Retrospective

Can Steel Be Saved?

By Ann Markusen

The old–line manufacturing industries will be the last to feel economic recovery. Blue collar unemployment remains high, and Reagan’s economic policies are proving unequal to the task of shoring up basic industry. In this context, demands for an industrial policy—some kind of long–term economic planning—are gaining support from many political directions.

One question that any industrial policy would have to answer is: what is to be done with “declining industries”? Should the government preserve and help them, or should the country’s economic resources be allowed to shift to more rapidly growing industries?

In the following article, Ann Markusen uses the case of steel, one of the hardest–hit industries, to argue for a policy that would save basic industry.

The steel industry in this country has suffered through massive plant closings, widespread and prolonged layoffs, and extraordinary community disruption. In 1965, there were 583,900 production workers making steel; by this past year, the number had declined to 234,000.

Between 1977 and 1985 alone, 20% or 30 million tons of U.S. integrated steelmakers’ capacity will disappear. (“Integrated” refers to mills that start with raw ore and end with finished products. Smaller, so–called mini–mills carry out only one or a few steps in the process.) These adversities have visited all steelmaking centers, although the older areas around Pittsburgh and Youngstown, Birmingham, and the West Coast have been harder hit than some of the more youthful mills in the Chicago area. Yet the total demand for steel in the U.S. is expected to continue growing, albeit at a very modest pace. We still need steel—for housing, factories, transportation equipment, food processing, energy hardware, etc. The industry’s long–term problems have not been caused by falling demand, but by major problems on the production side. Chief among these are the oligopolistic and conglomerate practices of the major steel corporations. Foreign competition has compounded the situation, particularly from plants in countries like Korea, where governments and international agencies underwrite the exploitation of third–world workers.

This is not a temporary phenomenon. The future of domestic steel production, under its present ownership, is grim. For example, without worker and/or government intervention, all basic steelmaking west of the Rockies will almost surely be closed down by 1990. Imports of steel into the western U.S. may rise from current levels of 40% to as high as 80%. What steelmaking is left out West will be concentrated in smaller, non–unionized and highly competitive mini–mills which will be increasingly dependent on the scrap market and imports of raw steel.

Not an Acceptable Future

There are several compelling reasons for rejecting this path. First, the associated job loss and community disruption are unconscionable. In California, for example, before the recession in 1979, there were approximately 20,000 steelworkers. At present, their numbers are down to 12,000, and by the end of the decade, they could drop to 4,000. In the short span of ten years, three out of every four California steelworkers would be out of work. If we include laid–off California iron miners and workers in linked industries, plus those whose livelihoods are affected by the loss of steelworkers’ spending, the total job loss could escalate to 50,000 workers in California alone.

Second, the jobs being lost are some of the best blue–collar jobs around. While steel jobs are physically taxing, there are also relatively highly skilled; thanks to their unions, steelworkers have been well–paid and allowed a comfortable, secure life. In addition, their incomes have helped support stable, diversified local economies.

Third, there is nothing inevitable about “dying” steel. The steel industry in the United States has long been dominated by an oligopoly, which has distorted the industry’s performance in pricing, quality, innovation, and the location of new plants. Increasingly, its steel companies’ conglomerate ambitions are threatening to seal the fate of steelmaking itself. While steel profits are lower than profits in many other industries, it is important to stress that the U.S. steel industry remains more profitable than any other national steel industry, European, Japanese or, Third World. It is also the most productive, with the recent exception of Japan. Yet the major steel companies persist in using their profits to buy out other, often unproductive assets rather than reinvesting in modernizing steel.

The “death” of the steel industry has been prematurely announced. The state of the industry today is not the result of some neutral free–market process; it has been deformed by deliberate corporate decisions, some of which are reversible.

U.S. plants are relatively mature compared to other steel mills in the world, largely because of the destruction and subsequent reconstruction of European and Japanese capacity during and after World War II. Lack of modernization in the U.S., though partly due to corporate conservatism, inertia, and diversification, is also a relatively normal feature of the aging process. This is much like a family’s decision whether to buy a new car; even though there is a newer model every year, it does not make financial sense to replace cars annually. Unfortunately, the reinvestment in modernization which might now be taking place has been further postponed by a recession of major proportions and the growing conglomerate shape of steel ownership.

In steel, “modernization” is no abstract idea. Since the fifties, there have been two major technological innovations in steelmaking, the basic oxygen furnace and continuous casting. Both increase output incredibly, and cut down on labor time, energy use, and steel wasted. Both were adopted much more quickly in Europe and Japan than in the U.S. Today, which all European steel is made in oxygen furnaces, about 9% of U.S. steel is still fired in old open hearth furnaces. Only 26% of U.S. steel is continuously cast, compared to 61% in Europe and 86% in Japan.

