II. Similar complaints were voiced at these hearings and have been continuing since then. For example, Robert K. Brown, manager of the Kokomo Spring Co., pointed up the problem faced by a typical fabricator as follows in colloquy with the chairman and counsel of the subcommittee: Mr. LEVI. Mr. Brown, your testimony is, is this right, that the price of the product that you buy was raised to you by the [United States] Steel Corp. and by all other manufacturers of that wire? Mr. BROWN. That is right. Mr. LEVI. But that, at the same time, the price of the ultimate product, mechanical springs, was not raised? Mr. BROWN. That is correct. Mr. LEVI. And that is what put a price squeeze on you? Mr. BROWN. Here is a corporation that makes the statement that manufacturing costs have increased due to the increased labor cost, and they increase the price of their material, which is a noncompetitive item, wire. But they do not pass that same labor increase along and proportionately increase the price of their fabricated items which we are competing against them in making. The CHAIRMAN. What is the result? Mr. BROWN. The result is that it works a hardship on us. We, after all, cannot charge much more for the same item than United States Steel can. Therefore, we have got to hold our prices down and take the losses. * * * 87 The CHAIRMAN. If the steel companies continue to increase their integration into the fabrication field, what do you think is the future of the independent steel fabricator? Mr. BROWN. Well, I do not believe they have much of a future. After all, the steel companies are in a position; they have demonstrated it in this last move; they have demonstrated that they have the power to exterminate the competitive fabricators. The CHAIRMAN. Is it to the advantage of the economy of the country to keep these independent fabricators alive? Mr. BROWN. I would personally say that it is; it would be a great advantage to the country. The independent fabricators are normally located near the markets for their product, and for that reason they are dispersed, and they are in small communities and they are scattered all over the country. They create a lot of competition between each other, resulting in better products, better methods, and cheaper products, and from the standpoint of defense, I would say it would be a grave mistake to allow the fabrication of the steel, as well as the production, all to be concentrated in a few of the greater industrial areas, which would happen if the larger corporations were successful in capturing most of that business.88 J. Philip Murphy, president of Judson-Pacific-Murphy Corp., of Emeryville, Calif., a fabricator of structural steel, made somewhat similar complaints. In his case, one of his difficulties was that wide-flange materials were available only from subsidiaries of the two largest steel companies, United States Steel and Bethlehem, and these two companies were rapidly expanding into the structural fabricating business themselves. Mr. Murphy stated: * * * naturally, if the mill fabricators took all of the business, there would be no need for the independent fabricator. The independent fabricator would have to go out of business. The CHAIRMAN. And you anticipate that if the conditions do not change, or Congress does not step in in some way, that all the independent fabricators on the west coast or in your vicinity, will go out of business. Mr. MURPHY. The majority of them would have to.89 87 Hearings, p. 333. 88 Hearings, p. 340. On the matter of steel supply in a period of shortages, Mr. Murphy, in colloquy with Representative Willis (a member of the subcommittee) pointed out the following: Mr. WILLIS. Have you had trouble being supplied with your requirements by these two companies that you do business with? Mr. MURPHY. Oh yes, we had trouble all through the postwar shortage. Mr. MURPHY. It is true of all the independents in our area. Mr. WILLIS. Do you know whether the subsidiary companies of the steel companies have experienced the same trouble? Mr. MURPHY. They did not discuss it with me but they never seemed to have any trouble in completing the jobs that they undertook.90 Mr. WILLIS. Let me ask you, is it fair to say that the subsidiaries of the two companies that you buy from are in a position, in a preferred position, when you do not know if they exercise their preference? Mr. MURPHY. They are in a preferred position. In the situation of Consolidated Western Steel Co., the president of the Columbia Steel Co. from whom we buy our wide-flange material, is also president of the operating company, Consolidated Western, so I imagine he knows what is going on in both companies.9i This type of complaint had been voiced before congressional committees before, conspicuously during hearings of the Senate Small Business Committee Subcommittee in the Eightieth Congress, under the chairmanship of Senator Martin (Republican, Pennsylvania). Commissioner Mead cited some of these cases in the course of his testimony before this subcommittee.92 The spokesmen for the large integrated companies who testified took the view in general that they were not trying to curtail the expansion of small fabricators, but on the contrary depended upon them for their business. Near the opening of his prepared statement, Benjamin Fairless, president of the United States Steel Corp., pointed out: * * * we [United States Steel] sold our finished products and materials to approximately 110,000 customers; some of whom were individuals, some of whom were large enterprises, but about 90,000 of whom we classify as small customers * * * These 90,000 small customers are very necessary to us; their orders can make the difference between a high operating rate and a low operating rate; they can make the