Most real-life story don't have happy endings. Remember that when you read about the steel industry.
To a large extent, the industry's current problems - plant closings, layoffs and low profits - are beyond easy repair. They have resulted from years of inflationary practices by unions and companies, now compounded by a sluggish world economy and a global glut of steel-making capacity.
No one has answers to these problems. To impose import restrictions - as both companies and unions urge - would not convince firms to reopen obsolete plants, even though layoffs have a devastating impact affected workers and communities. Nor would such restrictions cure the problem of sagging worldwide demand and the stubborn inflationary psychology that has hampered the current recovery.
That is the core of the steel industry - and everyone else's troubles: the apparent ineffectiveness of steep unemployment in reducing inflation. The residual high inflation has deterred government's from pursuing aggressive expansionary policies and discouraged new business investment. With capital goods representing 40 per cent to 50 per cent of steel consumption, low investment explains much of the industry's distress.
But the industry and its unions are as much a cause as a victim of the inflation cycle. To protect them from the consequences of their past inflationary actions - which is the intent of import restrictions - simply would perpetuate the cycle. This makes no sense.
Put bluntly, steel unions seem to ignore any possible connection between jobs for their members and the size of their contract settlements. In turn, companies try to shift higher wage costs to consumers through price increases. The industry's high concentration (the top eight producers account for about two-thirds of shipments) simplifies this pass-through.
The statistics here are rather persuasive, as William D. Nordhaus, a member of the Council of Economic Advisers, recently told a House subcommitee.
Despite the industry's obvious problems, the last negotiations resulted in a settlement that will increase labor costs 30 per cent over the contract's three-year life (including the likely effect of a cost-of-living clause), according to the Council on Wage and Price Stability. That's about 9 per cent a year when average earnings - also influenced by the idea that everyone should stay even with inflation - are rising by 6 per cent to 7 per cent. Steel unions have been doing better than most other workers for some time. Between January 1967 and January 1976, for example, the industry's hourly earnings rose 125 per cent against 97 per cent for all manufacturing workers.
On the price side, the picture is equally sobering. Since 1967, wholesale steel prices have risen by almost 20 per cent more than the entire wholesale price index. In the past year, wholesale prices have increased by about 9.4 per cent against a rise of 7.1 per cent for the industrial commodities component of the wholesale price index.
This process has not been painless, even for steel workers. High costs made the American steel industry vulnerable to imports in the late 1960s and early 1970s. Equally important, the steel industry has been trapped in an almost-permanent profits squeeze. Try as they might, the companies have not always succeeded in passing along all higher costs. The industry's very conspicuoucness has made it a tempting target for informal jawboning - beginning with President Kennedy in 1962 - and formal price controls.
Consequently, with the exception of the 1973-74 boom, steel's profits consistently have fallen below the average for all manufacturing industry, and new investment has not supported adequate plant modernization. To take but one example: at the end of 1976 about a fifth of all American steel production involved the relatively slow and inefficient open-hearth process; the Japanese have virtually no open-hearth facilities. Not surprisingly, a number of recent closures - including Youngstown Sheet and Tube Co.'s shutdown at Campbell, Ohio - involved open-hearth plants.
Alone, the consequences of this wage-price spiral would be serious enough, but now the damaging effects are magnified by other serious problems. Like labor costs, energy costs account for about a third of the industry's total expenses, and their rapid escalation has contributed further to the inflation of steel prices.
Abroad, not only is overall demand down, but many steel importers - including Brazil, Mexico and India - are building (and often subsidizing) new mills that ultimately will reduce their import needs. This leaves the traditional big exporters - Japan and the member nations of European Economics Community, searching for outlets for excess production. Their imports to the United States are increasing sharply. Since May, they have accounted for 17 per cent to 19 per cent of U.S. consumption, up sharply from last year's 14 per cent and even with 1971's record of 17.9 per cent. Even so, European steel makers are operating at less than 70 per cent of capacity.
The tendency now is to blame all of steel's problems on either imports or government pollution requirements. But, in fact, it's not easy to decide what's causing what. Short of a worldwide steel boom, for example, Youngtown's Campbell plant apparently is hopelessly uneconomic.
Many of the nearby plants in Ohio's Mahoning Valley - some of them 50 or 60 years old - are similarly antiquated. But their loss would have a profound effect on the area, where steel jobs - direct and indirect - account for as much as 40 per cent of all employment.
What can the government do? Probably not much.
It should police imports to assure that there is no "dumping" - sales by foreign producers at below their domestic prices or below cost. This may be happening, as the Treasury indicated yesterday in a tentative decision against Japanese steel plates. Last year, plates accounted for slightly less than 10 per cent of Japan's $2 billion worth of steel exports to the U.S. Assuming the dumping exists - the Japanese claim the Treasury's cost calculations are unrealistic - it is short sighted. Exporting unemployment from one country to another simply fans demands for more formal import restrictions.
Under pressure, the administration may yet adopt such restrictions. That policy might provide some temporary relief to the steel industry, but at a high cost to everyone else. It would reward the very wage and price practices that underlie today's sticky inflation. On the other hand, there are no assurances that denying such protection would compel unions and companies to embrace self restraint.
As we said, the story doesn't have a happy ending.