want to give us any approximate estimate, Mr. Patton, of what part in making Senator ERVIN. Let me see if I understand the Senator's statement. Does the Senator mean to say that the miners in England or Czechoslovakia or in the Ruhr get the same wages as miners in the United States? Senator KEFAUVER. No; I did not mean to say that. The CHAIRMAN. That is what I understood. Senator KEFAUVER. That is not what I meant to say and I am sure that is not what Mr. Patton said. I meant to say that in the United States, in the mining of coking coal the wage rates and so on were about the same as in the coal industry generally. Mr. PATTON. Senator, you this morning referred to this document entitled "Management Organization and Methods in the American Iron and Steel Industry," and while I do not place very much credence on it at all because right in the document at page 261 it is stated: "Vague and fragmentary though we found our records to be when we came to evaluate them," so it cannot have much basis, I would point out that on page 89 this is stated, and it has to do with what you just asked here. I am reading from page 89 of that document: "Future problems"-what we have to face in this country: The conclusion would appear to be that notwithstanding its very high productivity and the substantial advantages it derives from integration, mass production, and specialization, the American iron and steel industry is handicapped, (a) by its selling prices which are low in relation to the general price level in the United States, (b) by its wage rates which are higher than anywhere else in the world, and indeed higher than in any other industry except mining— and then skipping down to the last full paragraph on the page: Despite its past profits which enabled it to write off its fixed assets at a higher rate and over a shorter period, and despite the fact it is still paying dividends, it is beginning to be considered that is the steel industry one of the least promising fields for capital investment. I would just like to get that in the record from this same document. The CHAIRMAN. Yes, sir. Senator KEFAUVER. Very well. I think that the page and a half ought to be a part of the record and I will ask that that be made a part of the record, Mr. Chairman, which includes the parts that Mr. Patton read. (The information referred to is as follows:) FUTURE PROBLEMS 1. INVESTMENT The conclusion would appear to be that notwithstanding its very high productivity and the substantial advantages it derives from integration, mass production, and specialization, the American iron and steel industry is handicapped(a) By its selling prices, which are low in relation to the general price level in the United States; (b) By it wage rates, which are higher than anywhere else in the world, and indeed higher than in any other industry except mining; (c) By its raw material costs, and more particularly by the price it has to pay for ores, which are often imported from far away sources; (d) By the fact that it has to obtain a much better return on its capital than would be the case almost anywhere else (though it still falls below the return in certain other sectors such as the oil industry). These various factors explain why in spite of all the industry has done to economize, its net eranings (available for reinvestment) in relation to its total revenue work out of much the same level as own own. Obliged as it is automatically to adjust its production to current requirements, the industry does not appear to be particularly well placed to withstand without risk, a major recession like the one in 1957-58, and even less so a strike like the one in 1959. This is to it all the more reason for maintaining its selling prices at their boom level. Despite its past profits, which enabled it to write off its fixed assets at a higher rate and over a shorter period, and despite the fact that it is still paying dividends, it is beginning to be considered one of the least promising fields for capital investment. This is likely to interfere seriously with the development programs which it nevertheless still feels it will have to carry out. Here as elsewhere, it is coming to be thought that the "new" plants are unlikely to pay their way, as we were told quite openly. This is all the more unfortunate since in order to adapt themselves to the situation the big companies at any rate are considering it necessary to step up the capacity per unit of their plants still further. Ten million tons is now regarded as a possibility, if not at present actually as a desideratum. Gary and Sparrows Point are on the way to such a capacity, with 8 million already reached or about to be. Fairless was planned with a view to reaching the same level one day, though not, it would seem, for some considerable time yet. But a new 10-million-ton plant would today cost more than $3 billion. is the capital to come from? Where So, like our own, the American iron and steel industry is having to fall back on extensions to existing plants, which may cost more in the end, but the outlay can at least be spread over a longer period. The big companies are in fact proceeding along these lines, though of course on a big scale, with extension programs, in some cases providing for production increases of more than a million tons a year within 2 years (e.g., Gary and Sparrows Point). The medium-size and small companies, which do not have the same resources, are likely to be seriously embarrassed by the fresh adjustment which may be demanded of them. Senator KEFAUVER. There are some other statements telling of the difficulties that they are having in their own steel production. Mr. PATTON. I think you would have to read the entire book to get the full sense of it. Senator KEFAUVER. The entire report is available and has been filed with the committee although not reproduced entirely in the record because it is too voluminous. Senator ERVIN. If I might make an observation, the thing that we do not have available on which