difference between full employment and partial employment in our plants; and they can make the difference between stable profits and financial losses. That is why it has long been the established policy of United States Steel to meet the needs of the small consumer to the fullest extent of its ability; and to help these small customers whenever and however we can, even when they manufacturing finished products which compete directly with are own * our * *. We want to see more small businesses established. We want to see more small businesses grow to be middle-sized businesses, we want to see more middle-sized businesses grow to be big businesses. And at every stage along the way we want to sell all of them more steel.93 And later on there was a direct interchange between the chairman, Representative Celler, the counsel, Mr. Levi, and Mr. Fairless on the relationship of United States Steel to fabricators, as follows: Mr. LEVI. I think you have testified before the TNEC that your policy is to keep the finisher in business and sell to him at a proper price. Mr. FAIRLESS. To the extent we can. The CHAIRMAN. Is that still your practice? Mr. FAIRLESS. To the extent that we can control it. 90 Hearings, pp. 348-349. 91 Hearings, p. 349. The CHAIRMAN. That is you keep in business the end fabricators as much as possible? Mr. FAIRLESS. We want so-called small customers. We have no desire to put anybody out of business, nor do we have the power to do it.94 On the west coast situation specifically, Mr. Fairless stated: There are many The competition is very, very keen out on the Pacific coast. more fabricators on the Pacific coast today than there were prior to the war. There is not enough business to go around, and the usual condition has prevailed. It is difficult it is difficult for all fabricators on the Pacific coast at the present time, including our own. Prices are way off because there is not enough business to go around. Now we cannot foot our own bill and everybody else's bill at the same time, but, on the other hand, we are attempting to the best of our ability to be fair in all cases with each and every one of these fabricators. 95 In an interchange with Representative Willis, Mr. Fairless outlines the policy of United States Steel in this regard more precisely: Mr. WILLIS. What is your policy with respect to supplying your subsidiaries and competitors? * * * Some of these people from the west coast left an impression in my mind that you supplied your own subsidiaries with steel with which they fabricate in more generous quantities when the supplies were short than you did to them. Mr. FAIRLESS. When you find yourself in a position that you are selling steel to customers and at the same time competing with them and vice versa, keep in mind that a great many of the customers who buy steel from us for further fabrication came into the business long after such companies as American Bridge, Virginia Bridge, and so forth. Now the policy through this entire period (or shortage of steel) of the steel corporation has been to distribute the available material fairly among its customers and its own fabricators. In other * * * words * * * it is not true that the American Bridge Co. during this period got all the steel that it could use, took up all the business and ran 100 percent while its competitors, dependent upon steel from us and others, of course, did not get steel. That is not true. Mr. WILLIS. Well, I mean in percentage of supply. Mr. FAIRLESS. We have tried to do that job fairly and squarely and honestly. We have tried to do it on the basis of past performance * * * We have done certainly not a perfect job, I do not claim that we did a perfect job, but we have done a good job and it has been an honest job to the best of our ability to distribute steel properly as between our own fabricating companies and the customers who buy from us. Mr. WILLIS. In other words, your statement is you are in a position to prefer but you have not exercised preference. Mr. FAIRLESS. Oh, we have not exercised it, no, sir * * * We want our own fabricating companies to be efficient. We want them to be profitable, and we want them to start on the same basis as their competitors, so therefore we begin by selling them the raw material, which is unfabricated steel, at the same price we would sell it to you if you were in the business. That is our policy and we adhere to it.96 At another point in the hearings, Mr. Fairless stated positively: The subsidiaries pay the same price for semifinished steel among themselves as do outside purchasers of that product.97 Except for general undocumented statements no evidence was presented at the hearings controverting this statement by Mr. Fairless in the case of United States Steel or any other major company with fabricating subsidiaries. However, the suggestion was raised by a number of witnesses that the fabricating subsidiaries might be in a position to receive more favorable terms than independent fabricators, and that even if the major steel companies do not engage in such practices at the present time, there is no assurance that in the event of vigorous price competition, they might not do so. 94 Hearings, p. 523. 