Steelworkers and their communities are also suffering the long–term legacy of steel monopolization in the U.S. and the military–oriented nature of government decision. Steel has been extraordinarily unevenly developed regionally, to the detriment of both steel–rich and steel–poor areas. The Southern and Western regions were underdeveloped in steelmaking, as U.S. Steel and Bethlehem brought up and retarded independent local mills. In the older centers, the dominance of Big Steel in local labor, land markets, and politics discouraged industrial diversification and led to one–company towns.

When the government decided to build new western steel mills during World War II (later sold to private companies at very low prices) these were placed in landlocked positions for strategic reasons and designed to produce mainly plate for shipbuilding. As a result, these mills have not been competitive in either transportation access or product lines for most of the postwar period.

The current ill health of the industry, then, is due to unique historical circumstances, rather than inadequacies in domestic labor, raw materials, transportation costs, or productivity. An irreversible decision to close large portions of domestic steelmaking capacity should not be made on the basis of short–term lack of competitiveness; which can be attributed to recession, the relative age of American plants, and corporate behavior, rather than any real disadvantages or lack of demand in the long run.

A progressive Industrial Policy

The Carter Administration had a steel policy which consisted of $600 million in loan guarantee giveaways to private steel corporations, a “trigger” price mechanism that functioned as a tariff on imported steel, and relief from environmental compliance. None of these elements has made any clear contribution to stemming the loss of any steel jobs and plants, although they may have contributed to the profits which enabled U.S. Steel to buy Marathon Oil and helped other corporations to hasten their exit from steel.

A progressive industrial policy should on several fronts. First, it should aim at the heart of the displacement process by explicitly discouraging and penalizing disinvestment. This would include the elimination of ample tax subsidies, free infrastructure, and technical assistance the government now gives to new so–called greenfield plants. In a related manner, it should provide immediate relief to workers and communities that are hard hit by disinvestment. Third, it should target troubled industries like steel, whose long–term future is potentially sound and whose role in our economy is central to the provision of basic needs. This last is the most difficult, yet in many ways the most important ingredient.

In steel, for instance, a number of specially tailored policies could be advocated for the immediate relief and restructuring of the industry. Steel plant closings could be stopped and modernization embarked upon. Any upgrading of steel capacity should take place at existing brownfield locations (old plants), in order to preserve communities, employ existing pools of labor, and avoid the costs of entirely new infrastructure.

Since the large steel corporations have demonstrated their lack of commitment to steelmaking, they should not be permitted to benefit from this revitalization. Rather it should be public, worker and community groups that own and operate the upgraded steel plants. Corporations trying to close down existing works should be forced through eminent domain to sell them to any group willing to operate the works for the purpose of making steel.

In the late 1970s, a Youngstown coalition of union locals and church groups developed a very sophisticated program for revitalizing specific steel mills under community/worker ownership and governance. They lost their bid for federal aid, in part because the Carter Administration preferred not to underwrite the threat they posed to big private steel companies, and in part because their effort was an individual one, not backed up by the strength that a national industrial policy could give.

Since public money could have to be involved in a basic industry revitalization program, the way in which the program is structured would be as important as the dollar commitment. Much suspicion of government intervention is legitimately prompted by the dismal record of public subsidies for private profit. A National Steel Board could be set up with representation of workers, communities, environmentalists, women and minorities, perhaps as a member of an umbrella National Industry Board. Any public subsidy given to a plant should be accompanied by performance criteria and agreements which could be verified and enforced. These could relate to productivity, the right to organize, affirmative action, and environmental preservation, for example.

Protecting Wages

Worker or community owned plants would still have to grapple with international competition and the issue of protectionism. A progressive trade policy should protect all workers, everywhere, from exploitative working conditions, rather than focus on the protection of “American steel.” At present, the major tools of protection—tariffs and quotas—bolster steel corporation profits without guaranteeing jobs or wage levels of either U.S. for foreign workers. But neither does the capitalist alternative—free trade—do anything for either group.

A politically progressive trade policy could impose a “wage tax” on imports of foreign products which are made under superexploitative conditions. South Korean steelworkers, for example, earn less than three dollars an hour. The tax could equal the differential between the highest unionized workers’ wages and those of workers in other plants, regardless of the nationality of the corporation or the workers. The proceeds of the tax could go to workers in non–unionized plants and Third World countries, as either wages or funds for organizing.

Many of these ideas require a lot more political clout than the left currently has. And the process of gaining power would no doubt generate new ideas. Yet industrial policy is fast becoming a large item in the national economic debate. Unfortunately, the initiative in this area has been taken by corporatists like Felix Rohatyn, who advocate a top–down, business–dominated approach that may accelerate rationalization and displacement rather than countervail it.

There would be great advantages to an articulate progressive position emerging to oppose this. At the local level, an industrial revitalization plan helps workers and communities to investigate their plants and employers with an eye toward running things differently. Nationally, a progressive industrial policy could be one part of a coherent radical economic program. By constructing and sharing a detailed vision of a new economic future, people here and elsewhere might be more able to bring it about.

Ann Markusen teaches in the Institute of Urban and Regional Development, University of California at Berkeley.

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