Fifteen Years of Neglect Have Left the Industry in Crisis - And Thousands of Workers Without Hope

Mellon's behavior in the city of Pittsburgh is part of a much larger trend in the steel industry and the U.S. economy in general. "As a nation, we're disinvesting in steel," one company president said recently-as if to inform the country that the policy is now official.

But disinvestment is only part of the story. In a desperate effort to compete with lower priced imports and diminish the power of the United Steelworkers of America (USWA), the steel industry has launched an unprecedented attack on its work force. Led by U.S. Steel Corporation, the giant companies have reduced wages, forced changes in work rules, and cracked down hard on absenteeism and tardiness. Close to 200 facilities have been closed as inefficient operations have been phased out, their market share left to imports or the low-wage, non-union "mini mills" that now produce 18 percent of American steel, up from three percent in 1960. Imports now take up 22.3 percent of the American market, a seven percent increase from the 1970s, and a huge increase from the 1960s and 1950s, when imports averaged 9.3 percent and 2.3 percent respectively.

U.S. steel companies and their investment partners in the banks blame the industry's problems on wages. They insist that, unless American steelworkers agree to lower their pay and accept changes in work rules and global reorganization plans, the industry will not reinvest in its aging facilities. U.S. Steel Corporation President David Roderick made this clear in a recent interview with Business Week. "The steelworker took too much out of the industry during the 1970s," he said, adding that if wages had not increased to their present levels of $13.40 an hour, $4.90 more than the national average, "this industry would have had all the capital it needed to modernize."

But complaints about "excessive wages" from the man who engineered the $6 billion purchase of Marathon Oil in 1982 do not invoke sympathy from steelworkers, who have watched 199 plants close in the last eight years and consider their higher-than-average wages a just compensation for performing such physically demanding work. And they raise eyebrows of industry analysts, who point out that only two modern steel mills have been built in the U.S. since World War II.

Since the early 1970s, when Japan became the world's leading steel producer, the industry has followed a policy of disinvesting in low-profit operations and diversification into oil and other industries. U.S. Steel has led the way: once the nation's largest industrial corporation, its share of the market has dropped from 75 percent in 1906 to around 20 percent today; and its major mills at Gary, Indiana, and Fairfield, Alabama were constructed at the turn of the century.

Instead of rebuilding, the industry has relied on outdated technology. According to Ira C. Magaziner and Robert B. Reich in their recent book Minding America's Business, the industry "made small, incremental investments to obtain `cheap' capacity rather than make the larger, more aggressive, and riskier investments that could have led to superior productivity.

"Overall," they conclude, "U.S. steel companies have sought to keep the return on investment-ROl-up by keeping the `I' low, but this strategy has left whole plants uncompetitive."

By not making the necessary investments, the industry has conceded about 15 percent of the market to imports. The U.S., note many analysts, is now the only major industrial country with a steel industry without the capacity to meet its own domestic needs.

U.S. Steel now makes only 11 percent of its operating income from steel. Besides its $6 billion purchase of Marathon Oil, the company has moved into raw material supply, chemicals, and real estate. In one month of 1977, it closed 15 plants, eliminating 12,500 jobs. Bethelehem has closed much of its structural fabrication plants and eliminated 20 percent of its steel making capacity. Some 7,300 employees were laid off last December when Bethlehem closed a mill in Lackawanna, New York.

Armco - which dropped the word "steel" from its corporate name in 1978 - has invested heavily in oilfield equipment, while National Steel, which has some of the most modern equipment in the industry, has moved into raw material acquisition, construction, and banking. Recently National concluded a deal to sell its Weirton, West Virginia plant to its employees, a move that will cut its steel capacity 35 percent. The other major producers (Republic Steel Corporation, Inland Steel, and Jones and Laughlin, owned by the conglomerate LTV) are also closing mills and investing in non-steel industries.

Total debt for the industry now stands at $13.9 billion, slightly less than the national debt of Chile, equal to the debts of either Nigeria or Yugoslavia, and more than Peru - all countries considered financial risks by the banks. But as imports from Japan, Europe, and the Third World have increased, the companies have tried to hide their mistakes behind a strong protectionist campaign. Over the years, the industry has filed countless charges against Europe and Japan for selling subsidized steel in U.S. markets. While some of these charges have been accurate, they have obscured the real cause of the problem: the refusal of the steel companies to invest in new technology.

