Evening star. [volume] (Washington, D.C.) 1854-1972, 1947-09-10
Kaiser Steel Proposal
Seen Raising Question
OF Business Subsidy
Writer Finds Some Logic
In Request Thot RFC Cut
Debt on Wartime Plant
Bv David Laurence

By David Laurence
There's more than meets the eye
In the proposal by Henry J. Kaiser
that the Reconstruction Finance
Corp. scale down by about $34, $780,
900 what he owes the Government
for a wartime steel plant in Cali
fornia.
There's q lesson in this in funda-
mental economics. 1t bears directly
on why steel producers today do not
want to build more steel mills in
the face Of demands here and there
from -wingers that II plant Ca
pacity were increased prices could
come down.
MIR. Kaiser built his plant under
wartime costs. The older companies
built most OF their plants in prewar
years when costs were low. It Is
estimated that these companies to-
day would have to invest about
$3.50 to 5000 per unit as contrasted
with about $40 to $50 which is the
amount they carry as their unit
plant costs in their existing capital
structures.
Thinks He Can Cut Prices.
Obviously prices must be higher in
order to yield a fair return on q
larger investment. Now MIR. Kaiser
has an interesting idea. If the Gov
eminent will reduce his debt from
about 500, 0O0, 900 where it will pres
emily be to about SIS, 0O0, 0O0-a cut
of about $35, 000, 00o-Mr. Kaiser will
agree to expand his plant, and, by
adding to steel-making capacity, he
thinks he can then reduce prices
This means that while the plant
originally cost $4,000, 900, a pay
ment shortly to be made of SIS, OO0,-
600 will make the Government S
recovery price total OF $88, 100000
as against the $123 100000 origin
ally loaned by the RFC.
But the 5000, 900 which Is to
remain as q debt after the scaling
down has been done would be pay
able over q period Of Is years and
there would be placed above 1t IN
priority first mortgage of $50 ,0Oo,-
600. Only after these new bonds
floated to the public as a private
financing operation-have some day
been retired would the $55 900, 0OO
become a fixed obligation OF the
Kaiser 90. During the other years
the RFC would be paid interest and
installments on principal only if
the company earned profit above
the needs Of the first mortgage
bonds.
Now the defense which Mr.
Kaiser makes is that the United
States Steel Corp. bought a war
time plant in Utah at about one
fifth of its cost when the Govern
ment was selling surplus property
and 80 Mr.. Kaiser thinks he should
be placed on the same footing as
his competitors.
Question Of Subsidy.
Theoretically II 1t Is the function
of the Government to promote
competition by substituting the
weaker competitor, thus enabling the
weaker to overcome the natural
handicaps growing out OF the
financial position of the stronger
units in an industry, then there
is logic in Mr.. Kaiser's proposal.
Many a businessman operating with
an inadequate capital would like
to be able to scale down his debt
or get a modern plant at the same
costs as the competitor got his
in past years If only the Govern
ment would come in and equalize
competition.
AS a matter of fact, maybe the
large steel producers today would
gladly increase their plant capacity
II some one would guarantee them
a continuance of demand and if the
Government would undertake to pay
now or reimburse them later for
the difference between the high
construction costs for new steel
units today and the original cost
Of the units they built several years
ago and on which their present
price structure is based.
His Side Has Some Logic.
Business success would be a simple
matter to achieve II the risks could
be underwritten by the RFC or
some other Government agency.
Yet Mr.. Kaiser has kind of logic
on his side-he would like to COM
pete against the older companies
and furnish more steel and at lower
prices II the Government would re-
gard his loan from the RFC as
1t recently regarded a piece of sur
plus property that it built for war
purposes and sold to his competitors.
The trouble, of course, is that
the Government had no use for the
steel plant it sold and was glad
to get q fraction of the cost. No
body else evidently was willing to
pay any more than the United
States Steel Corp. either because
the plant was not located in con-
venient area or because 1t didn't
fit in with the integrated operations
Of any other company. Mr.. Kaiser's
money, however. was borrowed
directly as a private venture. If
the RFC scales down one loan
under these circumstances, it must
face requests to scale down others.
It's a tough nut for Mr.. Kaiser to
crack but nobody can blame him
for asking the RFC to help him
crack it. There's certainly no harm
in asking.
Reproduction Rights ReservedD