95 Hearings, p. 524. Finally, however, there was no dispute of the fact, pointed out by Federal Trade Commissioner James Mead, that the percentage of hotrolled sheets, the principal steel product consumed by fabricating companies, that went to fabricating subsidiaries of large integrated companies rather than to independent fabricators increased from 5.7 percent of the total output in 1940 to 10.5 percent in 1947.98 IV. THE UNITED STATES STEEL CORPORATION'S ROLE IN THE STEEL MARKET The importance of the United States Steel Corp. as a supplier of steel has already been clearly indicated by its predominant position as a producer of steel ingots-about a third of the Nation's production and capacity-and also by the extent to which it has expanded into various fabricating lines. The hearings in addition included testimony giving more specific information on the role of United States Steel as producer of specific finished and semifinished steel products and its importance as a supplier in specific parts of the Nation. Through questioning of Mr. Fairless, the chairman of the subcommittee, Representative Celler, and the subcommittee counsel, Edward H. Levi, received the following information on the market participation of United States Steel in certain specific commodities, as follows: 99 Structural shapes: 1 42 percent of total United States market. Blanks and pierced billets for seamless tubes: 1 41 percent. 1 Hot-rolled bars, other than concrete reinforcements: 28 percent. Plates: 1 41 percent. Hot-rolled sheets: 1 22 percent. Cotton ties: 1 60-70 percent. Among the other products in which United States Steel ranks first are: ingots, blooms, tin and terne plate, hot-rolled strip, strip for cold reduced black and tinplate, butt-welded pipe, galvanized pipe, seamless pipe and tube manufacturing, plain and galvanized wire, wire products including nails and staples, joint or splice bars and tie plates, wheels and axles.3 This list of "firsts" is to be expected from a company which has the largest steel ingot capacity and production in the country. As Mr. Fairless stated: You could not possibly be first in ingots and not be first in a great many of the products made from ingots, or you would not be operating your facilities.1 There are, of course, other steel products in which United States Steel is not first. Roger Blough, general solicitor of United States Steel, pointed out the difficulty of obtaining such data in a letter to the chairman of the subcommittee, Representative Celler, included in the exhibits to the hearings. In the letter, dated September 25, 1950, Mr. Blough states: The product classifications used by Mr. Levi are the general ones which, for the most part, encompass many different types, grades, and qualities of products. 98 Hearings, p. 150, taken from Senate Small Business Committee Report, Changes in the Distribution of Steel, 81st Cong., 1st sess. (1949), p. 10. 99 Hearings, pp. 584-586. 1 Ranks first in the industry. Ranks second in the industry. For example, there are many different types, grades, and qualities of bars made by different steel producers and it is necessary to identify a particular kind of bar before the relative participation of the various producers can be ascertained. Unless this is done, the measure of United States Steel's participation in the market for steel bars would be based upon production of types, grades, and qualities of bars which it does not make as well as types, grades, and qualities of bars which it does make. Furthermore, production of the different kinds of products varies materially according to customer demand. Since no information is available concerning production by types of steel products, we have concluded that further information on the subject developed by Mr. Levi would be of no value, since it would not fairly reflect the competitive situation.5 There are, partly in addition to the products mentioned above, a number of steel products in which United States Steel has increased its percentage of market participation in the decade from 1939 to 1948. The principal ones are set forth in the following table: 6 Changes in product participation by United States Steel from 1939 to 1948 On the other hand, the participation of the company decreased on some items in the same 10-year period, such as in steel rails, which dropped from 53.8 percent in 1939 to 47.6 percent in 1949. Although the United States Steel Corp. operates on a Nation-wide basis with plants in each of the principal steel-producing areas of the United States, there are some areas where its predominance is more marked than others. This is shown most clearly in testimony presented by Ward S. Bowman, Jr., member of the staff of the Subcommittee on Study of Monopoly Power and a member of the faculty of the University of Chicago Law School. For five selected carbon steel products (hot rolled and cold rolled sheets, hot rolled bars, and buttweld and seamless pipe) he compared the shipments of United States Steel with those of 14 major steel companies in 1940 and again in 1947, both years when the basing point was in operation.' His findings can be summarized as follows: 8 A. Hot rolled sheets.-United States Steel increased its percentage of shipments of the 14 companies from 24.8 in 1940 to 32.4 in 1947. By areas, there was an increase in the eastern territory from 18.4 to 29.3 percent, and in the Midwest 10 Exhibits, p. 500. • Hearings, p. 588. 7 The 14 companies are Alan Wood Steel Co., Armco Steel Corp., Bethlehem Steel Corp., Colorado Fuel & Iron Corp., Granite City Steel Co., Inland Steel Co., Jones & Laughlin Steel Corp., National Steel Corp., Pittsburgh Steel Co., Republic Steel Corp., Sharon Steel Corp., United States Steel Corp. of Delaware, Wheeling Steel Corp., and Youngstown Sheet & Tube Co. Data for 1940 and 1947 for these 14 companies was obtained from appendix A of Report No. 44, Senate Special Committee to Study Problems of American Small Business, 81st Congress, 1st Sess., 1949. Comparable data for United States Steel was furnished by that corporation. Exhibit S-308B, p. 662-663. Includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, the District of Columbia, Kentucky, Ohio, Vermont, and West Virginia. 10 Includes Indiana, Illinois, Iowa, Michigan, Wisconsin, Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, South Dakota, and Wyoming. |