Every few months, Fletcher Byrom, chairman of Koppers, receives a thick binder detailing the operating results and pricing strategies for the six engineering and construction divisions he leads. Recently, he came across a price increase for one of his products that he thought was too much.
"It was the third increase in a 15-month period," he explained, "the product happens to enjoy a favorable share of the market, so we could risk a price increase. But I called a meeting of the division people and asked them if they really thought the latest increase was reasonable. I asked them if they would feel comfortable going in and explaining it to a purchasing agent.
"They told me that safety and environmental regulations had driven our costs up. After listening to them. I was convinced I would have made the same decision (to raise prices)."
Which raises the question of just where business men fit in complex problem of inflation. Are they simply victims, forced by union wage demands, costly government regulations and basic energy costs to hike prices in order to stay in business?
Or are they, too, contributors to inflation, quilty of profiteering and price gouging?
Interviews here with the leaders of businesses large and small - from Gulf Oil and United States Steel to dress shops and delicatessens - reveals what one might expect: that businessmen see themselves caught in the middle with no alternative but to pass along to consumers costs that are originated by labor and government.
A national poll of 1,100 businessmen, released this month by the U.S. Chamber of Commerce, showed that only 10 percent would blame inflation on business profit margins, while more than 90 percent cited union wage increases and the federal deficit as the chief causes of inflation. The poll high-lighted a list of recent expansions in government programs which the business community believes have been most inflationary, including increases in social security, federal government pay, the minimum wage, farm support prices, unemployment insurance and workmen's compensation.
How a business copes with inflation will depend on several things: the nature of its production process, its markets and its size. Many companies, particularly smaller ones, are sometimes prevented by stiff competition from raising prices enough to keep up with higher costs. Others in more dominant market positions can easily institute price increases and can bargain with suppliers to keep their own costs down.
At Gulf Oil, for instance, purchasing director Robert Schaper says his company has considerable influence over what it pays for supplies. "What happens in an inflationary period," Schaper said, "is that our suppliers will simply want to follow the (price) index up. But we make them break their price increases down and justify them. One supplier of a chemical additive came to us and announced a 9 percent increase. We said that this wouldn't be acceptable. It ended up being only 6 percent. We could do that because we're a big buyer. Others may not be as fortunate."
A few companies have found a boon in inflation. We take a percentage off the top as a commission," said Stanley Arnheim, owner of a commerical real estate company in the city. "As the price of real estate has gone up, our commissions have gone up."
Moreover, Arnheim added, properties have been turning over more briskly recently as more people invest in real estate to hedge against inflation.
Some companies have enlisted inflation in their marketing campaigns. "We are giving special consideration to value merchandise and stressing value more," said C. Hal Silver, chairman of Kaufman's Department Stores. "We note in our ads how much people still can get here for their money."
Even so, Kaufman's, like other department store chains, has found it difficult to stay abreast of inflation given the highly competitive nature of the retailing industry. Its parent company, St. Louis-based May's Department Stores, reported a first quarter drop in earnings in 1978 to $6.7 million from $7.4 million one year ago.
Most businessmen, even those able to raise prices, can tick off any number of ways in which they have tried to cut costs. Gulf Oil keeps only half the elevators running at its 38-story headquarters building, except during rush hours. Duquesene Light Company, Pittsburgh's electric power utility, has switched to subcompact cars for its motor pool. H.J. Heinz Co. has called in an outside consultant to study plant efficiency - "To see that the same job isn't being done two or three times which, y'know happens," said Richard Patton, president of Heinz USA.
Also, squezed more and more for short-term operating cash, some companies are waiting longer and longer to pay their bills. "Our payables are up," said Harry Austin Jr., president of a small manufacturing company that makes household cleaning goods. "We can't run to the banks to borrow because we can't afford the interest rates. So we're working on the money we owe suppliers, and our buyers, in turn, are working on our money."
Another way inflation affects business, and some would point to this as the most devastating effect - is what it does to retard capital investment and growth. "Physical capital costs more, and the profitability isn't there to justify investment, "said Kopper's Byrom. "So you don't invest. And your costs rise, your real profits shrink, your stock values go down, it costs more to borrow. And so on."
Eventually, Byrom noted, efficiency drops because of the lagging investment and prices have to rise to cover costs. In the end, the nation falls behind its trade competitors and loses international precisely the kind of long-term capital investment that leads to improved productivity and technological innovations," said Byrom.
This concern for the future of capital investment in America is particularly strong in this city where stel mills and other heavy manufacturing plants line the parkways. Many of those interviewed mention the need for tax reform at the federal level to stimulate investment. They called for a decrease in federal spending, a trimming of what they view as a proliferation of unnecessary regulations and a slow down in the adoption of new regulations.
"The steel industry has 5,600 regulations administered by 27 agencies," said David Roderick, president of United States Steel. "No one who is trying to be objective and fair could conceive that this industry needs 5,600 regulations to run well." Roderick added that the operation of environmental facilities alone has added $15 per ton to the price of steel. (The total price of a steel sheet is $365 per ton.)
Furthermore, Roderick said the large national unions had to take much of the blame for inflation. He noted that their wage advances have been 50 percent ahead of the average wage earners in recent years - a situation which he termed "wage leapfrogging."
Earlier this year, the coalminers won, after a lengthy strike, a contract allowing for a 31 percent increase in wages over three years. Asked if business itself could be criticized for not standing firm enough against union demands, Roderick recalled the conversation last year with Barry Bosworth, director of the Council of Wage and Price Stability.
"I met with him and he told me eye to eye we weren't being tough enough with the unions. Then the coal strike came and I got the feeling he wasn't speaking for the Administration. The government intervened, took out most of the productivity measures we had wanted, and encouraged - to a degree coerced - a settlement that was highly inflationary."