Evening star., 1962-05-10
The Need for Profits

United States Steel Corporation, pro-
duced some interesting statistics before
the annual meeting Of his company's
stockholders a few days ago.
After reviewing Big Steel's financial
record and problems Of the past several
years, and particularly the political
economic events related to the latest
labor contract negotiations and pricing
decisions, Mr.. Blough turned briefly to
what has been happening to Nationwide
corporate profits since 1850. Since that
year, he pointed out that: ~ compen-
sation of employees has nearly doubled,
from $154 billion to $303 billion; (2)
taxes on business have increased SO per
cent, from $42 billion to $40 billion; (3)
proprietorS' income for such groups as
local merchants, farmers and landlords
has risen 70 per cent, from SAT billion
TO $50 billion. In the same period, how
ever, corporate profits have gone up
only 2 per cent, from $22.8 billion to
1888 billion.
This depressed state of corporate
profits" Mr.. Blough added, certainly
accounts in part for the fact that, as
the Secretary Of Labor has pointed out,
some $90-billion worth of Americas in
dustrial plant and equipment is obsolete
today"
1t is this relationship between obSo-
leScence and profits, between the need
for plant moderniZation and the scarcity
of capital to finance it, that has plagued
the steel industry and U. s. Steel Specif-
ically in recent years, and it was so cited
by Mr.. Blough in the unfortunately
timed announcement of corrective price
increases-later reScinded. Since the
end of 1858, he told the stockholders,
their company has spent $1.185 billion
for modernization and replacement Of
facilities and the development of new
sources Of raw materials. There were
two internal sources" for this capital
$610 million in depreciation credits and
$187 million in profits for reinvestment
with the remaining 1888 million COM
ing out of public borrowing which must
be repaid from future profits. In, the
same period, however, after payment of
dividends at rate that has not been
increased in more than five years, prof
its left for reinvestment have declined
from Sis million in 1868 to less than So
million in 1861. .-o, o'-
There is abundant evidence, quite
apart from Mr.. Blough's personal testi-
mony, that plant modernization is top
priority requirement If American in
dustry is to remain competitive, at home
or abroad. A major portion of the cap
ital need for this purpose must be
obtained through internal sources, and
many companies today are paying divi-
dends in stock or paying none at all in
the effort to conserve their cash for
reinvestment. Meanwhile, the Treasury
Department is preparing liberalization
Of depreciation allowances, an area in,
which, as Mr.. Blough told his stockhold-
ers, 1--WE are not competitive with any
other industrial nation in the world >"
There remains then the question of
how to improve profit margins, not in
order to pay higher dividends even
though such might be deserved in many
cases, but to help provide the essential
reinvestment capital. It is on this prob
lem that the better understanding" for
which Mr.. Blough appealed-between
Government and business, and between
labor and the general public-iS most
necessary.