Business: Competition Goes Global

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But whatever they thought of his economics, virtually all U.S. businessmen were outraged by the tactics Kennedy used against Blough; the Administration's threats to deny U.S. Steel defense contracts and to harass the company with trustbusters and internal revenue agents raised business hackles as they had not been raised since the days of F.D.R. A number of grown-up businessmen sported "S.O.B. Club'' pins. Behind the anger was the fear that the Government would meddie in every labor settlement, clamp down on every price rise, and thus discourage all businessmen from undertaking any expansion or modernization. Said Chase Manhattan Bank President David Rockefeller: "The steel episode demonstrated the tremendous economic power that the executive branch of Government now wields, and that it is prepared to wield it hard and fast. It seemed to imply that the price structure was going to be shaped not by the laws of supply and demand, but by the Government's feelings.'' (Asked last week on his hour-long television interview whether he had perhaps acted too vigorously in the steel dispute, President Kennedy replied: "There is no sense in raising hell, and then not being successful.")

Loaded for Bear. Business anger was expectable. What came as a surprise was the impact the steel crisis had on the public. Throughout the palmy postwar era, continuous inflation had boosted U.S. corporate profits and inspired millions of Americans to invest in stocks as a hedge against rising prices and a bet on future boom. The angry debate over steel brought home to the public the fact that inflation had been all but stopped for two years. When this realization sunk in. what had begun as an orderly decline in an overpriced stock market abruptly turned into a rout.

In scenes of pandemonium reminiscent of 1929, the grey, fortresslike New York Stock Exchange shuddered and shook. Glamour stocks such as Brunswick Corp., Fairchild Camera and Xerox, which had been selling on the strength of capital-gains potential rather than current dividends, crashed to half or even a quarter of their 1961 highs. Mighty IBM, which had become more of a cult than a stock, plummeted from 578½ in January to a low of 300 in June. Dropping like a shot goose, the market lost $23 billion in paper values during a single hectic week in late May, and $21 billion more on Blue Monday, May 28. By the time it hit its low for the year on June 26. the Dow-Jones average of 30 leading industrial stocks stood 27% below its record high of De cember 1961. Investors who in bull market days had been discounting future growth now seemed to be discounting the fall of the republic.

Crash Damage. Partly out of fear that the market was in some intuitive way telegraphing a recession, businessmen be gan to act as if a recession had already begun. They put off decisions on building new plants or buying new machines, and chopped away at their payrolls. U.S. Steel cut its work force by 10%, and for the first time since the Depression sliced into its executive ranks to fire 1,000 supervisors. Manufacturers cut their stockpiles to the bone, and inventories were reduced to their lowest level in relation to sales in seven years.