FDR's secretary of labor, social reformer Frances Perkins, argued that the steel industry's low wages and ban against unions were undemocratic and threatened the nation's stability. All of the major steel companies had company unions, such as Bethlehem's Employee Representation Plan, whose representatives could not negotiate on wages or strike. There had to be a balance of power between employers and workers, she said, and to reach it, workers must have the right to organize their own unions and bargain collectively with management.
Roosevelt granted that right under his National Recovery Administration, which allowed industries to write their own codes for compliance. Grace and other steel executives appeared to agree with the labor provision. But in Washington on Aug. 15, 1933, during what was supposed to be a routine meeting on the steel code, Grace and five other steel leaders walked out as Perkins started talking. They had spotted William Green, president of the American Federation of Labor, who was a National Recovery Administration adviser.
''If we sit down with Mr. Green,'' Grace told Perkins on the way out, ''and if we sign a code that he signs, it will be assumed that we are dealing with organized labor. As you know, we have an almost sacred policy that we will never recognize or deal with organized labor.''
Perkins was flabbergasted and felt ''as though I had entertained 11-year-old boys at their first party rather than men to whom the most important industry in the U.S. had been committed.''
When Roosevelt heard about the episode, he was furious over the disrespect shown to one of his Cabinet members and the delay in preparing the code. Schwab and U.S. Steel Chairman Myron Taylor were summoned to the White House. ''I scared them the way they never have been frightened before,'' the president told a visitor later, ''and I told Schwab he better not pay any more million-dollar bonuses.''
Three days later the industry's leaders signed the steel code, which included a basic eight-hour day and 40-hour week and affirmed a 15 percent pay hike that Bethlehem and most other steelmakers granted in July. A 10 percent raise in March 1934 returned hourly rates to 1929 levels. But Grace sidestepped the code's intent of giving workers freedom to form their own union. He said he interpreted the code to mean that Bethlehem's Employee Representation Plan was the only legitimate way for the company and its employees to bargain.
Perkins thought Grace's argument was ridiculous and that the company unions mocked the code's labor provision. But with legal objections, both Bethlehem Steel and U.S. Steel fended off the administration's attempts to unionize the industry.
In May 1935, the U.S. Supreme Court struck down the National Recovery Administration as an illegal delegation of legislative power to the executive branch and private groups. But the following month, Congress passed a replacement the National Labor Relations Act, or Wagner Act, which set up a labor board with powers to guarantee workers the right to organize themselves.
Convinced that Roosevelt was on their side, workers started organizing in the steel, auto, textile, rubber and electrical industries, on loading docks, in packing houses and at telephone companies.
United Mine Workers President John L. Lewis formed what would become the Congress of Industrial Organizations and established the Steel Workers' Organizing Committee to campaign at the mills. The effort got under way in July 1936 and met with mixed results.
But SWOC won a surprise victory in 1937 when U.S. Steel, the world's largest corporation, signed a contract. The pact met a union demand for 621/2 cents an hour, or $5 a day, and a 40-hour work week with time-and-a-half for overtime. Bethlehem balked at following suit and formed a bloc called ''Little Steel'' with four other holdouts Republic, National, Youngstown Sheet & Tube, and Inland Steel.
To keep his own workers at bay, Grace granted them the same deal for $5 a day, 40 hours a week, but refused to recognize SWOC. Instead, he armed Bethlehem Steel to keep the union out by force. The company supplied its policemen with tear gas, pistols, revolvers, rifles, shotguns, machine guns and submachine guns, and hired undercover agents to spy on union organizers.
It wasn't the first time Grace had turned vicious in his drive to repulse unions. In 1918, while Schwab was running the government's World War I shipbuilding program, the National War Labor Board condemned Bethlehem's labor practices and cited Grace and his colleagues for anti-union tactics. These included raids on suspected union members by Bethlehem city police. The police chief admitted he ordered officers to enter shops and threaten men or arrest them on misdemeanor charges.
Grace's arms buildup in 1937 belied his public stance that all was rosy. He trumpeted the company union in the March issue of the Bethlehem Review, the employee bulletin: ''The Employee Representation Plans which were established in our plants nearly 20 years ago continue to operate with ever-increasing effectiveness. In our company, there is a happy relationship between employees and management which has existed over these many years.''
On May 26, 1937, the Steel Workers' Organizing Committee called a strike against Republic, Inland Steel and Youngstown Sheet & Tube. Four days later in Chicago, in what became known as the ''Little Steel Massacre,'' police killed 10 demonstrators and shot or beat 75 others as they tried to march toward the Republic mill. On June 9, police broke up a union picket line in Youngstown. On June 11, the strike spread to Johnstown, where 8,000 Bethlehem Steel workers walked out, partially closing the plant.
Johnstown's mayor, convicted bootlegger Daniel J. Shields, declared the city under siege and warned that he would ''crush the lawless, the communist, the anarchist.'' His anti-union rhetoric earned him a $10,000 cash gift from Bethlehem Steel the next day. Pleasantly surprised, he asked for more. He continued his torrent of invective and ended up getting a total of $36,450 in bribes from the company.
Attempts at mediation failed. Grace hung tough and broke the Johnstown strike.
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