output mark show less than 8% profitability, while 21 of the lower output firms have less than 8% profitability.

Profitability as an average for all companies in the survey is 11.4%. The powerful position occupied by large establishments as against smaller firms emerges from the 12.3% average profitability for all firms above the annual 1 million ton mark. This fact ascertained from the analysis of financial statements is all the more significant, since it explains the reason for the tendency to build larger production units.

If the size of the production unit is a decisive feature, this relates to the size of the plant and amount of steel production as such, not to the nature of structure and extent of integration in terms of sources of raw materials and even fabrication. Fully integrated works have a less favourable record of profitability. Among the 38 fully integrated enterprises, with coal and ore mines of their own, which produce more than 1 million tons a year, only 12 show more than 10% profitability, while of the 19 purely steelworks and rolling mill firms which come into this order for size, 15 exceed that rate of profitability.

The almost fully integrated works, which own coal or ore mines of their own, fare best, since 13 out of 14 of them record over 10% profitability.

These conclusions drawn from the international tabulation and from study of the companies in their order of size should not be too much generalised, for in a number of countries differences in profitability percentages as between larger and smaller companies may be confirmed, but in various other countries, admittedly rather in isolated cases, conditions are quite contradictory. In 1960 the fully integrated American company Lone Star Steel, with less than 500,000 tons annual output, achieved the second highest profitability, directly behind the largest steel company in the world, United States Steel, which produced 24,766,000 tons. The fourth highest profitability is the record of another smaller company, with annual output of 550,000 tons, which possesses neither coal nor ore mines of its own. Characteristic also is the fact that the third highest profitability among American steel companies distinguishes a company which makes over 1 million tons a year, though it has no raw material supplies of its own.

The reason for the favourable starting point for profitability, evident from the analysis of financial statements in the case of non-integrated works, no doubt rests in their greater flexibility and often in production of special steels, for which the market is not subject to the great fluctuations suffered by the general steel market.

If on the other hand big firms, whether fully integrated or not, are more severely hit by downturns in trade, yet rationalisation, bound up with a larger degree of mass production, enables them better to react to the financial consequences of a recession, since their break-even point lies at much lower capacity than in the case of smaller works.

Location is a factor decisive for the favourable, more than national average profitability of steelworks in various countries. In France the highest profitability is achieved by a smaller firm with 600,000 tons annual output – what is more, in a country with a generally high profitability level by international standards. This analysis points to intensification of the trend, already very marked, to extend giant capacity works in strategic situations, especially for supplies of raw materials of their own on advantageous terms, in particular iron ore, and with easy access to centres of consumption.

The table listing companies in order of size does not enable opinion to be formed whether or to what extent larger companies or those with more than average profitability meet higher labour costs, for only total labour costs are set out and labour costs as a percentage of sales do not serve as a guide on this point. For other reasons also the international tabulation would hardly permit the position to be ascertained, since labour costs are so totally different from one country to another.

If this question is examined on the basis of the tables given for countries separately, such widely different conditions emerge that one must conclude that the size and profitability of companies are not directly connected with wages and fringe benefits. In the United States, for instance, the highest average labour costs per employee are paid by a small firm, where wages and fringe benefits, financed out of the fifth lowest profitability, considerably surpass those paid by the largest steel company in the world. The second best average labour costs are recorded by the company with the second highest profitability, while United States Steel, with the highest profitability in 1960, is in a medium position with its average labour costs. The lowest average labour costs occur at a company with a poor profitability figure.

Insofar as data are available in Britain, the very company with the lowest average labour costs per employee is that with highest profitability. Even in Japan, where there are gross differences in labour costs between large and small establishments, no conclusion of that kind can be drawn as regards large companies. Nor is there any direct connection between the amount of wage costs and profitability. However, the smallest company very obviously lags behind the largest in its wage bill.

A glance at conditions in the various countries shows no relationship between high wages and high profitability, so there is no confirmation for the hypothesis that when business is good better wages are granted. Conditions in the Federal Republic of Germany suggest that the trade union's influence is the decisive factor which has brought about relatively high labour costs and fringe benefits. If in most cases there is no direct relationship between actual business returns and wage costs, this arms the trade unions with all the more telling arguments to win the necessary adjustments in wages in profitable firms.

No attempt is made to compare companies' labour costs as between countries, for here various economic factors, such as cost of material, price levels, etc. sway the balance. It is also essential to bear in mind that, although labour costs in any country's steel industry may be above the national average - as is only right, in view of the heavy labour and other drawbacks, such as shift and continuous working - yet steelworkers' wages must still be in relation to the prevailing wage levels in the country, no matter how effective trade-union pressure may be in the steel sector. At the same time, it will certainly be found that the level of wages and fringe benefits paid in individual firms is dependent on the strength, activity and negotiating skill of the unions concerned, quite apart from the vital part they play in determining the general wage level in the steel industry as a whole.

