Evening star., 1947-04-03
CLOS Survey Called
Unsound Economics

a s1lllls'
Unsound Economics
Unions Held Unwilling to Take
Risks Of Pro6t-sharins System
By D0pid Laurence
CIo economists have figured out from
survey Of 10 steel companies, repre-
senting 90 per cent Of ingot capacity.
that substantial wage boost can be
given without raising prices or seriously
impairing profits.
This is an interesting illustration Of
why America IS facing more and more
misunderstanding and friction between
labor and management. The CIo re-
port Is. OF course. one-sided and dis
regards the responsibility Of manage
ment to protect the steel business for
the future and the price Of steel Ia
the American economic system.
The report selects 3o-cent-an-hoGr
wage rise and says II steel companies
operate at s5 per cent Of capacity the
profits would be $l36 900 900 without o
price rise. but neglects to point out that
40 per cent Of such profits must 60 for
Federal taxes and substantial sum
In addition for State taxes. Out Of the
$81 800 600 OF profits remaining after
Federal taxes, the 10 companies must
set aside ample reserves for the future
and also pay q fair return to the In
vestors or run the risk Of not being able
to raise money when borrowing or In
vesting becomes necessary In the money
raising markets.
Latest figures show that the steel
companies earned only 81 per cent on
their net worth from 1941 to 1945 and
In 1916, which was their best peacetime
year from the standpoint Of demand,
they earned only rs per cent.
Cycle Of Years Important.
Then. too, apparently no considers
tion is given by the CIO to the cycle Of
years. II businessmen increased wages
and thereby raised their fixed charges
on the basis Of abnormal earnings In
any given year, they would find them
selves loaded with a heavy Axed ex-
pense at subsequent time when de-
mand falls of and mills in the steel
business, for instance, are compelled to
run at reduced capacity.
The amount Of Misrepresentation Of
the profits Of companies being circulated
by labor union economists" these days
is matched only by the misinformation
distributed by naive commentators who
never operated a risk capital business
and do not know the first thing about
reserves needed to keep business oper-
ating over period of years when de-
nand and prices Of materials bought
are subject to cyclical fluctuations.
The average observer would jump to
the conclusion that there Is q simple
answer to this problem Of risk-namely,
to devise proflt-sharing systems where
by, as profits go up or down, the work
ers share the risks with the manage
ment. But If there Is any labor union
in the national field which has ever
indorsed the idea OF binding workers
by contract to share losses with the
stockholders, while allowing manage
ment to determine suitable reserves for
depressions or falling markets, this
writer has never heard Of any such ma
tional union.
The modern labor leader Is willing TO
talk profits when they are high. But
when depression occurs, as 1t did IN
1882, and companies Ike those IN the
steel business suffer q drastic drop IN
earnings, the cry Is loud and vigorous
that corporations should pay for sun-
ploye wages out OF reserves and keep
production going and prevent plants
from closing their furnaces.
The labor unions certainly cannot
have 1t both ways. They cannot insist
that the measure Of wages should be
the profits earned in good years and
that there be no wage cuts when de-
mand falls Off.
Backlog StiH Exists.
Everybody knows that the steel bisi-
ness is good today largely because the
backlog of demand from the war years
has not been satisfied and probably
will not be for another year or more.
To raise wages by extreme calculations
now is to force price increases either
now or when demand falls. The con-
struction industry is deeply interested
in the price of steel and so is the auto
industry. II the steel companies could
be guaranteed for five years or more
their present level of profits, they could
take chances with higher wage level.
But the CIO isn't going to underwrite
the profits of the steel companies or
the level of demand in the next fivs
years, nor is the CIO going to be able
to defend itself from criticism If its
pressure for wage increases puts the
fixed-expense items Of the steel COM
panies so high that America, for many
years to come. must pay an abnormally
high price for its steel. S
The true economic craftsmanship
which now Is lacking will come only
when economists for labor unions pre-
sent all sides of the picture and prove
that, after taxes, profits are adequate
to warrant fair return on capital In
vested and that demand Is going to
continue for fixed period ahead. But
this kind of analysis will be valueless
unless labor unions are willing TO agree,
as a condition of wage boosts based
on capacity to pay, that they viii, with
out strikes or threat of strikes, accept
an equally extreme reduction In wages
when demand falls of or when con-
sumer resistance Is such that price ~
ductions must be granted.
It is not enough to cite figures Cf
profits before taxes without comparing
the average earnings after taxes for =