we need much more is time, and that is particularly true in the closing days of the Congress. Senator KEFAUVER. If the Senator is looking at me, which I do not think he is Senator ERVIN. I was just making a general observation. Senator ERVIN. I was just speaking about thhe general unfortunate condition in which all of us now find ourselves. The CHAIRMAN. Proceed. Senator KEFAUVER. Are you familiar with Mr. Louis Lister's study about the Coal and Steel Community of Europe which was published in 1960 by the Twentieth Century Fund? Mr. PATTON. I am not. I have never seen the book. Senator KEFAUVER. For your information-and I would like at the end of this part of the colloquy, Mr. Chairman, to put in a memorandum prepared by two economists of this subcommittee for Mr. Fen sterwald, giving reference to the matters I have talked about-Mr. Lister finds that the average investment required in Europe to develop an underground mine is from $30 to $40 per ton of capacity compared to roughly $8 per ton in the United States, and the citation for this is given. He points out the fact that in Europe the veins of coal are narrow, the coal is very deep in the ground, that it is expensive to get out, and that there is practically no strip mining such as we have had to a substantial extent in this country. May this memorandum be inserted? The CHAIRMAN. You can attach the book. I think it ought to be the whole document. I do not know who the man is. I do not know what he knows about it, just somebody at one time wrote a book. I do not see where it is pertinent, but if you want to file it with the committee, that will be all right but we are not going to pay for printing it in the record. Senator KEFAUVER. Mr. Chairman, I do not want to place the entire book in the record. It is too voluminous. It can be filed with the subcommittee for reference for anybody to check on it if they want to do so. The CHAIRMAN. That is exactly what I am saying. (The document referred to is as follows:) MEMORANDUM SEPTEMBER 13, 1962. To: Mr. Bernard Fensterwald, Jr., staff director. The largest single element of cost in the production of pig iron or molten iron charged into steelmaking furnaces is the coke consumed as a fuel and a reducing agent. Coke costs, in turn, depend primarily upon the value of the coal carbonized. It is in this area that the United States has perhaps its greatest margin of advantage over foreign steel producers. The reasons for this advantage are both geological and technological. Coal mining in Europe is far more difficult than in the United States. The European deposits are found at much deeper levels than those in the United States; average depth of underground bituminous mines in the United States is about 400 feet, while the averages in the United Kingdom and various Western European countries range from 1,200 to 2,600 feet, with some mining operations getting close to the 4,000-foot level.1 Of equal importance, U.S. seams are both level and thick, while European seams are moderately to steeply sloped and thin. Poor floor and roof conditions in European mines make necessary far more extensive timbering than is required in the United States. And mine gas and water are much more serious problems in European mining operations than in this country. All of these factors taken together have the result illustrated by Lister's findings (for the late 1950's) that the average investment required in Europe to develop an underground mine is from $35 to $40 per ton of capacity, compared to roughly $8 per ton in the United States.2 Further, much of the bituminous reserve of the United States is found close enough to the surface to be mined by stripping or the recently developed auger method. From less than 10 percent of production in 1940, surface mining has developed to the point where more than 30 percent of the Nation's bituminous output is provided from this source. In contrast, except for a small amount of British output and a portion of West German lignite production, surface mining is unknown in Europe. Supplementing, and in part made possible by, its geological advantages, American coal mining has benefited from a far more rapid rate of technological progress than has been the case in Europe. There has been considerable engineering research, both publicly and privately financed, directed toward improvement in 1 Cf. Louis Lister, "Europe's Coal and Steel Community," Twentieth Century Fund, 1960, p. 93. 2 Ibid., pp. 93, 94. mining methods and mechanical mining equipment. At the same time, an unusually high degree of union-management cooperation has facilitated the introduction of the improved techniques. Thus, by 1960 in the United States, more than 95 percent of the production of bituminous coal was mechanically cut or mined by continuous mining machines, while 86 percent was mechanically loaded. European mines, on the other hand, still depend primarily upon hand labor. Only 34 percent of Europe's 1959 production was mechanically cut, and less than 23 percent was mechanically loaded.* The geological and technological advantages of the United States are translated into productivity levels which must be considered phenomenal in terms of European conditions. Table 1 illustrates comparative output per man-day for the United States and six European coal-producing nations in 1953 and 1960. The data may be considered as effectively referring to bituminous output." U.S. output per man-day had by 1960 approached 13 tons; by contrast, West German production, highest of the countries shown, was less than 2 tons per man-day. Output per man-day for the six European nations, as a group, was less than one-eighth (12.2 percent) than in the United States. The trend illustrated by comparison of the 1953 and 1960 data is equally important. There have been heavy public and private investments in European coal-mining operations, and these have borne fruit in a substantial rise in labor productivity (24 percent from 1953 to 1960 in the nations shown). U.S. productivity, however, has risen at a far more rapid rate, with the result that the margin of the U.S. advantage over Europe has been steadily rising. Because of the differing rates of productivity increases in the two areas, output per manday for the six countries listed fell from 15.4 percent of the U.S. output in 1953. to 12.2 percent in 1960. Improvements in U.S. productivity have more than kept pace with labor costs, which account for more than half of total costs. Despite an increase of 38 percent in hourly employment costs (wages and supplements), employment costs per ton of bituminous coal produced declined by more than 15 percent from TABLE 1.