– K.C. Adams –
Ruling oligarchy blocks resolution of economic problems and
continues on failed path
U.S. Steel considers the amount it does not spend on renewing its productive force as savings. The quantified savings year upon year since 2014 is $2.5 billion. It reports that the company “has realized from CEO Mario Longhi’s Carnegie Way efficiency and cost-cutting initiative $575 million in 2014; $815 million in 2015; $745 million in 2016; and $310 million so far this year.”
The result, in the words of USS, is “enormously more efficient operations.” This factor coupled with rising steel market prices should result in “enormously” improved financial results. Why then, did U.S. Steel report a $180 million first-quarter loss and slash its 2017 profit outlook in half? Simply put, the Carnegie Way and other forms of refusal to renew productive capacity such as closing perfectly good mills are examples of the ruling oligarchy’s unwillingness to face the historic necessity for a new direction in the economy.
The present relations of production whereby the actual producers are not in control of the socialized forces of production doom the economy to failure. Private control of socialized production cannot take advantage of or control the production and distribution of the enormous social product. The aim of private ownership to compete globally for profit and empire-building with other privately owned parts of the economy is in contradiction with the objective conditions of modern socialized production.
Socialized production demands broad cooperation of all parts and sectors of the economy in a nation-building project to guarantee the well-being of the people and general interests of society that opens a path towards the emancipation of the working class. The modern working class is the only social force with the aim and outlook to manage the socialized means of industrial mass production for the benefit of all, in harmony with all its interrelated parts without crises. The working class as the actual producers has the aim and duty to distribute the social product within a nation-building project that guarantees extended reproduction of the economy and the well-being, security and rights of all.
U.S. Steel and Its Years of Failure
U.S. Steel executives and private institutional ownership of its stock equity and debt refuse to recognize and accept the law of a falling rate of profit in industrial mass production caused by the ever-increasing amount of social wealth required in modern productive forces. To counter the law, the ruling financial oligarchy engages in reckless parasitic adventures including predatory and inter-imperialist wars with competitors and lashes out at the working class and productive forces in destructive anger.
USS has made equity profit in only one year — $102 million in 2014 — since 2008. Why then have all the “cost savings” from closing and abandoning facilities in Canada and elsewhere, refusing to invest in renewing production, and forcing concessions from steelworkers and salaried employees not resulted in profits? Where is the much-ballyhooed $2.5 billion in cost savings from the Carnegie Way? This puzzle confounds financial analysts and representatives of the institutional owners of the company’s stock equity and debt who are impatient for positive answers and results and do not appreciate continuing losses. The experts, journalists and university pundits are all schooled in seeing only what the ruling imperialist class wants them to see. They are not good at engaging in acts of finding out what the root problems really are in the socialized economy.
Len Boselovic of the Pittsburgh Post-Gazette writes,
“The miserable performance makes U.S. Steel’s constant contention that the company can compete with anybody if only Washington would crack down on predatory, subsidized imports look pretty ridiculous.” He quotes Axiom Capital analyst Gordon Johnson saying, “They (USS) can’t compete with anybody on a level playing field. They have the highest costs in the industry.”
Boselovic writes, “In announcing the company’s $440 million loss last year, Mr. Longhi emphasized that ‘Carnegie Way transformation efforts’ have improved the company’s cost structure. ‘These substantive changes and improvements have increased our earnings power’.”
Really, Mr. Longhi, why then is USS facing another huge quarterly loss and projected losses for years to come?
New York economic analyst Charles Bradford was not convinced and looking for the promised improved earnings in U.S. Steel’s first-quarter numbers asked rhetorically during the company’s quarterly conference call, “Where is it?”
“Oh, it’s there,” replied a U.S. Steel spokesperson. “The company completed nearly 450 Carnegie Way projects in the first quarter and has over 3,500 more in the pipeline.”
Boselovic writes, “Such pronouncements make skeptics think the critical elements of the Carnegie Way are smoke and mirrors…. [Axiom Capital analyst Johnson] believes the problem is that for years, U.S. Steel has spent less on capital expenditures to modernize its mills than it has reported in depreciation and amortization expenses — an accounting measure that expenses the cost of the company’s steelmaking equipment over its useful life and measures how much book value the equipment loses each year.
“When depreciation and amortization exceed capital expenditures, it is a strong indication that a company is not investing enough to keep its plant and equipment up to date. ‘This is a company that has under maintained its facilities for 80 years,’ Mr. Bradford said.”
Mr. Bradford could investigate who has claimed the added-value steelworkers have produced over the years. Added-value has been available for reinvestment in the productive forces if the owners of debt and others would reduce their claims and graciously accept a fall in the rate of profit. But that is not in their class nature.
