobby believed this provided evidence of illegal price fixing. He ordered the collection of evidence — both personal and professional — from the homes and offices of steel executives, and FBI agents arrived at steel executives' homes in the middle of the night on April 12.
Blough was the last to falter under government pressure. On April 13, beginning with Inland Steel, all of the steel companies informed the White House of their decision to refrain from price increases. Blough was the toughest holdout. That same day, he relayed a message to the president through an intermediary that he was ready to deal. Blough believed he had enough leeway to enact a partial increase, but Kennedy responded that any increase was unacceptable and Blough relented. In a press statement, Blough announced that the price increase was no longer in effect.
Kennedy's victory, however, soon turned sour. The press pounced on the tactics the Kennedy administration had used against the steel companies. Time wrote that the president's method of handling the steel situation highlighted just how powerful the Washington police state could be. U.S. News & World Report labeled the government's actions and outlook as “quasi-Fascism,” and the FBI's early-morning visits to the homes of steel executives led the Los Angeles Times to compare Kennedy with Mussolini.
“The recent display of dictatorial power by President Kennedy has made us realize that freedom in its largest sense is at stake. The Republican party is the last and only remaining bulwark.”
— John W. Bricker, former Republican Governor of Ohio and U.S. Senator, as quoted in A Thousand Days
Kennedy was most upset by a cartoon in The New York Herald Tribune that depicted Pierre Salinger reporting to the president that Khrushchev praised his actions in the steel crisis. This cartoon was so upsetting that Kennedy canceled his subscription. But even this ended badly for Kennedy when cartoonists and comedians attacked him for doing so. Kennedy could do little but respond to the criticism with humor. What mattered to him most was that he had successfully prevented an economic disaster.