-Coal production per man-day, selected countries, 1953 and 1960 NOTES.-(a) U.S. data are based on combined bituminous and lignite production, Lignite accounted for 0.7 percent of total output in 1960. European data are for "hard coal," including bituminous and anthracite but excluding lignite. Anthracite included in production of the countries listed amounted to. 6.8 percent of total output in 1960 (Bureau of Mines, 1960 Minerals Yearbook). (6) Underlying employment data are in general for production and related workers, underground and at the surface. Belgium and United Kingdom productivity, however, is slightly understated by reason of inclusion of supervisory employees. (c) 1953 data for West Germany and the Saar have been combined weighted by respective outputs, for comparability with the 1960 data. Sources: U.S. data from the Bureau of Mines, Minerals Yearbook. European data from United Nations, "Quarterly Bulletin of Coal Statistics for Europe," converted from metric tons to net tons. 3 U.S. Bureau of Mines, 1960 Minerals Yearbook. 4U.N. Economic Commission for Europe, "The Coal Situation in 1959-60" (Geneva, 1961), p. 10. As noted in table 1, there is some difference in industry definition between the United States (Bureau of Mines data) and Europe (U.N. Economic Commission for Europe). U.S. data are based on "bituminous coal and lignite," while European data are for "hard coal" (bituminous and anthracite). Since lignite included in U.S. data is less than 1 percent of the total, while anthracite included in the European data is less than 7 percent of total "hard coal" for the six countries listed, it may be safely assumed that. comparative data reflect differences in productivity for bituminous coal alone. 1953 to 1960. In contrast, it is clear that European labor costs per ton of coal were rising significantly over this period.' ABSOLUTE COST OF BITUMINOUS COAL IN U.S. AND EUROPE An indication of the absolute magnitude of the U.S. advantage is provided by a U.N. study of 1958 costs per ton of coal in five countires." The U.N. findings, converted to dollars per short ton, are as follows: For the same year (1958), the Bureau of Mines reported an average value at the mine of $4.86 per short ton of bituminous coal. In other words, production costs for the countries shown (covering 88 percent of all European production outside the U.S.S.R.) exceeded the total value per ton of U.S. coal by margins of from 75 percent in Poland to 246 percent in Belgium. Indeed the total cost of U.S. coal is substantially below average direct labor costs per ton alone in Europe. COKING COAL The foregoing discussion of bituminous coal establishes the fact of a wide margin of U.S. superiority over Europe in production costs. This margin exists, too, in the relative costs of coking grades of coal." The principal U.S. deposits are found in Pennsylvania and West Virginia, which produce approximately 70 percent of the Nation's coking coal. These two States, with Kentucky, Alabama, and Tennessee account for more than 90 percent of total production. There is a similar geological concentration of deposits on the European Continent. Despite a wide dispersion of coal deposits, the bulk of coking grades is to be found in the Ruhr Valley. The Ruhr provides some 70 percent of the European Coal and Steel Community's requirements for coking coal. The margin between United States and European coking coal prices is illustrated in table 2. Estimated average annual U.S. prices for U.S. metallurgical coking coal, f.o.b. mine, rose from 1953 to 1957 but have declined since the latter year. Ruhr prices, on the other hand, showed little change from 1953 to 1957, but have risen considerably since 1957. As a result, in 1961 the U.S. price averaged 7.5 percent higher than in 1953, while Ruhr prices were more than 20 percent above their 1953 level. 6 Cf. U.S. Department of Labor Bulletin No. 1305, "Technological Change and Productivity in the Bituminous Coal Industry, 1920-60" (published November 1961), tables 27A, 28, and 29. Data available for 1954-60 show the following increases in employee compensation and output per man-shift: (1) United Kingdom, output per man-shift, 13.6 percent; earnings per shift, 37.9 percent; (2) West Germany, output per man-shift, 42.5 percent, hourly compensation (wages and supplements), 56.7 percent; (3) France, output per man-shift, 23 percent; (4) Belgium, output per man-shift, 30 percent; hourly compensation, 38.8 percent; (5) Netherlands, output per man-shift, 17.6 percent; hourly compensation, 58.2 percent; (6) Poland, output per man-shift, 8.9 percent; average monthly earnings, 69.3 percent. Output data from U.N. Quarterly Bulletin of Coal Statistics for Europe. Hourly compensation (wages and supplements) for ECSC countries from the Statistical Office of the European Communities. Statistiques Sociales. Earnings data for the United Kingdom and Poland from the International Labour Office, ILO Yearbook. 8 United Nations, "The Coal Situation in Europe in 1959-60" (prepared by the Secretariat of the Economic Commission for Europe), Geneva, 1961. Coking grades: Grades of bituminous coal which, on the basis of volatile content and structure, will produce a satisfactory coke in terms of heating value, physical strength (especially important in blast furnace operation) and ash residue. |