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When a Leader Overreaches: JFK’s Pyrrhic Victory over U.S. Steel 

 
 
When do you pick a fight—and how? These are uncomfortable questions, yet ones leaders often face in high-stakes situations with competitors and rivals. My research on the interplay between business and political leaders shows that there are rarely easy answers. For example, the well-known story of President Kennedy’s 1962 clash with US Steel is usually told in a way that favors the popular image of Kennedy as a skillful leader. However, as my discussion shows below, Kennedy picked a mistaken fight, then had to battle hard just to save face while accomplishing nothing substantial.
 “My father always told me that all businessmen were sons of bitches,” said President John F. Kennedy on April 10, 1962.1 Kennedy’s angry reflection on corporate character was provoked by Roger M. Blough, head of U.S. Steel. Blough had just left the White House after informing the president that his company would be raising the price of steel by $6 per ton.
Since taking office a year earlier, Kennedy had made a priority of preventing inflation. He tried to take a balanced approach to unions and corporations, asking both sides to cooperate in holding down wages and prices. U.S. Steel’s price increase amounted to a rejection of his bid to fight inflation by serving as an honest broker between labor unions and business corporations. Kennedy’s attempt to manage wages and prices from the White House was the closest any post–World War II president came to more or less officially recognizing the corporate basis of the American Dream. If businesses did not raise prices and if unions only asked for pay raises in proportion to productivity increases, inflation could be checked, corporate profits could be maintained, and the standard of living could rise. The president, of course, had no official power over CEOs, but Kennedy thought that as head of state he was entitled to call corporate executives’ attention to what he insisted were their “public responsibilities.”2
Kennedy may not have realized that he was opening an old wound by injecting himself into corporations’ pricing policy. He was threatening the “right to manage,” the preservation of which had been the mission of American business in the post–World War II era. Whether he knew it, Kennedy was resuming the battle that Walter Reuther and the United Auto Workers had lost in their failed 1946 strike against General Motors. Reuther and the UAW had tried to force Alfred Sloan and GM to hold the line on prices while raising workers’ pay. But Sloan and GM had won that battle. Since then, corporations had been confident that the prices they charged were none of the unions’ business, still less the government’s. Kennedy, by trying to involve himself in the pricing policies of steel companies, was treading on the corporate equivalent of sacred ground.
Kennedy’s policy was the brainchild of his secretary of labor, Arthur Goldberg, a former lawyer for the steelworkers’ union. Like Reuther in 1946, Goldberg in 1962 aimed to ensure that pay increases provided real gains in workers’ purchasing power. The only difference was that it was the government, not the UAW, that would try to prevent corporate price hikes. Two of Kennedy’s economic advisers, Walter Heller and John Kenneth Galbraith, had ideas fairly similar to Goldberg’s. They wanted to fight “cost-push” inflation or, as conservatives called it, the “wage-price spiral.” Galbraith called it the “wage-price-profit” spiral to emphasize his view that corporate profits were the ultimate driver of inflation. If that were indeed so, it was naive to expect corporations to cooperate in holding down prices. Yet, that was the policy to which the Kennedy administration committed itself.
Kennedy’s desire to coordinate corporate-labor relations had been intensified by the 1960 presidential campaign, during which he had criticized his predecessor, Dwight Eisenhower, for allowing a 1959 steel strike to drag on for months, threatening to throw the economy into recession. So in 1962, when the steelworkers’ contract expired, Kennedy was especially eager to avoid another strike. In January of that year, he had invited Blough, head of U.S. Steel, and David McDonald, head of the United Steelworkers, to an Oval Office meeting. At that meeting, Kennedy proposed that Blough and McDonald settle on a new contract for steelworkers giving them a wage increase between 2.5 and 3 percent more than the current contract. Such a small increase would be in keeping with productivity gains. Therefore, the steel companies, Kennedy believed, could afford the pay raise while holding the line on prices.