As its position in the U.S. market deteriorates, the industry is now calling for even more government help. A white paper presented to the Reagan Administration last year by the industry called for looser anti-trust laws to allow mergers, joint projects on research and development, and joint ventures to reduce the costs of modernization. The industry also wants delays in environmental standards.

U.S. Steel's proposed deal at its Fairless, Pennsylvania plant - in which slabs of unfinished steel from British Steel Corporation's mill in Scotland will be imported for use at the Pennsylvania plant - is an integral part of the restructuring plan. "Many steelmakers are trying to relocate their inefficient works while keeping efficient units working," reports Business Week. "U.S. Steel's effort to strike a deal with British Steel Corporation is a dramatic example of this on an international scale."

Under the plan, U.S. Steel will close the slab division at its Fairless plant, but modernize the finishing end; the British plant's finishing end will be closed, while its slab division will produce for Fairless. The proposal is defended by the company as the only way to save the plant from closing altogether. The $1.9 billion needed to modernize the slab division at Fairless is impossible, the company says, because the plant is "not financially viable." (However, the union points out that it is the company's most modern plant and is operating at 75 percent capacity, far above the industry average of 50 percent.)

If the deal falls through - it has met strong resistance from U.S. and British trade unionists and some skepticism within the British government - there are many other countries waiting in the wings to sell to the U.S. To put pressure on both the union and the British government, the company announced that it had been "swamped with proposals" from foreign steelmakers. Reportedly these included Canada, Europe, Brazil, and South Korea.

But the Fairless plan is not the only instance of U.S. steel importing foreign products. In a less publicized case in Seattle, Samsung Company, one of the largest Korean conglomerates, has won a contract to sell 15,000 tons of steel structures for use in the construction of a 70-story office building. The contractor, Howard S. Wright Company, is a subsidiary of U.S. Steel. Upon completion of the deal, Samsung president Kyong Joo-Hyon said that "cooperation from U.S. Steel Corporation" was a major factor in the company's success in securing the contract.

The USWA leadership has mounted a strong attack on the companies' plans to import more steel, and is demanding investment in domestic plants. But, for the banks that lend money to the companies, more investment is out of the question. "Even if [U.S. Steel] had the money, there wouldn't be sufficient return to justify investing in [Fairless]," Charles Bradford of the stock brokerage house Merrill Lynch told the Journal of Commerce recently.

Indeed, the Fairless case and the case against Mellon Bank in Pittsburgh illustrate the sad fact that the decisions about the industry have been made long ago, and that imports - partly financed by American banks - will continue to flow into the U.S. market. Business Week estimates that, by the year 2000, steel employment will have dropped 53 percent to 185,000, and that imports will take up close to 35 percent of the U.S. market. The major companies will survive by merging and retaining only the most modern and profitable existing plants.

With President Reagan and his corporate-dominated cabinet in office, there seems to be little hope for the hundreds of thousands of unemployed steelworkers. But there are other alternatives for the industry that are likely to be considered if the present course of economic decline continues.

One proposal, drawn up by New York investment banker, Felix G. Rohatyn, might be adopted if a Democrat takes over the White House in 1984. Rohatyn, who engineered the 1975 bank bailout of New York City, has proposed that the U.S. government create a Reconstruction Finance Corporation (RFC) to pump needed investment capital into steel and other basic industries. This strategy of "turning losers into winners" through federal ownership and subsidies has been endorsed by USWA president Lloyd McBride and some members of the AFL-CIO. Such a plan, says McBride, could "generate and target the capital needed to modernize and stabilize the American steel industry."

But critics of the Rohatyn plan like Barry Bluestone and Bennett Harrison, authors of The Deindustrialization of America, argue that a federal bailout of industries would benefit only the largest corporations and banks, and would entail austerity measures such as wage cuts and changes in work rules to boost productivity. Rather than let profit dictate where capital flows, they argue, American workers would benefit by a major state and federal commitment towards jobs and community development. These activists from the academic, labor, and religious community urge redirecting the billions of dollars in military spending towards an economic program based loosely on the depression-era "New Deal."

Such a program would entail a major political shift for the country. But the public support in Pittsburgh for the Mellon Bank boycott, and the recent acquisition of a National Steel Corporation mill by the town of Weirton, West Virginia, are signs that public ownership and control could become politically acceptable if the devastation of the economic heartland continues for much longer.