The steel grip of the executive branch
The U.S. was growing rapidly by 1952. The Marshall Plan had aided a shattered Europe in its rebuilding, creating a great need for America’s prodigious industrial output. Industry leaders were more than happy to oblige, but some leaders pushed their workers too far, too fast. The postwar years saw some transformative labor actions, and few were so important to the U.S. — particularly from a legal perspective — as the proposed United Steelworkers of America strike in early 1952. So important was the steel industry to America’s economic well-being that President Harry Truman would not allow it to be disrupted. On April 8, 1952, hours before the strike was to begin, Truman issued Executive Order 10340, nationalizing the steel industry with the stroke of a pen.
Truman went on radio and television on the evening of April 8 to make his case to the American people:
Tonight, our country faces a grave danger. We are faced by the possibility that at midnight tonight the steel industry will be shut down. This must not happen. Steel is our key industry. It is vital to the defense effort. It is vital to peace. …
Our national security and our chances for peace depend on our defense production. Our defense production depends on steel. … I have no doubt that if our defense program fails, the danger of war, the possibility of hostile attack, grows that much greater. I would not be faithful to my responsibilities as President if I did not use every effort to keep this from happening.
The steelworkers have had no adjustment in their wages since December 1, 1950. Since that time the cost of living has risen, and workers in such industries as automobiles, rubber, electrical equipment, and meatpacking have received increases ranging from 13 to 17 cents an hour. …
Steel industry profits are now running at the rate of about $2.5 billion a year. The steel companies are now making a profit of about $19.50 on every ton of steel they produce. On top of that, they can get a price increase of close to $3 a ton under the Capehart amendment to the price control law. They don’t need this, but we are going to have to give it to them, because the Capehart amendment requires it. Now add this to the $19.50 a ton they are already making and you have profits of better than $22 a ton. …
In other words, if the steel companies absorbed every penny of the [proposed] wage increase, they would still be making profits of $17 or $18 a ton on every ton of steel they made.
The reactions were swift and strident. Steelworkers, who were to be granted wage increases with the seizure, were understandably pleased with their new federal overlords. Steelmakers, led by industry giant United States Steel Corporation (NYSE:X), were outraged, and many newspapers echoed the anger of conservative members of Congress who denounced the “fascist” and his overreach of executive power. The steelmakers went to court immediately, and within days a district court overturned Truman’s seizure order. Now the steelworkers went on strike, and the case worked its way through the courts. The District of Columbia Court of Appeals sided with Truman, and the case went to the Supreme Court. In May 1952, the Supreme Court ruled against Truman in a 6-3 decision, holding that the president had no authority under the Constitution to seize private property for the purpose of national security.
The steel industry was reprivatized, and the steelworkers, who had returned to work after the appeals court overruling, again went on strike. This time they remained on strike until well after Independence Day, causing a grinding slowdown in American industrial output that took about $4 billion out of the economy and added about 1.5 million people to the unemployment rolls. By late July, Truman would endure no more failed bargaining, and he ordered the steelmakers and the union to settle the issue in the White House. Ultimately, the union gained what it had been offered at the outset of the strike — a meager victory, but a victory nonetheless.
The article 3 Ways the Government Has Pulled the Economy’s Strings originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.
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