Underlying Business Problems

    As Mary Proctor and Bill Matuszeski noted:  "Bethlehem cannot hope to support its population with Christmas tourists and concert-goers. ÖIn ironic contrast to this urbane elegance, the economic prospects of Bethlehem are tied more than those of any other gritty city to the ups and downs of a single heavy industry.  This cityís long term survival depends on healthy and growing iron and steel production."  (56)  Little did many local citizens realize that this backbone industry of Bethlehem was beginning to crumble from underneath them.  In 1958, the post-war capital goods boom ended, and left the Steel company with a market only a quarter of its previous size.  Bethlehem Steel Plant To make matters worse, a 1959 union strike lasting 116 days caused many customers to look to lower-priced steel from minimills and foreign producers.  (3)  Since the acknowledgment of the United Steelworkers Union in 1941, there was a pattern of a labor strike after the expiration of each 3 year contract.  Each time, after some blustering, the company granted substantial wage increases, followed by substantial steel price increases.  Employment costs increased at a rate of 8% per year, until American steelworkers were the highest paid industrial workers worldwide in 1958.  (America $3.03/hr., Europe $0.95/hr, Japan $0.40/hr.).  (88)  The contract agreed upon in 1956 contained a new element:  the infamous Clause 2B.  It said that "established labor practices cannot be changed unless there is a change in underlying conditions."  (65)  This innocent looking addition would return to haunt the company in future years.
    In early 1959, the company found an opportunity for corrective action against previous wage inflations when negotiations began for a new labor agreement.  Negotiations became stuck as the union refused to accept the company offers, and the company, who had featherbedded in previous years, was not prosperous enough to give everyone a generous raise and could not reduce labor size due to Clause 2B.  (68)  Thus began the 116 day strike which introduced consumers to foreign Basic Oxygen Furnace around 1960steel and American minimills, since their supply was interrupted and they held doubts of its future availability.  (89)  In the 1960ís, the union had negotiated a long-term, no-strike agreement which contained an automatic cost-of-living clause and an annual 3% wage increase.  This only increased the gap between American and foreign wage costs, until Bethlehem Steel was barely able to compete by the mid-1970's. (75)  Technology improvements were also hindered by Clause 2B, as when two basic oxygen furnaces (BOFís) replaced 21 open hearths in 1969.  These furnaces could make a batch of steel in 45 minutes and required a 300-person crew to run both of them, as compared to the old method where over 700 men ran the open hearths that took 6-8 hours to make a batch.  (44)  Yet because of the clause, not a single man lost his job during the change.  (Jan 24, 1991 A2:2)  Even though it tolerated such large labor expenditures, Bethlehem Steel saw the writing on the wall and knew what changes should be made.  Two of the first things Edmund Martin did when he became CEO of Bethlehem Steel in 1964 were to lower executive pay and get outside directors on the board. The level of excess present in executive pay is seen in Graceís retirement salary of $1 million per year until his death.  By 1965, five new outside directors joined Bethlehemís board, bringing with them valuable experience and minds trained outside the Loop.  Yet even these changes could not remove the damage done to Bethlehemís production by competition from outside steel sources.


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