sales amounted to $24,134,000,000-10.6 percent of our national income. The total investment in the steel industry is about 4.5 billion dollars, which is about one-fourth of our total manufacturing capital investment. Steel capacity per person in this country is now about 1,316 pounds. These facts indicate the relative importance of the steel industry in our economy.

A monopoly may be defined as a firm, combination of firms, association of firms, or a simple group of firms which controls a sufficient part of the productive capacity of an industry to enable it to control prices of the industry's products. And when we examine conditions within the steel industry, we find that an extremely high degree of economic concentration exists, and that monopoly conditions prevail at the present time.

I am not going to discuss the steel industry in general, but will confine myself to the situation in my own district, Other congressional committees have covered this ground in past years, and this committee has received testimony in this connection.I can sum up previous testimony by saying that the steel industry as a whole is dominated by three giant corporations-United States Steel, Bethlehem Steel, and Republic Steel-who perform most of the operations from the mining of ore to the manufacturing of finished products; that this economic concentration was strengthened during World War II; and that steel prices set by United States Steel establish the basic prices for the entire industry.

MONOPOLY CONTROL OF MESABI IRON ORE

I am sure that the committee will agree that the control of the iron ore of Minnesota's Mesabi Iron Range is an important factor in determining whether monopoly control of the steel industry exists. This is true for a number of reasons. In the first place, the iron ore of Mesabi is the No. 1, chief supply of iron ore in America-85 percent of all iron ore produced in America for the last 50 years came from the Great Lakes region, and about 75 percent of total ore production came from the Mesabi Range and the connecting Vermillion Range.

In 1948, for example, total iron ore produced in the United States. was 84.7 million tons and of this total 62 million tons came from the Mesabi. This is 73 percent of the total, and when you add to this amount a couple of million tons from the Vermillion Range, the percentage from this area is more than 75.

In the second place, the high-grade ore of Mesabi is the richest of all iron ore now available in the United States, and since it is mined in open pits it is the most accessible. Thus it can be produced most cheaply and can set the pace on iron-ore prices.

It follows that if monopoly control of Mesabi ore exists, then the basis has been laid for monopoly of the entire steel industry. For control of the source and supply of ore means control of production of the end product, as was well known to Mr. J. P. Morgan, Sr., and his associates when they organized the steel corporation.

What is the situation regarding control of the iron ore of Mesabi? As Congressman from this area, I can answer this question. I say without reservation or fear of contradiction that there exists effective monopoly control of the iron ore of Mesabi. Such control has existed for a great many years, and the company that controls this ore, which

is the backbone of the entire steel industry, is the United States Steel Corp.

In saying this, I am not claiming that the steel corporation owns. all the Mesabi ore. The Oliver Iron Mining Co.-a wholly-owned subsidiary and operating company for United States Steel-owns. about 65 percent of all iron ore deposits on the Mesabi Range, and the remainder is divided between about 20 other operating companies. In an average year, Oliver produces about 60 percent of the Mesabi ore shipped, and the remaining 40 percent is mined by the 20 other companies.

While the United States Steel Corp. does own a lion's share of the existing reserves, and while it accounts for about 60 percent of the total ore production each year, this does not in iteself constitute a complete monopoly.

The key to the steel corporation's monopoly control is found in its ownership and operation of the only railroad which is available to haul Mesabi and Vermillion iron ore from the mines to the ore docks on Lake Superior, where the ore is relayed by ore boats to the steel mills of Gary, Cleveland, and Pittsburgh. This railroad is the "captive" Duluth, Missabe & Iron Range Railroad.

The D. M. & I. R. main lines run north from the Duluth and Two Harbors ore docks to the Mesabi Range, and its branch and spur lines fan out to the iron mines of Hibbing, Buhl, Mountain Iron, Virginia, Eveleth, Biwabik, Coleraine, and other range mines. One main branch runs eastward to connect up the mines at Tower and Ely on the Vermillion Range. The all-important purpose of this railroad is to handle iron ore-92.93 percent of its entire business is hauling iron ore.