The Steel Industry and Largest Steel Compar.ies
in Each Country Separately

The second part of this study deals with the structure and special problems of the steel industry in each country separately, and contains details as to the financial position of the largest companies with crude steel output exceding 300,000 tons per year.

To facilitate reading of the tables, the following remarks will supplement those on page 1 of the first part of the study.

All financial data are given in thousands, except for sales per employee and total wage costs per employee, which are in any case marked "figures in full”. Beside money figures in national currency stands the equivalent in Swiss francs. In the case of France, for 1959 and 1960 figures the second devaluation was taken into account, the first devaluation having been dealt with in the earlier study. This has led to certain apparent anomalies in the figures quoted in Swiss francs. For France the figures in French francs must always be borne in mind. Other difficulties with varying rates of conversion, from French and West German currencies, occur with Saar companies. In this connection, attention is directed to remarks at the beginning of the section on Saar companies.

In the case of the Federal Republic of Germany and the Netherlands, the revaluation which took effect early in 1961 is not considered, so the old rate of conversion is used.

"Material costs" means the full cost of raw material supplies, including cost of transport.

"Undistributed profits" includes all sums placed to reserve, out of proceeds from the year's trading (except for payments into pension funds and benevolent institutions), sums carried forward, etc. In countries other than the United States, such carry-forwards as a rule include rapid amortisation.

"Net worth" means the total of invested capital plus the total surplus or undistributed profits. It may be described as the stockholders' equity, which determines the actual stock exchange value of shares. In other words, it is the difference between assets and liabilities.

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"Long-term debt" refers to indebtedness extending over more than one year. Interest on debt" refers to interest on long-term debt only. In the case of West German companies, and in a few other isolated cases, always marked, receipts from companies' own capital investments are already deducted from interest charges.

Under "Payments to Board of Officers and Directors" there are included for certain countries sums paid out of profits. In companies operating in other countries again, these are treated simply as items of expenditure.

"Total yield per share, including change in value of shares on stock exchange" is calculated on the basis of the increase in value for prices quoted on the stock exchange (highest rate), allotment of bonus shares and issue of new shares at a nominal value, or at a premium, on the assumption that preferential shares were bought, with the difference between the buying price and the stock exchange value being added, as well as dividend receipts per share and any share coupons that might have come out new. The percentage for dividend receipts and the in

crease in actual value of shares from 1956 to 1960 was calculated on the same basis.

To make the tables more readily understood, readers are referred to the introduction and the sections there, entitled "Brief Introduction to Contents of the Study" and "Scope and Limits of Analysis in this Study".

Mr. KING Mr. Houser.

Will you identify yourself for the record, Mr. Houser?

STATEMENT OF THEODORE V. HOUSER, VICE CHAIRMAN, FOREIGN ECONOMIC POLICY OF THE RESEARCH AND POLICY COMMITTEE, COMMITTEE FOR ECONOMIC DEVELOPMENT

Mr. HOUSER. My name is Theodore V. Houser. I am vice chairman for foreign economic policy of the Research and Policy Committee of the Committee for Economic Development. The Research and Policy Committee has just completed work on a statement entitled "A New Trade Policy for the United States," which will be published within a few weeks. My comments here today are largely based on that statement. I should like, if I may, to submit copies of this statement when it is published to the members of the committee, since this will elaborate on my comments here and indicate some points on which individual members disagreed.

Mr. HOUSER. Our basic position can be summed up in two propositions. We believe that the President should be given a large, flexible grant of authority to reduce U.S. tariffs in exchange for reduction of trade restriction by others. We believe that this authority must be used by our Government in hard bargaining for achievement of America's present interest and goals. These two points are related in our thinking. We support the grant of authority because it is necessary for the bargaining and in the expectation that our bargaining will be well informed about the U.S. interests and ways to achieve them.

As we see it, the United States has three immediate objectives in trade policy today.

First, we want to increase American exports more than American imports. Despite some opinion to the contrary, it is not always true that a country gains by increasing its exports more than its imports. But it is true of the United States today. The United States has been running a balance-of-payments deficit for several years. This must be brought under control, and this will require, as one important step, an increase of our exports relative to our imports. In addition, the United States can adjust more easily to an increase of exports than to an increase of imports. We have slack in our economy, so that resources displaced by imports may not be quickly absorbed, whereas the expansion of exports is unlikely to encounter bottlenecks.

Second, we want a faster increase of exports than of imports in the near future. An increase of exports relative to imports that occurs in the near future is more valuable to us than a similar increase that occurs in the more distant future. This is because the deficit in our balance of payments and the slack in our economy exist now. We need in any case to take measures to correct them. An increase in our export surplus would be most useful during the interim before these measures are effective.

Third, we want to increase both our imports and our exports. An increase of both imports and exports, brought about by a reduction of trade barriers will increase the efficiency of the American economy. We gain from the increase of imports by getting things from abroad

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