Owners of stock equity have routinely claimed twenty cents per share annually for years, around $34.8 million, on greatly fluctuating stock ownership equity of $3.5 billion. Executives have doled out this amount even while announcing continuous quarterly losses per share.
The lion’s share of the annual claim on added-value goes to owners of debt, which amounts to about $230 million on $3.4 billion of debt ownership. Other claimants on added-value include executive managers and governments.
The totality and pressure for claims on added-value go beyond what is available and often dips into transferred-value that should be used to replace depreciated machinery or pay for material inputs. Ironically, the subjective feature of the imperialist controlled economy with private ownership’s insistence on an ever-greater return on its investment of social wealth despite the objective law of a falling rate of profit puts pressure on executive managers not to reinvest in production from added-value but instead use additional borrowing, which exacerbates the problem and leads to greater crises.
In large industrial companies requiring huge investments of social wealth in the means of production, the oligarchs prefer debt ownership for its regular claims, and stock equity ownership for a chance to manipulate the fluctuating stock price to their advantage and fleece other buyers of stock. Many industrial companies pay no stock dividend at all but must service the debt ownership with interest profit or go into bankruptcy protection.
Len Boselovic continues, “[Johnson] has been listening to the company’s pronouncement about being able to compete on a level playing field for decades and isn’t buying it. ‘This is the same garbage story we heard in the ’70s when [former chair of USS] David Roderick claimed they could compete with anybody,’ he said…. If Mr. Longhi had paid more attention to his mills instead of government handouts, ‘Maybe things would have been a little different,’ Mr. Johnson said.”
Forbes, a major news agency of the financial oligarchy, tried to explain the situation in an item entitled, “Underperforming Amid Favorable Business Conditions: The Curious Case Of U.S. Steel.” The explanation looks only at the obvious surface features and fails to probe deeply into why such problems continually plague not only particular companies but entire sectors and the socialized economy captured within the private control of the oligarchs.
The Forbes article states, “U.S. Steel dismayed investors with an underwhelming Q1 earnings release last week. The company reported an unexpectedly steep decline in shipments for its U.S. Flat-Rolled steelmaking operations, which account for around 70 per cent of the company’s revenue, translating into a significant decline in EPS (Earnings Per Share). The poor Q1 2017 earnings resulted in a sharp decline in the company’s stock price over the course of the past week…. The company attributed the decline in shipments for the Flat-Rolled division to planned production outages as it embarks upon its asset revitalization program, which is aimed at improving the efficiency, reliability, and product quality in addition to lowering production costs. However, in doing so, the company is foregoing higher production levels during a favorable time period characterized by rising steel prices and demand for the commodity in key markets.
“The improved business conditions are reflected in the recent recovery in steel prices, with U.S. Steel reporting an 18 per cent year-over-year increase in realized prices for the Flat-Rolled division in Q1…. In Q3 2016, the division’s shipments were negatively impacted to the tune of 125,000 tons, or around 5 per cent of the company’s Q3 shipments, as a result of unplanned production outages. The division’s shipments fell further 6 per cent sequentially in Q4, as a result of planned production outages. The company lowered production levels in Q4 as it undertook its asset revitalization process, partly aimed at addressing operational problems leading to unplanned production outages. However, problems for the company’s Flat-Rolled steelmaking operations continued into 2017, with the accidental release of waste water from the company’s Midwest plant in Portage, Indiana, which temporarily halted operations at the plant. Moreover, the company reported a 4 per cent year-over-year decline in shipments for its Flat-Rolled division in Q1 2017, with the decline in shipments attributed to planned production outages under the asset revitalization program.
“The recent disruptions at the Flat-Rolled steel division’s facilities have raised concerns over U.S. Steel’s ability to increase production levels to profit from the improved business conditions for steel in the U.S. The asset revitalization program will lower the Flat-Rolled division’s shipments by around 1 million tons in 2017.”
The Forbes article fails to mention the demands for concessions from workers, the numerous recent shutdowns, closures and sale of USS productive facilities including Stelco in Canada, a mill in Serbia, facilities in Gary, Indiana; Fairfield, Alabama; Lorain, Ohio; Lone Star, Texas; Granite City, Illinois; and a rumoured sale of its mill in Slovakia. All these anti-social attacks and refusal to deal with the root problems in the economy have resulted in a tremendous toll on active and retired workers and their communities that depend on the value workers reproduce at those facilities. The failure to act to resolve the problems and contradictions in the economy exposes the oligarchs as unfit to rule. The working class must organize to deprive the ruling imperialist elite of their power to block the opening of a new direction with socialized relations of production in conformity with the objective conditions replete with a new aim. The ruling financial oligarchy puts its narrow private interests ahead of the broad interests of the working people and general interests of society. The social responsibility falls on the shoulders of the working class to build the new.