McDonald, speaking for the workers, agreed to Kennedy’s proposal.3 But Blough told the president that U.S. Steel needed a price increase to make up for past wage gains that had outstripped improvements in worker productivity.4 Blough did not add the fact that he subscribed to the anti-union approach that Boulware had pioneered at General Electric and that had resulted in the defeat of the electrical workers in their 1960 strike. The truth was, though Blough left it unstated, that he did not want to work with the union. He wanted to get the union out of U.S. Steel’s way, as Boulware had done at GE.
Kennedy should have seen that he would get no cooperation from Blough. Months earlier, he had written to the steel executive that he wanted to avoid an “increase in prices” while preserving “good profits” for the steel companies.5 Blough had replied that the steel companies needed to raise prices so they could invest in new equipment needed for international competitiveness, a point disputed by Kennedy’s economic advisers.6 Blough concluded by promising Kennedy that he would do what was in the national interest, but the earlier part of his letter had made clear his belief that higher steel prices were in the national interest. Blough’s equivocal statements left Kennedy and his advisers little excuse for being fooled, but fooled they were. Most critics hold Blough responsible for the sensational battle with the government that followed, and he surely was duplicitous. But Kennedy and his advisers bore some responsibility for their willingness to be deceived; they wanted to believe that they had an understanding with U.S. Steel when, clearly, they were being played.
Blough held his tongue on prices during the contract negotiations with the steelworkers that followed, and Kennedy dutifully pressed them for wage restraint. In early April 1962, the steelworkers agreed to a 2.5 percent increase in their contract, all of it to be paid in the form of higher benefits, not higher wages. Steelworkers’ pay would be held flat, and so too, the public believed, would prices. Kennedy enjoyed great press coverage for a few days as Americans congratulated themselves on a breakthrough, anti-inflationary deal in labor relations. The steel contract was expected to be imitated in other industries and therefore to break the inflationary cycle.
Then, on April 10, U.S. Steel’s board of directors voted to raise prices by $6 per ton. Blough, as a “courtesy” to the president, flew to Washington that afternoon to give him the news in person, in the Oval Office. Kennedy responded, “You’ve made a terrible mistake.” After Blough left, Kennedy declared to his aides that “this is war,” adding his soon-to-be-famous remark that opens this chapter.7 The next day, Bethlehem Steel and six other producers followed U.S. Steel’s lead, raising their prices $6 per ton. Only a handful of smaller firms such as Lukens Steel had not yet acted. Kennedy and his advisers were soon phoning Lukens and other small producers, urging them to hold the line on prices.
Kennedy’s actions in the next few days were so strong and effective as to obscure the fact that the victory he soon won was only pyrrhic. The president would force U.S. Steel to roll back prices, but his naive policy of coordinating relations between business corporations and the labor unions by appealing to executives’ sense of “public responsibility” was wrecked. Kennedy won the short-term public relations victory, but business corporations won a long-term increase in power vis-à-vis government.
On Wednesday, April 11, just a day after U.S. Steel announced its price hike, Kennedy held a memorable press conference. He denounced the actions of U.S. Steel, Bethlehem Steel, and the other producers as “a wholly unjustifiable and irresponsible defiance of the public interest.” Attacking the companies’ executives personally, the president accused them of pursuing “private power and profit,” of ignoring the “interests of 185 million Americans,” and of acting “in ruthless disregard of their public responsibilities.”8
That was just the beginning. Kennedy announced that he had directed the Justice Department, headed by his brother Robert Kennedy, to investigate whether the steel companies had broken antitrust laws in their identical and near simultaneous price hikes. Robert Kennedy ordered an FBI investigation. The FBI learned that at a Bethlehem stockholder’s meeting a few days before, a company vice president had said there would be no price increase. That suggested to the Justice Department that Bethlehem’s price increase had been a sudden change of mind, possibly the result of illegal collusion with U.S. Steel. The FBI tracked down newspaper reporters who had been at the Bethlehem shareholders’ meeting, woke them in the middle of the night, and interviewed them to learn exactly what company officials had said.
To howls of “Gestapo” tactics by business interests, Kennedy replied by increasing the pressure still more. Bethlehem Steel’s main product was armor plate for naval vessels. The Pentagon announced that a multimillion-dollar contract for armor plate was being diverted from the big producers to Lukens Steel and other small firms that had not raised prices. That was more pressure than Bethlehem could stand. On Friday, April 13, Bethlehem rescinded its price increase. At just that moment, Blough was meeting with a Kennedy adviser named Clark Clifford who reported that the steel executive turned “pale and shaken” when word arrived of Bethlehem’s capitulation.9 Clifford turned up the heat on Blough, explaining that the administration planned to subject him to a daily salvo of negative publicity during the following week.
Blough caved. Late Friday afternoon, U.S. Steel announced it was rolling back prices in order to improve “relations between government and business.”10 In just four days, the U.S. president had forced one of the country’s largest industrial corporations into a humiliating surrender. Kennedy, alluding to Grant’s generosity to Lee at Appomattox, joked that he had let Blough’s men “keep their horses for the spring planting.”
Yet Kennedy’s seemingly total victory had cost him enormous effort. The president could scarcely fire off such a barrage every time a company raised prices. His battle with U.S. Steel had not shown, as many said at the time, that he had extraordinary power. It only showed that it took extraordinary effort for the president to affect a corporate decision. Blough saw that Kennedy had expended all his ammo. During the next 18 months, U.S. Steel quietly instituted its price hikes in piecemeal fashion. Kennedy uttered not a word of protest.
The old cycle of high profits, high pay raises, and high price increases would resume. In 1970, for example, after a 67-day strike by the United Auto Workers, General Motors signed a contract for a 30 percent wage increase, far outstripping workers’ productivity gains. The UAW justified the wage increase as necessary to keep up with earlier outsize price increases by corporations, just as Blough of U.S. Steel had justified price hikes as necessary to keep up with earlier outsize wage increases. Inflation soared during the 1970s, the decade when U.S. automakers were first challenged by high-quality, low-priced cars from abroad.
And there was little that the government could do. No subsequent administration would imitate Kennedy’s failed attempt to manage corporate wage and price policy. Fiscal and monetary policies were still set in Washington, but in other respects the American economy was steered with a corporate rudder, or more accurately, many corporate rudders and many union rudders as well. Kennedy’s strong-arm tactics against U.S. Steel, even if justified by Blough’s duplicity, had further alienated corporate leaders from government. Kennedy later tried to patch things up with a friendly speech at a U.S. Chamber of Commerce meeting. But the speaker who followed him to the podium compared him to “dictators in other lands.”11
That ugly statement pointed to a difference not only of economic policy but of cultural style between Kennedy and the corporate chiefs. Corporate life can develop even worse rhetorical habits in CEOs than public life does in politicians. Portentous overstatement and lack of historical perspective are part of the corruption bred by power.
Shortly after Kennedy’s assassination the following year, one of his advisers reflected on the steel crisis and on the late president’s relationship with American business. Kennedy “was outside the business ethos” and “did not consider successful businessmen as the best brains or the most enjoyable company ... and ... did not like to have them around in the evening.”12