The D. M. & I. R. is owned, lock, stock, and barrel, by the United States Steel Corp., and through such ownership, the corporation is able to exercise control over all iron mining on the Mesabi Range. The 20 mining companies technically independent of United States Steel's Oliver-and who own 35 percent of the ore reserves-have no choice but to play ball with the corporation. Past experiences of these companies show that if one of them should become "independent” in its activities, then for some unkown reason there are no ore cars to haul its ore production, and there are innumerable delays in shipments, and other events which make continued operation impossible. In short, the ownership of the D. M. & I. R. gives United States Steel a complete strangle hold over iron ore mining on the Mesabi, and as a result of this strangle hold on the raw materials of steel production, this giant corporation is able to dictate price levels to the entire industry, starting with the Lake Erie base price for iron ore.

I would like to refer briefly to the testimony before the committee of a witness formerly connected with the Butler Mining Co. The Butler Mining Co., of Minnesota, was the pioneer company in developing lower grade ore, because it had no high grade ore. You recall from the testimony that they developed a process for beneficiating the lower grade ore, which required washing, jigging, and other steps to get the higher concentrate.

They maintained that that was a different product than the direct shipment of high grade ore out of an open pit. When that company tried to get a concession on the rates from the Duluth, Missabe &

Iron Range Railway they were turned down. I think you will recall, from the testimony of the same witness, that they were finally turned down, they appealed their case before the Interstate Commerce Commission, and still were not able to get a decrease in rates. They were paying the same rate for their processed, beneficiated ore as was paid for the direct shipment of high grade ore, which takes less labor to produce.

And Butler couldn't stay in business.

There is a specific example of a company that was unable to survive because of the high cost of beneficiating the ore and the set rates on the United States Steel controlled railroads.

The CHAIRMAN. Is that the case where the examiner found in favor of the company and the Commission reversed the examiner?

Mr. BLATNIK. I think that is correct.

Mr. WILLIS. At this point I would like to ask two questions, Mr. Chairman.

The CHAIRMAN. Yes.

Mr. WILLIS. If I remember correctly, Mr. Fairless, president of United States Steel, stated, or left the impression in my mind, that there were two or three other railroads serving the Mesabi Range.

Mr. BLATNIK. I have a map of the Duluth, Missabe & Iron Range Railway, and that is the only railroad serving the Mesabi Range. There is the Great Northern, which runs from Superior and Duluth, on Lake Superior, northwest, to Grand Rapids, at extreme west end of Mesabi, which hauls just a relatively small amount of underground and beneficiated ores; but I don't know of any other railroad besides the Duluth, Missabe & Iron Range Railway that hauls iron ore from the Mesabi Range and the Vermillion Range. I have a map here showing where the ore is put on the cars and where it terminates at the docks at Two Harbors, at Duluth, and Superior.1

Mr. WILLIS. One other question. Mr. Fairless stated, rather forcefully, that the fact that the Interstate Commerce Commission had jurisdiction in the matter of fixing of rates of railroads generally, and their railroad in particular, dissipated the possibility of control arising from the mere ownership. Have you any views on that?

In other words, to make myself plain, he said that the United States Steel had no power in the matter of fixing of rates, and they have no power in the choice of their customers, and that therefore this idea that owning the railroad meant anything was nonsense, in so many words.

Now, I am not indicating that I agree with him, but I would like to have your views.

Mr. BLATNIK. I think there is a strategic bottleneck for point of control in the source of iron ore in our area that gives United States Steel its dominance there. They own the railroad. They charge themselves a rate, you see, for shipping their own iron ore. They deduct that as part of the cost of producing that iron ore. So on the one hand the United States Steel will come before the State legislature and say, here are our labor costs, here are the taxes we pay on the iron ore, here is what it costs us to transport the ore, and when they end up they are actually paying more to produce the iron ore than it

1 This map appears as exhibit S 331 in Steel Exhibits, p. 689.

is worth, but unknown is the fact that they have paid themselves, you see, a good rate to haul their own ore. So while they are losing out of one pocket they get it back in the other.

As was shown before the Interstate Commerce Commission, in hearings on several occasions, I believe as far back as 1932, the other independent companies actually pay that money out, it goes out of pocket and into the pockets of the United States Steel Corp.

So my position is that the control of that railroad is the strategic point.

Mr. WILLIS. You mean that despite the fact that the Interstate Commerce Commission has jurisdiction over railroads?

Mr. BLATNIK. That is right.

If I may follow up on this point, if you look over the testimony presented before the Interstate Commerce Commission on the earnings of the same railroads, you will find that they run up as high as, in 1945, over 29.15 percent of the return on original cost. If you look at the percentage, the percentage of return, on the reproduction cost, or on original cost less depreciation, the return per year is around 18 and up to 29 percent.

