Rescuing steel -- how wise?
We tremble whenever the US government announces it is prepared to rescue an ailing American industry. We are especially uncomfortable when such plans are announced in the middle of a tight presidential election race. In this case there is good economic reason to give the US steel industry a lift out of its doldrums. But a more dispassionate consideration of the mattter would have been possible after Nov. 4. As it is, there is no question that President Carter has unveiled his steel rescue plan now in hopes of picking up political support in the crucial states across the great industrial belt.
What Americans will wonder is whether the program, which will give the industry more protection from foreign imports and more time to meet environmental standards, is economically justifiable. Or whether this is just another and unwarranted slide toward greater government involvement in the private sector -- something both Democrats and Republicans profess to resist.
There indeed is a case for short-term aid. The US steel industry has been buffeted by growing competition from abroad. Foreign imports, now at abut 16 percent of total steel use, could climb to as much as 40 percent of the domestic market by 1990 if the industry does not get back up on its feet, a congressional study warns. Yet with an outdated plant infrastructure and with some of the highest labor costs in the industrialized world, the industry finds it hard to turn things around when faced both by the growing imports and the tough requirements of the Clean Air Act.
The Carter plan will give the industry more time to comply with environmental standards. It liberalizes depreciation rules. And it also reinstates and raises the so-called "trigger price" at which government investigates whether imports are being dumped at below-cost prices. The latter system is justified by the administration on grounds that steel is not being produced generally on a truly competitive basis abroad because of the tax concessions which governments give their industries.
These measures seem reasonable given the magnitude of the problem. IT is argued, and persuasively, that the government cannot permit such a basic industry to go under. A strong steel industry is essential to the nation's military and economic security and therefore warrants special consideration. Imagine the situation which would arise in wartime, say, if the US were heavily dependent on steel imports and ocean shipping were disrupted.
On the other side of the ledger, however, is the US steel industry's own record of mismanagement. When Japanese and European steelmakers were rebuilding or updating their plants with the latest technology, US firms were more worried about short-term profits than modernizing their mills and maintaining long-term competitiveness. As a result, companies were not able to direct any excess capital to upgrading production facilities and, as a result, productivity fell.
If the government now begins stepping in with short-term relief, at the least it should require more competence in management of the industry. Such relief should be made conditional on the steel firms modernizing their production facilities and on greater labor-management cooperation to boost productivity. Fortunately, the Carter plan does require steel firms to invest savings from postponed antipollution measures in plant modernization.
What concerns us, however, is the widening pattern of government intervention in the private sector. We have seen a financial bailout of Lockheed and then Chrysler. Is the steel industry next? Where will the trend stop and what will this do to the internal free-enterprise system as well as America's ability to compete effectively abroad? Republicans and Democrats alike recognize the importance of free trade in a world growing more and more interdependent. Yet it is clear that if the US begins to protect its own industries and throw up higher barriers to foreign imports, it will simply begin to spark retaliatory measures against US exports -- and then other American industries will be hurt. There is no way to win a trade war.
This is the crucial long-term consideration the government must not overlook.