Conclusion

The lesson of this story is not to kid yourself about how easily a potential adversary can be made an ally. You need to see the issues as your opponent sees them to gauge how likely he or she is to fight. Without such understanding, a leader may be led by ambiguous answers – as Kennedy was by Blount’s equivocations – into mistaking a disagreement for a deal. It’s bad to pick a fight unnecessarily, even worse to pursue a victory without value, and worst of all to have done so by deceiving oneself as to an antagonist’s intentions.

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James Hoopes is Murata Professor of Ethics in Business at Babson College. He is the author of Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recession (Rutgers University Press), from which this article was adapted.
 

References

1.  Quoted in Arthur M. Schlesinger Jr., A Thousand Days: John F. Kennedy in the White House (Boston: Houghton Mifflin, 1965), 635.
2. “News Conference 30,” John F. Kennedy Presidential Library and Museum, http://www.jfklibrary.org/Research/Ready-Reference/Press-Conferences/News-Conference-30.aspx.
3. David L. Stebenne, Arthur J. Goldberg: New Deal Liberal (New York: Oxford University Press, 1996), 292-293.
4. Ibid., 293.
5. Kennedy’s letter and Blough’s reply are reprinted in Roger M. Blough, The Washington Embrace of Business (Pittsburgh: Carnegie-Mellon University, 1975), 121-125.
6. Hobart Rowen, The Free Enterprisers: Kennedy, Johnson, and the Business Establishment (New York: Putnam’s, 1964), 100.
7. Quoted in ibid, 95.
8. “News Conference 30,” John F. Kennedy Presidential Library and Museum, http://www.jfklibrary.org/Research/Ready-Reference/Press-Conferences/News-Conference-30.aspx.
9. Rowen, Free Enterprisers, 105.
10. Quoted in ibid., 106.
11. Quoted in Schlesinger, A Thousand Days, XXX.
12. Ibid., 115.
13. Quoted in Schlesinger, A Thousand Days, 638.
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