The revenues alone from this one railroad have paid for the entire railroad every 5 to 7 years. And that road has been running for over 40 years.

Mr. WILLIS. That is an advantage that independent competitors do not have?

Mr. BLATNIK. That is right.

Mr. McCULLOCH. I should like to ask a question there: Isn't what you are saying then a condemnation of a regulatory body of the Federal Government that has authority to pass upon rates charged by a common carrier?

Mr. BLATNIK. Well, I would certainly say it is a serious reflection, because I doubt if there is any other railroad, or any other carrier, in America, that will pay a return of 29 plus percent in 1 year.

I doubt if there are very many businesses that can report that return on investment in 1 year. And seriously

Mr. McCULLOCH. Without embarrassing you by pressing you for a specific answer to that question, I think it is sufficient to say that—and I hope that you will positively agree or disagree with this statement for the record-it is within the power of the Interstate Commerce Commission to determine from facts in the record a proper charge for the services performed by this railroad, which is a wholly-owned subsidiary of the United States Steel Corp.

Mr. BLATNIK. Truthfully, I don't know if the Interstate Commerce Commission has power to set the rates. I do believe they are limited. and I don't know enough about its powers to give you a direct answer to it.

The CHAIRMAN. It has the power.

Mr. McCULLOCH. To continue further: Do you know whether or not any shipper might protest tariff schedules as filed by this railroad with the Interstate Commerce Commission?

Mr. BLATNIK. There is no other shipper in that area.

Mr. McCULLOCH. There is no other customer whatsoever in that area?

Mr. BLATNIK. Over 93 plus percent of the traffic is iron ore.

96347-50-ser. 14, pt. 4a- 38

Mr. McCULLOCH. Well, do I understand you to say that this railroad, a wholly owned subsidiary of the United States Steel, hauls no ore whatsoever for any person, firm or corporation other than the United States Steel Corp.?

Mr. BLATNIK. They haul ore for the other independent companies. Mr. McCULLOCH. Then I must repeat my question. You will agree for the record that any other customer who feels aggrieved may, under law and regulation pursuant thereto, file objections to, or protest the schedule of rates as filed by this railroad corporation with the Interstate Commerce Commission?

Mr. BLATNIK. They have that right but these independents, very few of them dare to move. They have found it much better, for their own welfare, to go along with the policy set down by the United States Steel Corp. than to try to fight them in any instance.

The CHAIRMAN. Would you say there, Mr. Blatnik, that the interstate Commerce Commission has a power, of course, to fix rates, but there are millions of schedules filed, and it is usually the case where a complaint is filed that a rate is reviewed? And would you take it that these competitors of United States Steel, who must use the railroad owned by the Steel Co., are loath to make complaints, although they feel aggrieved at the schedules of prices or rates charged?

Mr. BLATNIK. They are very loath to protest the rates charged. In the case of the Butler Mining Co. they did appeal to the Interstate Commerce Commission and I believe, as the chairman stated, were given a favorable report by the examiner, but later reversed by the Commission.

Mr. LANE. That is the concern that had to go out of business?
Mr. BLATNIK. That is right.

Mr. LANE. So these independents for their own good don't care to make objections?

Mr. BLATNIK. That is right.

Mr. MICHENER. The real question involved in that case was not a question of tonnage rate, but the Commission was asked to take into consideration the cost of production of the commodity. The examiner found that the Butler Co. was using a grade of ore that had been washed and refined.

For instance, here is the Butler Co. [indicating]. Sitting next to it is the United States Steel Corp. [indicating]. The railroad passes both places and could serve either place.

Now, the Interstate Commerce Commission held that a ton was a ton, and in fixing the rates it held that the Commission had no jurisdiction and couldn't go into the equities of whether or not a particular plant should be given a subsidy because they had a cheaper grade of ore, even though the bulk and the weight were the same.

The examiner took a socialistic view that the Government ought to go in and equalize all these things and the Commission took the view that a ton was a ton.

Now, isn't that correct?

Mr. BLATNIK. I believe that is correct.

The CHAIRMAN. Do you believe in the underlying philosophy?

Mr. BLATNIK. I do not.

The CHAIRMAN. The shipment of a ton of gold certainly costs more than a shipment of a ton of iron ore.